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Investors' interest rate jitters continued Thursday but U.S. and Canadian stock markets retreated from their worst losses as the morning progressed following a tame U.S. inflation report after appearing set for triple-digit losses earlier. On Thursday, global markets joined in Wednesday’s sharp selloff.

U.S. consumer prices rose less than expected in September, held back by a slower increase in the cost of rent and falling energy prices, as underlying inflation pressures appeared to cool slightly. The U.S. Consumer Price Index increased 0.1 per cent last month after rising 0.2 per cent in August. In the 12 months through September, the CPI increased 2.3 per cent, slowing from August’s 2.7-per-cent advance. The Street expected a rise of 0.2 per cent from August and 2.4 per cent year-over-year.

While the weak inflation report won’t likely change the U.S. Federal Reserve’s interest rate hike path, it did give investors a bit of respite after Wednesday’s sharp selloff.

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Fears about rising bond yields and interest rates, combined with worries about the impact of the U.S. trade war with China and a cut to the global growth forecast by the International Monetary Fund earlier this week have left investors uncertain with the strength of the global economy as many stocks, particularly in the U.S., have hit high valuations.

Tech stocks were also set for a steep decline Thursday but recovered as the market open approached after posting their worst day in seven years in the previous day’s session. In earlier premarket trading, FAANG stocks were off 1 to 2.5 per cent but then recovered with stocks. Facebook was off 0.6 per cent, Apple was down 0.8 per cent, Netflix was down 0.3 per cent, Alphabet was down 0.3 per cent, and Amazon was off 1 per cent.

On Wednesday, higher bond yields and worries about rising interest rates led to an 830-point drop in the Dow, whose losses intensified at the close, for a 3.15 per cent drop for the day, its biggest one-day drop since February. The S&P fell 95 points and the Nasdaq suffered a 315-point drop to lose 4 per cent for the day. The S&P/TSX fell nearly 340 points or 2 per cent.

The stock market decline led U.S. President Donald Trump to suggest the Federal Reserve is making a mistake by raising interest rates. “I really disagree with what the Fed is doing. It’s so tight, I think the Fed has gone crazy,” he said before a rally in Pennsylvania on Wednesday.

Investors will be closely watching Thursday’s consumer price index release from the U.S. to help judge what that might mean for interest rate hikes in the near future.

“The U.S. economy is at risk of overheating and is partly what’s going to drive volatility up. So with that in mind today’s CPI comes at a fascinating point,” Deutsche Bank strategist Jim Reid wrote in a note to clients.

Overseas, European stocks sunk to an 18-month low while Asian shares fell more than 3.5 per cent, Japan’s Nikkei dropped 3.9 per cent, its steepest daily drop since March, and China’s main index dropped more than 5 per cent. MSCI’s broadest index of Asian shares not including Japan ended down 3.6 per cent, having struck its lowest level since March 2017. It meant MSCI’s 24-country emerging market index was having its worst day since early 2016. Shanghai’s drop was its most severe since February 2016 and left it at its lowest level since late 2014.

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“Equity markets are locked in a sharp sell-off, with concern around how far yields will rise, warnings from the IMF about financial stability risks and continued trade tension all driving uncertainty,” summed up analysts at ANZ.

The sell-off, which came as the head of the International Monetary Fund, Christine Lagarde, said stock market valuations have been “extremely high,” erased hundreds of billions of dollars of global wealth.

“I think what happened was that we were a maximum elevation of risk appetite and maximum valuation of (U.S.) large caps and tech, so when you have that situation you are always vulnerable,” said UBP macro and FX strategist Koon Chow.

Sinking global shares have raised the stakes for U.S. inflation figures due later on Thursday. High inflation would only stoke speculation of more aggressive rate hikes from the Federal Reserve.

Hawkish commentary from Fed policymakers triggered the sell-off in Treasuries last week and sent long-term yields to their highest in seven years.

The surge made stocks look less attractive compared with bonds while also threatening to curb economic activity and profits.

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“The rise in Treasury yields has been the primary catalyst for the sell-off in equities, since higher yields suggest a lower present value of future dividend streams, assuming an unchanged economic outlook,” said Steven Friedman, senior economist at BNP Paribas Asset Management.

“It is also possible that equity investors are growing concerned that the Federal Reserve’s projected rate path will choke off the expansion.”

Commodities

Oil prices slumped to two-week lows on Thursday as global stock markets fell, with investor sentiment made more bearish by an industry report showing U.S. crude inventories rising more than expected.

“The up-trend is over for the moment, and a new direction is settling in,” said Robin Bieber, technical chart analyst at London brokerage PVM Oil. “The market looks like heading lower, with valid targets south.”

Brent crude fell $1.74 a barrel to a low of US$81.35, its lowest since Sept. 27, before recovering a little to trade around US$81.70 in midday trading in Europe. Brent lost 2.2 per cent on Wednesday. On Oct. 3, it hit a four-year high of US$86.74. U.S. light crude dropped $1.37 to US$71.80 but then recovered to around US$72.05. The contract lost 2.4 per cent in the previous session.

“The clear risk-off mode that we are seeing across all markets is also hitting oil,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney.

U.S. crude stockpiles rose more than expected last week, while gasoline inventories increased and distillate stocks drew, the American Petroleum Institute said on Wednesday. Crude inventories climbed by 9.7 million barrels in the week to Oct. 5 to 410.7 million, compared with analyst expectations for an increase of 2.6 million barrels.

The U.S. Energy Information Administration (EIA) is due to release official government inventory data Thursday at 11 a.m. EDT.

Gold prices rose on Thursday as a sell-off in global stock markets prompted investors to seek safety in the metal, with a softer U.S. dollar further supporting bullion.

Spot gold gained 0.8 per cent to US$1,203.30 an ounce. U.S. gold futures added 1.1 per cent at US$1,206.20 an ounce.

“Gold is finding a bit of support from the global sell-off seen in equities. If this (sell-off) persists, we will start seeing more of a move to gold as a safe-haven asset,” ING analyst Warren Patterson said. “Rising U.S. yields and general strength in the dollar have meant that investors have largely ignored gold. But people are seeing fairly good value at current levels on the back of some macro concerns.”

Currencies and bonds

The Canadian dollar was trading higher Thursday but was down from the 77-cent US mark as oil prices were lower.

The U.S. dollar weakened on Thursday following an overnight drop in U.S. Treasury yields, though moves in foreign exchange markets were far more contained than the global rout in stocks.

Risk appetite broadly remained robust in currencies, with the Aussie and the kiwi rallying by half a percent each against the greenback.

“The dollar’s weakness may be due to some unwinding of very long positions ... after the overnight drop in U.S. yields but these are very volatile markets,” said Manuel Oliveri, a currency strategist at Credit Agricole in London.

Against a basket of its rivals, the dollar fell a quarter of a per cent to 95.17. It has fallen 1 per cent in the last two trading sessions and is holding at its lowest level since the start of October.

The U.S. 10-year Treasury yield was lower at 3.176 per cent while the Canadian 10-year bond yield was at 2.544 per cent.

Stocks to watch

U.S. tobacco giant Altria Group Inc. is in talks to acquire an equity stake in Canadian cannabis grower Aphria Inc., multiple sources say. Details of Altria’s proposed investment in Aphria are still being finalized, said the sources, who were granted anonymity because they were not authorized to speak publicly about the talks. The sources cautioned that it could take time for the two companies to strike a deal and that talks could still fall through. Altria shares were down 1 per cent in premarket trading.

Delta Air Lines Inc. on Thursday reported third-quarter earnings of $1.31-billion. On a per-share basis, the Atlanta-based company said it had profit of $1.91. Earnings, adjusted for non-recurring gains, were $1.80 per share. The results topped Wall Street expectations. Its shares were up 0.8 per cent in premarket trading.

American Airlines was up 1.2 per cent, reversing a drop before Delta’s results after Britain’s competition watchdog said it will investigate a partnership involving the company and three other carriers.

Jack Dorsey-led Square dropped 9.6 per cent after the company said its financial head Sarah Friar would step down to become the chief executive officer of social networking service provider Nextdoor.

A two-year-old family feud has spilled into the open with auto-parts magnate Frank Stronach launching a $520-million lawsuit against daughter Belinda Stronach and her perceived allies, alleging that they mismanaged his fortune and froze him out of the business he built over six decades. Mr. Stronach, the 86-year-old founder of global auto-parts company Magna International Inc. and owner of numerous horse-racing tracks, alleges that his 52-year-old daughter, as chairwoman and president of holding company The Stronach Group, used “a series of covert and unlawful actions … to the overwhelming detriment of the other members of the Stronach family."

Lee Tappenden, the chief executive of the discounter’s Canadian division is focusing on redesigning Walmart Canada Corp.’s bricks-and-mortar stores to make them easier for employees to navigate when picking and packing groceries for e-commerce customers who come to fetch their orders. Mr. Tappenden said in an interview Walmart is spending $175-million this year on updating 20 of its 410 outlets with an eye on improving staff productivity for online grocery order pick-ups.

SNC-Lavalin Group Inc.'s bet that it could strike a deal with Canadian prosecutors to settle past corruption charges ahead of a preliminary inquiry later this month has fizzled. It now looks as if the courts will decide. Its shares fell 13.5 per cent on Wednesday and that could continue Thursday.

Walgreens dropped 1 per cent after the drugstore chain’s fourth-quarter revenue missed analysts’ estimates.

Canada’s Enbridge Inc. said on Wednesday it had approval to restart operations on a 30-inch natural gas pipeline in northern British Columbia, after a fire in an adjacent line led to disruptions for refineries in the U.S. state of Washington. The company isolated and depressurized a 36-inch pipeline, which carries gas to the Pacific Northwest, after it ruptured on Tuesday evening causing gas to ignite. An adjacent 30-inch pipeline was also depressurized for safety.

More reading: Thursday’s small-cap stocks to watch

Earnings include: EXFO Inc.; Progressive Corp.; Walgreens Boots Alliance Inc.

Economic news

U.S. consumer prices rose less than expected in September, held back by a slower increase in the cost of rent and falling energy prices, as underlying inflation pressures appeared to cool slightly.

The Consumer Price Index increased 0.1 percent last month after rising 0.2 percent in August. In the 12 months through September, the CPI increased 2.3 percent, slowing from August’s 2.7 percent advance.

Excluding the volatile food and energy components, the CPI edged up 0.1 percent for the second straight month. The so-called core index had increased 0.2 percent in May, June and July. The Street expected a rise of 0.2 per cent from August and 2.4 per cent year-over-year.

(8:30 a.m. ET) Canadian new home price index for August. Estimate is a rise of 0.1 per cent from July and 0.5 per cent year-over-year.

(8:30 a.m. ET) U.S. initial jobless claims for week of Oct. 6. Estimate is 210,000, up 3,000 from previous week.

Also: G20 finance ministers and central bank governors meeting in Indonesia through Friday.

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