A modest global rally in stocks on Wednesday spurred by a newly unveiled U.S. plan that takes a less confrontational approach to curbing Chinese acquisitions of American technology faded as investors shed optimism, but strong gains in oil limited losses.
U.S. President Donald Trump’s administration unveiled a plan for a stronger security review process of foreign investors acquiring American technology, easing its tone from previous remarks indicating it would specifically block Chinese investments.
“Such legislation will provide additional tools to combat the predatory investment practices that threaten our critical technology leadership, national security, and future economic prosperity,” Mr. Trump said in a statement.
Based on the latest available data, the Dow Jones Industrial Average fell 165.52 points, or 0.68 per cent, to 24,117.59, the S&P 500 lost 23.43 points, or 0.86 per cent, to 2,699.63, and the Nasdaq Composite dropped 116.54 points, or 1.54 per cent, to 7,445.09.
After an initial rally, the S&P technology and industrial sectors — which have a relatively high revenue exposure to China – fizzled.
Canada’s main stock index also gave up early gains despite a jump in oil prices on Wednesday.
The S&P/TSX composite index unofficially finished down 48.84 points, or 0.30 per cent, to 16,231.25.
Energy stocks jumped 1.5 per cent, while marijuana producers led a 4.7-per-cent drop in health care stocks. Canopy Growth Corp. was down 10.1 per cent, while Aphria Inc. fell 7.3 per cent and Aurora Cannabis Inc. declined 5 per cent.
Corus Entertainment declined 18.6 per cent to an all-time low after reporting lower-than-expected third-quarter revenue.
The Canadian dollar weakened to a one-year low against its U.S. counterpart on Wednesday after a speech by Bank of Canada Governor Stephen Poloz reduced bets for an interest rate hike next month from the central bank.
The effects of U.S. steel and aluminum tariffs and tighter mortgage rules will “figure prominently” in the Bank of Canada’s July decision on interest rates, Poloz said.
“We have seen a pretty aggressive sell-off in the Canadian dollar in response to the Poloz speech,” said Eric Theoret, a currency strategist at Scotiabank.
The market was looking for some clarity on the prospect of an interest rate hike next month but the speech put the focus on upcoming domestic data, Theoret said.
Chances of a rate increase at the July 11 announcement fell to less than 50 per cent from about 55 per cent before the speech.
Canada’s gross domestic product data for April and the Bank of Canada Business Outlook Survey are due on Friday.
The Canadian dollar was trading 0.5 per cent lower at $1.3370 to the greenback, or 74.79 U.S. cents. The currency touched its weakest since June 12, 2017 at $1.3386.
Investors said the latest development in U.S.-China trade dispute was not enough to ease their concerns about global commerce.
“Nothing today came out other than commentary from the administration,” said Michael Antonelli, managing director, institutional sales trading at Robert W. Baird in Milwaukee. “The problems that we’re dealing with in the market aren’t going to be allayed by a couple of interviews.”
MSCI’s gauge of stocks across the globe shed 0.43 per cent.
MSCI’s broadest index of Asia-Pacific shares outside Japan closed 1.43 per cent lower, while Japan’s Nikkei dropped 0.31 per cent.
Declines in that index were led by China’s Shenzen-listed blue chips, which sank 2 per cent to a whisker above 13-month lows. Chinese equities have now fallen into bear market territory, having tumbled 20 per cent from recent peaks.
Political concerns in Europe are also worrying investors at the margin as a fight over migration policy in Germany’s coalition government rumbles on, raising fears that Europe’s biggest economy could be headed for snap elections.
That also contributed to pushing euro zone yields lower , with those in Germany edging toward one-month lows.
Trump’s latest plans to screen foreign investments led some safe-haven investments lower.
The dollar, however, rose broadly, including against the Swiss franc and Japanese yen, on the U.S. new plan on foreign investments.
The dollar index, which measures the greenback against a basket of six other currencies, was up 0.63 per cent at 95.249, on pace for its second straight day of gains.
The Japanese yen weakened 0.15 per cent versus the greenback to 110.23 per dollar.
Gold prices slipped to a six-month low as the dollar strengthened, making bullion more expensive for buyers using other currencies.
The move takes gold’s decline this month to more than 3 percent - the biggest monthly drop since September - driven by a dollar rally, a large decline in gold held by exchange-traded funds and a sharp fall in speculative bets on higher prices.
Spot gold dropped 0.4 per cent to $1,253.70 an ounce. U.S. gold futures fell 0.34 per cent to $1,255.60 an ounce.
U.S. Treasuries gave back some price gains after Trump’s statement, but yields continued lower on the uncertainty.
“For the most part, the specter of trade wars is still really weighing on risk here and that’s what’s keeping Treasuries better bid,” said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.
Oil prices jumped on Wednesday as plunging U.S. crude stockpiles compounded supply worries in a market already uncertain about Libyan exports, a production disruption in Canada and Washington’s demands that importers stop buying Iranian crude from November.
Little spare capacity remains to offset any further production disruptions, said John Kilduff, a partner at Again Capital Management.
“The bulls will run the table and are going to be helped out by random events that will come out of left field and keep this thing going,” Kilduff said.
U.S. crude futures rose $2.23, or 3.16 per cent, to settle at $72.76 a barrel. The contract touched $73.06 a barrel, the highest since Nov. 28, 2014. Brent crude rose $1.31, or 1.7 per cent, to settle at $77.62 a barrel.
U.S. crude stocks fell nearly 10 million barrels last week, the most since Sept. 2016, while gasoline and distillate inventories rose less than expected, the Energy Information Administration said.
Crude stocks at the Cushing, Oklahoma, delivery hub for the NYMEX futures contract fell 2.7 million barrels, EIA said.
“Cushing is a whopper,” said Bob Yawger, director of energy futures at Mizuho.
The report reflected only one single day of a Syncrude production disruption in Canada, where output flows to pipelines that go to Cushing. Production at Syncrude’s oil sands facility was offline at least through July, after a power outage last week locked in 350,000 bpd.
“Next week, you’re going to have a Cushing storage number that includes seven days of the Syncude outage. The math there would imply that you’d get an even bigger draw than this week,” Yawger said.
The front-month U.S. crude contract traded at $4.67 above the sixth-month contract, the most since July 2014. This encourages further drawdowns from storage.
The fall in Canadian exports helped drain supplies of heavy crude across North America, analysts said. Also keeping markets on edge was the risk of a disruption to supplies from Africa and the Middle East.
Reuters