Canadian stocks fall most in 2 years, loonie dips on recession fear

© Reuters. The Art Deco facade of the original Toronto Stock Exchange building is seen on Bay Street in Toronto, Ontario, Canada January 23, 2019. REUTERS/Chris Helgren

By Fergal Smith

TORONTO (Reuters) -Canada's main stock index slumped on Thursday to its lowest level in 14 months and its currency weakened as investors grew more worried that aggressive central bank interest rate hikes would trigger a recession, weighing on corporate earnings.

The Toronto Stock Exchange's S&P/TSX composite index ended down 3.1% at 19,004.06, its biggest drop since June 2020 and its lowest level since April 2021.

The Canadian dollar was trading 0.3% lower at 1.2930 to the greenback, or 77.34 U.S. cents, after touching on Wednesday its weakest intraday level in more than one month at 1.2995.

U.S. stock indexes also tumbled on Thursday as the Swiss National Bank and the Bank of England lifted interest rates following the Federal Reserve's 75-basis-point hike on Wednesday, with central banks aiming to slow domestic activity in the face of soaring price pressures.

"It is becoming increasingly necessary to see a decline in growth in order to stave off inflation," said Joseph Abramson, co-chief investment officer at Northland Wealth Management.

"People have been talking about recession but it's not in market expectation yet if you look at the forward earnings growth. So that's the next shoe to drop."

Broadbased declines on the TSX included a decline of 5.3% for the energy sector, extending its recent pullback, even as oil prices rose.

U.S. crude oil futures settled nearly 2% higher at $117.58 a barrel after the United States announced new sanctions on Iran.

Technology, which tends to be particularly sensitive to higher interest rates, fell 3.8% and heavily-weighted financials were 2.9% lower.

One major outlier among individual stocks was LifeWorks Inc. Its shares jumped 66.4% after Canadian wireless carrier Telus (NYSE:TU) Corp agreed to buy the human resources services company in a C$2.9 billion ($2.2 billion) deal.

Domestic data showed that Canada's wholesale trade decreased by 0.5% in April from March, weighed by a drop in fertilizer imports from Russia.

Canadian government bond yields were mixed across the curve. The 10-year touched its highest since May 2010 at 3.664% before pulling back to 3.409%, down 5.1 basis points on the day.