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U.S. and Canadian stock indexes closed lower on Thursday after data pointing to a tight American labour market renewed concerns the Federal Reserve will continue its aggressive path of rate hikes that could lead the economy into a recession. A bounce in shares of energy and materials producers helped to stem losses on the TSX.

A report from the Labor Department showed U.S. weekly jobless claims were lower than expected, indicating the labour market remains solid despite the Fed’s efforts to stifle demand for workers.

Investors have been looking for signs of weakness in the labour market as a key ingredient needed for the Fed to begin to slow its policy tightening measures.

Other U.S. data showed manufacturing activity in the mid-Atlantic region was subdued again in January, while data from the commerce department confirmed the recession in the housing market persisted.

Recent comments from Fed officials continue to highlight the disconnect between the central bank’s view of its terminal rate and market expectations.

Boston Fed President Susan Collins echoed comments from other policymakers to support the case for interest rates to rise beyond 5%.

But stocks moved off their session lows after Fed vice chair Lael Brainard said the Fed is still “probing” for the level of interest rates that will be necessary to control inflation.

Markets see the terminal rate at 4.89% by June and have largely priced in a 25-basis point rate hike from the U.S. central bank in February, with rate cuts in the back half of the year.

Meanwhile, money markets see a roughly 60% chance that the Bank of Canada will further raise the policy rate by a quarter of a percentage point next Wednesday, but then be done for this monetary tightening cycle.

The Toronto Stock Exchange’s S&P/TSX composite index ended down 34.79 points, or 0.2%, at 20,341.44, extending its pullback after notching on Tuesday its highest closing level since Dec. 2.

The Toronto market’s technology group fell 1.1% and industrials ended nearly 1% lower.

Ballard Power Systems Inc was among the biggest single decliners, falling 10.6%.

Still, the energy sector rose 1.5% as the price of oil settled 1.1% higher at US$80.33 a barrel, extending a recent rally built around rising Chinese demand.

The TSX materials group, which includes precious and base metals miners and fertilizer companies, added 0.8% as gold held near a nine-month high.

The Dow Jones Industrial Average fell 252.4 points, or 0.76%, to 33,044.56, the S&P 500 lost 30.01 points, or 0.76%, to 3,898.85 and the Nasdaq Composite dropped 104.74 points, or 0.96%, to 10,852.27.

Both the S&P 500 and the Dow fell for a third straight session, their longest streak of declines in a month.

On the earnings front, Procter & Gamble Co declined 2.11% after warning of commodity costs pressuring profits, despite raising its full-year sales forecast.

Analysts now expect year-over-year earnings from S&P 500 companies to decline 2.8% for the fourth quarter, according to Refinitiv data, compared with a 1.6% decline in the beginning of the year.

Netflix Inc closed 3.23% lower ahead of its results scheduled for release after the closing bell on Thursday. But the stock rebounded to gain more than 3% after posting subscriber gains for the quarter and the departure of co-founder Reed Hastings as chief executive to an executive chairman role.

In credit markets, Canadian government bond yields were modestly higher across the curve, tracking the move in U.S. Treasuries.

The 10-year was up 2.4 basis points at 2.747%, after earlier touching its lowest level since Aug. 16 at 2.701%.

Canadian investors are awaiting domestic retail sales data on Friday.

Reuters, Globe staff

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