Rising commodity prices blunt TSX losses as Russian forces enter Ukraine regions

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This article was published 21/02/2022 (1038 days ago), so information in it may no longer be current.

TORONTO – Rising commodity prices partially blunted losses on Canada’s main stock index even as two U.S. markets moved into correction territory after sanctions were imposed in response to Russia sending forces into Ukraine.

Crude oil prices moved closer to US$100 per barrel and gold prices climbed in response to mounting geopolitical tensions in eastern Europe even as overall markets fell.

“The story today is basically the uncertainty that the conflict between Russia and Ukraine is bringing to the markets,” said Pierre Cléroux, chief economist for the Business Development Bank of Canada.

The S&P/TSX composite index closed down 100.38 points to 20,907.82 after being closed Monday for Family Day. The Toronto market lost as much as 270.51 points in the early afternoon.

U.S. market losses were even steeper with both the S&P 500 and the Nasdaq composite in correction territory and the Dow Jones industrial average just short of the threshold (a correction is a 10 per cent decline from the most recent high).

The Dow lost 482.57 points at 33,596.61 to be down 9.1 per cent from its high. The S&P 500 was down 44.11 points at 4,304.76 for a 10.7 per cent decrease, while the Nasdaq composite was down 166.55 points at 13,381.52 for a 17.5 per cent decline from its high.

The TSX is just 4.1 per cent below its recent high.

The potential for a full-scale invasion in Ukraine is fuelling commodity prices because Russia is a big producer of oil, natural gas, wheat, nickel, some other commodities, Cléroux said, since any military action could disrupt Russian exports.

That’s positive for the Toronto market because of the TSX is weighted heavily to commodities, while the negative impact of sanctions against Russia will be limited for Canada since exports to Russia represent only about 0.1 per cent of total exports, he said.

And Canadian sanctions don’t carry the same weight as those from the U.S. and Europe.

“We did announce sanctions but the weight of the Canadian economy or Canadian government is not the same, so probably that’s the reason why the reaction is not as much here,” Cléroux added in an interview.

Higher prices could put additional pressure on already elevated inflation and bring more uncertainty to the economy.

However, Cléroux doesn’t believe the conflict will prompt any different action by the Bank of Canada and Federal Reserve, each of which are expected to begin raising interest rates next month.

“We don’t know how long the conflict is going to be, and these pressures will probably be more temporary, so I’m not sure if it’s going to have an impact,” he said, adding that he expects three rates hikes this year in Canada and four by the Federal Reserve.

Cléroux forecasts continued market volatility for the next few weeks until the geopolitical situation evolves and interest rate hikes are announced.

Eight of the 11 major sectors on the TSX were down, led by health care which fell 2.8 per cent as shares of Canopy Growth Corp. dropped 6.7 per cent.

It was followed by industrials, consumer discretionary and materials.

Materials lost nearly one per cent despite higher gold prices with Kinross Gold Corp. decreasing 5.1 per cent.

The April gold contract was up US$7.60 at US$1,907.40 an ounce and the March copper contract was down nearly a penny at US$4.51 a pound.

Technology was pushed lower by a 4.4 per cent decrease for Hut 8 Mining Corp. and 4.3 per cent loss for Shopify Inc.

Energy, financials and real estate increased on the day.

Energy was helped by crude prices climbing as high as US$94.94 per barrel on Tuesday. Shares of Peyto Exploration and Development Corp were up 1.9 per cent while Baytex Energy Corp. was 1.7 per cent higher.

While disrupted energy supplies support higher prices, prolonged uncertainty could slow the world economy and demand for oil, said Cléroux.

The April crude oil contract was up US$1.70 at US$91.91 per barrel and the April natural gas contract was up 8.4 cents at US$4.46 per mmBTU.

The Canadian dollar traded for 78.47 cents US compared with 78.53 cents US on Friday.

This report by The Canadian Press was first published Feb. 22, 2022.

Companies in this story: (TSX:PEY, TSX:BTE, TSX:HUT, TSX:SHOP, TSX:K, TSX:WEED, TSX:GSPTSE, TSX:CADUSD=X)