Global equity markets declined for a second straight day on Thursday while the dollar and bond yields rose after comments from Federal Reserve Chairman Jerome Powell caused investors to lower expectations for a rate cut by the U.S. central bank this year.
On Wall Street, major indices gave up initial gains and closed in the red, weighed down by a drop of more than 1 per cent in energy shares as oil prices slumped.
As earnings season winds down and with the majority of profit reports in the rear mirror, investor focus will shift back to macro concerns such as economic data and trade issues, including Friday’s U.S. employment report.
Global equities snapped a three-day streak of gains on Wednesday, as Powell’s comments following the Fed’s policy announcement dampened market expectations the Fed would cut rates this year.
The S&P 500 has rallied more than 16 percent this year, but is entering a period of the year traditionally known as being more difficult for equities.
Stocks have “done extremely well, and pockets of the market are overdone,” said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey.
“Usually when the market moves that quickly, a little bit of caution comes in. And you can argue the Fed, based on the press conference comments yesterday, doesn’t seem to be in a rush to cut rates.”
The Dow Jones Industrial Average fell 122.35 points, or 0.46 per cent, to 26,307.79, the S&P 500 lost 6.21 points, or 0.21 per cent, to 2,917.52 and the Nasdaq Composite dropped 12.87 points, or 0.16 per cent, to 8,036.77.
Canada’s main stock index fell on Thursday, as lower crude prices pulled down energy shares, while precious metal miners were hurt by a fall in gold prices.
The Toronto Stock Exchange’s S&P/TSX composite index was down 91.87 points, or 0.56 per cent, at 16,410.88.
Energy stocks dipped 2.6 per cent, while the materials sector lost 1.3 per cent as gold fell to its lowest in a week after the U.S. Federal Open Market Committee (FOMC) doused expectations of a near-term rate cut and on lack of physical demand in Asia.
Health care stocks were down 1.9 per cent as Canntrust Holdings Inc. dropped 12.6 per cent after the company priced its stock offering. Canopy Growth Corp. and Aphria Inc. lost 4.4 per cent and 3.5 per cent, respectively.
Bombardier Inc. fell 5.1 per cent and was among the biggest losers in the main index, after the planemaker shocked workers in Northern Ireland by announcing it would sell its Belfast operation, the largest high-tech manufacturer in the British region, which employs 3,600 people.
Among earnings reports, SNC-Lavalin Group Inc dropped 13.1 per cent after the company reported a 73-per-cent plunge in adjusted quarterly profit and said it would speed up its plans to simplify operational structure to save costs and improve efficiency.
European shares closed lower, suffering their biggest daily percentage drop in about six weeks, as most markets returned from the May Day holiday. Basic resources shares weighed as metals such as copper slumped. In addition, euro zone factory activity data pointed to a third straight month of contraction.
The pan-European STOXX 600 index lost 0.58 per cent and MSCI’s gauge of stocks across the globe shed 0.44 per cent.
Oil prices fell more than 2 per cent as the market grappled with oversupply fears as increased U.S. sanctions on Iran had more incremental impact than expected and U.S. crude oil inventories rose sharply.
U.S. crude fell 3.19 per cent to $61.57 per barrel and Brent was last at $70.47, down 2.37 per cent on the day.
The dollar index strengthened for a second day against a basket of major currencies, going as high as 97.83. The pound slipped after the Bank of England kept rates on hold while lifting its growth forecast but cautioned that Brexit made economic figures harder to interpret.
Bank of England Governor Mark Carney said investors were underestimating how much interest rates could rise, even as the British central bank kept borrowing costs on hold due to the uncertainty about Britain leaving the European Union.
The dollar index rose 0.11 per cent, with the euro down 0.13 per cent to $1.1179. Sterling was last trading at $1.3027, down 0.17 per cent on the day.
U.S. Treasury yields rose as investors continued to digest Powell’s comments. Benchmark 10-year notes last fell 11/32 in price to yield 2.5504 per cent, from 2.511 per cent late on Wednesday.
Reuters