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Wall Street ended lower on Thursday, retreating from record closing highs, in a broad sell-off driven by uncertainties surrounding the pace of the global economic recovery.

As the bond market rallied on a flight to safety, all three major U.S. stock indexes turned sharply lower, with economically sensitive transports down the most. The TSX followed in Wall Street’s path, although the oil price bounced from early lows, providing some support to the energy sector. Still, the S&P/TSX Composite Index logged its worst day since February, losing 1.13%.

“We’re still effectively at all-time highs, so I wouldn’t read much into today’s market action,” said Oliver Pursche, senior vice president at Wealthspire Advisors, in New York.

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“The bond market is reflecting that the probability of there being material inflation over a long period of time is very unlikely, and that’s the fear that had been driving yields higher” before the recent rally, Pursche added.

“We’re in a goldilocks scenario, with enough growth to support the economy but not so much that the Fed changes policy beyond what they’ve already announced,” Pursche said.

On Wednesday, the U.S. Federal Reserve released minutes from its latest monetary policy meeting, which showed the central bank does not yet believe the economy has fully recovered, yet a debate on tightening policy has begun in earnest.

The Canadian benchmark stock index closed down 229.39 points, or 1.13%, at 20,061.21. It traded as low as 19,980.32 during the session.

Financials were down 1.4%, the sector’s worst day since January, and had been down about 2% in intraday trading. While off early morning lows, the energy sector still closed down 0.45%.

TSX consumer staples rose 1%, but industrials, materials, and tech also suffered losses of more than 1%.

Canadian Pacific Railway was a noteable decliner, falling 5.7% even as Canadian National Railway was close to unchanged.

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The Wall Street Journal quoted an unnamed source Thursday as saying the Biden administration will push regulators to confront consolidation and perceived anticompetitive pricing in the ocean shipping and railroad industries as part of a broad effort to blunt the power of big business to dominate industries.

The administration, in a sweeping executive order expected this week, will ask the Federal Maritime Commission and the Surface Transportation Board to combat what it calls a pattern of consolidation and aggressive pricing that has made it onerously expensive for American companies to transport goods to market, the Journal reported.

Kansas City Southern shares tumbled 7.73% on that news. Its shareholders will vote on the US$33.6-billion takeover offer from Canadian National Railway next month.

Unofficially, the Dow Jones Industrial Average fell 256.34 points, or 0.74%, to 34,425.45, the S&P 500 lost 36.09 points, or 0.83%, to 4,322.04 and the Nasdaq Composite dropped 101.36 points, or 0.69%, to 14,563.71.

Sensing cracks in the U.S. economic recovery, traders covered short positions in the bond market. The yield of the benchmark 10-year U.S. Treasury note fell for the eighth consecutive session.

The number of U.S. workers filing first-time applications for unemployment benefits unexpectedly ticked up to 373,000 last week, a sign that the U.S. labor market recovery remains choppy.

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A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 108.9 basis points after flattening to as small as 104.2, the most narrow since Feb. 12.

“There is a little bit of a preoccupation on the employment front where the market is questioning if the Fed will be able to make further progress on employment in order to meet its mandate before tapering asset purchases,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale In New York.

“The market is pricing out the timing of the first rate hike, as well as the pace of rate hikes after the first rate hike, and that led to this flattening move in Treasuries.”

Analysts have cited multiple reasons for growing concerns about the economic growth prospects and increasing risk-off sentiment, including the Delta variant of COVID-19, volatility in oil prices and a market that has been largely positioned short.

The yield on 10-year Treasury notes was down 3.5 basis points to 1.286% after hitting a low of 1.25%, the lowest since Feb. 16.

The Canada 10-year bond was at 1.261% in late afternoon trading, its lowest level since February. The 5-year bond yield, however, was still above levels of last month - a signal that there may not be any near-term moves lower in fixed mortgage rates.

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Oil prices rose on Thursday, rebounding from early losses after U.S. government data showed a much bigger drop than expected in crude and gasoline inventories.

Still, Brent prices remained about $3 a barrel below Monday’s close, as traders worried global crude supplies might swell following the collapse of negotiations between the Organization of the Petroleum Exporting Countries and allies including Russia, a group known as OPEC+.

Brent crude oil futures rose 48 cents to $73.91 a barrel by 1:11 p.m. EDT (1711 GMT), and U.S. West Texas Intermediate futures rose 52 cents to $72.72 a barrel.

Early in the session, both contracts fell to their lowest in about three weeks.

U.S. crude inventories fell by 6.9 million barrels last week to 445.5 million barrels, Energy Information Administration data showed. Analysts had expected a 4 million-barrel drop.

Gasoline stocks fell by 6.1 million barrels in the week to 235.5 million barrels, the EIA said. Analysts had forecast a 2.2 million-barrel drop.

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“The report is bullish, there’s no doubt,” said Tony Headrick, energy market analyst at CHS Hedging. “We did see a very large increase in total gasoline supplied, which would have led up to the Friday before the Fourth of July weekend.”

Futures have fallen recently because of a breakdown in discussions between major oil producers Saudi Arabia and the United Arab Emirates. Disagreement between the two Gulf OPEC allies was publicly exposed last week, with Riyadh and Abu Dhabi at odds over a proposed deal that would have brought more oil to the market.

Traders fear members of the OPEC+ group could be tempted to abandon output limits that they have followed during the pandemic.

The group is still holding back almost 6 million barrels per day (bpd) of output and had been expected to reduce those cuts this year.

Russia was trying to mediate to help to strike a deal to raise output, OPEC+ sources said on Wednesday.

Concerns about the pandemic also weighed on prices. A resurgent coronavirus forced Japan to declare a state of emergency in Tokyo that will run throughout the Olympic Games. South Korea reported its highest daily tally of COVID-19 cases.

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On Wall Street, Beijing’s ongoing clampdown on U.S.-listed Chinese companies fed into the risk-averse mood.

Since China’s opening salvo over the weekend against ride-hailing app Didi Global Inc, Beijing has broadened its scrutiny beyond the tech sector.

Didi shares extended their drop, while Alibaba Group and Bidu Inc both ended the session lower.

All 11 major sectors of the S&P 500 were red, with financials suffering the largest percentage loss.

Big banks are due to kick off second-quarter reporting next week. Analysts expect aggregate year-on-year earnings growth of 65.4% for companies in the S&P500 index, up from the 54% growth forecast made at the beginning of the quarter, according to Refinitiv.

“Much like inflation data I want to see what earnings growth over two years rather than one,” Pursche said. “That would be a much better guide as to how strong earnings are going to be.”

“Coming out of the pandemic one-year data points are so distorted that they’re almost irrelevant.”

With files from Reuters

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