Emerging market stocks lead declines in indexes across the globe on Wednesday as investors looked to take risk off the table while a deadline in the U.S.-China trade conflict loomed and U.S.-Canada trade talks resumed.
Weakness in emerging market currencies helped support the dollar, which retreated modestly as the euro rose and Britain’s sterling regained some ground in volatile trading after a four-day losing streak.
The United States and Canada resumed talks about revamping the North American Free Trade Agreement (NAFTA). Canada insisted there was room to salvage the pact despite few signs a deal was close. U.S. President Donald Trump said the United States should have a fair trade deal with Canada.
A public comment period on the possibility of fresh U.S. tariffs on another $200-billion of Chinese goods ends on Thursday, with expectations that Trump will impose the additional levies.
The deadline weighed on MSCI’s emerging markets equities index, which fell 1.7 per cent in line with a drop in the Shanghai SE Composite index.
“The linchpin will be China,” said Sameer Samana, global equity and technical strategist for Wells Fargo Investment Institute, in St. Louis, adding that if China continues to grow, other emerging market countries could regain ground.
“We’re actually kicking the tires to see where there’s value,” Mr. Samana said.
In Toronto, the S&P/TSX composite index finished down 23.73 points, or 0.15 per cent, at 16,137.57.
Energy stocks led the decline, finishing down 0.8 per cent as oil prices fell.
Shawcor Ltd fell 3.2 per cent and Precision Drilling dropped 7.5 per cent decline after TD Securities downgraded both the stocks.
The largest percentage gainer on the TSX was gold and copper miner Nevsun Resources, which jumped 17.6 per cent on a $1.86-billion buyout from China’s Zijin Mining Group Co.
The Canadian dollar was little changed against its U.S. counterpart on Wednesday, holding near its lowest in nearly seven weeks as the Bank of Canada left interest rates unchanged and investors focused on talks to revamp the NAFTA trade pact.
The Bank of Canada said it was closely monitoring the North American Free Trade Agreement (NAFTA) negotiations and other trade policy developments as it held its policy interest rate at 1.50 per cent.
The central bank, which has raised interest rates four times since July 2017, said more hikes would be needed to keep inflation on target.
“I think the market went into the meeting expecting pretty much what it got, that the Bank of Canada would leave rates on hold and that they would do nothing to discourage the market from its pricing for an October hike,” said Daniel Katzive, head of FX strategy North America at BNP Paribas in New York.
“There is a big question mark related to NAFTA and I think that’s what the focus is on now,” Katzive said.
The Canadian dollar was trading nearly unchanged at $1.3187 to the greenback, or 75.83 U.S. cents.
The currency, which touched its weakest since July 20 on Tuesday at $1.3208, traded in a range of $1.3156 to $1.3207.
In New York, The Nasdaq fell more than 1 per cent on Wednesday, dented by technology stocks after Facebook Inc and Twitter Inc executives defended their companies before skeptical U.S. lawmakers.
Adding to pressure on technology stocks, the Justice Department later said it would meet with state attorneys general to discuss worries that social media platforms were “intentionally stifling the free exchange of ideas.” Facebook and Twitter were not specifically named.
Twitter shares dropped 6.1 per cent, while Facebook shares fell 2.3 per cent, weighing on both the Nasdaq and the S&P 500.
Shares of other tech companies, including Alphabet Inc., Snap Inc. and Microsoft Corp., also fell. In the consumer discretionary sector, investors also sold off shares of Amazon.com Inc. and Netflix Inc., the two members of the group of stocks known as FANG.
The Dow Jones Industrial Average rose 22.98 points, or 0.09 per cent, to 25,975.46, the S&P 500 lost 8.04 points, or 0.28 per cent, to 2,888.68 and the Nasdaq Composite dropped 96.07 points, or 1.19 per cent, to 7,995.17.
“Anytime any company testifies before Congress, there’s the potential for additional regulation to be the result,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York. “But there’s more concern simply about their customer base, whether people would shy away from these sites.”
The pan-European FTSEurofirst 300 index lost 1.20 per cent and MSCI’s gauge of stocks across the globe shed 0.60 per cent.
Emerging market currencies showed a second day of declines, with a JPMorgan emerging market currency index falling 0.2 per cent on fears export-oriented economies would be caught in the crossfire of any escalating trade conflict.
Sterling was last trading at $1.2906, up 0.40 per cent on the day as investors positioned for a favorable Brexit outcome even after Germany appeared to shoot down an earlier report that Berlin and London might abandon key Brexit demands.
Measured against a basket of currencies, the dollar index fell 0.31 per cent, with the euro up 0.41 per cent to $1.1628.
Treasuries Benchmark 10-year notes last fell 1/32 in price to yield 2.904 per cent, from 2.902 per cent late on Tuesday. The 30-year bond last fell 5/32 in price to yield 3.077 per cent, from 3.069 per cent late on Tuesday.
Oil prices fell more than one percent on Wednesday after a U.S. Gulf storm weakened and moved away from oil-producing areas and as concerns mounted about global trade disputes and Turkey’s currency crisis hurting demand.
U.S. West Texas Intermediate (WTI) crude futures fell $1.15 to settle at $68.72 a barrel, a 1.65-per-cent loss.
Brent crude futures fell 90 cents to settle at $77.27 a barrel, a 1.15-per-cent loss. The global benchmark had climbed in the previous session to $79.72 a barrel, its highest since May.
Crude jumped on Tuesday as oil companies shut dozens of offshore platforms in anticipation of damage from Tropical Storm Gordon. The storm, however, never became a hurricane and by Wednesday energy companies and port operators along the U.S. Gulf Coast took steps to resume operations.
“Prices yesterday rose in anticipation that the storm could inflict some damage on the production and refining sector, but after all was said and done we lost a little bit of production and the refineries in Mississippi and Louisiana continued to run as Gordon made landfall,” said Andrew Lipow, president of Lipow Oil Associates.