Traditional safe-havens including the Japanese yen and U.S. Treasuries were sought out on Tuesday even as there were signs that more economic stimulus was on its way, as traders focused on concerns over a global deceleration.
The prospect of new elections in Italy after the announced resignation of Prime Minister Giuseppe Conte added to global uncertainties, but Italian markets have been jittery over infighting within the coalition and Italian yields fell after the announcement.
The key for markets now is whether pledges for more accommodative policy from Germany to China are enough to assuage concerns about the state of the global economy and end fears of recession.
The immediate focus shifts to the minutes of the U.S. Federal Reserve’s most recent meeting, due on Wednesday. Traders are also awaiting the Fed’s Jackson Hole seminar and a Group of Seven summit this weekend for clues on what additional steps policymakers will take to boost economic growth.
“Market expectations for Jackson Hole and the central banking community in aggregate are extremely dovish,” said Brad Bechtel, managing director at Jefferies in New York. “The U.S. market is pricing a tremendous amount of easing now, along with many other markets around the world. The market is literally trying to force the hand of the central banking community.”
Weighed by the prospect of even lower interest rates, bank shares were among the largest decliners on Wall Street and in Europe.
Canada’s main stock index dropped after two straight sessions of gains on Tuesday, as energy shares mirrored a drop in oil prices on persisting concerns over demand.
The Toronto Stock Exchange’s S&P/TSX Composite index was down 88.85 points, or 0.56 per cent, at 16,213.31.
Eight of the index’s 11 major sectors were lower with a 1.3-per-cent fall in the energy sector leading losses.
Oil prices reversed earlier gains in session to trade lower as worries over demand lingered, however hopes that major economies will take stimulus measures to stave off a potential recession kept a check on losses.
The financials sector slipped 1 per cent and the industrials sector 0.8 per cent.
The materials sector, which includes precious metals, added 1.1 per cent after gold prices rose back above $1,500 an ounce as investors switched focus to the minutes of the U.S. Federal Reserve’s last meeting, which will be closely watched for clues on further interest rate cuts.
Data showed Canadian home prices climbed for a third straight time in July, rising 0.7 per cent from June, but the index was lower than the month’s 21-year average.
The Dow Jones Industrial Average fell 170.09 points, or 0.65 per cent, to 25,965.7, the S&P 500 lost 22.88 points, or 0.78 per cent, to 2,900.77 and the Nasdaq Composite dropped 54.25 points, or 0.68 per cent, to 7,948.56.
The pan-European STOXX 600 index lost 0.68 per cent.
MSCI’s gauge of stocks across the globe shed 0.30 per cent after two sessions of gains over 1 per cent.
Emerging market stocks rose 0.32 per cent boosted by overnight gains in South Korea.
The prospect of more central bank easing drove yields lower, Benchmark U.S. 10-year notes last rose 13/32 in price to yield 1.5555 per cent, from 1.598 per cent late on Monday.
Financial markets went into a tailspin last week after U.S. 2-year yields traded above those of 10-year paper, an inversion that has presaged previous recessions and is widely watched by markets.
The dollar fell against major currencies, in line with the drop in Treasury yields.
The dollar index fell 0.19 per cent, with the euro up 0.23 per cent to $1.1101.
The Japanese yen strengthened 0.34 per cent versus the greenback at 106.29 per dollar, while Sterling was last trading at $1.2169, up 0.36 per cent on the day.
The Turkish lira touched its lowest level in nearly a month and recently fell 1.02 per cent versus the greenback at 5.73 per dollar after the central bank reduced the required reserves ratio for certain lenders in a move seen as encouraging more loans.
Oil prices rose as stimulus hopes offset concerns over future demand and helped reverse early losses.
Spot gold added 0.8 per cent to $1,506.44 an ounce on bets on further rate cuts at the Fed and on growth concerns.
Oil prices steadied on Tuesday on optimism U.S.-China trade tensions will ease and hopes major economies will take stimulus measures to ward off a possible economic slowdown, after falling earlier on concerns over future demand.
Brent crude settled 29 cents, or 0.5 per cent, higher at $60.03 a barrel, while U.S. crude rose 13 cents to $56.34 a barrel. U.S. crude turned lower in post-settlement trade after U.S. President Donald Trump said he was not ready to make a trade deal with China.
The United States said it would extend a reprieve that permits China’s Huawei Technologies to buy components from U.S. companies, signalling a slight softening of the trade conflict between the world’s two largest economies.
“It’s the ebbing and flowing of the U.S.-China trade war and some hope of economic stimulus that’s coming at these markets, including potential fiscal stimulus by the Germans,” said John Kilduff, a partner at Again Capital in New York.
Concerns over the overall level of demand for oil continue to weigh on crude prices. The Organization of the Petroleum Exporting Countries cut its forecast for global oil demand growth in 2019 by 40,000 barrels per day (bpd) to 1.10 million bpd and indicated the market would be in slight surplus in 2020.
Reuters