This week, Canadian and U.S. equities markets experienced a historic plunge. This decrease was due to increasing concerns over the effects of the developing U.S.-Iran conflict, and how it would affect interest rates. That made it hard to escape the pitchforks, and investors took up a risk-off stance overall, resulting in a broad-based sell-off. The April gold contract dropped by US$30.80, closing at US$4,574.90 an ounce, underscoring market turbulence during geopolitical turmoil.
Oil prices too have bounced up and down dramatically. The impact was immediate, with the benchmark Brent crude surging dramatically and climbing from about US$70 per barrel at the start of the conflict up to a peak of US$119.50 earlier this week. Even in the face of such market instability, the May crude oil contract jumped US$2.68. It even climbed to US$98.23 per barrel, fueled by continued worries about supply disruptions and inflationary pressures.
Dustin Reid Vice president and chief strategist, fixed income Mackenzie Investments He noted that markets are reacting very negatively to the prospect of higher energy prices and inflation. You’re seeing…” He continued: “You’re starting to see pricing for central bank hikes forcing more and more in that direction. So it’s wreaking a lot of havoc on all asset classes naturally, and equities are no different.”
Almost all sectors of the Canadian equity market posted negative returns, with basic materials serving as the biggest weight. The loonie made modest gains today. It closed at 72.90 cents US, a slight gain from 72.84 cents US on Tuesday.
Reid emphasized that, considering what’s going on, the loonie has performed exceptionally well. “The Canadian dollar has maybe not surprisingly done OK, better than OK over the last couple of weeks, keeping pace with the U.S. dollar broadly that has seen a pretty significant amount of safe haven flows,” he remarked.
Fingers crossed, just like history shows, stock markets have always returned strongly after wars in the Middle East and elsewhere. This resilience usually survives, provided oil prices don’t remain persistently high for too long. The last one was strongly underscored by Reid. He warned that continued stabilization of Brent crude prices at or above US$120 per barrel might change market perceptions. “I do think that if we are at US$120 a barrel in Brent for a number of weeks or a month plus, then we will probably start to move away from this inflation theme and start to move towards (questions about) what does it mean for global growth, what does it mean for corporate earnings … so it’ll be a different macro trading environment at that point,” he explained.
