US stock markets slipped back from their record high on Wednesday, as strong earnings reports from technology giants were not enough to offset weakness in the rest of the market.
The benchmark S&P 500 index fell 0.5 per cent from Tuesday’s record close, with tech groups and consumer stocks including Amazon the only sectors that made gains. The tech-heavy Nasdaq Composite was flat.
Energy stocks were the biggest drivers of the declines as oil prices retreated from their recent highs.
Microsoft and Google parent Alphabet were bright spots, jumping 4 per cent and 5 per cent respectively after they smashed analyst forecasts with third-quarter results released after the closing bell on Tuesday evening.
The weak showing followed a similarly disappointing day for European bourses. The European Stoxx 600 index closed 0.4 per cent lower. London’s FTSE 100 was down 0.3 per cent after chancellor Rishi Sunak delivered the UK’s Budget, outlining the state of the country’s public finances and Westminster’s spending plans.
Sunak said inflation was expected to average 4 per cent over the next year, while the Office for Budget Responsibility has upgraded its economic growth expectations from 4 per cent to 6.5 per cent for 2021.
News that alcohol duty would be simplified, aligning higher rates with stronger drinks, along with a new “draught relief” scheme, lifted British pub stocks to a small rally on Wednesday. Shares in JD Wetherspoon gained 5 per cent.
In Asia, Hong Kong’s Hang Seng index closed the day down 1.6 per cent.
In government bond markets, UK 10-year gilts rallied by the most since March last year — the early days of the coronavirus pandemic — after the Debt Management Office said that total planned gilt sales for the 2021-22 fiscal year were down £57.8bn relative to its April estimate, taking them to £198.4bn. The reduction came after official estimates showed that stronger-than-expected economic growth will boost government receipts, lowering spending needs.
The yield on the UK 10-year government bond dropped 0.13 percentage points to 0.98 per cent. Lower bond yields reflect higher prices.
The rally rippled into other markets, with the yield on the 10-year US Treasury note dropping 0.07 percentage points to 1.54 per cent.
Elsewhere in North America, the Bank of Canada jolted markets by abruptly ending its bond-buying programme and signalling that it could raise interest rates by the middle of next year, becoming the latest central bank to respond to stubbornly high inflation with a hawkish policy shift.
Canadian two-year government bond yields — which are sensitive to interest rate expectations — surged by 0.21 percentage points to 1.07 per cent. The prospect of higher rates helped the Canadian dollar gain 0.3 per cent against the US dollar to trade at C$1.24.
Investors had expected the BoC to halve the pace of its asset purchases to C$1bn (about $811m) a week rather than the sudden stop, said HSBC currency strategist Dominic Bunning.
Traders are primed for multiple central bank meetings in the coming days against a backdrop of high inflation, persistent concerns about economic growth and expectations of imminent monetary policy tightening as well as the tapering of pandemic-era bond-buying programmes.
The European Central Bank is set to meet on Thursday this week, the Federal Reserve on Wednesday next week and the Bank of England a day later.
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