TORONTO - Falling oil prices and investor fears of a global recession pummelled the Canadian stock market again Monday, dragging its benchmark index to its biggest intraday loss ever and wiping out more than $100 billion of stock value.
The Toronto stock market plunged nearly 1,200 points in early trading before clawing back some of that loss. The S&P/TSX composite was down nine per cent, or 960.04 points, at 9,843.31 at midafternoon.
Before Monday, the index hadn't been below 10,000 points since July 2005.
The panic selling continued a wave of volatile trading that has seen huge swings up and down as investors worry about the global credit crunch and where the Candian and global economies are headed.
Canada's main stock index lost 11 per cent last week, evaporating $150 billion in value, as recession worries spooked traders around the world.
"People are scared and the only thing they're doing is selling," said Ryan Detrick, senior technical strategist at U.S.-based analyst firm Schaeffer's Investment Research.
While the broader economy appears headed into recession - technically two quarters of shrinking output - the jobless rate in Canada is still less than half the unemployment of the early 1980s, at the time the worst recession in the post Second World War era.
However, further cuts in manufacturing, retail, housing and other sectors - because of tight money, the slump in the United States and market turmoil - could push the jobless rate sharply higher over the next several months.
On currency markets Monday, the loonie plunged nearly 1.8 cents to 90.59 cents US, its lowest level in 18 months.
Economists from Canada's Big Five banks expect little or no economic growth in the near future, warning Monday that the domestic gloom will deepen into something worse than a recession.
In their most recent economics forecast, Scotiabank economists predict recessions for both the U.S. and Canada, economic slides that they say will require central bankers in both countries to cut interest rates by at least a full percentage point to rekindle growth.
The word "recession" wouldn't describe the deep structural problems affecting everything from the U.S. housing sector to the Canadian oil industry, said Bank of Nova Scotia chief economist Warren Jestin.
"You have to invent a new word to describe what we're in now," he said. "It's being driven through the financial markets into the real economy."
On Wall Street, the Dow Jones industrials sank more than 700 points, joining a global stocks meltdown triggered by investor fears the financial systems in the United States and other countries need more than government bailouts to fix.
Meanwhile, the credit markets remain stagnant, a sign that banks are too afraid to lend.
Finance Minister Jim Flaherty, who has consistently said Canada's economy and banking system is in better shape that their American counterparts, repeated that again Monday but said even the largest financial institutions could be feeling the squeeze
"Canada's financial system has handled the persistent global market turmoil very well," Flaherty said.
"Nonetheless, Canada's financial system is not immune to the ongoing turmoil in global credit markets. The deterioration of global credit markets is beginning to squeeze the ability of even the strongest of financial institutions to raise longer-term funds, which could limit the provision of longer-term credit in Canada to businesses and households."
Flaherty said he supports the Bank of Canada's decision to inject at least $20 billion of extra funds into the financial system by mid-November and said the government "stands ready to take whatever actions may be necessary to protect the stability of the Canadian financial sector."
Since the beginning of the year, the Toronto market has lost about one-third of its value, more than $600 billion, diminishing the value of stocks held by millions of Canadians either directly or through mutual funds and pension plans.
Marti Messam, a Vancouver-area insurance broker, said Monday's market drop worries her, but she believes it's part of a down cycle that will eventually recover.
"I am concerned, clearly, but probably it will pass," Messam said while walking to her office in Vancouver. "It will be interesting to see how it plays out in the U.S. I think our economy is much stronger than the American economy."
Messam said "the unsteady American economy has put off her decision to buy a home in Palm Springs, Calif.
Vancouver lawyer Ed Mortimer called the stock market plunge and the current economic outlook are "very serious."
"It's the domino effect," said Mortimer, while sipping a coffee and doing a crossword puzzle at a Vancouver cafe Monday. "We are going to be in the same soup as the U.S., although perhaps not as extreme."
Investors were initially cheered by the Bush administration's US$700 billion rescue plan signed into law Friday, but there is growing skepticism that it will work quickly to unfreeze the credit markets.
Global banks, hobbled by wrong-way bets on mortgage securities, still remain starved for cash as credit has dried up and there's little lending to businesses for job creating expansions and to consumers to buy a car or finance other big-ticket purchases.
"These programs are going to be effective, I believe," said Rob Lutts, chief investment officer at Cabot Money Management. "Shorter term, we're in a very challenging environment that's going to take a while."
Fears about a global recession has caused oil to drop below US$90 a barrel; and the benchmark index that gauges fear in the stock market jumped to the highest level in its 18-year history.
The economy has become the key issue on the campaign for the Oct. 14 federal election, with the opposition parties hammering the Conservative government for what they say is a laissez-faire approach to economic management.
Prime Minister Stephen Harper says that while Canada is not immune to the troubles in global financial markets, the Canadian economy is fundamentally sound and has been helped with Tory tax cuts and other policies.
"Let's be clear: the prime minister of Canada isn't going to go around the country predicting a recession when we're not in a recession now," ' Harper said while campaigning in Ottawa.
"I remain fundamentally optimistic about the Canadian economy, but optimistic, as I've said from the beginning, within the framework that we're now living in ... a period of economic uncertainty."
Harper added: "We're in relatively good position compared to some other countries."
At first glance, the Canadian economy appears in much better shape than the recession of the early 1980s - the worst since the Second World War - when the Canadian jobless rate peaked at 13 per cent.
Economists expect 12,500 new jobs were created in September, down slightly from the 15,200 jobs created in August. For the first eight months of the year the Canadian economy has created 87,000 jobs compared with 221,000 in the first eight months of 2007.
Canada's jobless rate, currently stands at 6.1 per cent, close to its lowest level in three decades, though economists expect it to rise to 6.2 per cent for September when the latest jobs report is released Friday.
The big fall in Canadian stocks Monday was linked to fears that a global recession will batter commodities markets for oil, metals, grains and fertilizer, the bread and butter of Canadian stock prices for the last few years.
In energy markets, oil prices broke below a key support level Monday, trading under US$90 a barrel for the first time in eight months on expectations that a widening financial maelstrom will drastically reduce global demand for energy.
Oil is down by about 40 per cent from its July peak, with traders betting on lower demand for energy as economies slip into recession. Oil stocks have driven the TSX and any drop in the price of crude has a depressing effect on the energy sector and the Canadian dollar.
Over the weekend, governments across Europe rushed to prop up shaky banks in a bid to get them lending again. More interest rate cuts could also be on the way, co-ordinated by the world's central banks, including the Bank of Canada.
Harper said the main problem afflicting the world economies is the freezing up of bank credit, which has hurt companies and consumers looking for loans.
"Our main advice is obviously to encourage co-ordinated action, to encourage actions that will stabilize the situation without creating a great deal of moral hazard for taxpayers," the prime minister said.
