A gauge of world stock markets fell on Tuesday as concerns over global growth and trade gave investors incentive to look towards safe-haven assets such as the Japanese yen and government bonds.
Investors shunned risk assets like equities as the International Monetary Fund warned of a dimmer outlook on Monday, China confirmed its slowest growth rate in nearly 30 years, and as Brexit uncertainty continued to drag on sentiment.
On Wall Street, stocks took another step lower in the wake of a report from the Financial Times that the United States had turned down an offer of preparatory trade talks from China. Major indexes sold off and both the Dow and the S&P 500 fell below technical support levels at their 50-day moving averages.
Still, trading was volatile in the last hour of trade as White House economic adviser Larry Kudlow told CNBC the report was not true, causing a sharp move off the lows.
“There’s so much in the background - trade, government shutdown, earnings season - you’re going to have these big swings in the markets based on the latest data,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.
“(Investors) are getting more bearish and less optimistic about the outlook,” Nolte added.
The Dow Jones Industrial Average fell 301.87 points, or 1.22 per cent, to 24,404.48, the S&P 500 lost 37.81 points, or 1.42 pe rcent, to 2,632.9 and the Nasdaq Composite dropped 136.87 points, or 1.91 per cent, to 7,020.36.
The benchmark S&P index suffered its biggest daily percentage fall since Jan. 3.
Canada’s main stock index fell on Tuesday, snapping a 12-day long rally, with energy shares leading losses on the back of lower oil prices.
The Toronto Stock Exchange’s S&P/TSX composite index was unofficially down 120.40 points, or 0.78 per cent, at 15,222.76.
Eight of the index’s 11 major sectors were lower, led by the 3.5-per-cent drop in the energy sector, which was weighed down by oil prices.
Crescent Point Energy Corp. lost 6.6 per cent, while Canadian Natural Resources Ltd. dipped 5.9 per cent..
The financials sector inched down 0.4 per cent, while the industrials sector edged down 1.2 per cent.
The materials sector, which includes precious and base metals miners and fertilizer companies, lost 0.5 per cent.
Methanex Corp. was down 4.5 per cent, while Canfor Corp. lost 3.7 per cent.
The Canadian dollar weakened to a two-week low against its U.S. counterpart on Tuesday as investors worried about the global growth outlook and weaker-than-expected data added to evidence that Canada’s economy slowed at the end of 2018.
Canadian factory sales decreased by 1.4 per cent in November from October on lower petroleum and coal product sales, while November wholesale trade was down 1.0 percent, Statistics Canada said.
The data supported the Bank of Canada’s gloomy short-term forecasts for the economy which have sidelined prospects of further interest rate hikes over the coming months.
The central bank has said that low oil prices, which have led to production cuts in Alberta, and a weak housing market would harm the economy in the fourth quarter of 2018 and the first quarter of this year.
“I really think that Canadian data have peaked and I think going forward the story is going to get worse and worse,” said Christian Lawrence, senior market strategist at Rabobank.
Canada’s retail sales report for November is due on Wednesday which will help economists finalize forecasts for monthly GDP.
The Canadian dollar was trading 0.4 per cent lower at 1.3352 to the greenback, or 74.90 U.S. cents. The currency touched its weakest intraday level since Jan. 7 at 1.3355.
European shares fell for a second straight session, with Swiss bank UBS sinking over 3 per cent on disappointing earnings, spelling continued trouble for European banks which lost nearly 30 percent last year.
In its World Economic Outlook report, the IMF predicted the global economy would grow at 3.5 per cent in 2019 and 3.6 per cent in 2020, down 0.2 and 0.1 percentage point respectively from estimates in October.
The downgrade mainly reflected weakness in Europe, with Germany hurt by new car-emission rules, Italy under market pressure due to Rome’s recent budget standoff with the European Union, and Britain’s planned exit from the EU hanging over the bloc as well.
MSCI’s gauge of stocks across the globe shed 1.15 per cent, after climbing 2.7 per cent in the prior four sessions. The pan-European STOXX 600 index lost 0.36 per cent.
The Japanese yen strengthened 0.41 per cent versus the greenback to 109.24 per dollar.
The dollar index, which rose to its highest since Jan. 4 helped by safe-haven demand, erased gains after data showed U.S. home sales tumbled to their lowest in three years in December and house price increases slowed sharply, suggesting a further loss of momentum in the housing market.
The dollar index, tracking the greenback against six major currencies, fell 0.08 per cent.
The slowdown concerns also pushed U.S. Treasury yields lower as investors shifted some cash back into the bond market. Benchmark 10-year notes last rose 14/32 in price to yield 2.732 per cent, from 2.782 per cent late on Friday.
Oil prices dropped about 2 percent on Tuesday over concerns the world’s stumbling economy could pinch fuel demand as U.S. shale fields surge and cuts by Russia come in below expectations.
Gloomy new global growth forecasts by the International Monetary Fund and signs of a slowdown spreading from China weighed on crude prices as traders worried about supplies rising in 2019 despite lower prices.
The data “reawakened” concerns about demand, which “come at a time when we have more than enough supply,” said Gene McGillian, director of market research at Tradition Energy in Stamford, Connecticut. “The question is, are these fears going to gain even greater importance in the market?”
Brent oil futures settled down $1.24, or 2 per cent, at $61.50 a barrel. U.S. West Texas Intermediate (WTI) crude futures fell $1.23, or 1.9 per cent, to $52.57.
Market concerns over the depth of production cuts by the Organization of Petroleum Exporting Countries and its allies, including Russia, helped drive prices lower, analysts said.
Russian Energy Minister Alexander Novak will not fly to Switzerland to attend the Davos World Economic Forum due to changes in his schedule, an Energy Ministry spokeswoman said.
Novak previously said he would meet his Saudi counterpart Khalid al-Falih in Davos, if the minister were to attend.
Falih, who has criticized Russia’s output cuts as being slower than expected, was also unlikely to visit, according to a Bloomberg report.
Russia’s oil production has fallen by more than 30,000 barrels per day (bpd) in January from October’s level, Novak said this month. Russia had pledged to cut 230,000 bpd in the first three months of 2019.
Reuters