A gauge of global equity markets stopped marching toward a record high on Friday, as slightly better-than-expected data on U.S. job growth in July also snapped big rallies in gold and the euro.
A U.S. Labor Department report showed employment growth slowed considerably from June amid a surge in COVID-19 cases. Though the job numbers topped expectations, the report highlighted the need for the White House and Congress to reach an agreement on a new stimulus bill.
Gold slid 2% to snap its record surge this week above $2,000, the euro fell from highs against the dollar last seen in May 2018 and U.S. Treasury yields rose, halting a downward move that had the benchmark 10-year note poised to fall below 0.5%.
The sell-off was due to profit-taking after the record peaks this week in gold and the tech-driven Nasdaq, as the value of the dollar ebbed, said Axel Merk, president and chief investment officer of Merk Investments LLC in San Francisco.
“We’ve had such a dramatic move. It’s been dollar-centric, call it a profit-taking reversal. I don’t think there is a change in environment,” said Merk, adding: “I can tell you what’s causing this. It’s Friday.”
In Toronto, S&P/TSX composite index was unofficially down 34.62 points, or 0.21%, at 16,544.48.
The materials sector, which includes precious and base metals miners and fertilizer companies, lost 2% as gold prices dipped.
The energy sector reversed early losses and sat up 1.2%
The financials sector rose 0.9%, while the industrials sector rose 1.1%.
The Canadian dollar fell against its broadly stronger U.S. counterpart on Friday as a trade squabble between Canada and the United States offset stronger-than-expected domestic jobs data, with the loonie giving back much of this week’s gains.
Canada will slap retaliatory tariffs on $3.6-billion worth of U.S. aluminum products after the United States said it would impose punitive measures on Canadian aluminum imports, Canadian Deputy Prime Minister Chrystia Freeland said.
“The potential for border skirmishes to turn into a wider trade war is increasing downside risk for the Canadian dollar, particularly ahead of the November election in the United States,” said Karl Schamotta, chief market strategist at Cambridge Global Payments.
The U.S. presidential election is set for Nov. 3.
“It’s very clear that the tariffs applied by the United States have been applied in the pursuit of a political objective, not an economic objective and that makes it more dangerous,” Schamotta said.
Canada added 418,500 jobs in July, which was more than the gain of 400,000 that analysts expected, while separate July data showed that Canadian purchasing activity expanded at its strongest pace in more than two years.
The Canadian dollar was trading 0.6% lower at 1.3360 to the greenback, or 74.75 U.S. cents. For the week, the loonie gained 0.3%.
The Nasdaq closed lower on Friday, as data showed a sharp slowdown in U.S. employment growth and investors worried lawmakers would not be able to agree on another fiscal stimulus bill to bolster the economy from a coronavirus-induced recession.
The S&P 500 and the Dow Jones index ended flat to slightly higher on the day.
With the benchmark S&P 500 index now about 1.5% below its record high, defensive sectors including utilities and real estate were among the gainers. Tech-related stocks, which have fueled a Wall Street rally since March, posted the biggest declines and helped push the Nasdaq down more than 1% during the session.
Along the same line, value names, which have been unable to close the performance gap with growth stocks in recent years, advanced. The S&P 500 value index rose, while the S&P 500 growth index fell.
The U.S. Labor Department’s closely watched report showed nonfarm payrolls increased 1.76 million in July, much lower than the record 4.8 million in June.
However, the figure still topped economists’ expectations and analysts said it could take the pressure off Congress to agree on a relief bill after weeks of wrangling. Differences have partly centered around continuing an extra $600-per-week in unemployment benefits.
Congressional Democrats on Friday offered to reduce a proposed coronavirus aid package by $1 trillion if Republicans would add a trillion to their counter-offer, but President Donald Trump’s negotiators rejected the idea on Friday as the latest round of talks ended without a deal.
U.S. Senate Democratic leader Chuck Schumer called the meeting with Republicans disappointing and House Speaker Nancy Pelosi said an agreement on stimulus seemed unlikely, with differences still largely unresolved.
“The bottom line reality is that unemployment is through the roof with respect to historical averages, we are still in a pandemic with no cure and the politicians have promised another $1 trillion or more to the American public,” said Mike Zigmont, head of Trading at Harvest Volatility Management in New York.
“It would be political suicide if they don’t deliver that,” he added.
Unofficially, the Dow Jones Industrial Average rose 51.17 points, or 0.19%, to 27,438.15, the S&P 500 gained 2.23 points, or 0.07%, to 3,351.39 and the Nasdaq Composite dropped 97.09 points, or 0.87%, to 11,010.98.
The declines snapped the Nasdaq’s seven-session streak of gains, with the Dow and S&P falling after rising for five straight days. Each of the three major averages posted weekly gains.
With the second-quarter corporate earnings season largely over, about 82% of S&P 500 companies that have reported so far have beaten dramatically lowered estimates, with earnings on average coming in 22.5% above expectations, the highest on record.
T-Mobile US Inc jumped as it added more-than-expected monthly phone subscribers and said it had overtaken rival AT&T Inc as the second-largest U.S. wireless provider. The stock was the biggest gainer on the S&P communication services index.
Uber fell as demand for its ride-hailing trips only marginally recovered from pandemic rock-bottom in the second quarter, even as its food-delivery segment saw double the orders.
Meanwhile, Trump late on Thursday unveiled sweeping bans on U.S. transactions with the Chinese owners of messaging app WeChat and video-sharing app TikTok. In response, China said the companies complied with U.S. laws and warned Washington would have to “bear the consequences” of its action.
King Lip, chief investment strategist at Baker Avenue Asset Management in San Francisco, said investors were worried about China’s “potential retaliation” against U.S. actions.
New York-listed Tencent Music Entertainment Group, which was spun off from WeChat-owner Tencent Holdings Ltd in 2018, fell, while Facebook Inc jumped.
Microsoft Corp, which is seeking to buy TikTok’s U.S. operations, also dropped. U.S.-listed Chinese stocks such as Baidu Inc, Alibaba Group Holding and JD.com Inc also declined.
European equities eked out modest gains, with the pan-regional FTSEurofirst 300 index adding 0.27%. But the euro’s sharpest sell-off since April helped Germany’s export-heavy DAX index to close up 0.66%.
MSCI’s benchmark for global equity markets fell 0.55% to 562.04.
The dollar index rose 0.662%, with the euro down 0.8% to $1.178. The Japanese yen weakened 0.37% versus the greenback at 105.93 per dollar.
Chinese stocks led losers in Asia and the yuan slumped after Trump issued executive orders to purge “untrusted” Chinese apps from U.S. digital networks.
Hong Kong’s Hang Seng fell 1.6%. Tencent, Asia’s second-biggest company by market capitalization, dropped as much as 10.1% and closed down 5.0%.
Mainland China’s CSI 300 Index fell 1.15% despite strong export data, while Japan’s Nikkei slipped 0.4%.
The latest Bank of America fund flow statistics also confirmed the undercurrent of caution in global markets, with investors flocking to cash, gold and investment-grade bonds and switching out of equities.
Gold hit a record high of $2,072.5 an ounce overnight in Asia, before succumbing to profit-taking.
Spot gold prices fell -1.47% to $2,032.96 an ounce.
U.S. gold futures settled down 2% at $2,028.
Silver dropped 1.7% to $28.452 per ounce following its rise to a seven-year high of $29.838.
Oil prices fell more than 1%, pulling back from a week of gains.
Brent crude futures slid 69 cents to settle at $44.40 a barrel, while U.S. crude futures settled down 73 cents at $41.22 a barrel.
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