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Equities

Canada’s main stock index opened higher on Friday, extending gains for a fifth straight day, boosted by financial shares and after data showed the Canadian economy expanded at a surprisingly strong rate during the second quarter.

At 9:31 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 24.96 points, or 0.15 per cent, at 16,409.45.

Health care stocks rose 0.5 per cent, industrials were up 0.4 per cent and utilities gained 0.4 per cent.

Financials were up 0.1 per cent. Banks that posted earnings on Thursday slid. TD Bank fell 0.7 per cent, Laurentian fell 0.45 per cent and Canadian Western Bank edged up 0.06 per cent. Scotiabank was up 0.8 per cent.

In economic news, the Canadian economy blew past projections by expanding at an annualized pace of 3.7 per cent in the second quarter, giving Canada its strongest three-month stretch of growth in two years. Statistics Canada’s latest reading for real gross domestic product shows an unexpectedly solid turnaround for an economy that was coming off its weakest back-to-back quarters of growth since 2015.

The agency says the economy rode a powerful, broad-based rebound in goods exports in the second quarter – led by robust growth in energy products, farming and fishing products, non-metallic minerals and aircraft products.

The report says the headline GDP number was also supported by a one per cent drop in import volumes, compared with a 2.1 per cent increase in the first quarter.

Experts had been predicting a more modest rebound for Canada following its weak first-quarter growth – which was revised up to 0.5 per cent. Economists had expected growth at an annualized rate of three per cent for the second quarter, according to financial markets data firm Refinitiv.

U.S. stocks opened broadly higher on Friday as investors took comfort from signals that the United States and China will resume trade talks, easing worries about further damage from their long-standing trade war that has roiled financial markets.

The Dow Jones Industrial Average rose 114.14 points, or 0.43 per cent, at the open to 26,476.39. The S&P 500 opened higher by 12.51 points, or 0.43 per cent, at 2,937.09. The Nasdaq Composite gained 41.76 points, or 0.52 per cent, to 8,015.16 at the opening bell.

The three main indexes are on track to wrap up the week with the biggest gains since June, after coming under immense selling pressure for much of the month due to escalating trade tensions and fears of a looming recession.

The benchmark S&P 500 index has fallen 3.4 per cent from its record high hit in late July. Markets in Canada and the U.S. will be shut for the Labour Day holiday on Monday.

“It is a continuation of what we saw yesterday and there is optimism that there’s going to be some sort of progress, that seems to be the biggest factor,” said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.

China’s Foreign Ministry said trade negotiating teams from Washington and Beijing are maintaining effective communication, a day after both sides discussed the next round of in-person negotiations in September.

Shares of trade-sensitive companies including Apple Inc and Caterpillar Inc were up 0.2 per cent and 1.1 per cent, respectively.

Investors are also bracing for a new round of U.S. tariffs on some Chinese goods that would come into effect on Sunday.

“The market believes that there will be some type of negotiation, but there is real danger this trade conflict is going to last, especially with the magnitude of September tariffs,” added Brown.

Further allaying fears of a recession was data from the Commerce Department which showed U.S. consumer spending increased strongly in July.

However, the report also suggested that the pace of growth in consumption is unlikely to be sustained amid tepid income gains.

The inflation data will be followed by the monthly jobs report and manufacturing numbers next week that would offer more clarity on the chances of another interest rate cut.

Ulta Beauty Inc fell 28.3 per cent after the cosmetics company cut its full-year profit forecast. Shares of Estee Lauder Cos Inc and e.l.f. Beauty Inc dropped more than 1 per cent.

Dell Technologies Inc jumped 11.6 per cent as the PC maker beat analysts’ estimates for profit, aided by higher demand for desktops as well as a focus on more profitable contracts within its server unit in China.

U.S. food company Campbell Soup Co rose 6.3 after it reported better-than-expected fourth-quarter profit.

Marvell Technology Group Ltd rose 2.2 per cent after falling more than 3 per cent in premarket trading after the chipmaker forecast third-quarter revenue below estimates.

The MSCI All-Country World Index climbed 0.3 per cent but is on track for a near 3 per cent decline in August – only the second month the benchmark has spent in the red this year. It is the weakest August for the index since 2015.

Gains were helped by a surge in German real estate firms which saw the country’s DAX index add 1.1 per cent. Britain’s FTSE was up 0.5 per cent and France’s CAC gained 0.84 per cent.

The picture was more mixed in Asia, where Chinese and Hong Kong stock markets dipped in and out of the red . Arrests or detentions of pro-democracy activists in Hong Kong added to investor jitters, with the Chinese-ruled territory facing its first recession in a decade.

Japan’s Nikkei added 1.2 per cent, China’s Shanghai was off 0.16 per cent and Hong Kong’s Hang Seng gained 0.08 per cent.

Commodities

Oil gave back some of its recent gains on Friday, but was still headed for the biggest weekly increase since early July, boosted by a decline in U.S stocks, a looming hurricane in Florida and an easing of Sino-U.S. trade rhetoric.

Brent crude was down by 15 cents, or 0.25 per cent, at US$60.93 a barrel, but was heading for a gain of more than 2 per cent for the week.

U.S. West Texas Intermediate (WTI) crude futures fell 56 cents, or 0.99 per cent, to US$56.15 a barrel. The contract is set for a gain of nearly 4 per cent this week.

Worries about a slowdown in economic growth and the impact on oil demand due to the trade war between the world’s two biggest oil consumers kept a lid on price gains this week, even as falling inventories indicate a balancing market.

“Upside momentum should not be taken for granted. Recession fears are casting a shadow on sentiment and oil prices should keep dancing to the tune of the U.S.-China trade saga”, said Stephen Brennock of oil broker PVM.

On Thursday, the United States and China gave signs that they will resume trade talks, discussing the next round of in-person negotiations in September ahead of a looming deadline for additional U.S. tariffs.

“The calm is somewhat deceptive as financial markets are still making up their mind on the question of slowdown or downturn,” said Norbert Ruecker of Swiss bank Julius Baer.

“Both growth and oil demand are set to remain lacklustre and thus supplies look ample well into 2020.”

The approach of Hurricane Dorian toward Florida earlier raised fears that offshore U.S. crude producers may suspend output if the storm passes into the Gulf of Mexico over the weekend.

Gold eased on Friday as equity markets and the dollar firmed, but fears of a global economic slowdown and uncertainty about the U.S.-China trade war kept the safe-haven metal on track for its fourth straight monthly rise.

Spot gold was down 0.1 per cent to US$1,525.97 per ounce. However, bullion has gained nearly 8 per cent so this month, heading for a fourth consecutive monthly gain.

U.S. gold futures were down 0.1 per cent at US$1,535.20 an ounce.

“The trade war rhetoric has been toned down somewhat, which has lifted stocks and bond yields, and attracted some profit taking in gold,” Saxo Bank commodity strategist Ole Hansen said, adding a stronger dollar was also pressuring gold.

“However, even though we may see an improvement on the trade front, which is doubtful, economic activity is still slowing down; that cannot turn around overnight. So, the underlying support from lower bond yields is still there.”

Weighing on gold’s appeal, the dollar index hit a one-month high en route to its best week in two months.

“Gold will have a very high beta to any reduction in trade tensions given that they have driven so much of its rally,” OANDA analyst Jeffrey Halley wrote in a note.

Gold prices have risen more than US$100 so far this month, mainly driven by the trade war between the world’s biggest economics and heightened fears over a global downturn.

Elsewhere, silver jumped 1.1 per cent to US$18.44 per ounce and eyed its biggest monthly percentage rise since June 2016, gaining 13 per cent for the month so far.

Platinum rose 1.4 per cent to US$929.07 an ounce, holding near a more than one-year high and was headed for its best month since January 2018.

Palladium gained 1.5 per cent to US$1,496 per ounce, after hitting a one-month high at US$1,504.71 earlier in the session.

Currencies and bonds

The Canadian dollar was slightly higher Friday ahead of GDP data, trading at the 75.24 cents US level.

“We are mid-range here and just waiting for a bit more direction either from the [GDP] data or from the Bank of Canada next week,” said Shaun Osborne, chief currency strategist at Scotiabank.

“I still rather think that the Canadian dollar looks undervalued at these kind of levels and we should see good support emerge for the Canadian dollar on minor declines,” Osborne said.

The euro plunged to a one-month low against the dollar on Friday, as investors looked for aggressive easing by the European Central Bank and ignored doubts by some policymakers about the need for more stimulus.

Poor euro zone economic data on Thursday reinforced views the ECB would cut its benchmark interest rate and announce a new round of quantitative easing at September’s meeting. German inflation slowed in August and unemployment rose, more evidence that Europe’s largest economy is slowing.

Christine Lagarde, the ECB’s next president, said the central bank still has room to cut rates if necessary . But divisions clearly remain within the ECB.

Board member Sabine Lautenschlaeger said it was too early to consider a “huge package” of stimulus. Dutch central bank chief Klaas Knot, a prominent hawk on the Governing Council, said he was open to a rate cut but thought a resumption of asset purchases would be premature.

The euro fell 0.2 per cent to US$1.1033, the lowest since Aug. 1. It has shed nearly 12 per cent of its value against the dollar since the beginning of last year in a clear downward trajectory.

An index that tracks the dollar against a basket of six other currencies was flat at 98.561, down from a one-month high of 98.595 in Asian trading. The dollar gained on Thursday from hopes China and the United States would renew their talks on trade.

“The dollar is getting bid from month-end flows, but the euro side of the equation is compromised by what appears to be a set of lackluster economic data in the eurozone,” said Jeremy Stretch, head of G10 forex strategy at CIBC Capital Markets.

“This opens a debate of how aggressive the ECB” may be in the coming months, Stretch said.

U.S. Treasury yields nudged higher overnight, with the benchmark 10-year Treasury climbing to 1.5349 per cent from a three-year low of 1.443 per cent touched earlier this week.

It was still below two-year yields at 1.5419 per cent. Such an inversion was last seen in 2007 and correctly foretold the great recession that followed a year later.

Canadian bond yields were higher Friday with the 10-year bond yield at 1.16 per cent.

Other corporate news

U.S. food company Campbell Soup Co said on Friday quarterly sales rose 2 per cent, helped by demand for its soups and snacks. Sales from continuing operations were up at US$1.78-billion for the fourth quarter ended July 28, from US$1.75-billion a year earlier. The company reported a net loss attributable to shareholders of US$8-million, or 3 cents per share, from a profit of US$94-million, or 31 cents per share. Its shares rose 3.9 per cent in premarket trading.

Discount retailer Big Lots Inc. reported adjusted quarterly profit of 53 cents US a share, beating estimates by 13 cents. Comparable store sales rose 1.2 per cent, which was shy of expectations of 1.9 per cent. Its shares jumped nearly 19 per cent in premarket trading.

Dell Technologies Inc beat Wall Street profit estimates late Thursday, helped by higher demand for desktops, as well as a focus on more profitable contracts within its server unit in China. That helped the company forecast full-year adjusted earnings per share in a range of US$6.95 to US$7.40, above analysts’ estimate of US$6.42, according to IBES data from Refinitiv. Its shares jumped 9.2 per cent in premarket trading.

The Walt Disney Co. is selling its stake in the YES Network to an investor group that includes Yankee Global Enterprises, Sinclair Broadcast Group and Amazon. The deal values YES at US$3.47-billion. Disney was required to sell off Fox’s regional sports networks as part of its US$71-billion deal to acquire Fox’s entertainment assets. Its stock rose 0.4 per cent in premarket trading.

Ulta Beauty Inc was the biggest loser among the S&P 500 stocks after the cosmetics company cut its full-year profit forecast. Its shares fell 25.3 per cent in premarket trading.

Shares of Marvell Technology Group Ltd fell 3.5 per cent after it forecast third-quarter revenue below estimates, as a ban on selling components to Chinese telecommunications giant Huawei Technologies Co Ltd hurt the U.S. chipmaker.

China will exempt 16 Tesla Inc electric vehicle (EV) models from purchase tax, the Ministry of Industry and Information Technology said in a statement on its website. U.S. electric vehicle maker Tesla Inc. has raised prices for some vehicles in China as the yuan trades at its weakest levels in more than a decade.

Canadian banks face challenging times as souring macroeconomic conditions and trade uncertainties increase lending risk and weigh on profit margins, investors and analysts said on Thursday after major lenders wrapped up their quarterly earnings season. TD Bank Group, the country’s No. 2 lender by market value and the last of Canada’s top six banks to report quarterly profits on Thursday, slightly missed analysts’ expectations.

Economic news

(8:30 a.m. ET) Canada's real GDP for Q2. Consensus is an annualized rate increase of 3.0 per cent.

The economy blew past projections by expanding at an annualized pace of 3.7 per cent in the second quarter, giving Canada its strongest three-month stretch of growth in two years.

Experts had been predicting a more modest rebound for Canada following its weak first-quarter growth — which was revised up to 0.5 per cent. Economists had expected growth at an annualized rate of three per cent for the second quarter, according to financial markets data firm Refinitiv.

Earlier this summer, the Bank of Canada had predicted second-quarter turnaround would be 2.3 per cent. On a month-to-month basis, the report says the economy expanded 0.2 per cent for its fourth-straight month of growth.

(8:30 a.m. ET) Canada's industrial product prices and raw materials prices for July. Estimates are increases of 0.1 per cent and 1.5 per cent from June, respectively.

(8:30 a.m. ET) U.S. personal spending and income for July. The Street expects increases of 0.5 per cent and 0.3 per cent, respectively, from June.

(8:30 a.m. ET) U.S. core PCE Price Index for July. The Street is projecting an increase of 0.2 per cent from June and 1.6 per cent year-over-year.

(9:45 a.m. ET) U.S. Chicago PMI for August. Consensus is 48.0, up from 44.4 in July.

(10 a.m. ET) U.S. University of Michigan Consumer Sentiment for August. The Street is projecting 92.5, up from 92..1 in July.

Also: Ottawa’s budget balance for June.

With files from Reuters

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