March 13, 2020 / 3:03 PM / 15 days ago

Canada's TSX rallies but set for record weekly decline as recession looms

(Adds details throughout on market activity; updates prices)

* Toronto stock index rallies by nearly 5%

* TSX is on track to fall about 19% for the week

* Canadian dollar gains 0.2% against greenback

* Canada’s 10-year yield rises 11.5 basis points to 0.708%

By Fergal Smith

TORONTO, March 13 (Reuters) - Canada’s main stock market rallied on Friday as hopes rose for stimulus to ease the economic impact of the coronavirus outbreak and a crash in oil prices, but the market was still on track for its worst week on record as economists forecasted a recession.

Hopes of a coordinated stimulus package from world governments boosted stocks globally after several sessions of sustained, heavy losses on expectations of a global slowdown that could be prolonged.

Despite prospects for stimulus, economists see potential for Canada’s economy to slip into recession.

“We’re penciling in two negative quarters in Q2 and Q3 at this point,” said Nathan Janzen, a senior economist at Royal Bank of Canada “Negatives from the virus and the oil price shock are too much to keep growth positive.”

The price of oil, one of Canada’s major exports, was set for its biggest weekly slide since the 2008 financial crisis despite a 4% bounce on Friday, as the coronavirus outbreak threatened demand and crude producers promised more supply.

The Toronto Stock Exchange Composite Index, was up nearly 5% at 13,131.26, recovering some ground after a record decline on Thursday. For the week, the index was on track to fall about 19%, its biggest drop in Refinitiv Eikon data going back to July 1979.

Nine of the TSX’s 10 main groups were higher, led by a 8.5% gain for the heavily-weighted financial services sector, while energy was up 5.5%.

Canadian Prime Minister Justin Trudeau will be in isolation for two weeks after his wife, Sophie, tested positive for the coronavirus.

On Thursday, the Bank of Canada said it would provide billions of dollars of more liquidity to ensure markets continued to operate smoothly amid increasing uncertainty sparked by the virus.

Last week, the central bank cut its benchmark interest rate by 50 basis points to 1.25%, its biggest move in more than a decade. Investors see it as likely the bank will cut the rate by 75 basis points in its next policy announcement on April 15 if not sooner.

The Canadian dollar was trading 0.2% higher at 1.3886 to the greenback, or 72.01 U.S. cents, after hitting a four-year low at 1.3962 on Thursday.

Canadian government bond yields rose across a steeper yield curve, with the 10-year yield up 11.5 basis points at 0.708%. On Monday, the 10-year yield hit a record low at 0.233%. (Reporting by Fergal Smith Editing by Paul Simao)

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