Equity Markets
Canada's main stock index fell on Thursday, dragged lower by financial stocks following a downgrade by Moody's on Canada's six biggest banks, and loyalty program operator Aimia Inc., which plunged on news Air Canada will launch its own program in 2020.
The Toronto Stock Exchange's S&P/TSX composite index fell 39.58 points, or 0.25 per cent, to 15,593.63. Three of the index's 10 main groups retreated.
The ratings agency cited concerns over consumer and business debt levels and the country's frothy housing market. The downgrade affects Toronto-Dominion Bank, Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada and National Bank of Canada, as well as some affiliates. It also comes amid alternative mortgage lender Home Capital Group Inc.'s high-profile woes, which have already put a spotlight on mortgage financing in this country. Also, Bombardier Inc. will be in focus after the transportation giant said Pierre Beaudoin would step down as executive chairman of the board. He will become non-executive chair as of the end of next month. The company, which holds its annual meeting today, has faced a growing backlash over its controversial executive compensation plan, with Canada's biggest pension plans saying they would withhold their votes for Mr. Beaudoin as board chair.
U.S. stocks opened lower on Thursday as Macy's weak earnings weighed on the consumer discretionary sector.
The Dow Jones industrial average was down 113.8 points, or 0.54 per cent, at 20,829.31, the S&P 500 was down 14.29 points, or 0.6 per cent, at 2,385.34 and the Nasdaq composite was down 39.50 points, or 0.64 per cent, at 6,089.65.
Tech shares were hit after Snap Inc.'s first set of results since going public fell short of forecasts. The company posted slower-than-expected user growth and revenue that fell short of analysts' forecasts amid tough competition from Facebook Inc. Snap shares fell more than 21 per cent in early trading. Continued fallout from U.S. President Donald Trump's sudden firing of FBI director James Comey will also likely continue to cast a shadow over the markets.
Overseas, world stocks were trading near record highs on a rebound in energy stocks helped by oil prices after U.S. fuel inventories fell and Saudi Arabia cut crude shipments to Asia. MSCI's gauge of global stock markets was up 0.1 per cent, bringing their gains for the year to nearly 10 per cent. London's blue-chip index slipped from its highest level in a month and was trading flat, down 0.07 per cent. Germany's DAX was off 0.43 per cent, while France's CAC 40 was down 0.5 per cent. In Asia, the Nikkei rose 0.3 per cent to 19,951.55, its highest close since late 2015. Gains by heavyweight Softbank, which reported strong earnings, helped bolster the index. The Shanghai Composite Index lost 0.9 per cent to 3,052.79 points.
Commodities
Crude prices jumped with benchmark Brent topping $50 (U.S.) on a big drop in U.S. inventories and a larger-than-expected cut in supplies from Saudi Arabia to Asia. West Texas Intermediate was also higher, rising more than 1 per cent in early trading.
"Trend and momentum indicators remain positive, and rising speculations that the OPEC would announce further measures to reduce the global supply glut in May 25 meeting keep buyers aler," LCG senior market analyst Ipek Ozkardeskaya said in a note. "Surpassing $48 (for WTI) could encourage a further rise toward the $50 level."
OPEC and other producers meet later this month. They are widely expected to extend current production cuts through to the end of the year. As well, Saudi Arabia told Asian refiners of its first cuts in crude allocations since OPEC's output reduction took effect in January. Saudi Aramco will reduce supplies to Asian customers by about 7 million barrels in June, Reuters reported.
On Wednesday, U.S. government figures indicated the biggest weekly decline in crude stocks since December as imports fell. Crude inventories fell 5.2 million barrels in the week ended May 5, the U.S. Energy Information Administration said in a report. At 522.5 million barrels, crude stocks were the lowest since February.
Elsewhere, gold edged higher on U.S. dollar declines, holding above eight-week lows touched earlier this week as analysts look ahead to the prospect of a June interest rate hike by the U.S. Federal Reserve. U.S. gold futures and spot gold prices were both up modestly early on. Spot silver prices were nearly 1 per cent higher.
Currencies and bonds
The Canadian dollar took a hit on news that Moody's had downgraded the country's biggest banks. Climbing oil prices helped offset the impact. So far, the loonie has traded in a range of 72.77 cents (U.S.) to 73.23 cents for the day after closing Wednesday at 73.14 cents. Early Thursday, the dollar was trading below the 73-cent mark.
The downgrade had sent a ripple through currency markets, affecting not only the loonie but also the Australian and New Zealand currencies. Adam Cole, RBC's chief currency strategist in London, said the other currencies were affected " as markets extrapolated the implications to structurally similar bank sectors in Australia and N.Z."
"As usual, we we would caution against overreacting to the rating agency's actions, which largely reflect factors already widely known and discounted," he said.
The yen, U.S. dollar and euro were all holding in tight ranges, the U.S. dollar edged lower after notching an eight-week high against the yen in Asian trading.
In bonds, 10-year bond yields in the euro zone rose 2-3 basis points on the day, with Germany's benchmark Bund yield up 2.5 basis points at 0.44 per cent. It has risen roughly 28 basis points in the past three weeks alongside the centrist win the French election, a growing focus on monetary policy moves by the Fed and the European Central Bank and a general shift in risk appetite. On Wednesday, ECB President Mario Draghi said it is too early for the ECB to declare victory in efforts to boost inflation despite signs the zone's economic recovery is building.
U.S. Treasury yields turned higher on Thursday, hitting their highest levels since at least the end of March, as a stronger-than-forecast rise in producer prices in April bolstered the notion of U.S. inflation building in the second quarter. In early Thursday trading, the benchmark 10-year Treasury yield touched 2.421 per cent, its highest level since March 31, while two-year yield reached 1.367 per cent, a level last seen on March 15, according to Reuters data
Stocks set to see action
Moody's Investors Service is downgrading Canada's major banks, warning of frothy house prices and swelling levels of business and consumer debt. The big credit rating agency's action late Wednesday affects Toronto-Dominion Bank, Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada and National Bank of Canada, as well as some affiliates.
Pierre Beaudoin is stepping down as Bombardier Inc.'s executive chairman amid a mounting controversy over executive pay at the Canadian plane and train maker. Mr. Beaudoin will become non-executive chairman, the company said Thursday in advance of its annual meeting after a revolt by several Canadian institutional investors. The move will be effective as of the end of June. This came as Bombardier also reported first-quarter results, with a smaller quarterly loss of $31-million, or 2 cents per share, than $138-million or 7 cents per share a year earlier.
Canadian auto parts maker Magna International Inc. posted a bigger-than-expected profit for the first quarter, helped by higher demand, and the company also raised its full-year sales forecast. Total sales jumped to $9.37-billion from $8.9-billion. Net income attributable to Magna rose to $586-million, or $1.53 per share, in the quarter, from $492-million, or $1.22 per share, a year earlier. The company earned $1.54 per share on an adjusted basis, topping analysts' average estimate of $1.34, according to Thomson Reuters I/B/E/S. Magna also raised its full-year 2017 sales forecast to $36.6-billion to $38.3-billion, from its prior forecast of $36-billion to $37.7-billion. The company's U.S.-listed shares were up about 2.9 per cent in premarket trading.
Kinder Morgan Inc.'s Canadian unit is seeking to raise $1.75-billion in an initial public offering to help fund its contentious Trans Mountain pipeline expansion as the project inches closer to construction, the Globe's Jeff Lewis reports. Houston-based Kinder Morgan plans to offer the restricted voting shares at between $19 and $22 apiece while retaining an ownership stake of up to 77 per cent, according to an updated prospectus filed Wednesday. The offering is led by Toronto-Dominion Bank and Royal Bank of Canada and is expected to be completed by the end of May. It will list on the Toronto Stock Exchange.
Embattled Home Capital Group Inc.posts its latest results after the close. On Wednesday, The Globe and Mail reported that, after three weeks of playing defence, lender Home Capital is attempting to move forward by cutting a deal with rival MCAP Corp. that allows Home Capital to make new mortgages and roll over existing ones. Home Capital, Canada's largest alternative-mortgage provider, said Tuesday that an "independent third party" intends to buy up to $1.5-billion of its commitments to new mortgages, along with home loans that are up for renewal and existing mortgages in its $18-billion portfolio. On Wednesday, sources familiar with the situation identified the third party as MCAP, a sizable Toronto-based firm that does mortgage finance.
Canadian oil sands producer MEG Energy Corp. reported a smaller quarterly profit compared with a year earlier, when the company recorded higher gains related to foreign exchange and commodity risk management. The Calgary, Alberta-based MEG's net profit fell to $1.59 million ($1.16 million) or 1 cent per share, for the three months ended March 31, from $130.8 million, or 58 cents per share, a year earlier.
Snap Inc. shares sank in premarket trading on after the parent of the popular disappearing-messaging app Snapchat reported slowing user growth and revenue that fell short of analyst estimates amid stiff competition from Facebook Inc. Snap said its daily active users (DAUs) rose 36.1 per cent to 166 million in the first quarter from a year earlier, down from the 47.7 per cent rise in users for the fourth quarter and 62.8 per cent jump for the third quarter that the company had reported in its IPO filing. Its shares sank 21.5 per cent in premarket trading.
Canadian Tire Corp. Ltd. reported a 26.1 per cent rise in quarterly profit on Thursday, partly helped by higher margins in its financial business, which markets a range of Canadian Tire branded credit cards, insurance and warranty products. Net profit was $107.9-million, or $1.24 per share, in the first quarter ended April 1, from $85.6-million, or 90 cents per share, a year earlier. Total revenue rose 7.6 per cent to $2.75-billion.
Air Canada said on Thursday it would launch its own loyalty program in 2020, replacing the current program, Aeroplan, which is owned and operated by analytics firm Aimia Inc. "The new program, launching in 2020, will offer additional earning and redemption opportunities, more personalized service and a better digital experience for Air Canada customers," Benjamin Smith, president of Air Canada's passenger airlines business said. Air Canada's contract with Aimia will be in effect until June 29, 2020. Aimia stock tanked on the news.
Verizon Communications is buying Straight Path Communications for about $3.1-billion (U.S.), ending a bidding war with AT&T over the wireless licenses company The all-stock deal was announced Thursday, one month after AT&T said that it would buy Straight Path for $1.6-billion. AT&T is declining to match that offer, and Verizon will pay a $38-million termination fee to AT&T on behalf of Straight Path. Straight Path, based in Glen Allen, Virginia, holds spectrum licenses which the telecom companies can use to expand services, including faster 5G service. Verizon's shares were up 0.2 per cent, Straight Path's shares dropped 20 per cent, and AT&T shares were flat.
Twenty-First Century Fox Inc. reported quarterly revenue below Wall Street's expectations late Wednesday, weighed down by weaker box office results. Excluding some items, Fox earned 54 cents per share for the quarter ended March 31. Analysts on average had expected a profit of 48 cents per share. Its shares on the NYSE fell 3.9 per cent in premarket trading.
Second Cup Ltd. has parted ways abruptly with its chief executive officer, Alix Box, as the high-end café chain struggles to make gains in an increasingly intense market. The Mississauga-based company said on Wednesday that Ms. Box, who took the top job about three years ago, was stepping down immediately as CEO and from her seat on the company's board of directors, and is being replaced on an interim basis by Garry MacDonald, a new board member and franchise-food consultant.
Department store operator Macy's Inc. reported a lower-than-expected quarterly profit, as sales continued to tumble and as higher inventory weighed on margins, and the company's shares dropped 11.2 per cent in premarket trading. Sales at Macy's stores open at least a year fell 4.6 per cent in the first quarter. That was steeper than the 3.5 percent drop expected by analysts polled by research firm Consensus Metrix. Net income attributable to Macy's shareholders fell to $71 million, or 23 cents per share. Excluding items, the company earned 24 cents per share, well below the 35 cents analysts on average had expected, according to Thomson Reuters I/B/E/S. Net sales fell 7.5 per cent to $5.34 billion, falling for the ninth straight quarter and missing the average analyst estimate of $5.47-billion.
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Economic News
Prices for new housing in Canada rose by 0.2 per cent in March from February on gains in Toronto and Vancouver, two of the country's hottest markets in recent years, Statistics Canada data indicated on Thursday. The increase matched estimates from analysts in a Reuters poll. Compared with March 2016, prices climbed by 3.3 per cent, largely reflecting continued strength in Toronto.
U.S. jobless claims fell by 2,000 last week to 236,000, signalling a tight U.S. labour market.. Economists had expected claims to come in around the 245,000 mark.
The Bank of England decided Thursday to keep its main interest rate at a record low of 0.25 per cent as the economy weakens ahead of Britain's departure from the European Union. Though higher rates would help limit inflation, which has been rising, the policy makers erred on the side of caution after economic growth more than halved to 0.3 per cent in the first quarter compared with the previous three months. The Monetary Policy Committee voted 7-1 to keep rates on hold, with one member seeking a quarter point increase.
British industrial output shrank for a third month in a row in March, official data showed on Thursday, underscoring how the impact of last year's Brexit vote has begun to weigh on the economy. The Office for National Statistics also said Britain's trade deficit widened by more than expected, a further setback for hopes that the fall in the value of the pound since the European Union membership referendum would help rebalance the economy. Industrial output fell by a monthly 0.5 per cent - a sharper decline than expected by economists taking part in a Reuters poll - and output in February was revised lower.
Euro zone economic growth should grow a bit faster this year than previously believed and the unemployment rate could be the lowest in a decade, the European Commission said.It also predicted low inflation, a challenge for the European Central Bank who is is trying to boost it. The 19-country euro zone is expected to expand by 1.7 per cent this year and 1.8 per cent in 2018, the EU executive said, slightly raising its previous estimate for euro zone growth of 1.6 per cent this year, while leaving unchanged the 2018 forecast.
With files from Reuters, The Associated Press and The Canadian Press