TORONTO — The Toronto stock market sold off across all sectors on Monday in another round of worry about the Eurozone debt crisis spreading to larger economies.
The S&P/TSX composite index plunged 191.95 points or 1.44 per cent to 13,179.75 while the TSX Venture Exchange lost 39.11 points to 1,945.7.
The Canadian dollar slipped against the greenback as traders fled to the safe-haven status of U.S. Treasurys, losing 0.89 of a cent to 103.2 cents US.
Investor sentiment further soured Monday on the possibility that Europe’s debt crisis might be spreading to Italy as the yield on government bonds shot up, in contrast to other big economies.
“Previously we’ve been worried about Greece, Portugal and Ireland which are pretty small and peripheral countries," said Kate Warne, Canadian markets specialist at Edward Jones in St. Louis. Those three countries have all received bailouts from the EU and International Monetary Fund. “Italy is a much greater concern and that weighs."
Worries Italy could be engulfed in the financial crisis pushed the interest rate on a 10-year Italian bond up to 5.64 per cent while the rate on the German equivalent, considered the safest in the eurozone, traded at 2.67 per cent. Italy’s high debt of nearly 120 per cent of GDP and poor growth prospects have made it vulnerable to the eurozone’s debt crisis. Two ratings agencies have warned the country needs to get its public finances in order or risk a downgrade.
At the same time, intense debate over how, and how much, banks and other private investors can contribute to a new rescue package for Greece has unsettled financial markets in the currency union. Rating agencies warn that even a voluntary involvement will likely be seen as a partial default of Greece on its massive debts.
“They’re now beginning to address the fact that as we all know Greece won’t be able to pay back those loans and the question is, what do you do about it?" added Warne.
“While it’s not good news for the markets today, it’s good news we are getting some serious discussions in Europe about how do you tighten things up and what do you do, even though it raises issues that investors have been choosing to ignore up until the last few days."
Sentiment on markets was already downbeat after Washington announced Friday that the American economy created just 18,000 jobs in June, which was a fraction of the figure expected. Prices for oil and metals fell back as the U.S. dollar strengthened. A stronger greenback usually helps depress commodity prices, which are denominated in dollars, as it makes items such as oil and metals more expensive for holders of other currencies.
The TSX energy sector lost 2.6 per cent as the August crude contract on the New York Mercantile Exchange fell $1.05 to US$95.15 a barrel. Suncor Energy was 99 cents lower to C$38.30 while Canadian Natural Resources
also dropped 99 cents to $39.37.
The financial sector fell one per cent with CIBC down 86 cents to $74.74 while Manulife Financial lost 56 cents to $16.31.
