The Australian dollar tumbled on Wednesday after the country’s central bank signaled a possible interest-rate cut in the latest indication that a global economic slowdown is tilting policymakers toward looser monetary policy, while a gauge of world equity markets edged off two-month highs.
Wall Street’s benchmark S&P 500 slipped amid concerns over growth, disappointing earnings reports and another possible U.S. government shutdown in the wake of President Donald Trump’s State of the Union address on Tuesday. European shares gained slightly.
Australia’s central bank was the latest to signal policy easing in the face of economic headwinds. Last week, the U.S. Federal Reserve said it would be patient on further rate hikes as Fed Chairman Jerome Powell said the case for rate increases had “weakened,” and the European Central Bank sounded less certain that it will start tightening policy later this year.
The about-face pushed the Australian dollar down 1.62 per cent against the U.S. dollar, putting it on track for its biggest daily drop since November 2016. In turn, the U.S. dollar moved higher against a basket of major currencies.
“We are starting to see central banks follow Powell’s lead,” said Chris Gaffney, president of world markets at TIAA Bank in St. Louis. “That’s what’s actually contributed to this dollar rally that we have seen recently.”
The dollar index, which tracks the greenback against six major currencies, rose 0.32 per cent. The euro was down 0.42 per cent to $1.1364. The index was on pace for a fifth day of gains.
Canada’s main stock index finished flat on Wednesday, as marijuana stocks dragged the health care sector lower and Bank of Canada’s comment that U.S. trade policies were holding back Canadian investments weighed on the market sentiment.
The Toronto Stock Exchange’s S&P/TSX Composite index was unofficially up 9.62 points, or 0.06 per cent, at 15,729.56.
Six of the index’s 11 major sectors were down, with the health care sector dropping 3.5 per cent.
Cronos Group Inc. lost 9.7 per cent, while Aphria Inc. and Canopy Growth Corp. dipped 9 per cent and 3.7 per cent, respectively. Both materials and utilities sectors were up 0.6 per cent.
Leading the index were ATS Automation Tooling Systems Inc., up 17.3 per cent, Ivanhoe Mines Ltd., up 13.1 per cent, and Chemtrade Logistics Income Fund, higher by 6.5 per cent.
Uncertainty over U.S. trade policies is holding back Canadian business investment despite strong economic fundamentals, helping temporarily slow growth, a deputy governor of the Bank of Canada said on Wednesday.
Timothy Lane also pointed to lower oil prices and a softening housing market as factors hindering growth, in contrast to the U.S. economy, which is powering ahead on the effects of stimulus.
“The past year has seen an important change in the relative performance of the two economies, despite the fact that the Canadian economy is generally in a good place,” Lane said in a speech on foreign reserves management to a gathering of economists in Washington, D.C.
He noted the Bank had raised interest rates by a cumulative 1.25 per centage points since July 2017 but did not address whether further hikes would be needed. The central bank stayed on the sidelines on Jan. 9 and market traders expect it to hold rates steady once again on March 6.
U.S. stocks edged lower on Wednesday as videogame makers gave disappointing revenue forecasts and investors awaited developments on U.S.-China trade relations.
The benchmark S&P 500 and the Nasdaq were weighed by declines in shares of Electronic Arts Inc, which tumbled 13.3 per cent after the videogame publisher forecast full-year revenue below Wall Street estimates. The sharp drop pulled down shares of rival videogame publisher Activision Blizzard Inc , which fell 10.1 per cent.
Shares of industry peer Take-Two Interactive Software Inc also dropped sharply, 13.8 per cent, after the company’s similarly underwhelming forecast.
The slump in videogame stocks contributed to a 1.5 per cent decline in the S&P 500 communication services sector, the largest drop among the S&P’s major sectors.
Despite the fall, Wall Street’s indexes remained near two-month highs. A 7.3 per cent gain in the S&P 500 would put the index above its record closing September high.
“The market is feeling a little exhausted after we’ve had a nice run in January and early February,” said Nathan Thooft, global head of asset allocation at Manulife Asset Management in Boston.
Investors cited a void of catalysts for market gains.
“Trade talks are probably the thing that’s really intriguing to the market, but that’s in March,” said Kim Forrest, senior portfolio manager at Fort Pitt Capital Group in Pittsburgh, referring to the deadline for the United States and China to reach a trade agreement before additional tariffs go into effect.
The Dow Jones Industrial Average fell 21.22 points, or 0.08 per cent, to 25,390.3, the S&P 500 lost 6.09 points, or 0.22 per cent, to 2,731.61 and the Nasdaq Composite dropped 26.80 points, or 0.36 per cent, to 7,375.28.
U.S. Treasury Secretary Steven Mnuchin said trade talks with China last week were “very productive” and confirmed that he and other officials will travel to Beijing for the next round of meetings.
Federal Reserve Chairman Jerome Powell will speak on Wednesday at 7:00 p.m. ET in Virginia.
Though the major indexes drooped, the Philadelphia SE Semiconductor Index advanced 2.6 per cent. Shares of Apple supplier Skyworks Solutions Inc jumped 11.5 per cent after the company announced $2 billion in stock buybacks , while shares of Microchip Technology rose 7.3 per cent after the company suggested the chipmaker industry was close to recovery from its recent downturn.
Shares of Capri Holdings Ltd, formerly Michael Kors, climbed 11.3 per cent after the fashion company posted a better-than-expected quarterly profit and raised its revenue forecast.
Anadarko Petroleum Corp shares slid 7.4 per cent after the oil and gas producer’s fourth-quarter profit missed analyst estimates.
European stocks were buoyed by gains in Italian banks and tech stocks.
The pan-European STOXX 600 index rose 0.15 per cent while MSCI’s gauge of stocks across the globe shed 0.28 per cent.
Oil prices rose about 1 per cent on Wednesday, boosted by signs of strong U.S. demand for distillate products and tightening global crude supply, but gains were capped by a rising U.S. dollar and ongoing concerns about a global economic slowdown.
Brent crude futures gained 71 cents, or 1.15 per cent, to settle at $62.69. The benchmark earlier fell to a session low of $61.05.
U.S. West Texas Intermediate (WTI) crude futures gained 35 cents, or 0.65 per cent, to settle at $54.01 a barrel, up from a session low of $52.86.
U.S. government data on Wednesday showed that domestic crude inventories rose less than expected last week even as refineries hiked output. Stocks increased 1.3 million barrels in the week ended Feb. 1, compared with analysts’ expectations for an increase of 2.2 million barrels.