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Equities
Canada’s main stock index fell at open on Thursday as oil prices, one of the country’s major exports, tumbled and pressured energy stocks.
At 9:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 105.57 points, or 0.65 per cent, at 16,221.78.
Energy stocks fell 4 per cent as oil prices dropped. MEG Energy was down 8 per cent, Encana was off 5.9 per cent and Cenovus Energy was off 4.4 per cent.
Health care stocks fell 2 per cent.
In Canada, the trade outlook improved. Ottawa will introduce legislation to ratify Canada’s new trade agreement with the United States and Mexico as soon as next week, according to a senior Canadian government official.
Financial stocks were down 0.8 per cent with RBC down 1.8 per cent and Industrial Alliance fell 2.6 per cent.
In corporate news, the bank earnings parade continues. Royal Bank of Canada reported a 6-per-cent increase in adjusted quarterly profit, boosted by loan growth in its retail banking business and higher revenue in its trading business from improved market conditions. Adjusted net income available to shareholders rose to $3.16-billion, or $2.23 per share, higher than the $2.17 expected by analysts.
TD Bank Group reported a 6.7-per-cent increase in adjusted second-quarter profit as the bank benefited from strong performance in its retail business. Net income, excluding special items, rose to $3.27-billion, or $1.75 per share. Analysts on average expected earnings per share of $1.67, according to IBES data from Refinitiv. Its shares reose 1.2 per cent, one of the few financial stocks that were up.
CIBC shares fell 4.4 per cent in trading Wednesday after it lowered its full-year profit outlook after reporting flat second-quarter earnings. Its shares fell 1.9 per cent.
U.S. stocks opened lower on Thursday, as investors feared that the U.S.-China trade spat could spiral into a technology cold war between the two countries, with no signs of a resolution in sight.
The Dow Jones Industrial Average fell 118.62 points, or 0.46 per cent, at the open to 25,657.99. The S&P 500 opened lower by 19.57 points, or 0.69 per cent, at 2,836.70. The Nasdaq Composite dropped 90.13 points, or 1.16 per cent, to 7,660.72 at the opening bell.
Beijing said Washington needs to correct its “wrong actions” for trade talks to continue after the United States blacklisted Huawei Technology Co Ltd last week.
Although the Trump administration temporarily eased curbs on the Chinese telecoms gear maker, tensions again mounted on Wednesday following reports that the United States was considering sanctions on Chinese video surveillance firm Hikvision.
Investors now fret that tit-for-tat tariffs and other retaliatory actions by the world’s two largest economies will hold back global growth, especially hitting the high-growth technology sector.
Apple Inc shares fell 1.7 per cent, while those of chipmakers, which have a higher revenue exposure to China, also declined. Intel Corp, Micron Technology Inc and Qualcomm Inc slipped between 2.6 per cent and 4.4 per cent.
Trade-sensitive industrial bellwether Boeing Co slipped 2.9 per cent and Caterpillar Inc dropped 1.1 per cent.
“It has moved into a broader trade war. Initially, it was about tariffs and retaliation, now you’re talking about banning companies and it’s not looking good in the near-term,” said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.
“If you look at the U.S. economy a lot of the growth in earnings comes from what’s happening overseas. Now we see that’s not been helpful and as the domestic economy slows more than expected, that also could have a negative impact.”
Data from the eurozone added to the downbeat tone. A private survey showed business growth accelerating at a slower-than-expected pace this month, weighed down by a deepening contraction in the bloc’s manufacturing industry.
A report due later is expected to show Markit’s purchasing managers survey of U.S. manufacturing activity edged down to 52.5 in May from 52.6 in the previous month.
The prolonged U.S.-China trade war has rattled financial markets, knocking the benchmark S&P 500 index 3.4 per cent off its record high hit on May 1. The index is now on track to post its worst monthly decline of the year.
An increasing number of investors now seem to be hunkering down for prolonged period of trade conflict.
Analysts at Nomura warned in a note, “Without a clear way forward during an intensifying 2020 U.S. presidential election, we see a rising risk that tariffs will remain in effect through end 2020.”
Investors on Wednesday largely shrugged off the release of minutes from the Federal Reserve’s latest policy meeting, in which officials agreed that their patient approach to setting monetary policy could remain in place “for some time.”
Retail earnings were mixed. L Brands Inc jumped 12 per cent after the retailer reported better-than-expected quarterly earnings, helped by sales in its Bath & Body Works business.
Best Buy Co Inc fell 5 per cent, after climbing 2.2 per cent in premarket trading after the consumer electronics retailer forecast second-quarter sales and profit above estimates.
Hormel Foods Corp declined 3 per cent after the packaged meat producer cut its full-year earnings forecast.
Overseas, British Prime Minister Theresa May came under intense pressure after her latest Brexit gambit backfired and fuelled calls for her to quit. British media reported that May could announce her departure date as early as Friday as the bets on a more hard Brexit replacement are rising.
Britain’s FTSE fell 1.2 per cent, Germany’s DAX was off 1.5 per cent and France’s CAC declined 1.6 per cent.
In response to the ongoing trade war issues, Shanghai blue chips shed 1.7 per cent to be near their lowest since February. An index of major telecoms firms fell 3.7 per cent as suppliers to Huawei suffered. MSCI’s broadest index of Asia-Pacific shares outside Japan touched its lowest in four months.
Hong Kong’s Hang Seng fell 1.6 per cent and Japan’s Nikkei declined 0.6 per cent.
Commodities
Oil prices dropped on Thursday, extending declines from the previous session amid surging U.S. crude inventories as low refinery runs and ongoing trade tensions weighed on the demand outlook.
Brent crude futures, the international benchmark for oil prices, were at US$69.77 per barrel, down US$1.22 from their last close.
U.S. West Texas Intermediate (WTI) crude futures were down by US$1.09 at US$60.33 per barrel, after falling 2.5 per cent the previous day.
Brent is set for its biggest weekly decline in six months and WTI in 15 weeks.
Commerzbank’s Carsten Fritsch pointed to “general market sentiment and a broad sell-off in commodities, whilst gold is up. Typical risk-off pattern.”
U.S. crude oil inventories rose last week, hitting their highest levels since July 2017, the government’s Energy Information Administration said on Wednesday.
Gold prices firmed on Thursday, supported by a slide in equity markets amid fresh trade tensions, but a strong dollar kept a lid on gains as investors flocked to the safe-haven U.S. currency.
Spot gold was up 0.3 per cent at US$1,276.83 per ounce, after falling to its lowest since May 3 on Tuesday at US$1,268.97.
U.S. gold futures were 0.2 per cent higher at US$1,276.20 an ounce.
“We have the higher dollar and lower Chinese yuan pressuring gold. At the same time, yields are a bit lower and equity markets are down,” said ABN AMRO analyst Georgette Boele.
“Gold is not really a safe-haven asset at the moment. There are more offseting factors right now. Apparently there is no real strong directional move in gold at these levels,” she added.
Among other precious metals, silver rose 0.2 per cent to US$14.48 per ounce, while palladium eased 0.3 per cent to US$1,310.70.
Platinum edged 0.1 per cent lower to US$797.80 an ounce, after touching its lowest level since Feb. 15 at US$791 earlier in the session.
Currencies and bonds
The Canadian dollar weakened against its U.S. counterpart on Thursday, as investor worries about the trade war between the United States and China overshadowed domestic data showing a stronger-than-expected gain for wholesale trade.
At 9:15 a.m., the Canadian dollar was trading 0.4 per cent lower at 1.3486 to the greenback, or 74.15 U.S. cents. The currency touched its weakest level since last Friday at 1.3493.
Canadian wholesale trade increased by 1.4 per cent in March from February, Statistics Canada said, beating analysts estimates of a 0.9 per cent increase.
The data included a rise in trade volumes of 1 per cent. That was “strong” and could boost prospects for next week’s gross domestic product data, said Andrew Grantham, a senior economist at CIBC Capital Markets, in a note.
The U.S. dollar hit its highest level in a month as economic and political uncertainties swept through Europe and Asia, pinning down most major currencies such as the euro and the yuan.
Worries over German manufacturing, the effect of a trade war on Asian economies and deepening concerns over Brexit and upcoming European parliamentary elections all make it an uncomfortable time for many countries in Europe and Asia.
While the United States is not without its own worries – a trade conflict with China being a major one – investors see the greenback as a relative safe haven.
The dollar hit a high of 98.189 against a basket of six major currencies, its highest level since April 26, when it hit a two-year high of 98.33.
“Certainly the dollar has been acting like something of a safe haven even though the Fed has been more dovish than has been expected,” said Neil Mellor, FX strategist at BNY Mellon.
“I think what’s happened is that the Fed has been ’out-doved’ by other central banks one by one, the latest being the RBA [Reserve Bank of Australia] in Australia, and that has allowed the dollar to strengthen,” he added.
The U.S. 10-year Treasury yield was down slightly at 2.359 per cent while the Canada 10-year bond yield was down at 1.684 per cent.
More corporate news
Shares of Victoria’s Secret owner L Brands jumped 13 per cent in premarket trading after the company reported strong earnings late Wednesday and raised the lower end of its earnings forecast for 2019.
Earnings include: Best Buy Co Inc.; Canoe EIT Income Fund; Computer Modelling Group Ltd.; HP Inc.; Heroux-Devtek Inc.; Intuit Inc.; Medtronic PLC; NexGen Energy Ltd.; Royal Bank of Canada; Silvercorp Metals Inc.; Splunk Inc.; Toronto-Dominion Bank
Economic news
(8:30 a.m. ET) Canada's wholesale trade for March. Estimate is an increase of 0.8 per cent from February.
(8:30 a.m. ET) U.S. initial jobless claims for week of May 18. Estimate is 215,000, up 3,000 from previous week.
(9:45 a.m. ET) U.S. Markit Manufacturing PMI for May.
(10 a.m. ET) U.S. new home sales for April. The Street expects an annualized rate decline of 2.2 per cent.
With files from Reuters