Equity Markets
The Toronto stock market was down in early trading Thursday. led lower by a decline in telecom and tech stocks. The S&P/TSX composite index was down 119.7 points, or 0.78 per cent, at 15,235.88.
Wall Street stocks were down in early trading on Thursday as a rise in bank stocks were offset by a slide in the technology sector.
The Dow Jones Industrial Average was off 17.99 points, or 0.08 percent, at 21,436.62, the S&P 500 was down 5.85 points, or 0.24 per cent, at 2,434.84. The Nasdaq Composite was down 43.99 points, or 0.71 per cent, at 6,190.43.
Shares of the top six U.S. banks rose after the Federal Reserve cleared them in the second part of its annual stress test, allowing them to raise dividend payouts and share buybacks.
The financial index led the two gainers among the 11 S&P 500 sectors, rising 1.74 percent.
"The banks will be in the spotlight today as all of the U.S. banks passed the stress test," said Peter Cardillo, chief market economist at First Standard Financial in New York.
Wall Street rallied sharply on Wednesday, with the benchmark S&P 500 index scoring its biggest one-day percentage gain in about two months, as financial and technology stocks led a broad market rebound.
The Nasdaq posted on Wednesday its best session since Nov. 7, the day before the U.S. presidential election.
Tech stocks, which have led the S&P 500's 9-per-cent gain this year, pulled back recently as some investors questioned the sector's high valuations.
This week, traders have heard from central bankers in Canada, the United States and Britain. All have sounded bullish on the economic prospects for their respective countries. In this country, Bank of Canada Governor Stephen Poloz said low interest rates put in place to combat the oil shock have done their job. That prompted many economists to move forward their projections for the next rate hike, some looking to a July increase.
"We now believe that the Bank of Canada's July 12 policy rate meeting is not just live, but tipped toward marking the Bank's first policy rate increase in seven years," Scotiabank economists said in a note. They noted, earlier in the month, deputy governor Carolyn Wilkins made similarly bullish comments. "It is noteworthy that Poloz did not attempt to rein in the market reaction to Wilkins' speech — indeed he reinforced it," they said.
Elsewhere, the Fed gave U.S. banks a lift - gains which extended to Europe overnight - after it cleared capital return plans from big banks. Toronto-Dominion Bank and Bank of Montreal also passed the second round of the Fed's annual stress tests, giving them the go ahead to buy back shares, pay out dividends and make acquisitions. Among the 34 banks tested, Capital One Financial Corp. was the only one that received a "conditional non objection" pass. It now has to submit a new plan to the Fed within six months.
In Europe, markets were down. Media companies were lower as Britain said it would refer 21st Century Fox's bid for broadcaster Sky to a full investigation. The deal has already won approval in Ireland, Austria, Germany and Italy.
Britain's blue-chip FTSE was off 0.39 per cent, Germany's DAX was down 1.40 per cent and France's CAC 40 fell 1.68 per cent. In Asia, Japan's Nikkei added 0.45 while MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.8 per cent to its highest since May, 2015. The Shanghai composite rose nearly half a point to 3187.90 and Hong Kong's Hang Seng advanced 1.1 per cent to 20,220.30.
Commodities
Crude prices saw a recent rally extended to its sixth consecutive session, touching their highest levels in two weeks. U.S. West Texas Intermediate was trading above $45 (U.S.) a barrel, while Brent topped $47. The gains came even though U.S. Energy Information Agency released Wednesday showed that U.S. oil stocks rose by 218,000 barrels, versus the market expectation of a draw of 2.5 million barrels. A day earlier, figures from the American Petroleum Institute showed inventories rose by 851,000, perhaps giving traders and early indication that the EIA figures would also rise, David Madden, market analyst for CMC Markets, said in a note.
"U.S. oil production on the week fell by 100,000 barrels per day to 9.3 million barrels per day," he noted. " Last week, U.S. oil production was 9.4 million barrels per day – its highest level since August 2015. The dip in U.S. production would have been a contributing factor to the squeeze higher in the price."
However, looking ahead, he cautioned that demand from major oil consumers like China and India is falling, while production from Nigeria and Libya is increasing.
"This will continue to fuel the fears of oversupply in the oil market," he said.
In other commodities, gold gave back early gains after signals from central banks that tighter monetary policy is likely imminent. However, a weaker U.S. dollar offered some counterbalance for the precious metal, helping put a floor under prices. Gold, viewed as a safe-haven investment, is highly sensitive to interest-rate increases. Spot gold was down modestly in early trading. U.S. gold futures for August delivery were also lower.
"Gold is caught between the weaker dollar and higher real yields," UBS analyst Joni Teves told Reuters. "That's feeding through to price action."
"There has been a shift towards more hawkishness (among central banks)," she said. "We have been flagging the potential for European rates to head higher and exert pressure on global yields."
Reuters also noted that gold is now set to end the second quarter less than $1 an ounce from where it began, its most static quarterly performance in over two years.
Silver prices were up slightly. Copper prices touched a three-month high, helped by a weaker greenback.
Currencies and bonds
The Canadian dollar was approaching 77 cents (U.S.) in early trading as oil prices, interest rates and a weaker greenback all lined up in the loonie's favour. So far, the day's range for the dollar was 76.67 cents (U.S.) to 76.89 cents. Most recently, the loonie was at the higher end of that range after closing Wednesday at 76.57 cents.
"The Canadian dollar benefited from a softer U.S. dollar and firmer oil prices to gain territory against the greenback," Ipek Ozkardeskaya, LCG senior market analyst, said. "BoC Governor (Stephen) Poloz has already shaken the loonie earlier this month, when he first suggested that the BoC's monetary policy is bearing fruits and the bank could consider a policy action in the foreseeable future. Yesterday's speech has only been a confirmation of his previous thoughts."
The markets get their next glimpse of the strength of the Canadian economy early Friday, with the release of April's gross domestic product figures. Analysts expect to see a modest increase of 0.1 per cent from March.
In other currencies, the euro hit its highest level in 14 months against the U.S. dollar, even as European Central Bank officials attempted to temper the market's interpretation of a speech by ECB chief Mario Draghi. The markets had interpreted his remarks as meaning the bank is ready to start withdrawing emergency stimulus. Sources within the ECB, however, insisted that Mr. Draghi simply intended to signal tolerance for a period of weaker inflation.
Along with the loonie, the British pound was among the biggest gainers among G20 currencies, also drawing support from central bank comments suggesting interest-rate hikes were also back on the table in Britain. In morning trading, sterling advanced half a percentage point against the U.S. dollar. Meanwhile, the U.S. dollar index, which measures the greenback against a basket of currencies, was lower.
"The U.S. dollar is losing blood against the majors and a majority of emerging market currencies on the back of dovish comments from the Federal Reserve chair Janet Yellen earlier this week," Ms. Ozkardeskaya said.
In bonds, Germany's 10-year government bond yield hit a five-week high with investors still convinced that the ECB will move to scale back its stimulus program.
U.S. Treasurys edged lower. The yield on the 10-year note was up 2.252 per cent. The yield on the 30-year note was up 2.808 per cent.
Stocks set to see action
Citigroup Inc., the fourth-largest U.S. bank by assets, said it plans to repurchase up to $15.6-billion of common stock over the next year and double its quarterly dividend to 32 cents per share, bringing total payouts to $18.9-billion after clearing the U.S. Federal Reserves latest round of stress tests. Citi's shares rose 3.5 per cent in premarket trading.
Calgary-based Obsidian Energy Ltd.. and three former employees are facing U.S. Securities and Exchange Commission charges for their roles in an alleged accounting fraud – issues the company says it flagged three years ago and has fixed. Wednesday's action from the U.S. agency comes the same week Obsidian formally changed its name from Penn West Petroleum Ltd. – a move meant to mark the restructuring of the company, and an attempt to make a break from its past poor performance.
Sycamore Partners said it would acquire U.S. office supplies chain Staples Inc. for $6.9-billion, a rare bet by a private equity firm this year in the U.S. retail sector, which has been roiled by the popularity of Internet shopping. Staples shares jumped 1.7 per cent in premarket trading. Buyout firms largely have refrained from attempting leveraged buyouts of U.S. retailers in the past two years, amid a wave of bankruptcies in the sector that have included Sports Authority, Rue21, Gymboree and BCBG Max Azria LLC.
American International Group Inc.'s new chief executive Brian Duperreault said on Wednesday the company would likely slow the pace of share buybacks and instead spend on acquisitions. "I'd love to find great additions to the company. I think the important thing is that we look at companies that can make us better," Duperreault told reporters in an interview after the company's annual general meeting in New York. AIG shares rose 1 per cent in premarket trading.
A federal judge on Wednesday dismissed a lawsuit accusing Deutsche Bank AG of concealing major deficiencies in its anti-money laundering controls, including for "mirror trades" to launder money out of Russia. U.S. District Judge Analisa Torres in Manhattan said investors who bought the German bank's securities in the United States failed to specify how Deutsche Bank materially misled or intended to mislead them about its controls. Deutsche Bank's shares roses 2.7 per cent.
Drugstore chain Walgreens Boots Alliance Inc. terminated its agreement to buy smaller rival Rite Aid Corp. after struggling to win antitrust approval, and said it would instead buy 2,186 Rite Aid stores and assets for $5.18-billion in cash. Walgreens also said on Thursday it ended a related deal to sell 865 Rite Aid stores to Fred's Inc., sending the company's shares plunging 21 per cent in premarket trading. Walgreen's stocks was up 5.6 per cent in premarket trading while Rite Aid fell 22.6 per cent..
Gabriel Resources Ltd. will seek $4.4-billion in damages from Romania for losses related to its long-stalled Rosia Montana gold mine project in a claim that the Canadian miner plans to file Friday with a World Bank Tribunal. Gabriel, whose project has been in the works for 18 years, will argue that Romania violated several investment treaty provisions in its claim to the bank's International Centre for Settlement of Investment Disputes.
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Economic News
U.S. jobless claims rose 244,000 last week, a touch ahead of the estimate of 240,000.
The U.S. economy grew at an annual rate of 1.4 per cent in the first quarter. Earlier estimates had pegged growth at 1.2 per cent.
Factory activity in China is expected to have cooled slightly in June from the previous month, a Reuters poll showed, as manufacturers are pressured by government efforts to reduce high levels of debt across the world's second-biggest economy. Most analysts agree that Beijing's crackdown on debt risks and tightening financial conditions will slow China's momentum after a strong start to the year when first quarter growth came in at 6.9 per cent.
With files from Reuters