Canada's main stock market in Toronto went lower Monday after a sell-off in Chinese stocks triggered an automatic shutdown of trading for the rest of the first trading day in 2016. The Toronto Stock Exchange's benchmark Standard & Poor's/ TSX Composite Index fell 82.80 points, or 0.64 percent, to 12,927.15 points. Seven of the TSX index's eight main sectors turned negative.
As gold futures picked up, Barrick Gold Corp rose 5.57 percent to 10.81 Canadian dollars a share and Goldcorp advanced 3.44 percent to 16.54 dollars a share. Bombardier fell 0.67 percent to 1.48 Canadian dollars a share. The plane maker said it received a firm order from China Express Airlines for 10 more jetliners. Canadian National Railway fell 1. 14 percent to 76.47 dollars a share.
The heavily-weighted financials and mining sectors were the biggest drag on the market, falling 0.98 percent and 1.5 percent, respectively. Royal Bank of Canada fell 1.5 percent to 73.04 Canadian dollars a share. The bank reported Monday morning that its Canadian Manufacturing Purchasing Managers' Index registered a seasonally-adjusted 47.5 in December, down from 48.6 in November. It is below the 50.0 threshold for the fifth consecutive month, the sharpest deterioration since October 2010.
The Shanghai Composite Index dived 7 percent Monday, triggering the new "circuit breaker" mechanism. The decline is generally being attributed to downbeat market sentiment stemming from weaker-than-expected manufacturing activity in December and a steep fall in the yuan exchange rate on the day. It's known as a "circuit breaker," which is an automatic halt in all trading activity during times of volatility.
The suspension can last anywhere between 15 minutes to more than a day, depending on the severity of the volatility. Most major stock indexes, including the ones in New York and Toronto, have similar circuit breakers. In North America, a sudden stock market decline of 7 percent would trigger a 15-minute market shutdown. A decline of 20 percent would trigger a shutdown for the rest of the day.
Following China's Monday slump, the markets in Asia, Europe and North America all went down sharply. "U.S. markets are paying more attention to what happens in China. Back in 2009, even a significant daily move in China's CSI 300 triggered little, if any, reaction in the S&P 500. Fast forward to 2015, and the correlation is more pronounced," Tom Orlik, Bloomberg chief Asia economist, said in a note sent to Xinhua.
"That makes sense, as China's importance to global GDP and profits for U.S. firms has grown significantly over that period. Looking beyond such a striking drop in the China market might be tough to do. But with the causes of the plummet located more in the peculiarities of China's market than the fundamentals of its growth, the global impact should be small ripples rather than major waves," the note said. The Canadian dollar was traded lower at 0.7173 U.S. dollar, compared to 0.7225 U.S. dollar closing on Dec. 31.
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