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Equities
Canada’s main stock index opened higher on Thursday, as the U.S. Federal Reserve signalled a likely interest rate cut to counter growing risks to global and domestic growth and was also lifted by rising gold and oil prices.
At 9:34 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 79.14 points, or 0.48 per cent, at 16,590.93.
The materials index was biggest gainer, up 2 per cent. Yamana Gold was up 7.5 per cent, Kinross was up 5 per cent and Barrick was up 4.4 per cent.
Energy stocks rose 1.5 per cent. Crescent Point was up 5.6 per cent, Baytex gained 4.4 per cent and Encana gained 2.7 per cent.
Health care stocks were up 1.2 per cent. Cronos rose 3.9 per cent, Bausch was up 3.5 per cent and Hexo gained 1.4 per cent.
The S&P 500 hit a record intraday high soon after the market opened on Thursday as investors took comfort from signs that the Federal Reserve could cut interest rates as soon as next month to counter growing risks to global and domestic growth.
The Dow Jones Industrial Average rose 161.38 points, or 0.61 per cent, at the open to 26,665.38. The S&P 500 opened higher by 23.14 points, or 0.79 per cent, at 2,949.60. The Nasdaq Composite gained 100.12 points, or 1.25 per cent, to 8,087.45 at the opening bell.
The central bank left rates unchanged at the end of its two-day June policy meeting on Wednesday, but pledged to “act as appropriate” to sustain economic health.
The S&P and the Dow Jones Industrial Average have gained in recent weeks on hopes of a rate cut, moving within striking distance of record closes set in late April.
“Chairman Jerome Powell’s comments that ‘the case for additional accommodation has strengthened’ was exactly what market participants wanted to hear,” said Robert Johnson, chief executive officer at Economic Index Associates in New York.
“A continued trade war with China could be the catalyst that sends the U.S. economy into recession and rates cuts can be viewed as preemptive strikes by the Fed to prevent that from happening.”
Buoying sentiment was data which showed the number of Americans filing applications for unemployment benefits fell more than expected last week, pointing to underlying labour market strength despite a sharp slowdown in job growth in May.
U.S. treasury bond yields tumbled and the dollar was on track for its biggest two-day drop this year on the more-than-expected dovish Fed.
Top Chinese and U.S. officials will resume trade talks in accordance with the wishes of their leaders, but China hopes the United States will create the necessary conditions for dialogue, the Chinese commerce ministry said on Thursday.
Among stocks, Apple Inc rose 0.9 per cent after Evercore ISI raised its price target on the iPhone maker, saying investors are underappreciating a large growth opportunity.
Boeing Co gained 1 per cent after the planemaker said it is in talks with other airlines for sales of its 737 MAX after receiving a letter of intent for 200 of the grounded planes from British Airways owner IAG.
Oracle Corp jumped 8.3 per cent after the business software maker forecast current-quarter profit above estimates as it benefited from demand for its on-premise IT, cloud services and license support businesses.
Cruise operator Carnival Corp slid 9.4 per cent after cutting its profit forecast for the year on the Trump administration’s sudden ban on cruises to Cuba and expected lower ticket prices in the coming months.
Rivals Royal Caribbean Cruises Ltd and Norwegian Cruise Line Holdings Ltd also fell.
Many saw the tone from the Fed was more dovish than expected and are now pricing in a 100 per cent chance the Fed will cut rates in July, according to the CME FedWatch tool.
The Fed’s rate signal came before meetings at major central banks in Asia and Europe that were expected to flag similar moves. The European Central Bank and the Australian central bank had earlier signalled this week more policy stimulus was needed.
“It becomes a race to the bottom for global rates markets, a race to the bottom for FX,” said Peter Chatwell, head of rates at Mizuho.
The Bank of Japan left rates unchanged on Thursday but stressed that global risks were rising, suggesting it was leaning towards boosting monetary support.
But Norway’s central bank raised rates, as expected, sending the Norwegian crown up 1.6 per cent against the dollar and 1 per cent against the euro.
The Bank of England cut its growth forecast for Britain’s economy to zero in the second quarter of 2019 and highlighted risks from global trade tensions and growing fears of a no-deal Brexit.
BoE officials voted unanimously to hold interest rates at 0.75 per cent, as expected, and stuck to their message that rates would need to rise in a limited and gradual fashion, assuming Britain can avoid a damaging no-deal Brexit.
Overseas, Britain’s FTSE rose 0.64 per cent, Germany’s DAX gained 0.89 per cent and France’s CAC added 0.69 per cent.
In Asia, Japan’s Nikkei rose 0.6 per cent, China’s Shanghai rose 2.4 per cent and Hong Kong’s Hang Seng rose 1.2 per cent.
Commodities
Oil rose by more than 3 per cent to above US$63 a barrel on Thursday after Iran shot down a U.S. military drone, raising fears of a military confrontation between Tehran and Washington.
Expectations that the U.S. Federal Reserve could cut interest rates at its next meeting, stimulating growth in the world’s largest oil-consuming country, and a drop in U.S. crude inventories, also provided support to prices.
Brent crude, the global benchmark, was up US$1.40 at US$63.22 a barrel, having earlier risen 3.3 per cent to US$63.88. U.S. West Texas Intermediate crude rose US$1.54 to US$55.30.
“The risk of a military conflict in the Middle East has risen because of a ratcheting up of tensions between the United States and Iran,” said Abhishek Kumar of Interfax Energy in London.
“Elsewhere, the U.S. Federal Reserve has signalled its willingness to loosen monetary policy over the coming months, which is being perceived as favourable to oil demand.”
The drone was downed in international airspace over the Strait of Hormuz by an Iranian surface-to-air missile, a U.S. official said. Iran’s Revolutionary Guards said the drone was flying over southern Iran.
Gold prices surged to their highest in more than five years on Thursday after the U.S. Federal Reserve signalled a possible interest rate cut as early as next month, pressuring U.S. Treasury yields and the dollar.
Spot gold was up 1.7 per cent at US$1,382.61 per ounce, after hitting its highest since March 17, 2014 at US$1,386.38 earlier.
Gold prices have gained about US$80 so far this month.
U.S. gold futures jumped 2.8 per cent to US$1,386.30 an ounce, after touching their highest since April 2018 at US$1,397.70.
“The driver for the surge is obviously the Fed delivering the dovish tilt that the market was looking for. It removed the ’patience’ approach to cutting rates,” said Saxo Bank commodity strategist Ole Hansen said.
Lower interest rates decrease the opportunity cost of holding non-yielding bullion and weigh on the dollar, making gold cheaper for investors holding other currencies.
“The main reason why we are seeing interest rate expectations being reduced so dramatically [around the globe] is because economic data is not moving up to previous strength and that has also raised questions of how much further stock markets could continue to benefit from these rate cuts,” Hansen said.
“The (gold’s) move higher looks constructive for a further test toward US$1,400 as participants focus upon the Fed’s dovish skew, with potential targets extending toward US$1,450 should near-term support around US$1,375 remain intact,” MKS PAMP Group said in a note.
Currencies and bonds
The Canadian dollar was trading higher near the 75.8 cents US mark, lifted by higher gold and oil prices.
The Canadian dollar gained as the U.S. dollar weakened.
The U.S. dollar sank broadly against its rivals on Thursday and is on track for its biggest two-day drop in a year after the U.S. Federal Reserve signalled it was ready to cut interest rates as early as next month.
The sharp fall in the dollar took currency markets by surprise and forced some hedge funds that had built up large long dollar bets before the rate decision to dump the greenback.
The Fed joined global peers such as the European Central Bank and the Australia’s central bank this week in signalling that more policy stimulus is needed to boost growth. That fuelled a rally in relatively higher-yielding currencies such as the Australian dollar and the Korean won.
“It seems to us as if the ‘dovish’ Fed and Trump/Xi trade optimism narratives are both being rolled into a single ball of USD negativity,” said Stephen Gallo, European head of FX strategy at BMO Capital Markets.
The dollar fell 0.5 per cent against a basket of its rivals to 96.64, putting it on course to posting its biggest two-day losing streak since February 2018.
It also retreated by 0.5 per cent to a six-month low against the Japanese yen at 107.47.
“With global central banks engaged in a battle to weaken their currencies, there is a rush to high-quality currencies with higher interest rates,” said Neil Mellor, a senior currency strategist at BNY Mellon in London.
The greenback came under additional pressure after benchmark 10-year Treasury yields slid to their lowest level in more than two years.
The Fed’s dovish tone caused the 10-year U.S. Treasury’s yield to fall as low as 1.974 per cent, its lowest since November 2016. It reached 2.8 per cent in January.
The Canadian 10-year government bond yield was at 1.426 per cent.
Other corporate news
Hudson’s Bay Co. won a shareholder vote on a $29.4-million pay package for its chief executive officer, Helena Foulkes, but the measure received a strong rebuke from minority investors. At the company’s annual meeting on Wednesday afternoon, shareholders of HBC − the owner of Hudson’s Bay, Saks Fifth Avenue and Lord & Taylor − voted 26.5 per cent against the company’s executive compensation plan, including the big package for Ms. Foulkes. The percentage opposed was more than 30 per cent when shares controlled by executive chairman Richard Baker are excluded. Its stock was down 1.7 per cent.
Iamgold Corp. shares were up by about 10 per cent after Bloomberg News reported the company is “exploring a possible sale of all or part of the company,” citing people familiar with the matter. Bloomberg reported that the Toronto-based miner is “working with advisers and has spoken to several potential buyers.”
The cannabis industry’s first major cross-border deal received shareholder approval on Wednesday, with shareholders of both Canopy Growth Corp. and U.S. marijuana firm Acreage Holdings Inc. voting overwhelmingly in favour of a partnership between the two companies. The unusual deal will see Canopy pay US$300-million for the rights to acquire Acreage some time in the future at a predetermined share-exchange ratio. An actual acquisition – which was valued at around US$3.4-billion, based on both companies’ share price when the deal was announced in April – will be triggered if U.S. federal cannabis laws change. Canopy was down 0.2 per cent and Acreage rose 1.8 per cent.
The U.S. Federal Bureau of Investigation is examining whether Deutsche Bank complied with laws meant to stop money laundering, a person with knowledge of the matter said on Thursday. The inquiry, first reported in the New York Times, follows a report by that newspaper last month about bank employees in its U.S. compliance division who had flagged suspicious financial transactions to their superiors who then opted not to escalate them to government authorities. The transactions were notable because they were linked to companies controlled by U.S. President Donald Trump and his son-in-law and adviser Jared Kushner, according to the report.
Darden Restaurants, parent company of the Olive Garden and other restaurant chains, reported adjusted quarterly earning of $1.76 per share, 3 cents above estimates. Revenue fell short of estimates and comparable restaurant sales of 1.6 per cent missed estimates of 2.3 per cent. Its shares fell 1.8 per cent.
Workplace messaging company Slack will debut Thursday on the New York Stock Exchange in a direct listing. Its stock was set at US$26 per share, giving it a value of US$15.7-billion.
Earnings include: BlackBerry Ltd.; Canopy Growth Corp.; Evertz Technologies Ltd.; GoldMoney Inc.; Red Hat Inc.
Other news
Mexico on Wednesday became the first country to ratify the United States-Mexico-Canada Agreement (USMCA) agreed late last year to replace the North American Free Trade Agreement (NAFTA) at the behest of U.S. President Donald Trump.
Canada’s federal and provincial governments earned $186-million in tax revenues from direct sales of cannabis in the first five-and-a-half months of legalization, Statistics Canada data showed on Wednesday, after two major provinces cut their revenue forecasts.
Economic news
The U.S. current account deficit narrowed sharply in the first quarter as imports of goods declined, while U.S. companies continued to repatriate foreign earnings following the overhaul of the tax code in 2018.
The Commerce Department said on Thursday the current account deficit, which measures the flow of goods, services and investments into and out of the country, fell 9.4% to $130.4 billion.
Data for the fourth quarter was revised to show the deficit widening to $143.9 billion, instead of the previously reported $134.4 billion. The government revised current account data from 2016 through the fourth quarter of 2018.
Economists polled by Reuters had forecast the current account deficit shrinking to $124.6 billion in the first quarter. The current account gap represented 2.5% of gross domestic product in the January-March quarter, down from 2.8% in the fourth quarter.
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The number of Americans filing applications for unemployment benefits fell more than expected last week, pointing to underlying market strength despite a sharp slowdown in job growth in May.
Initial claims for state unemployment benefits dropped 6,000 to a seasonally adjusted 216,000 for the week ended June 15, the Labor Department said on Thursday. Data for the prior week was unrevised.
Economists polled by Reuters had forecast claims would decrease to 220,000 in the latest week. The Labor Department said no states were estimated. The drop in claims followed three straight weekly increases.
Claims are being closely watched for signs of a rise in layoffs stemming from a recent escalation in trade tensions between the United States and China.
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(8:30 a.m. ET) Canada’s ADP National Employment Report for May.
(10 a.m. ET) U.S. leading indicator for May. Consensus is an increase of 0.1 per cent from the previous month.
Also: Canadian prime minister Justin Trudeau meets with U.S. president Donald Trump in Washington.
With files from Reuters