Oil futures sank 4 per cent on Wednesday amid higher U.S. crude inventories and a bleaker demand outlook, while uncertainty over the U.S.-China trade war and U.S. economic data weighed on stocks.
The dollar index rose as trade tensions and U.S. interest rate policy remained in focus after President Donald Trump expressed optimism over making a trade deal with China.
Earlier in the day, May data showed moderate inflation as U.S. consumer prices barely rose. That, with a slowing economy, could build a case for the Federal Reserve to cut interest rates.
“Typically the market would read that as being a negative for the economy,” said Matt Watson, associate director of research at James Investment Research in Alpha, Ohio.
Investors were hoping the U.S. Federal Reserve would give hints about a rate cut after its June 18-19 meeting.
And after a five-day rally, Watson said: “we’re seeing a little bit of profit taking prior to investors going into a wait and see mode before the Fed meeting next week to see if they’re going to lower interest rates or not.”
While market participants eyed the latest data as potential support for a rate cut, it was not enough to outweigh worries about the economic impact of escalating trade tensions.
With under three weeks to go before proposed talks between U.S. President Donald Trump and Chinese President Xi Jinping at the June 28-29 G20 summit in Osaka, Trump said on Wednesday that he had a “feeling” a U.S.-China trade deal could be reached. But he again threatened to increase tariffs on Chinese goods if there is no agreement.
Canada’s main stock index fell on Wednesday as energy stocks dropped with crude prices.
The Toronto Stock Exchange’s S&P/TSX composite index was unofficially down 21.52 points, or 0.13 per cent, at 16,227.24.
The energy sector finished 1.3 per cent lower. Encana Corp. lost 6.6 per cent, while Crescent Point Energy Corp. dipped 5.2 per cent.
The heavyweight financial sector also weighed on the TSX, closing down 0.9 per cent lower. Power Corporation of Canada fell 3.7 per cent, while Great-West Lifeco Inc. was down 2.8 per cent.
In New York, the Dow Jones Industrial Average fell 41.17 points, or 0.16 per cent, to 26,007.34, the S&P 500 lost 5.73 points, or 0.20 per cent, to 2,879.99 and the Nasdaq Composite dropped 29.85 points, or 0.38 per cent, to 7,792.72.
The pan-European STOXX 600 index lost 0.30 per cent and MSCI’s gauge of stocks across the globe shed 0.39 per cent.
The U.S. Treasury yield curve was steeper after soft inflation data pulled short-dated yields lower, indicating increased expectations the Federal Reserve will cut interest rates.
Looking ahead, “focus will continue to turn to headlines surrounding trade. Also in focus the remainder of the week will be the $16 billion 30-year auction tomorrow (Thursday) and retail sales on Friday,” wrote Justin Lederer, Treasury analyst and trader at Cantor Fitzgerald.
Benchmark 10-year notes last rose 5/32 in price to yield 2.1239 per cent, from 2.14 per cent late on Tuesday.
In currency markets, the dollar index, tracking the currency against six major peers, rose 0.32 per cent, with the euro down 0.4 per cent to $1.1284.
The euro dropped as Trump said he was considering sanctions over Russia’s Nord Stream 2 natural gas pipeline project and warned Germany against being dependent on Russia for energy.
Oil prices tumbled 4 per cent on Wednesday to their lowest settlements in nearly five months, weakened by another unexpected rise in U.S. crude stockpiles and by a dimming outlook for global oil demand.
Brent crude futures fell $2.32, or 3.7 per cent, to settle at $59.97 a barrel, the international benchmark’s lowest close since Jan. 28.
U.S. West Texas Intermediate crude futures ended $2.13, or 4.0 per cent, lower at $50.72 a barrel, its lowest settlement since Jan. 14.
The U.S. Energy Information Administration (EIA) reported domestic crude stockpiles rose unexpectedly for the second week in a row, climbing 2.2 million barrels last week after analysts had forecast a decrease of 481,000 barrels.
At 485.5 million barrels, U.S. commercial stocks were at their highest since July 2017 and about 8 per cent above the five-year average for this time of year, the EIA said.
“Its definitely a market that is still in some disbelief of these inventory builds, and they’re not going to be able to look beyond it,” said Phil Flynn, analyst at Price Futures Group in Chicago. “It has been more difficult to guess what the EIA is going to add every week.”
The EIA on Tuesday cut its forecasts for 2019 world oil demand growth, which also pressured oil futures.