U.S. and Canadian stocks are set to open lower Friday after the U.S. Federal Reserve suggested Thursday that it could potentially raise interest rates again in December if the U.S. economy remains strong.
Investors were also concerned about global growth after muted data from China and oil prices sank.
At the conclusion of its two-day meeting the Fed kept interest rates unchanged, however the central bank said it expected “further gradual increases” in lending rates, something that has kept investors on edge in recent weeks.
While the decision to hold rates was anticipated by markets, some participants had expected a more cautious approach from the central bank after a stock market rout in October.
But the Fed indicated a December increase is a distinct possibility in a robust economy. That contrasts sharply with China, where cooling producer price inflation and falling car sales suggested an economy struggling to gain traction.
“Worries about trade wars and how the slowdown in China will impact the rest of the world mean stocks appear to be more risky, so there’s a typical risk-off move in markets today,” said DZ Bank rates strategist Pascal Segesser.
However, the Dow is still on track to post its best weekly advance in nearly nine months.
On Thursday, markets ended mixed to lower, taking profits after several days of gains.
Meanwhile, weak Chinese economic data pushed global stocks toward their biggest drop in two weeks.
The confident U.S. central bank and weak Chinese data hit demand for risky assets.
MSCI’s gauge of stocks across the globe fell half a per cent, its biggest drop since Oct. 26 amid the remarks from the Fed.
Stocks in Hong Kong and China were the main losers in Asia, where a financial sector sub-index fell more than 2 per cent after China’s banking watchdog told lenders to allocate at least a third of new loans to private companies, raising the prospects of a jump in bad assets.
European stocks followed Asia lower, with main indexes opening in the red, though a batch of company earnings and UK GDP data might offer some support later in the session.
Japan’s Nikkei fell 1.05 per cent, China’s Shanghai index was off 1.4 per cent and Hong Kong’s Hang Seng fell 2.4 per cent.
MSCI’s main European index was down nearly 1 per cent and the broader Euro STOXX 600 fell 0.7 per cent.
Britain’s FTSE was off 0.9 per cent, Germany’s DAX declined 0.7 per cent and France’s CAC fell 1 per cent.
Commodities
Oil prices fell to multimonth lows on Friday as global supply increased and investors worried about the impact on fuel demand of lower economic growth and trade disputes.
Benchmark Brent crude fell below US$70 a barrel for the first time since early April, down more than 18 per cent since reaching four-year highs at the beginning of October.
Brent dropped US$1.52 to a low of US$69.13 before recovering to around US$69.60, down 4.5 per cent for the week and approaching 16 per cent this quarter.
U.S. light crude fell to an eight-month low below US$60 a barrel, hitting a trough of US$59.28, down US$1.39 and off more than 20 per cent since early October. That puts the U.S. contract officially in “bear market” territory, borrowing a definition commonly used in stock markets.
“There is no slowing down the bear train,” said Stephen Brennock, an analyst at London brokerage PVM Oil. “Instead, the energy complex has extended a rout driven by swelling global supplies and a softening demand outlook.”
Gold dipped on Friday, on track for its biggest weekly decline since August, as the dollar rose towards 16-month highs after U.S. Federal Reserve stuck to its tight monetary stance and looked set to deliver another rate hike in December.
Spot gold was 0.3 per cent lower at US$1,219.5 per ounce, having touched its lowest since Nov. 1 at US$1,217.20.
Gold is down 1 per cent for the week so far, which would be its biggest decline since the week of Aug. 17. U.S. gold futures fell 0.4 percent to US$1,220.3 per ounce.
“It is pretty clearly a dollar-related move today, which has happened since the latest decision from the U.S. Fed,” said Capital Economics analyst Ross Strachan.
The sentiment in the market “is quiet cautious after recent spikes, consolidating in the US$1,220 to low US$1,230 levels and not breaking out of that.”
Spot gold touched a peak of US$1,243.32 on Oct. 26, its highest since mid-July.
Currencies and bonds
The Canadian dollar fell slightly Friday to below the 76-US-cent level as oil prices sank into bear market territory.
The loonie “has come under pressure from a number of fronts with headlines stating Canada is pushing back over U.S. changes to the USMCA trade deal text, news the U.S. Federal Court has blocked the controversial Keystone XL oil pipeline and crude oil slipping into a bear market. The September high at $1.3226 (75.60 US cents) serves as resistance, with the pivot for the current uptrend located at $1.3102 (76.32 US cents),” RBC said in a note.
The U.S. dollar rose towards a 16-month high on Friday after the U.S. Federal Reserve kept interest rates steady and reaffirmed its monetary tightening stance, cueing up investors for a rate hike in December.
The greenback fell sharply following U.S. midterm elections on Tuesday on expectations that the outcome of the vote would make further fiscal stimulus measures unlikely.
But the dollar bounced back and on Friday returned to outperforming most major currencies, underpinned by the robust U.S. economy and rising interest rates.
“We’re wary of selling the dollar too soon, because the Fed is still hiking rates into a tightening labour market and trade tensions haven’t gone away,” said Kit Juckes, chief FX Strategist at Societe Generale.
“The U.S.-Chinese wars of words go on, and the idea that a trade deal is almost done and will be rubber-stamped (at the G20) in Buenos Aires seems very optimistic.”
The Fed is widely expected to raise interest rates in December, which would be its fourth hike this year.
Renewed strength in the dollar - which tends to appreciate from trade war tensions by acting as a safe haven - is pushing the Chinese yuan towards 7 per dollar and has seen the euro slip towards US$1.13.
The U.S. 10-year Treasury bond yield was down slightly to 3.21 per cent and the Canada 10-year bond yield was down slightly at 2.510 per cent.
Stocks to watch
Walt Disney Co.’s earnings for the latest quarter sailed passed expectations, boosted by a strong slate of movies such as Incredibles 2 as the company moves toward closing its US$71.3-billion deal to buy 21st Century Fox’s entertainment assets. It shares rose 1.8 per cent in premarket trading.
Shares in Bombardier could get hit again Friday after falling 25 per cent Thursday as the company sold assets and announced 5,000 job cuts.
Freshii Inc., the fast-food chain that debuted on the Toronto Stock Exchange in 2017 amid self-generated hype for its healthy menu and international growth prospects, left a bad aftertaste with investors after missing quarterly targets and curtailing guidance on everything from restaurant openings to sales. Its shares fell 33 per cent on Thursday.
JPMorgan cut its price target for General Electric to US$6. Its stock fell 2.9 per cent to US$8.83 in premarket trading.
Shares of Yelp Inc. took a beating Thursday after the online-reviews site reported soft third-quarter sales and indicated the current period would also be weak. Its shares were down 32 per cent in premarket trading.
Procter & Gamble Co. on Thursday announced the creation of six business units for its largest geographic markets, its biggest organizational change in the last 20 years that will be effective from July next year. The maker of Tide detergent and Oral-B toothpaste said the new divisions - fabric and home care, baby and feminine care, family care and new ventures, grooming, health care, and beauty care - will have their own chief executive officers who will report to CEO David Taylor. Its shares fell 0.1 per cent in premarket trading.
Activision Blizzard Inc. fell 11.2 per cent after the video game publisher forecast fourth-quarter earnings below analysts’ estimates.
Skyworks Solutions Inc also fell 7.3 per cent after the analog chipmaker provided weak first-quarter forecast, raising concerns of slowing demand for premium smartphones.
Dropbox Inc on Thursday reported better-than-expected third quarter results and forecast current-quarter revenue above analysts’ estimates, as the file sharing and storage firm benefits from an expanded customer base that pays more. Its shares rose nearly 10 per cent in premarket trading.
Earnings include: ARC Resources Ltd.; Boralex Inc.; Brookfield Real Estate Services Inc.; Caribbean Utilities Co. Ltd.; Cominar REIT; Diversified Royalty Corp.; Enerplus Corp.; Fiera Capital Corp.; GMP Capital Inc.; Global Water Resources Ltd.; Kelt Exploration Ltd.; Lassonde Industries Inc.; Mav Beauty Brands Inc.; McEwen Mining Inc.; Onex Corp.; Questerre Energy Corp.; Total Energy Services Inc.
More reading: Friday’s small-cap stocks to watch
Economic news
(8:30 a.m. ET) U.S. PPI Final Demand for October. The Street expects an increase of 0.3 per cent from September and 2.6 per cent year over year.
(10 a.m. ET) U.S. consumer sentiment for November (preliminary).
(10 a.m. ET) U.S. wholesale trade sales for September. Consensus is an increase of 0.3 per cent from August.
With files from Reuters