Virus Dread Roils Canada’s Stocks as Growth Fear Bites

(Bloomberg) -- The virus outbreak that rattled global markets this week shook some of Canada’s stock pillars.

While the nation hasn’t yet reported any coronavirus case, the disease rekindled memories of the severe acute respiratory syndrome, or SARS, that killed almost 800 people about 17 years ago, including 44 in Canada. Back then, travelers avoided Toronto -- which had the most deaths from the illness outside Asia -- spurring quarterly losses for airline behemoth Air Canada.

That explains part of this week’s violent reaction from traders, who sent the stock tumbling the most since December 2018. The other reason is economic. Mounting concerns that the deadly disease could further crimp demand from China -- where the virus originated -- sank commodity prices. As a result, heavy-weight Canadian energy companies posted weekly losses of as much as 15%, joining a plunge in some of the nation’s mining giants.

Get updates on the coronavirus outbreak here

The virus scare almost wiped out weekly gains in Canada’s stock benchmark, adding to concern over a further deterioration of the nation’s fragile economy. Lackluster consumer spending was one of the main reasons the Bank of Canada abruptly changed messaging at an interest-rate decision Wednesday, as officials expressed concern that a sharp economic slowdown in the fourth quarter may persist.

Air Canada plunged about 8% on the week. During the outbreak from 2002-2003, the World Health Organization imposed a travel advisory on Toronto due to an outbreak in the nation’s biggest city.

Baytex Energy Corp. and Enerplus Corp. tumbled as oil sold off. Lundin Mining Corp., Taseko Mines Ltd. and Teck Resources Ltd. paced losses in industrial metal miners as the price of copper sank on concerns that global growth could slow.

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., received about 30% of its 2018 revenue from China. 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.

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. 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 Poloz will need to continue to invoke confidence in markets.

#TrendingInCanada

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.

(Corrects to show that Imax Corp. doesn’t have 70,000 theaters.)

--With assistance from Aoyon Ashraf, Shelly Hagan, Michael Bellusci and Esteban Duarte.

To contact the reporter on this story: Divya Balji in Toronto at dbalji1@bloomberg.net

To contact the editors responsible for this story: Kyung Bok Cho at kcho7@bloomberg.net, ;Jeremy Herron at jherron8@bloomberg.net, Rita Nazareth, David Scanlan

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