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U.S. stock futures pulled back from the brink early Friday erasing the lows seen overnight to signal a flat start even as world markets grapple with the threat of a global trade war. Dow futures had been down by triple digits in the predawn hours, but recovered all the lost ground as the North American open approached. S&P and Nasdaq futures also steadied near break even. On Bay Street, futures followed a similar path, moving into neutral with less than an hour to go before the opening bell. Overnight, Asian markets sank on trade concerns. European markets started the day in the red.

U.S. President Donald Trump signed a presidential memorandum on Thursday that could impose tariffs on up to $60-billion on imports from China, although the measures have a 30-day consultation period. China responded Friday with its own plan to hit U.S. imports with as much as US$3-billion in tariffs and urged the U.S. to "pull back from the brink." Meanwhile, early Friday, the U.S. launched a complaint against China at the World Trade Organization over China's alleged theft of intellectual property. The complaint argues that China "appears to be breaking WTO rules by denying foreign patent holders, including U.S. companies, basic patent rights to stop a Chinese entity from using the technology after a licensing contract ends."

"For a person who's been obsessed with stock market gains since his election victory 16 months ago, US President Donald Trump doesn't appear too concerned about the impact his tariffs are having at the moment," OANDA senior market analyst Craig Erlam said.

On Thursday, the Dow and S&P lost almost 3 per cent in response to the escalating trade tensions.

"Understandably, the prospect of a trade war between the world's two largest economies is not particularly desirable for investors. The global economy is finally starting the tick along nicely after a decade of efforts to repair the damage of the global financial crisis and the issues that followed and now we're potentially having to deal with an entirely self-inflicted and avoidable problem," Mr. Erlam said in a morning note.

Outside trade, marijuana stocks could get some attention Friday after the Senate gave approval in principle Thursday evening to the federal government's bill to legalize recreational marijuana. Bill C-45 passed at second reading by a vote of 44-29. The bill will now go to five different Senate committees for further review before returning to the upper house for a final debate and vote by June 7.

Bombardier stock could also get a lift after Boeing Co. said it would not appeal against the U.S. trade commission ruling allowing Bombardier to sell its C Series jets to U.S. airlines without heavy duties. Boeing shares were down about 1.6 per cent in premarket trading.

On Wall Street, Dropbox Inc.'s shares are set to start trading on the Nasdaq Friday morning under the symbol DBX. The initial public offering marks the biggest tech stock debut in more than a year. The company priced the shares at US$21 each on Thursday, higher than initially expected. That gives the San Francisco-based company a market cap of US$9.18-billion.

Overseas, the pan-European STOXX 600 was down 1.6 per cent in early trading. Britain's FTSE 100 was down 0.88 per cent. Germany's DAX fell 1.79 per cent and France's CAC 40 was off 1.66 per cent.

In Asia, escalating trade tensions took a heavy toll on markets. Japan's Nikkei ended down 4.5 per cent. Earlier in the session, the Nikkei touched its lowest level in five months. The index was off 4.88 per cent for the week. Hong Kong's Hang Seng fell 2.45 per cent and the Shanghai Composite Index fell 3.38 per cent.

Commodities

Oil prices were higher early on after Saudi Energy Minister Khalid al-Falih said OPEC would need to keep coordinating supply caps with non-OPEC members into next year. Brent crude was higher although off overnight peaks and had a day range of US$68.87 to US$70. Brent crude looks headed for a weekly gain of more than 4 per cent, its best showing since October. West Texas Intermediate followed a similar course overnight and had a range for the day of US$64.11 to US$65.42. WTI is up about 3.7 per cent on the week.

OPEC and a number of non-OPEC members have been working together since early 2017 to curb output by 1.8 million barrels a day in a bid to curb the global market overhang. Those cuts are now slated to remain in place until the end of the year.

Analysts said Friday solid demand is supporting crude prices at the moment, although the growing trade dispute between the United States and China could weigh.

"Geopolitical tensions are coming to the front. But global balances are relatively tight at the moment. That's enough to amplify relatively small factors," said Andrew Wilson, head of energy research at BRS Brokers.

In other commodities, safe-haven gold rose as much as 1 per cent as the U.S. dollar struggled and stocks sank. Spot gold and gold futures for April delivery were up nicely ahead of the North American open.

"A trade war will harm both the U.S. and Chinese economies... And any harm to the U.S. economy will depreciate the dollar pushing gold higher," said Ji Ming, chief analyst, Shandong Gold Group.

Silver prices were also up.

Currencies and bonds

The Canadian dollar was modestly higher as its U.S. counterpart slid as the markets grappled with the growing threat of a trade war between the United States and China. The day range for the loonie so far is 77.27 US cents to 77. 87 US cents.

In terms of domestic news, the loonie got a boost after Statistics Canada reported that February's annual rate of inflation rose to 2.2 per cent, ahead of economists forecasts. The Canadian dollar moved to the top end of the day range in the wake of that report. Statscan also reported that retail sales in January rose 0.3 per cent. That was below the 1-per-cent increase economists had been expecting, but ahead of the 0.7-per-cent decline reported the month before.

"Inflation is BAAAACK, but its not yet a scary monster, being essentially in line with what the Bank of Canada actually wanted to see," CIBC World Markets chief economist Avery Shenfeld said.

He also noted that the three core measures tracked by the Bank of Canada now average right on the Bank's 2-per-cent target. Still, while price pressures appear to be heating up, Mr. Shenfeld noted that growth elsewhere appears soft, with retail sales falling short of market forecasts and January's GDP likely to be similarly tepic.

"Since the BoC looks at growth as the key factor in medium term inflation, the balance of the news is still sufficient to have [Bank of Canada Governor Stephen] Poloz waiting for more news on GDP, although markets today will emphasize the CPI in taking bond yields higher and the C$ firmer," he said.

In other currencies,  the U.S. dollar index, which weighs the greenback against a group of world currencies, was lower at 89.689. The index is down about 0.6 per cent for the week, marking its biggest decline in a month. The safe-haven yen, meanwhile, rose to its best level in more than 16 months against the greenback amid trade concerns. The Swiss franc also benefited from market uncertainty around trade relations between the United States and China.

In bonds, the yield on the U.S. 10-year note was lower at 2.826 per cent. The yield on the U.S. 30-year note was slightly higher at 3.08 per cent.

Stocks set to see action

Department store operator Target Corp and grocery chain Kroger Co are in talks about a possible merger, tech focused magazine Fast Company reported on Friday, citing people with knowledge of the matter. Neither companies was immediately available for comment. The companies first started talks last summer about a partnership that could improve Target's grocery business and give Kroger customers more access to merchandise and e-commerce, the report said. While the talks started once again in 2018, the two companies appear to be struggling to decide whether a merger is the best path forward, the report said. Shares of Kroger rose 8 per cent in premarket trading on Friday while that of Target was trading up 2.8 per cent. Kroger has a market cap of US$20.62-billion and Target US$37.12-billion.

GlaxoSmithKline has withdrawn from the race to buy Pfizer Inc.'s consumer health care business, the British drugs company said on Friday, endangering an auction for an asset some said could fetch as much as US$20-billion. GSK was seen as the front runner to buy the assets, which include Advil painkillers and Centrum vitamins, after main rival Reckitt Benckiser quit the race on Thursday. "While we will continue to review opportunities that may accelerate our strategy, they must meet our criteria for returns and not compromise our priorities for capital allocation," Chief Executive Emma Walmsley said in a brief statement. GSK shares jumped 4 per cent. Pfizer shares were lower in premarket trading.

British clothing chain Next reported an 8-per-cent fall in annual profit and forecast a third straight decline this year but said the squeeze on U.K. consumers should ease. Shares in Next, which trades from more than 500 stores in the UK and Ireland and operates the Directory internet and home shopping business, rose as much as 7 per cent on the company's more optimistic comments - the FTSE 100 index's biggest riser. Next shares have increased 23 per cent over the last year but are trading well below levels of two years ago.

Rupert Murdoch's Twenty-First Century Fox has changed the group of banks lined up to help finance its proposed takeover of European pay-TV company Sky, replacing Bank of America with Citibank.  The company said on Friday it requested the change because Merrill Lynch, part of Bank of America, is an adviser to U.S. cable company Comcast, which has challenged Fox's agreed offer for Sky with a rival US$31-billion bid.

Boeing Co will not appeal against the U.S. trade commission ruling that allows Canada's Bombardier Inc to sell its newest jets to U.S. airlines without heavy duties, a Boeing spokesman said on Thursday. The decision by Boeing puts the trade challenge to rest. A Canadian government official who spoke on condition of anonymity said Boeing's decision was "good news".

Dropbox Inc's initial public offering, the largest tech stock debut in more than a year, was priced at US$21 per share, the company announced on Thursday, higher than expected. At US$21, the San Francisco-based company will have a market cap of about US$9.18-billion on a fully diluted share count. The cloud-based file-storage firm on Wednesday raised the expected price range by $2 to $18 to $20 per share, on the back of strong demand. The IPO raised about $756 million in the largest tech IPO since Snap Inc raised $3.9 billion in its debut last year. Dropbox shares are set to start trading on Friday at the Nasdaq under the symbol "DBX."

Nike Inc on Thursday signaled an end to revenue declines in North America as the world's largest footwear maker reaps the benefits of its efforts to sell directly to customers and focus on new launches. The company said it expected revenue in North America to be flat in the fourth quarter and return to growth in the first half of fiscal 2019. Shares of the Dow component rose about 3 per cent in extended trading. They had closed down 3 per cent at US$64.42 in regular trading on reports that William Ackman's Pershing Square had exited the company with a profit of about $100 million.

More reading: Friday's small-cap stocks to watch
More reading: Friday's Insider Report: Companies insiders are buying and selling

Economic News

Canada's annual rate of inflation rose to 2.2 per cent in February, slightly ahead of forecasts. For the month, the consumer price index rose 0.2 per cent, Statistics Canada said.

January retail sales rose 0.3 per cent, falling short of forecasts which had called for an increase closer to 1 per cent. Sales were higher in seven of 11 subsectors, Statscan says.

New orders for key U.S.-made capital goods rebounded more than expected in February after two straight monthly declines and shipments surged, pointing to strong growth in business spending on equipment in the first quarter. The Commerce Department said on Friday orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, jumped 1.8 per cent last month. That was the biggest gain in five months and followed a downwardly revised 0.4 percent decrease in January.

(10 a.m.) U.S. new home sales for February. Consensus is for an increase of 4.6 per cent and an annual rate of 620,000.

(1 p.m.) Baker-Hughes oil rig count.

With files from Reuters and The Canadian Press