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At the open: TSX falls with oil prices; inflation fears rattle Wall Street

A Toronto Stock Exchange (TSX) logo is seen in Toronto in this file photo.

© Mark Blinch / Reuters

Canada's main stock index fell on Wednesday after a strong U.S. inflation report weighed on investor sentiment, while energy shares were pressured by lower oil prices.

The S&P TSX index was down 56.66 points, or 0.37 per cent, to 15,159.81 in early trading.

Shares of Canopy Growth Corp. jumped 3 per cent to $27.51 in early trading after the marijuana company posted a large rise in third-quarter revenue.

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The Canadian dollar was trading 0.3 per cent lower at $1.2632 to the greenback, or 79.16 U.S. cents.

U.S. stocks fell half a percent at the open on Wednesday, following three days of gains, after data showed core inflation posted its biggest gain in a year in January, stoking fears of faster-than-expected increases in interest rates.

The Dow Jones Industrial Average fell 103.85 points, or 0.42 per cent, to 24,536.6. The S&P 500 lost 11.22 points, or 0.421339 per cent, to 2,651.72. The Nasdaq Composite dropped 31.37 points, or 0.45 per cent, to 6,982.14.

That again stoked fears that interest rates will increase faster than expected, sending benchmark U.S bond yields to session highs and further quelling investors' interest in the stock market.

The Labor Department said its Consumer Price Index increased 0.5 per cent last month as households paid more for gasoline, rental accommodation and healthcare. Economists polled by Reuters had forecast an increase of 0.3 per cent.

Excluding the volatile food and energy components, the CPI shot up 0.3 per cent, the largest increase since January 2017. However, the year-on-year rise in the so-called core CPI was unchanged at 1.8 percent in January.

Separately, a report showed U.S. retail sales decreased 0.3 per cent last month, the biggest fall in nearly a year and a surprise drop compared with economists' expectations of a 0.2-per-cent increase. The weak number raised some concerns about economic growth.

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"In some ways you would say this is the worst possible number for U.S. equities: extremely weak U.S. retail sales and a higher CPI. I think there is less to the numbers than meets the eye, however," Steven Englander, head of research and strategy at Rafiki Capital in New York, said.

"It does play into the fears that we are getting into a different inflation regime than we were before. The last ten years was below target inflation and now the expectations are adjusting upwards, which means the Fed is not as friendly."

U.S stock futures were higher by about 0.5 per cent ahead of the inflation data released at 8:30 a.m. ET.

The strong CPI data added to fears of firming inflation that was ignited by a strong January jobs report on Feb. 2, which was a trigger for last week's sell-off in the stock market.

The yields on the benchmark U.S. 10-year Treasury bonds rose to a session high of 2.8730 per cent after falling to 2.8222 percent earlier. They hit a four-year high of 2.902 on Monday.

The CBOE Volatility index, known as Wall Street's fear gauge, was last at 23.52 points. They had eased to a week low of 22.81, after shooting above 50 points at the peak of last week's declines.

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European stock markets were broadly higher thanks to strong earnings results and data confirmed the fastest euro zone economic growth for more than 10 years in 2017.

Blue-chip indexes in London, Paris and Frankfurt were up around 0.7 per cent each.

Still, Asian shares were mixed and Japan's benchmark Nikkei closed down 0.4 per cent as the yen rose.

In Europe, strong economic data reinforced the brighter outlook for the world economy, supporting sentiment towards risk assets such as southern European bonds.

Euro zone industrial production jumped more than expected in December, while the euro zone statistics office confirmed its a preliminary estimate of gross domestic product growth in the last three months of 2017 at 2.7 per cent against the same period of 2016. Overall in 2017, euro zone GDP rose 2.5 per cent, the fastest growth rate since 2007.

That followed news earlier on Wednesday that Japan's economy posted its longest continuous expansion since the 1980s boom as fourth quarter growth was boosted by consumer spending.

The drop in the dollar meanwhile gave a fillip to commodities, with copper firm after jumping 2.7 per cent overnight.

Spot gold edged up 0.1 per cent to $1,331.08 per ounce, leaving behind last week's one-month low of $1,306.81.

Oil fell for a third day on Wednesday, dropping nearly 1 per cent on concerns about rising U.S. production and another drop in financial markets after U.S. consumer prices rose more than expected.

Brent crude futures fell 55 cents to $62.17 a barrel. The price has lost 11 per cent since hitting a high above $71 in January and has now wiped out all its 2018 gains.

U.S. West Texas Intermediate crude futures dropped 77 cents to $58.42 a barrel.

U.S. consumer prices excluding energy and food accelerated at their fastest pace in a year, triggering a bounce in the dollar as prospects for more U.S. interest rate rises pushed up Treasury yields.

"In terms of a continuation of risk-off moves in the market, the U.S. economic data does not help," BNP Paribas head of commodity strategy Harry Tchilinguirian said.

"With yields moving higher on the inflation number, let us see how equities will close the day," he said, adding U.S. oil inventory data would also be closely watched.

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