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U.S. and Canadian markets are set to fall at the open on Friday amid fears of a U.S. government shutdown and ongoing worries that global growth is slowing. Shortly past 8 a.m. (ET), S&P 500 futures were down about 0.4 per cent, while futures for the TSX 60 were just slightly in the red.
Stocks have fallen sharply for the last two days after the U.S. Federal Reserve raised interest rates again and suggested there were more increases to come in 2019 despite some worrying signs about the U.S. economy.
Markets were further spooked when U.S. President Donald Trump refused to sign legislation to fund the U.S. government unless he received money for a border wall, thus risking a partial federal shutdown on Saturday.
“Political brinkmanship in Washington is further heightening market uncertainty,” said Westpac economist Elliot Clarke.
“Friday will be a tense day in Washington, and for financial markets, as a last-minute compromise is sought.”
Adding to the air of crisis was news U.S. Defense Secretary Jim Mattis had resigned after Trump announced a withdrawal of all U.S. forces from Syria and sources said a military pullback from Afghanistan was on the cards.
The brittle mood showed on Wall Street where the Dow ended Thursday with a loss of 1.99 per cent. The S&P 500 dived 1.58 per cent and the Nasdaq 1.63 per cent. The TSX fell 0.9 per cent.
Overseas, European shares opened in negative territory, following in the footsteps of U.S. and Asian markets.
Most European stock indexes and industry indexes were in the red after the S&P 500 fell overnight, heading for its worst quarter since the dark days of the financial crisis in late 2008, with a loss of 15 per cent so far. The Nasdaq has shed 19.5 percent from its August peak, just shy of confirming a bear market.
Britain’s FTSE was off 0.25 per cent, Germany’s DAX was down 0.22 per cent and France’s CAC declined 0.28 per cent.
“China is cooling and the euro zone is slowing down, and some of the economic indicators from the U.S. have been a bit soft recently, but yet the Fed hiked rates and suggested that two more interest rate hikes were lined up for 2019,” said Michael Hewson, chief markets analyst at CMC Markets in London.
He said speculation the U.S. economy could be headed for a recession has picked up, dampening global sentiment. “Fear about a U.S. government shutdown is playing into the mix too.”
Eyes will be on U.S. inflation numbers due early Friday, which include the Federal Reserve’s preferred measure of core inflation.
The MSCI All-Country World index, which tracks shares in 47 countries, was down 0.2 per cent. It was set for its worst week since March.
Japan’s Nikkei lost 1.1 per cent to close at its lowest since mid-September last year, after giving up 5.6 per cent this week. China’s Shanghai index was off 0.8 per cent but Hong Kong’s Hang Seng rose 0.5 per cent.
Commodities
Oil prices fell to their lowest since the third quarter of 2017 on Friday, heading for losses of more than 10 percent in a week, as global oversupply kept buyers away from the market ahead of the long festive break.
Brent crude fell 77 cents US to a low of US$53.58 a barrel, its weakest since September 2017, before rallying to trade around US$53.75, down 10.8 per cent on the week.
U.S. light crude oil was down 20 cents US at US$45.68, also on course for a decline of 10.8 per cent for the week.
Crude has lost ground along with major equity markets as investors fret about the strength of the global economy heading into next year. The prospect of a possible government shutdown in the United States, the world’s biggest oil consumer, added to investors’ worries.
Falls were exaggerated by thin trading volumes and risk aversion ahead of Christmas and the New Year holidays, traders said.
“To say things are a bit negative (is) a significant understatement,” said Stephen Innes, head of trading for Asia-Pacific at OANDA.
Since reaching multi-year highs at the beginning of October, both crude oil benchmarks have lost more than a third of their value in their steepest collapse for three years.
Driving the sell-off has been sustained oversupply as the United States has emerged as the world’s biggest crude producer thanks to the success of its shale industry.
Gold edged lower as the dollar gained some ground against its peers, but concerns about global growth kept interest in safe-haven assets firm, supporting prices near the previous session’s near 6-month high.
Spot gold was down 0.2 per cent at US$1,257.01 per ounce, after jumping 1.3 per cent in the previous session to hit its highest since June 26 at US$1,266.40. U.S. gold futures fell 0.5 per cent to US$1,261.10 per ounce.
“Gold has been on a great run over the last week as the dollar has fallen out of favor,” said Craig Erlam, an analyst at OANDA. “The relationship is very strong between the two and today’s bounce in the greenback is taking the edge off the rally in gold.”
Currencies and bonds
The Canadian dollar continued to slide as oil prices hit new lows and it was trading below the 74-cent-US level on Friday near 73.85 cents US.
The U.S. dollar consolidated overnight losses on Friday and is set for its biggest weekly drop in 10 months as the threat of a U.S. government shutdown and lower bond yields on the back of concerns of slowing economic growth weigh.
“I think the markets are focusing more now on U.S. economy-specific risk rather than global economy risks and that is weighing on the dollar,” said Thu Lan Nguyen, an FX strategist at Commerzbank in Frankfurt.
Against a basket of its rivals, the dollar was broadly steady at 96.247 but is set to fall 1.2 per cent for the week, its biggest weekly drop since mid-February.
The dollar received little support from the bond markets, with yields on 10-year U.S. Treasury debt settling at 2.80 per cent, well below a more than seven-year high of above 3.2 per cent hit in November. The Canadian 10-year bond yield was down at 1.998 per cent.
Some liquidation of long dollar positions, one of the most crowded trades in global markets, was also evident a day after the Federal Reserve raised policy rates and delivered an outlook that was less dovish than traders had anticipated.
Stocks to watch
BCE Inc. and Telus Corp. are pressing the federal government not to block them from using Huawei equipment, warning that a ban on the Chinese company could lead to higher costs and delay the rollout of 5G wireless technology in Canada. Executives at Canada’s second- and third-largest cellular carriers say restrictions on Huawei’s equipment would force them to spend more for technology from other vendors, which could lead to higher prices for consumers or job cuts at the companies. The increased costs and potential need to rebuild parts of current networks could also slow deployment of next-generation technology and lead to a loss of innovation in Canada.
Exxon Mobil Corp. has scrapped plans for a $25-billion liquefied natural gas terminal in British Columbia – the latest LNG project cancelled on the West Coast. While Royal Dutch Shell PLC announced in October that it will forge ahead with the massive LNG Canada joint venture in Kitimat, B.C., at least 15 LNG proposals in the province have either been cancelled or stalled over the past two years. Exxon Mobil and its Canadian unit, Imperial Oil Ltd., had hoped to export LNG to Asia from a terminal at Tuck Inlet, near the city of Prince Rupert in northwestern British Columbia. Exxon share’s were up 0.5 per cent in premarket trading.
Nike Inc.’s quarterly results beat Wall Street estimates, boosted by strength in North America where new launches led to higher sale of more full-priced footwear and apparel online. For more than a year, Nike has been speeding up the pace of new product launches and expanding partnerships with online retailers, which helped drive a more than 30 per cent rise in digital sales in its home market. Its shares rose 8.5 per cent in premarket trading.
Earnings include: Carnival Corp.; EnWave Corp.
Economic news
(8:30 a.m. ET) Canadian real GDP at basic prices for October. Consensus is an increase of 0.2 per cent from September.
(8:30 a.m. ET) Canada's retail sales for October. Consensus is an increase of 0.6 per cent from September (or 0.4 per cent excluding automobiles).
(8:30 a.m. ET) U.S. real GDP and GDP deflator for Q3. Consensus is annualized rate rises of 3.5 per cent and 1.7 per cent, respectively.
(8:30 a.m. ET) U.S. pre-tax corporate profits for Q3. Estimate is a rise of 10.3 per cent year-over-year.
(8:30 a.m. ET) U.S. durable goods orders for November. Consensus is an increase of 1.8 per cent from October.
(8:30 a.m. ET) U.S. personal spending and personal income for November. The Street expects an increase of 0.3 per cent from October for both.
(8:30 a.m. ET) U.S. Core PCE Price Index for November. Consensus is a rise of 0.2 per cent from October and 1.9 per cent year-over-year.
(10:30 a.m. ET) Bank of Canada Business Outlook Survey and Senior Loan Officer Survey for Q4 is released.
Also: Canada's budget balance for October.
With files from Reuters