Virus Scare Shakes Canada Market Pillars as Airline, Energy Drop

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© Reuters. Virus Scare Shakes Canada Market Pillars as Airline, Energy Drop

(Bloomberg) — A corner of Canada’s stock market has been hit by the spread of a deadly virus that originated in China.

While the nation hasn’t reported any cases, the coronavirus that’s sickened hundreds of people and prompted travel lockdowns comes at a delicate time for the slowing Canadian economy. Air Canada, the country’s airline giant, is poised for its worst week since January 2016, while two of the nation’s market pillars — energy and mining — took a beating.

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Markets have been jittery all week as health authorities around the world attempt to halt the disease’s spread. The coronavirus has the potential to slow growth, just as the SARS outbreak did 17 years ago, said Frances Donald, Toronto-based global chief economist at Manulife Investment Management. Bank of Canada officials have recently expressed heightened concern about an economic slowdown, and revised near-term growth projections.

Air Canada plunged about 9% on the week. During the outbreak from 2002-2003, travelers avoided Toronto, the airline’s main hub, after the World Health Organization imposed a travel advisory due to an outbreak in the nation’s biggest city.

Oil and gas stocks including Baytex Energy Corp. and Enerplus Corp. tumbled as oil sold off amid fears that the virus will cripple fuel demand from China just as markets struggle with adequate supplies. Lundin Mining Corp., Taseko Mines Ltd. and Teck Resources Ltd. paced losses in industrial metal miners as the price of sinks as concerns that global growth could slow heighten.

Read more: Spread of Chinese Virus Would Test Canada’s Economic Resilience

Should the disease become an epidemic, it could drag down consumer discretionary stocks:

• Canada Goose Holdings Inc. and Gildan Activewear Inc. could see a decline in earnings.
• On the flipside, Maple Leaf Foods Inc. could fetch higher pork prices should the virus hit animal products in China, creating a deficit.
• Imax Corp., a Mississauga, Ontario-based company listed in the U.S., confirmed the temporary closure of about 70,000 theaters in the wake of the coronavirus outbreak. Its stock slumped about 13% this week.

Markets — Just The Numbers

Economy

Bank of Canada Governor Stephen Poloz said the door is open for interest rate cuts if the current economic slowdown persists. While the central bank left the key rate unchanged at 1.75%, Poloz said growing slack in the economy threatens to damp inflation pressures. He added that borrowing costs remain “appropriate” for the time being.

Still, retail sales numbers released Friday helped ease some concerns about recent weakness in household spending. About 0.9% more goods were sold in November, largely offsetting October’s 1.1% decline:

“The beat on expectations looks less impressive in the details: auto sales revived, but most everything else was pretty weak. This print doesn’t change our view that momentum significantly weakened in Q4 and portends rate cuts from the BOC.” — Brett House, deputy chief economist at Bank of Nova Scotia.

Up next, November gross domestic product and December industrial product price data are due on Jan. 31.

Chart of The Week

Politics

Parliament resumes Monday after Christmas break, with ratification of the new Nafta the first order of business. Canadian Deputy Prime Minister Chrystia Freeland said on a Bloomberg Television interview in Davos, Switzerland, the new Nafta is a priority in parliament and the nation can achieve cross-party support for the legislation.

Finance Minister Bill Morneau also said in a Bloomberg interview in Davos that the choice of the next Bank of Canada governor will be made in the “not-too-distant future” and whoever replaces Stephen Poloz will need to continue to invoke confidence in markets.

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A Winnipeg bakery blasted critics after Prime Minister Justin Trudeau stopped by the store to purchase donuts during a government retreat in the province. Twitteratis lambasted Trudeau for paying for pricey donuts when he could have spent less at Tim Hortons.