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Market News The close: Wall Street tumbles as Treasury yields fuel economic fears; TSX drops as data disappoints

Wall Street stocks sold off sharply on Friday, with the benchmark S&P 500 index falling nearly 2 per cent as weak factory data from the United States and Europe led to an inversion of U.S. Treasury yields, fuelling fears of a global economic downturn.

The Dow Jones Industrial Average fell 459.85 points, or 1.77 per cent, to 25,502.66, the S&P 500 lost 54.15 points, or 1.90 per cent, to 2,800.73 and the Nasdaq Composite dropped 196.29 points, or 2.5 per cent, to 7,642.67.

Canada’s biggest stock market fell 1 per cent.

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The Dow, S&P 500 and Nasdaq all suffered their biggest one-day percentage decline since Jan. 3.

After weak U.S. manufacturing and services data, U.S. Treasury 10-year note yields sank below three-month Treasury bill yields for he first time since 2007. This sent investors fleeing from riskier bets as a yield curve inversion is seen as a leading recession indicator.

German 10-year bond yields dived below zero for the first time since October 2016 after German data showed manufacturing contracted in March for a third straight month. Factory activity across the whole euro zone looked equally dismal.

Wall Street followed European shares lower and deepened its losses as the day wore on, even as strategists said a recession would take some time to materialize or could even be averted.

“A U.S. recession is not imminent. Globally there are more concerns,” said Kristina Hooper, chief global market strategist at Invesco in New York. She added that “the Fed decision this week has created an environment for risk-taking. Risk assets should be resilient if the economic data remain solid. I don’t think this is a cause for panic.”

The U.S. Federal Reserve on Wednesday adopted a more-dovish- than-expected stance, announcing no further interest rate hikes planned for this year and an end to its balance sheet roll-offs.

“There is a school of thought out there that when the 10-year yield falls to 2.4 per cent, the Fed may start cutting interest rates. That would be a very activist Fed, which may stave off a recession,” Hooper said.

For the week, the S&P fell 0.77 per cent, the Dow lost 1.34 per cent and the Nasdaq shed 0.6 per cent.

The biggest declining sector was materials, which fell nearly 3 per cent. Freeport-McMoran was down 5.7 per cent, PPG Industries was off 5.3 per cent, and Celanese was down 4.4 per cent.

The next biggest decliner was the financial sector, tumbling 2.8 per cent. Charles Schwab, Citigroup and Prudential all fell 4.6 per cent.

The Federal Reserve this week abandoned projections for any interest rate hikes this year, as policymakers see a U.S. economy that is rapidly losing momentum.

The pan-European STOXX 600 index lost 1.22 per cent and MSCI’s gauge of stocks across the globe shed 1.20 per cent.

Preliminary measures of U.S. manufacturing and services activity for March showed both sectors grew at a slower pace than in February, according to data from IHS Markit. Manufacturing activity grew at the slowest pace since June 2017, and both the manufacturing and services purchasing manager index readings were weaker than analysts had forecast.

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Even before the U.S. data, the 10-year yield had broken below the psychologically significant 2.5-per-cent level and went on to hit its lowest level since December 2017.

Benchmark 10-year notes last rose 22/32 in price to yield 2.4603 per cent, from 2.539 per cent late on Thursday.

“This is a powerful move. We sat in a range for two-and-a-half months. There’s a lot of supply next week. It will be important to see how the market digests that at these yield levels,” said Justin Lederer, interest rate strategist at Cantor Fitzgerald in New York.

“Are there willing buyers there, are there guys that really need to buy to get into the market, or are we a little overextended here in Treasuries?”

Adding to the uncertainty were worries over how much progress the United States and China will make in their next round of trade talks.

U.S. President Donald Trump said negotiations were progressing and a final deal “will probably happen,” adding that his call for tariffs to remain on Chinese imported goods for some time did not mean the talks were in trouble.

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Chipmakers, which get a huge chunk of their revenue from China, fell. The Philadelphia chip index was down 2.6 per cent, while the broader technology sector declined 2.2 per cent.

Oil fell as much as 2.5 per cent as investors feared a lack of progress in U.S.-China trade talks and as the grim manufacturing data reignited fears of a slowdown in the global economy and oil demand. U.S. crude fell 1.67 percent to $58.98 per barrel.

Only the defensive utilities, real estate and consumer staples sectors were trading higher.

Nike Inc dropped 6.6 per cent after the sportswear maker’s quarterly revenue failed to beat Wall Street estimates. Its partner Foot Locker Inc fell 5 per cent

Canadian market

Canada’s main stock index pulled back from six-month highs on Friday after the country’s overall inflation missed the central bank’s target for the second straight month, while energy stocks came under pressure from a drop in oil prices.

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The S&P/TSX Composite Index closed down was down 155.26 points, or 1 per cent, at 16,089.33, its steepest drop in two months.

Domestic economic data showed Canada’s annual inflation rate edged up to 1.5 per cent in February, but remained below the Bank of Canada’s 2.0 per cent target for the second successive month.

Meanwhile, Canadian retail sales unexpectedly dropped for the third consecutive month in January, mainly due to weak auto sales.

The heavyweight financials sector slipped 1.2 per cent, with Home Capital down 3.8 per cent, Manulife Financial off 2.4 per cent and Industrial Alliance down 2.3 per cent.

Health care stocks were the biggest decliners, off 3.7 per cent as Cronos Group declined 6 per cent, Aurora Cannabis was off 5.3 per cent and Aphria fell 4.4 per cent.

Energy stocks fell 2.7 per cent and tech stocks declined 1.7 per cent.

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BRP Inc. fell 7.7 per cent even after posting strong fourth-quarter results.

With files from Reuters

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