Bank of Canada Lowers Rates; Stock Indices Decline Ahead of US Elections

On Wednesday, the Bank of Canada (BoC) made a significant decision to cut interest rates by 0.5%, marking the first major reduction in the current easing cycle after three successive cuts of 0.25%. This move aims to address slowing inflation and a weakening labor market. As a result of this rate cut, the Canadian dollar fell to 1.38 per US dollar, reaching its lowest point since August. The decline in the CAD was also influenced by decreasing oil prices, which negatively impacted the Canadian economy's export capabilities.

The reaction in the stock markets was palpable. By the market close on Wednesday, major US equity indices recorded sharp declines. The Dow Jones (US30) Index dropped by 0.96%, the S&P 500 Index (US500) saw a decrease of 0.92%, and the NASDAQ Technology Index (US100) fell by 1.55%. This downward trend in the equity markets was driven by rising Treasury yields and growing concerns regarding the upcoming US elections. In light of this uncertainty, many investors and hedge funds chose to secure their profits.

The stock market's struggles were further exacerbated by negative corporate updates. For instance, shares of McDonald’s (MCD) fell by 5% due to an E. coli outbreak associated with its Quarter Pounder sandwiches that affected numerous individuals across several states. Additionally, Boeing (BA) reported a larger-than-expected negative adjusted free cash flow for the third quarter, resulting in a 1.7% decline in its stock price. Similarly, Coca-Cola (KO) saw a 2% drop following an unexpected 1% decline in its third-quarter sales.

Looking beyond North America, European markets also faced challenges on Wednesday. Germany’s DAX (DE40) fell by 0.23%, while France’s CAC 40 (FR40) closed down 0.50%. Spain’s IBEX 35 (ES35) managed to gain 0.27%, but the UK's FTSE 100 (UK100) ended with a decrease of 0.58%.

In commodities, WTI crude oil prices dropped below $71 per barrel, halting a two-day rally. This drop followed the latest data from the EIA, which indicated a surprising increase of 5.5 million barrels in US crude inventories—significantly above expectations.

In contrast, Asian markets mostly exhibited positive trends. The Nikkei 225 (JP225) in Japan experienced a slight decrease of 0.80%, while China's FTSE China A50 (CHA50) rose by 0.37%. Hong Kong’s Hang Seng (HK50) increased by 1.27%, and Australia’s ASX 200 (AU200) remained up by 0.13%. Chinese markets benefited from optimism regarding a proposed 2 trillion yuan market stabilization fund, advocated by a government-affiliated think tank. Furthermore, China's central bank announced plans to bolster liquidity support for the stock market.

In other news, the Australian Manufacturing PMI Index recorded a slight decline to 46.6 in October compared to 46.7 in September, indicating continued challenges in the manufacturing sector. Conversely, the services PMI business activity index rose marginally to 50.6.

The New Zealand dollar also faced pressure, trading near a two-month low due to a strengthening US dollar and speculation surrounding the Federal Reserve's potential management of interest rate cuts. Additionally, the Reserve Bank of New Zealand is anticipated to announce another 50 basis points cut in rates at their upcoming meeting.

As markets look ahead, several key economic indicators are set to be released, including the US Initial Jobless Claims and Manufacturing PMI data later today.

Bank, Canada, Stocks