The rally in global equities sputtered on Friday as traders grew more skeptical about the efficacy of central bank stimulus amid mixed economic data. Oil tumbled.
Stocks halted a four-day advance as European shares slumped, led by banks. Oil sank after Saudi Arabia was said to dismiss the prospects for an output agreement to stabilize the market in talks in Algiers next week. Longer-dated Treasuries were on course for their biggest weekly gain since July as markets readjusted their view to a slower pace of rate increases from the Federal Reserve. The I.S. dollar climbed against most major currencies, while the pound slid as British foreign secretary Boris Johnson boosted concern that the U.K. is heading for a swift exit from the European Union.
Stocks, bonds and commodities have advanced this week amid signals that major central banks will keep their accommodative policies as they try to spur growth. Still, traders become more hesitant to keep piling into assets amid uncertainties about the global recovery, corporate earnings and the U.S. presidential vote. Eric Rosengren, the president of the Fed Bank of Boston, said the monetary authority's failure to get back to a strategy of gradual rate increases may threaten the economic rebound.
"We had a good week and a consolidation is the right move, given the uncertainties that still linger and the elections coming up," said Christoph Riniker, the Zurich-based head of strategy research at Julius Baer Group Ltd.
With central banks moving off centre stage, investors will turn their attention to the first of three U.S. presidential debates on Monday ahead of the Nov. 8 vote. Republican candidate Donald Trump has been locked in a fierce election battle for months with rival Hillary Clinton. While he has sharply narrowed her lead both nationally and in several battleground states according to recent polls, handicappers still give the Democratic candidate the edge in winning the electoral votes needed to clinch the office.
Canadian stocks halted a four-day rally as energy producers tumbled with crude, while inflation data that boosted the likelihood of added stimulus sent financial shares lower and an unexpected drop in retail sales weighed on consumer shares.
The S&P/TSX Composite Index fell 0.67 per cent, or 99.25 points, to 14,697.93 in Toronto, extending losses as crude slumped below $45 a barrel in New York.
Energy producers sank 1.6 per cent to lead declines. New York crude slumped as much as 4.1 per cent to trade at around $44 a barrel after Saudi Arabia was said to dismiss the prospects for an output agreement in talks in Algiers next week, according to an OPEC delegate familiar with the nation's oil policies. Next week, OPEC members will have difficulty reaching a deal, according to a Bloomberg survey. Canadian Natural Resources Ltd. and Encana Corp. tumbled at least 2.4 per cent.
Financial-service firms also fell 0.6 per cent Friday. Combined the firms make up about one-third of the S&P/TSX. Bank of Nova Scotia fell 0.9 per cent after closing at a record.
Canada's core inflation rate was the slowest in two years in August, with the pace of consumer prices and overall inflation decelerating. The data spurred bets the economy may need added monetary stimulus. That hit financial shares that would see profits crimped by lower interest rates.
MSCI's gauge of global stocks dropped 0.5 per cent in New York.
Wall Street also pulled back on Friday as lower oil prices weighed on energy shares and tech giants Facebook and Apple declined, although major indexes were still on pace to end the week higher.
Energy was the worst-performing major S&P sector, dropping 1.3 per cent.
Facebook shares fell 1.6 per cent and were one of the biggest drags on the S&P. The Wall Street Journal reported that the social media company overestimated viewing time for video ads.
Even so, the S&P 500 was set for its best weekly performance in more than two months. Stocks were given a boost on Wednesday when the U.S. Federal Reserve decided to keep interest rates steady, leaving intact the low rate environment that has helped fuel the bull market.
"I just think after a few strong days and a little weakness in energy that folks are taking some profit before the weekend...," said Gary Bradshaw, portfolio manager with Hodges Capital Management in Dallas. "I just feel like the market is going to keep grinding higher."
The Dow Jones industrial average unofficially fell 130.40 points, or 0.71 per cent, to 18,262.06, the S&P 500 lost 12.46 points, or 0.57 per cent, to 2,164.72 and the Nasdaq Composite dropped 33.78 points, or 0.63 per cent, to 5,305.75.
For the year, the benchmark S&P 500 is up 6 per cent. With the highly anticipated Fed decision now past, investors are turning toward the upcoming corporate earnings season and U.S. presidential election, with the first debate on Monday.
"The market is taking a bit of a breather after a strong week," said Mike Bailey, director of research at FBB Capital Partner, in Bethesda, Md.
"Investors are saying markets are already expensive and they've become more expensive this week, so this is a bit of a reversal."
Twitter shares surged 21.5 per cent amid reports that the microblogging company was exploring selling itself.
"Today is the inevitable pause because the last two days saw a pretty significant move, particularly in light of a Fed that did what the market was expecting," said Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. in Milwaukee. "The bulk of the price action -- you've got bonds selling off a little bit, you've got crude oil selling off, the dollar rallying a little bit -- it's what you'd expect from a pause in a rally."
The Stoxx Europe 600 Index lost 0.7 per cent, paring its biggest weekly rally in two months, amid investors' rush to sell company stakes. The euro-area economy saw its pace of growth dip at the end of the third quarter, highlighting the challenge facing policy makers to build momentum. The slowdown was largely due to Germany, where the services sector barely eked out any growth.
Polymetal International Plc dropped the most in 2 1/2 years after two major investors sold a combined stake of about 6 per cent in the Russian gold producer. CaixaBank SA, Spain's third-largest lender, extended declines after selling shares for 1.3 billion euros ($1.5-billion U.S.) to fund its takeover of Portugal's Banco BPI SA.
Benchmark 10-year notes yielded 1.61 per cent Friday, down eight basis points in the week. The yield difference, or spread, between two- and 30-year securities headed for its biggest weekly decline since early July after the Fed's decision on Sept. 21 to refrain from raising rates and also reduce the number of hikes it expects next year, to two from three.
Oil prices tumbled 4 per cent on Friday on signs Saudi Arabia and arch rival Iran were making little progress in achieving preliminary agreement ahead of talks by major crude exporters next week aimed at freezing production.
Also weighing on sentiment was data showing the United States was on track to add the most number of oil rigs in a quarter since the crude price crash began two years ago. Lower equity prices on Wall Street and other world stock markets was another bearish factor.
Brent crude futures settled down $1.76, or 3.7 per cent, at $45.89 a barrel. For the week, it rose 0.3 per cent, accounting for gains in the past two sessions.
U.S. West Texas Intermediate (WTI) crude futures fell $1.84, or 4 per cent, to settle at $44.48. On the week, WTI gained 3 per cent.
Crude futures slumped after sources said Saudi Arabia did not expect a decision in Algeria where the Organization of the Petroleum Exporting Countries and other big oil producers were to convene for Sept 26-28 talks.
"The Algeria meeting is not a decision making meeting. It is for consultations," a source familiar with Saudi oil officials' thinking told Reuters.
Earlier in the day, the market rallied when Reuters reported that Saudi Arabia had offered to reduce production if Iran caps its own output this year.
Oil prices are typically volatile before OPEC talks and Friday's session was tempered with caution despite market sentiment on a high this week after the U.S. government reported on Wednesday a third straight weekly drop in crude stockpiles.
"A 'No Deal' result in our definition will be one where OPEC not only failed to get an explicit deal out of the meetings, but also failed to develop a forward plan," Macquarie Capital said in a note, referring to the Algeria talks. "This would be another epic fail by OPEC."
The Alegria talks are OPEC's second attempt for an agreement on production curbs, after a failed effort in May. The market has been skeptical of OPEC's commitment, though, as key members of the group, led by Saudi Arabia and Iran have been pumping at optimum levels to protect market share.
Non-OPEC member Russia, the world's largest oil exporter, also hit record highs in production this week.
The production spike, rhetoric from OPEC and recent declines in U.S. stocks have kept crude in a $40-$50 range after 12-year lows of around $26 set in the first quarter.
"Let us reiterate that we still don't expect that a fundamentals driven rally will be strong enough to drive prices above $50 per barrel until Q1 or Q2 of next year," Credit Suisse said in a note. "Equally, however, we don't see a good fundamentals-based case for prices to collapse and set new cycle-lows all over again."
With files from Reuters