World equity markets declined on Thursday, snapping a seven-session winning streak, with U.S. stocks on the defensive and the dollar strengthening after the Federal Reserve kept interest rates unchanged.
The U.S. central bank held rates steady and said ongoing strong job gains and household spending had kept the economy on track. Its statement showed little change in the Fed’s outlook for the economy since the Fed’s previous meeting in September aside from noting that “business investment had moderated from its rapid pace earlier in the year.”
“The Fed has recognized that there is one part of the economy that is slowing a little bit, but it is not deterring them from their gradual increase language. Not yet anyway,” said Jamie Cox, managing partner at Harris Financial Group in Richmond, Virginia.
“There is really nothing to point to what the market had hoped, that there would be a more dovish stance, so I think this is more of what we call a hawkish hold.”
U.S. shares extended losses after the Fed statement, on the heels of Wednesday’s post-election rally of more than 2 percent. Those gains came as investors celebrated political gridlock in the United States as Democrats took control of the House of Representatives after the midterm congressional vote, while Republicans maintained control of the Senate.
A spate of weak earnings also gave investors reason for pause, with Qualcomm one of the biggest drags on the benchmark S&P 500 index, down 8.2 per cent as the loss of chip sales to Apple caused the company to cut its fourth-quarter outlook.
The Dow Jones Industrial Average rose 11.06 points, or 0.04 per cent, to 26,191.36, the S&P 500 lost 7.05 points, or 0.25 per cent, to 2,806.84 and the Nasdaq Composite dropped 39.87 points, or 0.53 per cent, to 7,530.89.
Canada’s main stock index dipped slightly on Thursday, as a fall in oil prices weighed on energy shares.
The Toronto Stock Exchange’s S&P/TSX Composite index unofficially finished down 11.96 points, or 0.08 per cent, at 15,357.47.
Energy stocks fell 1.7 per cent, including a 5.5-per-cent drop from Seven Generations Energy Ltd. and a decline of 4 per cent for Crescent Point Energy Corp.
Marijuana producers led health care stocks lower by 3.6 per cent. Canopy Growth Corp. lost 7.6 per cent, while Aurora Cannabis Inc. and Aphria closed down 6.1 per cent and 4.5 per cent, respectively.
Conversely, consumer discretionary sector rose 2.2 per cent, led by strong earnings reports from auto parts maker Magna International Inc. and retailer Canadian Tire Corp. Ltd..
Magna shares gained 5.5 per cent per cent, while Canadian Tire jumped nearly 11 per cent.
The financial sector rose 0.5 per cent after two of Canada’s biggest insurers, Manulife Financial Corp and Sun Life Financial, posted third-quarter earnings that surpassed market expectations, helped by sales growth in Asia.
The Canadian dollar weakened to an eight-week low against its broadly stronger U.S. counterpart on Thursday as oil prices fell and the Federal Reserve left intact its plans to gradually raise interest rates.
The Fed said ongoing strong job gains and household spending had kept the economy on track, but it did not explicitly take stock of recent volatility in U.S. equity markets.
“It didn’t raise rates today but it seems like they are still on the path to higher rates ... which causes the loonie to decline a little bit,” said Hosen Marjaee, senior managing director, Canadian fixed income at Manulife Asset Management.
Higher U.S. interest rates could reduce investor incentive to buy lower-yielding Canadian bonds. The gap between Canada’s 5-year yield and its U.S. equivalent widened by 3.1 basis points to a spread of 63.5 basis points in favor of the U.S. bond.
The Canadian dollar was trading 0.4 per cent lower at $1.3163 to the greenback, or 75.97 U.S. cents. The currency touched its weakest level since Sept. 10 at $1.3183.
European shares closed higher, led by banking shares following results from names such as SocGen and Commerzbank.
The pan-European STOXX 600 index rose 0.19 per cent and MSCI’s gauge of stocks across the globe shed 0.30 per cent.
The dollar had advanced heading into the Fed statement and slightly added to its gains after weakening in the prior session.
Traders currently see a 71.2-per-cent chance the Fed will raise rates by a quarter percentage point at its December meeting, according to CME’s FedWatch, up from 68.8 per cent on Nov 1.
The dollar index rose 0.59 per cent, with the euro down 0.45 per cent to $1.1373.
Oil prices fell nearly 2 per cent on Thursday as investors focused on swelling global crude supply, which is increasing more quickly than many had expected.
The market focused on record U.S. crude production and signals from Iraq, Abu Dhabi and Indonesia that output will grow more quickly than expected in 2019. Fears of the potential supply glut dampened a rally early in the session driven by Chinese data that showed record oil imports.
“There’s a trifecta of trouble created by U.S. stockpile builds, OPEC overproduction and the watering down of Iran sanctions,” said Bob Yawger, director of futures at Mizuho in New York.
Brent crude futures, the global benchmark, fell $1.42, or 1.97 per cent, to settle at $70.65 a barrel, the lowest since mid-August. U.S. crude futures fell $1.00, or 1.6 per cent, to $60.67 a barrel, the lowest since March 14.
In post-settlement trade, both contracts extended losses.
China’s crude imports rose to 9.61 million barrels per day (bpd) in October, up 32 per cent from a year earlier, customs data showed.
China will still be allowed to import some Iranian crude under a waiver to U.S. sanctions that will enable it to purchase 360,000 bpd for 180 days, two sources familiar with the matter told Reuters on Tuesday.
U.S. crude output reached a new record high of 11.6 million bpd in the latest week and the country has now overtaken Russia as the world’s largest oil producer. The move higher in production was a large jump, “not just a tick,” Yawger said.
The U.S. Energy Information Administration said this week it expects output to top 12 million bpd by the middle of 2019, thanks to shale oil.
Even with U.S. sanctions on Iranian oil in place, investors believe there is more than enough supply to meet demand. Waivers granted to the sanctions intensify the market’s perception that sanctions may not limit crude supply as much as initially expected.