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Equities
Canada’s main stock index edged lower at open on Friday, mirroring losses in global equities as tensions between the United States and Iran kept investors on the sidelines.
At 9:32 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 25.02 points, or 0.15 per cent, at 16,549.81.
Health care stocks were down 4.6 per cent. Canopy Growth was down 8.2 per cent after reporting quarterly revenue of $94.1-million, which was slightly better than analyst expectations.
Cronos was down 6.9 per cent and Hexo was off 5 per cent.
Consumer staples stocks fell 1.2 per cent with Alimentation Couche-Tard down 2.1 per cent, Loblaw off 1.3 per cent, and Cott down 1.1 per cent.
Tech stocks were off 0.8 per cent and consumer discretionary stocks fell 0.3 per cent.
U.S. stocks opened modestly lower on Friday, as rising tensions between the United States and Iran kept investors on edge, taking the shine off a rally in the prior session that pushed the S&P 500 to a record high.
The S&P 500 opened lower by 1.47 points, or 0.05 per cent, at 2,952.71. The Nasdaq Composite dropped 22.65 points, or 0.28 per cent, to 8,028.69 at the opening bell.
The Dow Jones Industrial Average fell 4.05 points, or 0.02 per cent, at the open to 26,749.12.
Tehran had received a message from President Donald Trump, delivered through Oman overnight, warning that a U.S. attack was imminent but adding he was against war and wanted talks, Iranian officials told Reuters on Friday.
They spoke shortly after the New York Times reported that Trump had approved military strikes against Iran in retaliation for the downing of a U.S. surveillance drone but called off the attacks at the last minute.
The benchmark S&P 500 index closed at a new record of 2,954.18 on Thursday after the Federal Reserve signalled interest rate cuts beginning as early as next month.
Money markets are pricing in three Fed rate cuts before year-end and are tipping as many as five cuts through mid-2020.
“Market risk hasn’t been switched off, it’s merely gone dim,” said Stephen Innes, managing partner at Vanguard Markets. “However, it does appear equity markets are tired and may be suffering from a bit of a hangover after partying it up to post FOMC.”
Investors will now look to a G20 summit in Japan next week for signs of progress on talks between the United States and China to resolve their differences that had sparked the benchmark index’s worst monthly performance this year in May.
Oil prices rallied about 1 per cent on fears that a U.S. military attack on Iran that would disrupt flows from the Middle East, which provides more than 20 per cent of the world’s oil output.
Chipmakers took a beating in premarket trading after Britain’s IQE Plc became the latest semiconductor company to warn on full-year revenue, citing the impact of the Huawei ban.
Shares of Intel Corp and Micron Technology fell between 0.3 per cent and 1.4 per cent, respectively.
Among other stocks, Facebook Inc fell in premarket trading but was up 0.4 per cent after the open after Bank of England Governor Mark Carney said major central banks and regulators will want oversight of the social media company’s proposed new currency and payment system Libra.
Slack Technologies Inc gained 2.7 per cent, a day after the workplace messaging platform soared nearly 50 per cent in market debut.
On the macro front, Markit manufacturing sector flash PMI data, due at 09:45 a.m. ET, is expected to show a reading 50.4 in June up from 50, a month earlier.
The PMI reading comes after data from Germany, France and euro zone came in slightly higher in June compared to May.
Worries over possible military strikes persist, and the MSCI world equity index, which tracks shares in 47 countries, fell from a seven-week high, driven mostly by weakness in Asian stocks. A rally by European stocks also faded, though a pan-European index was higher on the day.
In Europe, Britain’s FTSE was down 0.13 per cent, Germany’s DAX fell 0.15 per cent and France’s CAC was up 0.13 per cent.
In Asia, Japan’s Nikkei was down 0.95 per cent, China’s Shanghai gained 0.5 per cent and Hong Kong’s Hang Seng fell 0.27 per cent.
Commodities
Brent oil rallied above US$65 per barrel and was set to notch up a 6-per-cent gain this week on fears of a U.S. military attack on Iran that would disrupt flows from the Middle East, which provides more than a fifth of the world’s oil output.
Brent crude was up US$1.02, or 1.6 per cent, at US$65.47 a barrel. The global benchmark jumped 4.3 per cent on Thursday and was up around 6 per cent for the week, in its first weekly gain in five weeks.
U.S. West Texas Intermediate crude was up 58 cents, or 1 per cent, at US$57.63 a barrel. The U.S. benchmark surged 5.4 per cent on Thursday and was on track for a 10 per cent increase this week.
“Crude prices are spiking on increased Middle East tensions after Iran shot down a U.S. drone in what the U.S. claims is international airspace,” said Jefferies analyst Jason Gammel.
Iran said it had shot the drone over its territory.
Iranian officials told Reuters on Friday that Tehran had received a message from U.S. President Donald Trump through Oman overnight warning that a U.S. attack on Iran was imminent.
The officials said they had responded by saying that any attack would have regional and international consequences. They also said Supreme Leader Ayatollah Ali Khamenei was against talks but said they would convey the U.S. message to him.
The New York Times reported on Friday, citing sources, that Trump had approved military strikes against Iran but pulled back from launching the attacks.
Gold prices steadied after shooting up to a near six-year high on Friday, surpassing the key US$1,400 level on dovish signals from major central banks and rising tensions in the Middle East.
Spot gold was up 0.1 per cent at US$1,388.60 per ounce, after earlier hitting its highest since Sept. 2013 at US$1,410.78.
U.S. gold futures dipped 0.3 per cent to US$1,392.1.
“The Iranian tensions provided the catalyst for gold to inch above US$1,400, after threatening to break above that level since yesterday’s dovish Fed outcome,” said Howie Lee, an economist at OCBC Bank.
“There is a perfect mix of ingredients for gold’s rush to the top – a weak macroeconomic environment, low bond yields, soft dollar and rising geopolitical tensions.”
Earlier this week, in a further boost for gold, the U.S. Federal Reserve joined global peers such as the European Central Bank and the Bank of Japan with plans to cut interest rates to support flagging economic growth, hinting at cuts beginning as early as next month.
This prospect has put government bonds on a bullish footing.
The combination of a weaker dollar, falling yields and the Middle East tensions have lifted gold by nearly 4 per cent so far this week – its biggest rise since the week ended April 29, 2016. Since Wednesday, bullion has risen as much as US$70.
“Gold should remain in demand as a safe haven and as a store of value,” said Commerzbank analyst Daniel Briesemann.
“However, because the price has also been pushed up by speculative buying, the higher the price, the more attractive it is to take profits so we will see some setbacks in the near future.”
Currencies and bonds
The decline of the U.S. dollar, coupled with higher oil and gold prices boosted the loonie, which was up 0.05 per cent at 75.8 US cents, up more than a cent for the week.
The Canadian dollar strengthened to a three-month high against its U.S. counterpart on Thursday.
In addition to higher oil prices and the prospect of Fed rate cuts, the loonie has benefited from data on Wednesday showing that the annual rate of Canadian inflation climbed to a seven-month high in May.
“We have got three forces at play ... all working in the same direction, pushing the Canadian dollar to very high levels,” said Hosen Marjaee, a senior portfolio manager at Manulife Asset Management.
The U.S. dollar was headed for a big weekly loss on Friday and the euro a solid gain after a dovish shift by the Federal Reserve, and investors also briefly pushed the yen to a new five-month high amid rising tensions between the United States and Iran.
In joining the European Central Bank by opening the door to interest rate cuts and more stimulus to counter an economic slowdown, the Fed sent the dollar to its biggest two-day loss of 2019.
Forex markets were much quieter on Friday, however, as traders took stock.
The focus now shifts to whether the United States and China can resolve their trade row at a summit in Japan next week of leaders from the Group of 20 leading world economies.
Presidents Xi Jinping and Donald Trump are due to meet on the sidelines of the G20 next weekend, but analysts say chances of a decisive breakthrough are low.
An escalating dispute between the United States and Iran after the downing of an unmanned U.S. surveillance drone also supported buying of the safe-haven yen, which briefly touched a five-month high.
“The yen is continuing to benefit from the dovish shift in Fed and ECB policy alongside other low-yielding currencies such as the Swiss franc,” said MUFG analysts in a note.
The yen rose as high as 107.04 yen per dollar before falling to trade at 107.52, down 0.2 per cent on the day.
Money markets are pricing in three Fed rate cuts before year-end, starting with the next meeting in July, and tipping as many as five cuts through mid-2020.
The dollar index fell 0.1 per cent to 96.495, its lowest for two weeks. The index is headed for a fall of 1 per cent since Monday.
The benchmark 10-year U.S. Treasury yield surged in price and its yield fell below 2 per cent for the first time in 2-1/2 years on Thursday. It last stood at 2.03 per cent.
The Canada 10-year bond yield rose to 1.478 per cent.
Other corporate news
Firefighters are battling a massive fire at Philadelphia Energy Solutions’ refinery in Philadelphia that has resulted in several explosions but caused no significant injuries, the company said on Friday. The fire began early Friday morning in a butane vat at the 335,000 barrel-per-day refinery, according to the Philadelphia Fire Department’s twitter feed and a company statement. Video footage shows a later explosion that sent a massive fireball into the sky, engulfing the refinery and the surrounding area in smoke.
Chevron Phillips Chemical Co., a joint venture between Chevron Corp and Phillips 66, has offered to acquire Nova Chemicals Corp for more than US$15-billion including debt, people familiar with the matter said late Thursday. Phillips stocks was up 1 per cent in premarket trading.
Waste management company GFL Environmental Inc. is seeking to raise up to $1.98-billion (US$1.5-billion) in an initial public offering this fall, according to a person close to the transaction, one year after it brought in new private-equity backers.
A rogue employee of Desjardins Group has leaked the personal information of 2.9 million members of the financial services co-operative, but executives tried to reassure customers late Thursday that their money is safe.
Earnings include: CarMax Inc.
Economic news
(8:30 a.m. ET) Canadian retail sales for April. Consensus is a rise of 0.2 per cent from March (or 0.4 per cent excluding automobiles).
(9:45 a.m. ET) U.S. Markit manufacturing PMI for June.
(10 a.m. ET) U.S. existing home sales for May. The Street is projecting an annualized rate rise of 1.4 per cent.
With files from Reuters