Stock markets sell off as inflation worries dominate again

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The Toronto Stock Exchange was hit by a wave of selling on Thursday, as more central banks around the world hiked their interest rates in a sign of just how ominous the spectre of high inflation has gotten.

The benchmark Canadian stock index was down by as much as 600 points or almost three per cent at one point, to dip below 19,000 points for the first time since April 2021.

The TSX has fallen by 13 per cent since April, as more and more data suggests central bank rate hikes have been nowhere near enough to tame the inflation beast, and more aggressive moves are necessary.

The U.S. Federal Reserve raised its trend-setting interest rate by 75 basis points on Wednesday, it’s biggest single move upwards in 26 years.

The Swiss National Bank and the Bank of England followed suit on Thursday, raising their lending rates in an attempt to cool down overheated economies.

“Monetary policymakers are generally catching up to inflation with rate hikes, but the degree to which inflation is more deeply embedded and driven by structural rather than cyclical factors remains in question,” Bloomberg Intelligence analyst Gina Martin Adams said in a note to clients.

Super-sized hike expected in Canada

After hiking three times this year to raise its rate from 0.25 per cent as recently as March to 1.5 per cent now, investors are expecting the Bank of Canada will announce a super-sized rate hike of its own next month, bringing its rate to 2.25 per cent, a level not seen since before the financial crisis in 2009.

Stubborn inflation has sent a chill through stock markets recently as investors realize persistent higher prices will be a drag on profits as consumers are forced to find ways to cut back.

“Traders went from expecting a soft landing to fearing an imminent recession,” analyst Ed Moya with foreign exchange firm Oanda said. “Some consumers are already behaving as if we are already in a recession and that is a troubling sign for many … companies.”

All 11 sub-indexes of the TSX were lower, from energy to banking, and from health care to technology.

Things were even worse on Wall Street, where the Dow Jones Industrial Average lost 700 points or more than three per cent to dip below the 30,000 level for the first time since January of 2021.

The broader S&P 500 and the technology-focused Nasdaq have both officially entered into bear markets, which means they have declined by 20 per cent or more from the peak.



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