Stocks fell in major markets around the world on Tuesday and emerging markets currencies lost ground while the U.S. dollar rose as investors looked for safety as they braced for an escalation in the U.S.-China trade conflict.
Emerging markets stocks and currencies were under added pressure on concerns about inflation in Turkey, and after data showed South Africa had slumped into recession in the second quarter.
U.S. Treasury yields rose as investors prepared for heavy corporate debt supply, and as falling Italian debt yields reduced safety demand for U.S. government debt.
The public comment period on a U.S. proposal for new tariffs on Chinese goods is set to end on Thursday. U.S. President Donald Trump can then follow through on plans to impose levies on $200-billion more of Chinese imports.
U.S.-Canada trade talks ended on Friday with no deal to revamp the North American Free Trade Agreement (NAFTA) after Trump told Congress he would sign a bilateral trade pact with Mexico.
“Since August was a good month for stocks, we are seeing some profit taking and the headlines on China negotiations seem to be weighing a little bit as well,” said Sean O’Hara, president of Pacer ETFs in Paoli, Pa.
Canada’s main stock index slipped on Tuesday in a broad decline due to weak sentiment after the country failed on Friday to reach a deal with the United States to revamp the North American Free Trade Agreement.
The Toronto Stock Exchange’s S&P/TSX composite index finished down 101.58 points, or 0.62 per cent, at 16,161.30.
Nine of the index’s 11 major sectors were in the red. The materials sector led the fall with a 2-per-cent drop.
The largest percentage gainers and most heavily traded stocks on the TSX were cannabis companies. Canopy Growth Corp. jumped 15.4 per cent and Aphria Inc. rose 9.3 per cent.
Tahoe Resources fell 19.6 per cent, the most on the TSX, after Guatemala’s highest court upheld the suspension of licenses at Tahoe’s Escobal mine, one of the world’s biggest silver mines, and at the company’s smaller Juan Bosco mine.
The Canadian dollar weakened to a nearly seven-week low against its U.S. counterpart on Tuesday as an uncertain outlook for the NAFTA trade pact weighed on the currency and investors awaited an interest rate decision this week by the Bank of Canada.
Investors have become less optimistic about a deal being reached over “the next little while,” said Erik Nelson, a currency strategist at Wells Fargo. “I don’t think people are, at least in my view, concerned that it won’t happen but it is just more the near term uncertainty.”
Canada sends about 75 per cent of its exports to the United States, so its economy could be hurt if a deal is not reached.
The Bank of Canada has worried that an uncertain trade outlook will hurt business investment. The central bank is expected to leave its policy rate unchanged at 1.50 per cent on Wednesday, a Reuters poll showed.
The Canadian dollar was trading 0.7 per cent lower at $1.3183 to the greenback, or 75.86 U.S. cents. The currency touched its weakest level since July 20 at $1.3208.
Declines in Facebook and Nike shares weighed on the S&P 500 and the Dow on Tuesday, although data showing U.S. manufacturing activity accelerated in August kept losses in check.
Facebook Inc. shares fell 2.6 per cent after brokerage MoffettNathanson downgraded the social media company, warning of revenue growth deceleration.
On the Dow, Nike Inc shares fell 3.2 per cent as the company faced a backlash after it chose Colin Kaepernick, the first NFL player to kneel during the national anthem as a protest against racism, to participate in a new ad campaign.
Concerns about trade, including the prospect of additional U.S. tariffs on Chinese goods, lingered, investors said. Pressures in emerging markets, including a slump in the South African rand, also contributed to a risk-off mood.
“The things that were on the market’s radar last week, in a vacuum of other news, have taken center stage,” said Michael Antonelli, managing director of institutional sales trading at Robert W. Baird in Milwaukee. “The market is still in the first or second gear of getting to normal after the summer.”
Yet Amazon Inc briefly touched $1-trillion in market capitalization, joining Apple Inc. in achieving that milestone, after its shares rose as much as 1.9 per cent to hit a record $2,050.50. Amazon shares were last up 1.33 per cent to $2,039.51.
Based on the latest available data, the Dow Jones Industrial Average fell 12.34 points, or 0.05 per cent, to 25,952.48, the S&P 500 lost 4.79 points, or 0.17 per cent, to 2,896.73 and the Nasdaq Composite dropped 18.29 points, or 0.23 per cent, to 8,091.25.
The pan-European FTSEurofirst 300 index lost 0.74 per cent. MSCI’s gauge of stocks across the globe shed 0.50 per cent for its biggest one-day decline since Aug. 15, weighed down by declines in Wall Street’s major indexes and a drop in European stocks after China closed higher.
MSCI’s emerging market stocks index was down 0.8 per cent and on track for its fifth straight day of declines.
In currencies, the U.S. dollar index, which measures the greenback against a basket of major currencies, rose 0.33 per cent, with the euro down 0.4 per cent to $1.1576.
A JPMorgan emerging market currency index fell to its lowest since May 2017. The Mexican peso also slipped against the dollar.
“We are just waiting for something to turn the EM (emerging market) sentiment because the valuations look really attractive, but it’s just a slow meltdown at the moment,” said Standard Life Aberdeen EM portfolio manager Viktor Szabo.
Benchmark 10-year notes last fell 14/32 in price to yield 2.904 per cent, from 2.853 per cent late on Friday.
The 30-year bond last fell 38/32 in price to yield 3.0697 per cent, from 3.009 per cent late on Friday.
Oil prices were little changed on Tuesday, as energy infrastructure on the U.S. Gulf Coast braced for a hurricane, but gains were capped as a stronger dollar and report of rising stockpiles at the Cushing, Okla., hub weighed.
U.S. West Texas Intermediate (WTI) crude futures rose 7 cents to settle at $69.87 a barrel after earlier hitting a session high of $71.40. U.S. markets were closed on Monday for Labor Day.
Brent crude, which traded on Monday, was ended 2 cents firmer to settle at $78.17 a barrel, down from a session high of $79.72.
Both benchmarks jumped earlier in the session as more oil producers pulled employees out of Tropical Storm Gordon’s path and shut-in 9 per cent of U.S. Gulf of Mexico oil and gas production on Tuesday.
But the storm, expected to make a nighttime landfall as a category 1 hurricane, shifted eastward, reducing its threat to major production areas and most Gulf Coast refineries.
Reuters