World stocks experienced a dip on Thursday, breaking a five-day rally, as investors took a breather. Oil prices also tumbled by as much as $3 per barrel due to signs of increased U.S. supply and lackluster Chinese demand.
By mid-afternoon, MSCI’s global stocks gauge had edged down by 0.18%, and Wall Street shares remained largely unchanged. The Dow Jones Industrial Average dropped by 0.3%, while the S&P 500 and the Nasdaq Composite showed minimal change.
The mood on Wall Street was further dampened by a plunge in the shares of Cisco Systems and Walmart, following underwhelming forecasts for demand.
Despite recent significant gains, some analysts believe that equity markets are unlikely to experience a sharp decline for now, as investors remain optimistic about the possibility that U.S. interest rates may have reached their peak.
However, oil prices plummeted by almost $4 per barrel, with U.S. crude falling 5% to $72.84 per barrel and Brent dropping by 4.8% to $77.32 per barrel. The decline in oil prices can be attributed, in part, to a substantial increase in U.S. crude stocks, which rose by 3.6 million barrels last week to reach 421.9 million barrels, surpassing analysts’ expectations.
In Europe, the pan-European STOXX 600 index fell by 0.72% from a one-month high.
The U.S. dollar weakened after data revealed that the number of Americans filing new claims for unemployment benefits reached a three-month high last week, indicating a slowdown in the labor market, which could aid the Federal Reserve in its fight against inflation.
The dollar index narrowed its earlier losses and remained steady, while the euro saw a 0.12% increase to reach $1.08585. Gold prices benefited from the weak dollar, surging by 1.2% to $1,982.19 per ounce.
The indication of a cooling U.S. labor market has affected Treasury yields, with benchmark 10-year notes dropping by 9.2 basis points to 4.443%, from 4.537% on Wednesday. The 2-year note also decreased by 8.5 basis points, resulting in a yield of 4.8417%, down from 4.916%.
Societe Generale FX strategist Kit Juckes stated that without consistent confirmation of an economic slowdown from every piece of data, momentum in major trades risks running out. Until rate cuts become imminent, market movements will likely be sporadic. The dollar sell-off, bond market rally, and equity market are currently unpredictable.
Germany’s 10-year bond yield slipped to a nearly two-month low of 2.579%, while sterling reached a six-month low against the euro, as predictions in London suggest that the Bank of England (BoE) may begin cutting rates soon. Although some analysts believe rate cuts may occur as early as May, BoE policymaker Meg Greene cautioned that investors may have misunderstood central banks’ message that interest rates will remain higher for a longer period.
Meanwhile, in Asia, stocks fell due to new data from China revealing ongoing weakness in its struggling property sector, dampening recent optimism about the recovery of the world’s second-largest economy. Although China’s industrial and retail sectors have shown signs of improvement, property investment has sharply declined, leading to weak home prices.
Japanese exports grew for a second consecutive month in October, but at a much slower pace due to a slump in chip and steel shipments to China.
Tina Teng, market analyst at CMC Markets, noted that the weak economic data from China and Japan underscores the global economic slowdown and the persistent macroeconomic challenges faced by businesses.
In response to the first meeting in years between U.S. President Joe Biden and Chinese President Xi Jinping, Chinese stocks displayed disappointment. Shanghai’s blue-chip CSI300 index closed down by 1%, and Hong Kong’s Hang Seng index ended 1.3% lower. While the two leaders agreed to resume military-to-military communications and cooperate on anti-drug policies, investors were disappointed by the lack of other breakthroughs.
More detail via Yahoo! Finance here… ( Image via Yahoo! Finance )