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Market News The close: Global stocks weak as investors eye Fed’s Jackson Hole meeting

An index of stock markets worldwide edged lower on Thursday on uncertainty over the outlook for U.S. interest rate cuts and weak U.S. manufacturing data that raised concerns about the health of the world’s largest economy.

U.S. manufacturing industries recorded their first month of contraction in almost a decade amid concerns about whether the U.S.-China trade conflict would tip the economy into a recession, a private survey showed.

“Manufacturing has been pretty weak across the globe for a while now and we are starting to see that bleed into the U.S.,” said Joe Mallen, chief investment officer at Helios Quantitative Research.

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Investors’ focus, however, remained firmly on Friday’s speech by Federal Reserve Chair Jerome Powell at a Jackson Hole, Wyoming, event, which could offer clarity on the direction of U.S. monetary policy.

The Fed has come under increasing pressure to cut borrowing costs more, including a call by President Donald Trump on Wednesday for the central bank to reduce its benchmark rate.

The MSCI world equity index, which tracks shares in 47 countries, was down 0.2 per cent.

In Toronto, the S&P/TSX composite index was unofficially down 0.34 per cent, or 55.77 points, at 16,253.46.

Resource stocks weighed as the energy and materials sectors fell 0.7 per cent and 0.4 per cent, respectively.

Industrials were down 0.6 per cent, while marijuana producers pushed the health care sector 2.1 per cent lower. Canopy Growth Corp. fell 5.2 per cent, while Hexo Corp. lost 3.5 per cent.

The Canadian dollar steadied against its U.S. counterpart on Thursday, trimming earlier gains as investor appetite for risk decreased ahead of a Federal Reserve central banking conference this week.

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“It’s all like a broad turn lower in risk, stocks are lower, crude oil is going lower, and dollar-CAD being sensitive to all of that, is going higher.” said Eric Bregar, director and head of FX strategy at the Exchange Bank of Canada. But “it’s still very much a range trade, waiting for a clarity from Jerome Powell.”

The Canadian dollar was trading nearly unchanged at 1.3296 to the greenback, or 75.21 U.S. cents. The currency, which lost some ground it gained earlier, was trading in a range of 1.3276 to 1.3315.

Domestic data showed that Canadian wholesale trade increased by 0.6 per cent in June from May. Analysts surveyed by Reuters had forecast a 0.3 per cent increase.

Canada’s retail sales data is due on Friday, with a Reuters poll forecasting a 0.1 per cent decrease.

Canadian government bond prices were lower across the yield curve, with the two-year down 9.5 Canadian cents to yield 1.458 per cent and the 10-year falling 43 Canadian cents to yield 1.267 per cent.

On Wall Street, stocks were little-changed in a choppy session. While strong results from retailers bolstered confidence in consumer demand and lifted shares, the manufacturing data and comments from Fed officials dampening hopes of future interest rate cuts hurt risk sentiment.

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The Dow Jones Industrial Average was the strongest of the three U.S. major stock indexes, helped by a 4.2-per-cent jump in Boeing’s shares after a Reuters report that the company has told suppliers it will resume production of its best-selling 737 jets at a rate of 52 aircraft per month in February 2020.

The Dow Jones Industrial Average rose 51.21 points, or 0.2 per cent, to 26,253.94, the S&P 500 lost 1.37 points, or 0.05 per cent, to 2,923.06 and the Nasdaq Composite dropped 28.82 points, or 0.36 per cent, to 7,991.39.

European shares, which found support from upbeat surveys on Germany and the euro zone, declined on a report that the Bundesbank sees no need for German fiscal stimulus right now. The pan-European STOXX 600 index closed down 0.40 per cent.

In currency markets, the U.S. dollar weakened as investors braced for a possible announcement or statement from the Jackson Hole meeting.

While the Fed’s latest minutes showed U.S. policymakers are reluctant to begin a big rate-cutting cycle in the coming months, market participants still expect the Fed to signal a stimulus measure, or an affirmation that the U.S. central bank is on a steady path to ease interest rates, a scenario viewed as negative for the dollar.

“Jackson Hole is going to provide an opportunity for the Fed to correct that communication mistake in the minutes,” said Edward Moya, senior market analyst at OANDA in New York.

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The dollar slipped 0.15 per cent against a basket of other major currencies to 98.144.

Asian currencies suffered after the Chinese yuan fell to an 11-year low against the dollar, indicating trade tension between the world’s two biggest economies remained a major issue.

Treasury yields, which climbed after better-than-expected manufacturing data in Europe boosted risk sentiment, pared gains following the U.S. manufacturing data.

Benchmark 10-year notes were down 6/32 in price to yield 1.5978 per cent, up from 1.577 per cent late on Wednesday.

Gold prices were slightly lower as investors awaited the outcome of the Jackson Hole meeting. Spot gold dropped 0.13 per cent to $1,499.9871 an ounce.

Oil prices weakened on Thursday on worries about the global economy and as equity markets were on edge over the uncertain outlook for U.S. interest rate cuts.

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Traders are awaiting a speech from Federal Reserve Chair Jerome Powell on Friday in Jackson Hole, Wyoming, that could indicate whether the U.S. central bank will continue to cut interest rates.

Brent crude settled down 38 cents, or 0.6 per cent, at $59.92 a barrel, while U.S. West Texas Intermediate crude ended the session 33 cents, or 0.6 per cent lower at $55.35.

“The market will be shifting focus today to broader based macro headlines with comments out of Jackson Hole likely to be prioritized in this regard,” said Jim Ritterbusch, president of Ritterbusch and Associates.

“While we are not expecting any dramatic developments capable of swinging the equities either way by more than 1 per cent or so, we feel that current bullish momentum in the oil market could allow the energy complex to absorb bearish guidance much easier than any negative Jackson Hole guidance that may be forthcoming.”

Reuters

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