Canada’s main stock index opened lower on Thursday, following a rout in world markets, as jitters over rising U.S. Treasury yields and signs of slowing global growth sparked a broad-based selloff.
The Toronto Stock Exchange’s S&P/TSX composite index was down 139.09 points, or 0.9 per cent, at 15,378.31.
Wall Street opened lower on Thursday, but not as much as stock futures had indicated, after data showed consumer prices rose less than expected in September, indicating inflation pressures were easing.
The Dow Jones Industrial Average fell 80.35 points, or 0.31 per cent, at the open to 25,518.39.
The S&P 500 opened lower by 8.81 points, or 0.32 per cent, at 2,776.87. The Nasdaq Composite dropped 33.98 points, or 0.46 per cent, to 7,388.07 at the opening bell
The Consumer Price Index (CPI) increased 0.1 per cent last month. The so-called core CPI, which excludes volatile food and energy components, also edged up 0.1 per cent. Economists had forecast both the readings to climb 0.2 per cent.
U.S. Treasury yields extended their fall after the data, which dented expectations of a more aggressive pace of interest rate hikes by the Federal Reserve.
“At least for right now, inflation fears seem to be taking a pause. There is a tendency in the markets to overact in both-ways in the short-term which is what we saw last week,” aid Art Hogan, chief market strategist at B. Riley FBR in New York.
“Currently the CPI data is just some amount of good news to bounce back the markets.”
Wall Street is coming off its biggest one-day slide in eight months, triggered by a sharp rise in bond yields and hawkish comments from Fed officials.
Rising inflation has pressured the Fed to keep raising interest rates at a time when President Donald Trump, concerned with keeping the economy humming along, has described the campaign of tightening as “crazy.”
That in turn has spurred nerves on the bond market and sent yields to multi-year highs, drawing money out of stock markets, which has been caught amidst a storm of worries ranging from the impact of trade tensions on corporate profits to uncertainty related to Hurricane Michael making landfall in Florida.
European stocks slumped to a 21-month low on Thursday after Wall Street’s worst losses in eight months triggered a surge of global selling that also hit Asia and emerging markets.
Losses in London, Paris and Milan were at nearly 2 per cent ahead of what looked set to be another volatile day on Wall Street, although it wasn’t quite as dramatic as the overnight session in Asia.
MSCI’s broadest index of Asian shares not including Japan ended down 3.6 per cent, having struck its lowest level since March 2017. China’s main indexes had slumped over 5 per cent.
It meant MSCI’s 24-country emerging market index was having its worst day since early 2016, after Wall Street’s swoon had given the 47-country world index equivalent its worst day since February.
“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 .
Japan’s Nikkei ended down 3.9 per cent, its steepest daily drop since March. The broader TOPIX lost around $207-billion in market value, falling 3.5 per cent.
Shanghai’s drop was its most severe since February 2016 and left it at its lowest level since late 2014. Shares in Taiwan were even harder hit, losing 6.3 per cent. Seoul’s Kospi index dropped 3.8 per cent.
“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.
Europe’s traders retreated to the safety of German and other higher-rated government bonds.
Italian bonds aren’t on that list though, and though they squeezed through a 6.5 billion euro debt sale, they saw more selling amid ongoing concern about the country’s financial health.
“It remains to be seen whether the accelerating equity plunge is a healthy correction or the tip of the iceberg,” Commerzbank analysts said in a note.
Sinking global shares had raised the stakes for U.S. inflation figures which ended up coming in relatively tame. High inflation would only stoke speculation of more aggressive rate hikes from the Federal Reserve - one of the things that has spooked markets.
On Wall Street, the S&P500’s sharpest one-day fall since February on Tuesday had wiped out around $850=billion as the S&P toppled over 3 per cent and the Nasdaq’s high-flying tech shares tumbled even more on fears of slowing demand.
The bloodletting attracted the attention of U.S. President Donald Trump, who pointed an accusing finger at the Fed for raising interest rates.
“I really disagree with what the Fed is doing,” Trump told reporters before a political rally in Pennsylvania. “I think the Fed has gone crazy”.
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.
“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.”
The shift in yields is also sucking funds out of emerging markets. More than $1-trillion has been wiped off MSCI’s EM index since January and there has been particular pressure on the Chinese yuan as Beijing fights a protracted trade battle with the United States.
China’s central bank has been allowing the yuan to gradually decline, breaking the 6.9000 barrier and leading speculators to push the dollar up to 6.9377 at 0602 GMT.
China’s move has forced other emerging-market currencies to weaken to stay competitive and drawn the ire of the United States, which sees it as an unfair devaluation.
“The yuan has already weakened significantly, to offset the tariffs announced so far,” said Alan Ruskin, Deutsche’s global head of G10 FX strategy. “Further weakness could exacerbate concerns of a self-fulfilling flight of capital and a loss of control.”
The dollar was already losing ground to both the yen and the euro, as investors favoured currencies of countries that boasted large current account surpluses.
The euro was at $1.1550, up from a low of $1.1429 early in the week. The dollar lapsed to 112.17 yen, a retreat from last week’s 114.54 peak.
That left the dollar at 95.263 against a basket of currencies.
In commodity markets, gold struggled to get any safety bid and edged down to $1,192.77.
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.
Brent crude fell $1.95 a barrel to a low of $81.14, its weakest since Sept. 26, before recovering a little to trade around $81.90. Brent lost 2.2 per cent on Wednesday. On Oct. 3, it hit a four-year high of $86.74.
U.S. light crude dropped $1.54 to $71.63 but then recovered to around $72.25. The contract lost 2.4 per cent in the previous session.
“Oil bulls are bearing the brunt of another bruising session as yesterday’s selling frenzy intensifies,” said Stephen Brennock, analyst at London brokerage PVM Oil. “At the heart of the price malaise are concerns that oil demand will be adversely impacted by a myriad of downside risks facing the global economy.”