Oil prices faltered and global equity markets slid on Friday, halting a week-long record-setting rally on hopes a U.S.-China trade deal was near, as investors parsed statements from Beijing and Washington on where they stand on rolling back tariffs.
This week’s optimism about the potential for a deal darkened as fierce opposition from the White House to rolling back existing tariffs surfaced on Thursday. On Friday, U.S. President Donald Trump reinforced the sentiment, telling reporters he has not agreed to the rollback of tariffs sought by China and that Beijing wanted to make a deal more than he did.
The dollar rose to a three-week high, lifted by safe-haven bids, as risk appetite for higher-yielding currencies was curtailed by the uncertainty over the tariff rollback, a major component of a preliminary U.S.-China trade deal.
Skepticism about the strength of the economy and corporate results is driving fear of more weakness ahead, said Christopher Smart, chief global strategist at Barings.
“I’m less convinced that we’re headed for a durable trade peace with China,” he said.
“It’s very difficult of course to forecast what this administration will or will not agree to, but it’s going to be hard to keep the peace going into an election year,” Smart said. “People are still pretty pessimistic.”
Canada’s main stock index rose for a sixth straight session on Friday, led by a rally in the technology and healthcare sectors.
The Toronto Stock Exchange’s S&P/TSX composite index was unofficially up 71.67 points, or 0.43 per cent, at 16,877.42.
The health care and technology sectors led gains, up 4.4 per cent and 2.4 per cent, respectively.
The Canadian dollar weakened to a three-week low against its U.S. counterpart on Friday as data showing a surprise decline in domestic jobs added to pressure on the currency since the Bank of Canada shifted to a more dovish stance.
Canada lost 1,800 jobs in October after robust job growth over the previous two months, data from Statistics Canada showed. Analysts had expected jobs to rise by 15,900.
“USD-CAD was already drifting higher off the lows we saw in the last couple of weeks because of concern around changing sentiment and the Bank of Canada,” said Brad Schruder, director of corporate sales and structuring at BMO Capital Markets.
Last week, the Bank of Canada left the door open to an interest rate cut as it expressed concern about trade uncertainty.
Chances of an easing at the central bank’s next meeting in December rose to about 25 per cent from 15 per cent before the jobs data, the overnight index swaps market indicated.
The loonie could weaken by “another penny, penny-and-a-half” to a level that would then attract buying of the currency by Canadian corporates, Schruder said.
Housing data also showed declines.
Statistics Canada said that the value of Canadian building permits dropped by a larger-than-expected 6.5 per cent in September to C$8.3 billion, while data from the Canadian Mortgage and Housing Corporation (CMHC) showed that the seasonally adjusted annualized rate of housing starts fell to 201,973 units in October from a revised 221,135 units in September.
The Canadian dollar was trading 0.4 per cent lower at 1.3228 to the greenback, or 75.60 U.S. cents. The currency touched its weakest intraday level since Oct. 16 at 1.3237.
For the week, the loonie was down 0.7 per cent.
MSCI’s gauge of stocks across the globe shed 0.18 per cent but remained less than 2 per cent from an all-time high set in January 2018. The pan-European STOXX 600 index closed down 0.28 per cent, snapping a five-day winning streak, while Germany’s trade-sensitive DAX index fell 0.46 per cent.
The S&P 500 hit a record closing high on Friday as investors brushed aside doubts about the progress of trade talks between the United States and China, while the index registered a fifth straight week of gains.
The Dow Jones Industrial Average rose 5.9 points, or 0.02 per cent, to 27,680.7, the S&P 500 gained 7.84 points, or 0.25 per cent, to 3,093.02 and the Nasdaq Composite added 40.80 points, or 0.48 per cent, to 8,475.31.
Earlier in Asia, shares retreated from six-month highs .
Investor sentiment is likely to continue to support risk assets as efforts are made to reach a trade deal, said Brian Daingerfield, head of G10 FX strategy at Natwest Markets in Stamford, Connecticut.
“The fact that there is some discussion of moving existing tariffs leans more positive,” Daingerfield said.
The dollar index rose 0.19 per cent, with the euro down 0.26 per cent to $1.102. The Japanese yen strengthened 0.13 per cent versus the greenback at 109.15 per dollar.
U.S. Treasury yields traded mostly below three-month highs while Germany’s 10-year bond yield slid from five-month highs.
The yield on benchmark 10-year German bunds was one basis point lower at -0.26 per cent.
Benchmark 10-year U.S. Treasury notes fell 3/32 in price to push their yield up to 1.9312 per cent.
Gold extended losses to a three-month low and were on track for their biggest weekly decline in almost three years.
U.S. gold futures settled down 0.2 per cent at $1,462.90.
Oil prices edged higher on Friday, after falling more than 1 per cent following comments from U.S. President Donald Trump that he has not agreed to roll back tariffs on China.
Brent crude futures rose 22 cents to settle at $62.51 a barrel. West Texas Intermediate (WTI) crude rose 9 cents to settle at $57.24 a barrel.
Brent posted a weekly rise of 1.3 per cent, while WTI gained 1.9 per cent.
Prices pared losses in midday trade, after Brent reached a session low of $60.66 a barrel and WTI sank to $55.76 a barrel.
“Given the volatility around the U.S.-China trade saga, it’s hard to be short over the weekend,” said John Kilduff, a partner at Again Capital LLC. “The turn of a phrase could restore the very hopes that were dashed just last night over a deal being struck.”
The 16-month trade war between the world’s two biggest economies has slowed economic growth around the world and prompted analysts to lower forecasts for oil demand, raising concerns that a supply glut could develop in 2020.
Oil prices fell earlier on Friday after Trump told reporters he has not agreed to roll back tariffs on China but that Beijing would like him to do so.