U.S. and Canadian stocks are set to rise by triple digits again Friday, adding to two days of gains, as investor sentiment rose with hopes of a lessening of the trade war between China and the U.S., which has kept investors on edge in recent weeks.
Investors are also closely watching jobs reports from both Canada and the U.S. early Friday to gauge the performance of both economies. Both reports came in with strong results, although markets pared gains slightly
On the jobs front, the Canadian economy added 11,200 jobs in October on higher full-time hiring, and the unemployment rate dipped to 5.8 per cent, although wage growth was sluggish, Statistics Canada data indicated on Friday. Analysts in a Reuters poll had forecast a gain of 10,000 positions and for the jobless rate to remain at 5.9 per cent. July marked the last time the rate hit 5.8 per cent, equaling a 40-year-low.
U.S. employers added a stellar 250,000 jobs last month and raised average pay by the most in nearly a decade. The U.S. Labor Department’s monthly jobs report, the last major economic data before Tuesday’s congressional elections, also showed that the unemployment rate remained at a five-decade low of 3.7 per cent. The influx of new job-seekers in October increased the proportion of Americans with jobs to its highest level since January 2009.
Bloomberg reported that U.S. President Donald Trump is interested in reaching a trade agreement with his Chinese counterpart Xi Jinping at the Group of 20 nations summit in Argentina later this month and has asked key U.S. officials to begin drafting potential terms, citing people familiar with the matter.
Earlier this week, Trump was quoted as saying Beijing wasn’t ready to do a deal and he was prepared to slap more tariffs on China if his meeting with Xi was not productive.
The Bloomberg report came after the two leaders expressed optimism on Thursday about resolving their bitter trade disputes, one of the major factors behind a recent global equity market rout. They spoke by phone on Thursday.
Finance stocks on the S&P/TSX Composite Index could get a boost Friday after Manulife Financial Corp. said late Thursday that it struck deals to offload billions of dollars in policy liabilities, allowing it to free up $1-billion in capital.
The insurer said late Thursday it will use some of that cash to boost its common share dividend by 14 per cent to 25 cents each quarter. It also announced plans to buy back up to 40 million of its common shares – an initiative often used to boost a company’s stock price.
On the tech stock side though, Apple Inc. warned late Thursday that sales for the crucial holiday quarter would likely miss Wall Street expectations, which Chief Executive Tim Cook blamed on weakness in emerging markets and foreign exchange costs. Its shares were down 5.7 per cent in premarket trading. However, it’s decline didn’t carry over to other big tech stocks. Netflix was up 1.5 per cent, Amazon gained 1.1 per cent, and Facebook rose 0.5 per cent.
On Thursday, the Dow Jones Industrial Average and the S&P 500 each gained 1.06 per cent while the Nasdaq Composite rallied 1.75 per cent. The Toronto stock market rose 0.8 per cent.
A combination of bargain-hunting following steep losses in equities last month and some strong corporate earnings have helped power Wall Street’s bounce.
Overseas, Asian shares rocketed to three-week highs on the potential of a U.S.-China trade deal. European shares also gained with Britain’s FTSE up 0.7 per cent, Germany’s DAX up 1.4 per cent and France’s CAC up 1.3 per cent.
MSCI’s broadest index of Asia-Pacific shares outside Japan jumped 2.7 per cent to hit its highest level since Oct. 10. It is up 6.4 per cent on the week, on course to mark its best weekly performance in three years.
South Korea’s Kospi gained 3.5 per cent, the biggest gains in almost seven years, while Hong Kong’s Hang Seng jumped 4.2 per cent.
“Asia is the most sensitive to trade wars so Asian shares naturally have the most to gain from the prospects of a trade deal,” said Makoto Sakuma, researcher at NLI Research Institute in Tokyo. Japan’s Nikkei stock index rose 2.6 per cent.
Chinese shares surged and the yuan firmed. Chinese blue-chips gained 3.3 per cent, and its start-up board added 4.5 per cent, also buoyed by President Xi’s pledge on Thursday of more support for private firms.
MSCI China gained 7.9 per cent so far this, about the double the 3.5 per cent gains in MSCI’s broadest gauge of global stocks, ACWI.
“While we are still cautious over a full resolution of recent tensions in the medium term, resumption of dialog between Washington and Beijing would be good enough to investors for now,” said Tai Hui, chief market strategist, Asia Pacific, at J.P. Morgan Asset Management.
“The next four weeks between the U.S. mid-term elections and the G20 meeting in Argentina on Nov 30 will be important to see how things progress.”
Commodities
Oil prices steadied on Friday after a week of heavy declines as markets braced for the imposition next week of U.S. sanctions on Iran, which Washington hopes will halt exports of Iranian oil.
Benchmark Brent crude oil was up 30 cents a barrel at US$73.19. The contract has fallen almost 6 per cent this week and more than 11 per cent since the beginning of October when it reached its highest since 2014.
U.S. light crude was unchanged at US$63.69, down more than 13 per cent since hitting four-year highs a month ago.
Investors are concerned about the prospects for oil supply when new U.S. sanctions are implemented against Iran on Monday.
Washington has said it aims eventually to stop all Iranian oil exports but has granted several countries waivers on sanctions, allowing them to continue imports for a while.
The U.S. government has agreed to let eight countries, including close allies South Korea and Japan, as well as India, keep buying Iranian oil after it reimposes the sanctions, Bloomberg reported on Friday, citing a U.S. official.
“Oil prices look to remain under pressure, as fears of global oversupply have returned with a vengeance,” said Ashley Kelty, oil and gas research analyst at Cantor Fitzgerald Europe.
Gold prices on Friday held on to gains from the previous session as investors remained cautious ahead of a U.S. jobs report, which could provide clues on the pace of further interest rate hikes.
Spot gold was flat at US$1,232.81 per ounce. Prices climbed to their highest since Oct. 26 at US$1,237.39 per ounce on Thursday, as the dollar sagged.
U.S. gold futures were down 0.3 per cent at US$1,235.1 per ounce.
“The industry is being a little cautious ahead of the jobs data today ... It’s certainly a time for them to take a bit of stock after the volatility in the equities markets,” said ANZ analyst Daniel Hynes.
Currencies and bonds
The Canadian dollar was slightly higher at 76.6 US cents as commodity prices steadied.
On Thursday, the loonie rallied against the greenback, rebounding from a seven-week low on Wednesday , but it underperformed many other G10 currencies as oil prices tumbled ahead of the release of domestic jobs data on Friday.
The U.S. dollar fell on Friday on signs U.S. President Donald Trump is seeking to resolve a damaging trade war with China.
The conflict between the world’s two largest economies has cast a pall over the global economy and boosted safe-haven demand for the greenback this year.
But the dollar sank to a seven-day low on Friday after Bloomberg reported that Trump had asked U.S. officials to begin drafting a possible trade deal with Beijing.
Currencies hit hard by recent dollar buying including the euro, the Norwegian and Swedish crowns and Australian and New Zealand dollars climbed higher.
Analysts said the start of November had seen a flood of end-of-month buying of dollars cease and a more positive mood for risk-taking pervade markets after a brutal month for stocks.
“Either Trump is paving the way for a trade deal later this month, or he’s cynically driving up equity indices ahead of U.S. mid-term elections,” said Kit Juckes, a strategist at Societe Generale.
“What’s for sure, is that talk of a trade deal has added further juice to the last few day’s risk appetite, weakening the dollar.”
The dollar index, which measures the greenback’s value versus six major peers, moved lower by 0.2 per cent to 96.101 after dropping nearly 0.9 per cent overnight.
The 10-year Treasury yield was up slightly at 3.165 per cent and the Canada 10-year bond yield rose to 2.509 per cent.
Stocks to watch
Exxon Mobil Corp. reported third-quarter profit of US$6.24 billion or $US1.46 per share. The results topped Wall Street expectations, but Exxon does not adjust its reported results based on one-time events such as asset sales. The average estimate of seven analysts surveyed by Zacks Investment Research was for earnings of $1.21 per share. The company posted revenue of US$76.61 billion in the period, also surpassing Street forecasts. Three analysts surveyed by Zacks expected US$72.45 billion. Its shares rose 1.7 per cent in premarket trading.
Imperial Oil Ltd. posted a quarterly profit that more than doubled as volume of production rose and the oil and gas producer earned more from refining crude. The company, majority owned by Exxon Mobil, reported a net profit of $749-million, or 94 cents per share, in the third quarter ended Sept. 30, from $371 million, or 44 cents per share, a year earlier. Imperial said gross production rose to 393,000 barrels of oil equivalent per day (boe/d) from 390,000 boe/d, a year earlier.
Enbridge Inc., Canada’s largest pipeline operator, reported a third-quarter loss on Friday as it recorded several charges. The company said net loss attributable to common shareholders was $90-million, or 5 cents per share, in the quarter ended Sept. 30 compared with a profit of $765-million, or 47 cents per share, a year ago. Earlier in the day, the company said it is suspending its dividend reinvestment and share purchase plan immediately until further notice. On an adjusted basis, the company earned 55 cents per share. Analysts, on average, had expected earnings of 51 cents per share, according to IBES data from Refinitiv.
China’s Alibaba Group Holding Ltd reported lower-than-expected quarterly revenue on Friday, another sign of slowing momentum for China’s giant e-commerce platforms and its economy. Alibaba’s stock has fallen more than 12 percent this year, weighed down by concern about the planned retirement of founder-Chairman Jack Ma, declining margins and concerns about the impact of a U.S.-China trade spat on ad spending. However, its shares gained 4.2 per cent in premarket trading in New York.
Fortis Inc. reported its profit edged down compared with a year ago, when it received a one-time boost as its revenue improved by seven per cent. On an adjusted basis, Fortis says it earned 65 cents per share, up from 61 cents per share a year. Analysts on average had expected a profit of 63 cents per share and revenue of $2.135 billion, according to Thomson Reuters Eikon.
Earnings include: AbbVie Inc.; Algoma Central Corp.; Alibaba Group Holdings Ltd.; Athabasca Oil Corp.; Baytex Energy Corp.; Brookfield Business Partners LP; Brookfield Infrastructure Partners LP; Cameco Corp.; Clean TeQ Holdings Ltd.; Clearwater Seafoods Inc.; Dorel Industries Inc.; Enbridge Inc.; Fairfax India Holdings Corp.; Fortis Inc.; IGM Financial Inc.; Imperial Oil Ltd.; Newfoundland Capital Corporation Ltd.; Richards Packaging Income Fund; Stella-Jones Inc..; The Keg Royalties Income Fund; Westshore Terminals Investment Corp.
Other reading: Friday’s small-cap stocks to watch
Economic news
The Canadian economy added 11,200 jobs in October on higher full-time hiring, and the unemployment rate dipped to 5.8 percent, although wage growth was sluggish, Statistics Canada data indicated on Friday.
Analysts in a Reuters poll had forecast a gain of 10,000 positions and for the jobless rate to remain at 5.9 percent. July marked the last time the rate hit 5.8 percent, equaling a 40-year-low.
Although full-time jobs rose by 33,900 compared to a loss of 22,600 part-time positions, the labor participation rate dropped to 65.2 percent, its lowest since October 1998.
And the average year-over-year wage growth of permanent employees - a figure closely watched by the Bank of Canada - fell to just 1.9 percent, the lowest since the 1.7 percent recorded in August 2017.
The central bank has raised interest rates five times in the last 15 months in response to a strengthening economy.
On a year-over-year basis employment rose by 205,900 jobs, or 1.1 percent. The six month average for employment gains increased to 16,900 from 14,800 in September.
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Canada’s trade deficit in September shrank to $416 million (US$318 million) as imports fell at a faster pace than exports, Statistics Canada said on Friday, adding that August imports had been almost $1 billion higher than initially reported.
Analysts in a Reuters poll had expected a surplus of $150 million in September after the initial $526 million surplus recorded in August. Statscan, citing the late arrival of import data regarding three Swedish icebreakers, said Canada had in fact posted a trade deficit of $551 million in August.
Statscan analysts said that while data is often reported late, it is unusual for such large amounts to be involved. The revision means Canada has now posted 21 consecutive monthly trade deficits.
September exports fell by 0.2 per cent on lower shipments of consumer goods. This was largely due to lower exports of lentils and peas to India, which is focusing on boosting domestic production of the foodstuffs.
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Record imports expanded the U.S. trade deficit for the fourth straight month in September. The politically sensitive trade deficit in goods with China hit a record.
The Commerce Department says the gap between what America sells and what it buys abroad climbed to US$54 billion, up 1.3 per cent from US$53.3 billion in August and the highest level since February.
Imports climbed 1.5 per cent to a record US$266.6 billion, and exports also rose 1.5 per cent to US$212.6 billion. The goods deficit with China rose by 4.3 per cent to a record US$40.2 billion.
President Donald Trump has made a priority of reducing America’s huge, persistent trade deficits. Despite his tariffs on imported steel and aluminum and on Chinese goods, the deficit so far this year is up 10.1 per cent to US$445.2 billion.
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(8:30 a.m. ET) Canada's employment for October. The street expects a rise of 17,000 jobs (or 0.1 per cent) from September with an unchanged unemployment rate of 5.9 per cent.
(8:30 a.m. ET) Canadian international merchandise trade balance for September.
(8:30 a.m. ET) U.S. nonfarm payrolls for October. Consensus is an increase of 190,000 from September with an unemployment rate of 3.7 per cent (unchanged).
(8:30 a.m. ET) U.S. average hourly earnings for October. The Street expects an increase of 0.2 per cent from September and 3.1 per cent year over year.
(8:30 a.m. ET) U.S. goods and services trade deficit for September. Consensus is US$53.4-billion, up US$0.2-billion from August.
(10 a.m. ET) U.S. factory orders for September. The Street expects a rise of 0.3 per cent from the previous month.
With files from Reuters