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Nov 25, 2020

U.S. stocks slip from records after data deluge

Commodities update: U.S. oil inventories fall, copper near seven year high

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The rotation out of tech shares and into cyclicals, sparked by promising vaccine news, reversed Wednesday as investors cast a wary eye on a batch of data that suggest a possible slowdown in economic growth. Treasuries edged higher.

The S&P 500 Index retreated from an all-time high, while the Dow Jones Industrial Average fell back below 30,000. The tech-heavy Nasdaq indexes edged higher. Volume dwindled into the closing auction as traders headed out for the Thursday holiday that will keep markets closed. A deluge of data brought the first back-to-back rise in weekly U.S. jobless claims since July, an uptick in durable goods orders and a widening trade deficit.

Minutes from the Federal Reserve’s latest meeting did little to alter views. The central bank discussed providing more guidance on its bond-buying strategy during the Nov. 4-5 policy meeting. Traders are also assessing the pandemic’s effect on the economy as cases continue to rise and more jurisdictions tighten restrictions.

“The market is caught between two powerful impulses -- optimism for the post-pandemic world and fear because present reality is that the pandemic is exploding throughout the country,” said Jeff Klingelhofer, co-head of investments and portfolio manager at Thornburg Investment Management, which has US$44 billion in total client assets. “Markets could be choppy, but downside is likely limited by the vaccine.”

Small caps slumped. The Russell 2000 is still up 20 per cent in November, headed for the best month in its 41-year history. Gold was little changed, Bitcoin pulled back from near a record and the 10-year Treasury yield fell. The dollar weakened.

The mediocre economic data dimmed positive vaccine news and the formal start of President-elect Joe Biden’s transition to power -- including the selection of Janet Yellen as Treasury secretary -- that had fueled optimism about the outlook for risk assets. At the same time, restrictions to curb surging coronavirus cases threaten to slow the world’s economic recovery. An MSCI gauge of global shares stalled on Wednesday after gaining 13 per cent in November, still set for the best month since 1988.

“We remain on fragile footing heading into the winter as cases continue to climb globally,” said Mike Loewengart, managing director of investment strategy at E*Trade Financial. “And since the markets are forward looking, this data will likely be taken in stride. The markets tend to cheer on certainty so the presidential transition and vaccine developments are two factors it’s latched onto lately.”

In Europe, the Stoxx Europe 600 Index edged lower, as cyclicals such as mining and energy firms fell, offsetting advances in defensives including utility shares. ABN Amro Bank NV and Commerzbank AG dropped more than 3 per cent and led euro-area lenders lower after the European Central Bank said the industry will probably have to set aside more money to soak up losses when government pandemic support ends.

Here are some key events coming up:

  • Thursday sees a policy decision and briefing from the Bank of Korea.
  • U.S. celebrates the Thanksgiving holiday on Thursday. The stock market closes at 1 p.m. on Friday.
  • The week ends with Black Friday, the traditional start of the U.S. holiday shopping season.

Here are the main moves in markets:

Stocks

  • The S&P 500 Index slid 0.2 per cent as of 4 p.m. New York time.
  • The Nasdaq 100 rose 0.6 per cent.
  • The Dow average lost 0.6 per cent
  • The Stoxx Europe 600 Index declined 0.1 per cent.
  • The MSCI Asia Pacific Index was little changed.
  • The MSCI Emerging Market Index fell 0.4 per cent.

Currencies

  • The Bloomberg Dollar Spot Index fell 0.1 per cent.
  • The euro gained 0.2 per cent to US$1.1914.
  • The British pound rose 0.1 per cent to US$1.3378.
  • The onshore yuan strengthened 0.3 per cent to 6.574 per dollar.
  • The Japanese yen was little changed at 104.4 per dollar.

Bonds

  • The yield on 10-year Treasuries declined one basis point to 0.87 per cent.
  • The yield on two-year Treasuries was little changed at 0.16 per cent.
  • Germany’s 10-year yield fell one basis point to -0.58 per cent.
  • Britain’s 10-year yield declined to 0.318 per cent.
  • Japan’s 10-year yield dipped less than one basis point to 0.021 per cent.

Commodities

  • West Texas Intermediate crude gained 3.6 per cent to US$45.62 a barrel.
  • Brent crude gained 1.5 per cent to US$48.59 a barrel.
  • Gold futures were flat at US$1,810.70 an ounce.

--With assistance from Adam Haigh and David Wilson.