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Equities
Canada’s main stock index opened lower on Thursday as energy companies were impacted by lower crude prices after the U.S. Federal Reserve dampened hopes of future interest rate cuts and as rising U.S. output helped keep the market well supplied.
At 9:31 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 18.33 points, or 0.11 per cent, at 16,388.23.
Energy stocks were the biggest decliners, off 2 per cent. Health care stocks fell 0.2 per cent and materials were off 0.4 per cent.
A spate of mixed earnings also impacted the market.
Disappointing earnings from Bombardier led the stock to fall 0.9 per cent, while a big loss and dividend cut at SNC Lavalin led it lower by 1.8 per cent.
Maple Leaf said sales were boosted by growing demand for plant-based protein products. Its stock was up 0.4 per cent.
Shopify Inc raised its full-year revenue forecast and reported a quarterly profit that handily beat estimates, as its investments to attract customers to its products paid off. Its stock jumped 7.5 per cent.
TC Energy Corp beat analysts’ estimates for quarterly profit but its stock slid 0.6 per cent.
U.S. stocks were subdued at open on Thursday as focus shifted back to a mixed bag of corporate earnings after a cautious message from the Federal Reserve on interest rates drove some of the biggest declines since May in the previous session.
The Dow Jones Industrial Average rose 15.59 points, or 0.06 per cent, at the open to 26,879.86. The S&P 500 opened lower by 0.06 points, or nearly flat, at 2,980.32. The Nasdaq Composite gained 15.14 points, or 0.19 per cent, to 8,190.56 at the opening bell.
The U.S. central bank reduced borrowing costs by a widely-expected quarter of a percentage point on Wednesday, but Fed Chairman Jerome Powell signalled a series of further cuts was unlikely, leading to a sharp selloff on the S&P 500 and Dow.
Powell called the cut a “midcycle adjustment,” hinting that this was not the start of a spate of rate cuts this year. Investors had been expecting up to more than 100 basis points of easing from the Fed over the next year.
U.S. President Donald Trump on Twitter said Powell had “let us down” by not signalling that more rate cuts were definitely on the way.
“We believe the Fed is trying to thread the needle, balancing market jitters about slowing global growth with robust consumer spending and a strong job market in the U.S.,” said Nick Maroutsos, co-head of global bonds at Janus Henderson.
“In other words, by cutting just 25 bps, the Fed is trying to bolster market confidence while also keeping some dry powder in reserve in case of an economic shock.”
Despite that, all three major indexes posted their second straight monthly gains in July, closing the book on a month in which the S&P 500 and the Nasdaq reached fresh record highs.
“It was always going to be a tough job for the Fed to be as dovish as stock markets hoped. The 25 bps cut was a non-event,” said Chris Beauchamp, chief market analyst at IG, in a note.
“With the Fed out of the way there is a chance that we can all get back to focusing on earnings and how earnings season continues to paint a broadly positive picture.”
Almost three weeks through earnings, reports so far have been strong. Of the 296 companies in the S&P 500 that have reported second-quarter earnings, 74.7 per cent have beaten Street estimates for profit, according to Refinitiv data.
Shares of Verizon Communications Inc rose 1.4 per cent after wireless carrier beat quarterly profit estimates as it added far more net new phone subscribers who pay a monthly bill than expected.
Kellogg Co jumped 9.2 per cent after the company beat analysts’ expectations for quarterly sales and profit, driven by higher demand for its snacks, including Pringles and Pop-Tarts, in North America.
But not all reports were upbeat.
Qualcomm Inc plunged 4 per cent after the chipmaker’s quarterly revenue and profit forecast fell short of Wall Street targets.
Concho Resources Inc slid 20 per cent after the shale producer missed second-quarter profit expectations and forecast weak current-quarter output.
On the macro front, the Institute for Supply Management’s index of national factory activity, due at 10 a.m. EDT, will likely show a reading of 52.0 in July from 51.7 in June.
This will follow IHS Markit Manufacturing Purchasing Managers’ Indexes final reading for the month July, due 9:45 a.m. EDT.
Factory activity contracted across Asia and Europe in July, fuelling worries a prolonged U.S.-China trade war and an economic slowdown could tilt the world towards recession, which central banks would have to fight with depleted ammunition.
Adding to worries, the United States and China on Wednesday ended a brief round of trade talks without much progress in ending their year-long tariff war.
Overseas, global shares recoiled overnight following remarks from Powell that Wednesday’s 25-basis-point easing was “not the beginning of a long series of rate cuts.”
In Europe, stocks were mixed with Britain’s FTSE down 0.48 per cent, Germany’s DAX down 0.12 per cent and France’s CAC up 0.15 per cent.
MSCI’s broadest index of Asia-Pacific shares outside Japan faltered 0.8 per cent, extending losses for a fifth day to the lowest since mid-June and on track for the biggest one-day percentage drop in a month.
Japan’s Nikkei reversed early declines and were a shade higher. Losses in Chinese shares accelerated after they opened lower with the blue-chip index down 0.8 per cent. Hong Kong’s Hang Seng was down 0.76 per cent.
Commodities
Oil dropped below US$65 a barrel, declining for the first time in six days, after the U.S. Federal Reserve dampened hopes for a string of interest rate cuts and as rising U.S. output helped keep the market well supplied.
Brent crude, the international benchmark, fell 69 cents to US$64.36 a barrel, having dropped more than $1 earlier in the session. U.S. West Texas Intermediate (WTI) crude was down 78 cents at US$57.80.
“A relatively upbeat mood in risky assets took a spectacular U-turn after last night’s Fed decision,” Tamas Varga of oil broker PVM said. “The dollar started to strengthen and equities and oil went into a kind of meltdown mode.”
A rising dollar makes oil more expensive for holders of other currencies and tends to weigh on commodities priced in the U.S. currency. The dollar hit a two-year peak against the euro on Thursday after the Fed decision.
Oil’s drop came despite a bigger-than-expected decline in U.S. inventories and a fall in OPEC production in July, typically bullish drivers for prices. But U.S. output rose in a market that analysts say is well supplied.
“Supply is plentiful and demand growth is showing signs of weakening globally because of trade conflicts, Brexit and other events that tend to potentially weaken economic growth and, hence, oil demand,” Victor Shum, senior partner at IHS in Singapore, said.
“There’s a lot of oil out there. U.S. output is growing strongly.”
Gold slipped to a two-week low. Spot gold fell 0.5 per cent to US$1,407.13 per ounce, after falling to its lowest since July 17 at US$1,402.15. U.S. gold futures slid 1.3 per cent to US$1,407.60 an ounce.
U.S. Fed Chairman FXTM Jerome Powell sent “mixed messages” with his forward guidance when he cut U.S. rates by 25 basis points, the first cut since the global financial crisis in 2008, FXTM analyst Lukman Otunuga said.
“The key takeaway that is causing gold to trade lower is that Powell said it’s not the beginning of a long series of rate cuts. Markets are now questioning whether it’s a one-and-done (step),” he said.
Currencies and bonds
The Canadian dollar fell and was down 0.3 per cent at 75.57 cents US.
On Wednesday, the Canadian dollar weakened to a more-than five-week low against the greenback, as comments by the Federal Reserve that were seen by some investors as hawkish offset domestic data showing stronger-than-expected economic growth. It traded at the 75.78 cents US level.
Gains in the dollar after the Federal Reserve sounded cautious on more rate cuts sent the euro to a 26-month low on Thursday, as investors decided a lengthy U.S. easing cycle was unlikely.
“It’s not the beginning of a long series of rate cuts,” Fed Chairman Jerome Powell said after the Fed’s decision, although he added, “I didn’t say it’s just one rate cut.”
The Fed’s less dovish than expected message triggered a rebound in the dollar, sending the dollar index to a 26-month high of 98.93.
The U.S. dollar index against a basket of six major currencies finished July 2.5 per cent higher and was last up 0.4 per cent at 98.899. Against the Japanese yen, the dollar broke above 109 to jump to the highest since end-May.
The euro weakened to a 26-month low of $1.1034 and sterling touched a 30-month low of $1.2087.
U.S. Treasury yields edged higher after the Fed’s moves, with the 10-year note up at 2.0578 per cent. The Canadian 10-year bond yield was up slightly at 1.511 per cent.
Other corporate news
Thomson Reuters Corp raised its sales and core profit outlook for 2019 and 2020 after reporting 4 per cent organic revenue growth in the second quarter, which it said was its best since 2008 and ahead of its expectations.
Britain’s London Stock Exchange has agreed to buy financial information provider Refinitiv in a US$27-billion deal aimed at offering trading across regions and currencies and positioning the company as a competitor to Bloomberg.
Challenges in Bombardier Inc.’s rail department weighed on second quarter results on Thursday as the company reported a quarterly loss, down from a profit during the same period last year. The Canadian plane and train maker has struggled with several rail contracts that have delayed payments and affected cash flow. Bombardier posted a net loss of US$36-million, or 4 cents per share, in the second quarter ended June 30, dropping from a profit of US$70-million, or 2 cents per share, one year ago.
Canadian engineering firm SNC-Lavalin Group Inc. is slashing its dividend and bolstering controls over projects as it swung to a $2.1-billion loss for its latest quarter. The Montreal-based company is cutting its quarterly dividend to $0.02 per share from $0.10 as it moves to pay down debt and strengthen its balance sheet, SNC-Lavalin said in its second quarter earnings release Thursday. It will also introduce a new project oversight function reporting directly to its chief executive officer and continue to cut costs.
Maple Leaf Foods Inc. says its second-quarter sales rose by 12.5 per cent during the period, fuelled in part by growing demand for plant-based protein products. The company says its revenue grew to $1.02 billion, up from $909.2 million a year ago, driven by acquisitions, its value-added product portfolio and continued double-digit growth in plant-based protein. However, it posted a net loss of $6.3 million or five cents per share due to $60.7 million of non-cash fair value changes on balance sheet items. On an adjusted basis, Maple Leaf reported operating earnings of $65.2 million, or 33 cents per share. Analysts had expected quarterly revenue of $1 billion and earnings per share of 31 cents, according to the financial markets data firm Refinitiv.
Shopify Inc raised its full-year revenue forecast and reported a quarterly profit that handily beat Street estimates, as the Canadian e-commerce company’s investments to attract customers to its product offerings paid off. The company’s U.S.-listed shares were up 7.5 per cent at $341.57 in premarket trading.
TC Energy Corp beat analysts’ estimates for quarterly profit on Thursday, helped by higher volumes of crude shipped on its Keystone Pipeline System, and on increased demand for its natural gas and oil pipelines in the United States. TC Energy, formerly Trans Canada, said earnings from its liquids pipelines rose about 39 per cent to $542 million in the second quarter, and earnings from U.S. natural gas pipelines rose about 23 per cent to $663 million.
General Motors Co posted a better-than-expected net profit on Thursday as high-margin pickup trucks, SUVs and crossovers helped overcome slowing sales in the United States and China, and reiterated its full-year earnings forecast. GM shares gained about 3 per cent in premarket trading.
Industrial materials maker DuPont cut its full-year forecast for core sales on Thursday as it reported worse-than-expected revenue for the second quarter, pointing to weak demand in some of the sectors most affected by the U.S.-China trade war. The company, one part of conglomerate DowDupont until a split earlier this year, said it now expects full-year organic sales to be slightly down, compared with its earlier forecast of a 2 per cent to 3 per cent rise. Its shares were up 1.8 per cent in premarket trading.
Canadian Natural Resources Ltd beat estimates for quarterly profit, as higher prices for Canadian crude helped offset lower production. Net earnings rose to $2.83 billion, or $2.36 per share, in the second quarter ended June 30, from $982 million, or 80 cents, a year earlier. On an adjusted basis, the company earned 87 cents per share, beating analysts’ estimates of 85 cents per share, according to IBES data from Refinitiv.
Sun Life Financial Inc reported a 1.4 per cent growth in second-quarter profit late on Wednesday, helped by growth in its asset management business. Underlying net income in the Toronto-based company’s asset management business grew 13 per cent to $245-million. The company ended the quarter with total assets under management of $1.02 trillion, up 4 per cent from a year earlier.
Royal Dutch Shell’s second-quarter profit slumped to a 30-month low on weaker gas prices and refining margins, denting a steady recovery in recent years and sending the Anglo-Dutch energy company’s shares down 5 per cent. The results missed analyst forecasts by a wide margin and triggered the biggest one-day retreat in Shell shares in over three years.
Earnings include: ARC Resources Ltd.; Advantage Oil & Gas Ltd.; Algoma Central Corp.; AltaGas Ltd.; Aphria Inc.; Artis REIT; Atlantic Power Corp.; Atrium Mortgage Investment Corp.; BCE Inc.; Baytex Energy Corp.; Bombardier Inc.; Bonavista Energy Corp.; CCL Industries Inc.; Calfrac Well Services Ltd.; CanWel Building Materials Group Ltd.; Canadian Natural Resources Ltd.; Clarke Inc.; Coppper Mountain Mining Corp.; Crew Energy Inc.; Domtar Corp.; DuPont Inc.; Eldorado Gold Corp.; Endeavour Mining Corp.; Exco Technologies Ltd.; Fairfax Financial Holdings Ltd.; Fairfax India Holdings Corp.; First Capital Realty Inc.; Freehold Royalties Ltd.; Frontera Energy Corp.; Gildan Activewear Inc.; IGM Financial Inc.; Kinaxis Inc.; Leagold Mining Corp.; Maple Leaf Foods Inc.; Melcor Developments Ltd.; New Gold Inc.; Norbord Inc.; North American Palladium Ltd.; Open Text Corp.; Parkland Fuel Corp.; Pembina Pipeline Corp.; Points International Ltd.; Resolute Forest Products Inc.; Richards Packaging Income Fund; Rogers Sugar Inc.; SNC-Lavalin Group Inc.; Shopify Inc.; TC Energy Corp.; TMAC Resources Inc.; Teranga Gold Corp.; Thomson Reuters Corp.; TransAlta Renewable Inc.; Tricon Well Service Ltd.; Western Forest Products Inc.; Whitecap Resources Inc.; iA Financial
Economic news
(8:30 a.m. ET) U.S. initial jobless claims for week of July 27. Estimate is 215,000, up 9,000 from the previous week.
(9:30 a.m. ET) Canada's Markit Manufacturing PMI for July
(9:30 a.m. ET) U.S. Markit Manufacturing PMI for July
(10 a.m. ET) U.S. ISM Index for July
(10 a.m. ET) U.S. construction spending for June. Consensus is a rise of 0.4 per cent from May.
Also: Canadian and U.S. auto sales
With files from Reuters, The Canadian Press