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At the open: TSX flat as energy stocks fall, banks push higher

A file photo from the TMX Broadcast Centre in downtown Toronto in 2013.

Fernando Morales/The Globe and Mail

Canada's main stock index was little changed in early trade on Thursday, as energy stocks fell and banks rose.

The Toronto Stock Exchange's S&P/TSX composite index was down 1.81 points, or 0.01 per cent, at 16,324.89 shortly after the open.

The Canadian dollar weakened against its American counterpart on Thursday, after comments by U.S. President Donald Trump the day before appeared to validate concerns that the United States looks increasingly likely to pull out from NAFTA.

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Mr. Trump said that terminating the North American Free Trade Agreement would result in the "best deal" to revamp the 24-year-old trade pact with Canada and Mexico in favor of U.S. interests.

The future of NAFTA future was the most significant downside risk cited by the Bank of Canada on Wednesday, in an otherwise bullish report on the outlook for Canada's economic growth.

Canada sends about 75 per cent of its exports to the United States.

The central bank on Wednesday raised its benchmark interest rate by 25 basis points to 1.25 per cent, its highest since January 2009, after recent data showed stronger inflation and strong job growth.

But a report released on Thursday by ADP showed that Canada shed 7,100 jobs in December, driven by cuts in the manufacturing, education and trade sectors.

The Canadian dollar was trading at $1.2464 to the greenback, or 80.23 U.S. cents, down 0.2 per cent.

The currency traded in a range of $1.2430 to $1.2479.

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Wall Street's main indexes opened little changed on Thursday as energy stocks took a hit from lower oil prices.

The Dow Jones Industrial Average rose 13.58 points, or 0.05 per cent, to 26,129.23. The S&P 500 lost 1.76 points, or 0.0628 per cent, to 2,800.8. The Nasdaq Composite dropped 4.15 points, or 0.06 per cent, to 7,294.13

The first acceleration by China's giant economy in seven years kept stocks near record highs on Thursday, but added to growing pressure on bond markets as U.S. Treasury yields, the benchmark for global borrowing costs, reached a 10-month high.

Underlining the momentum of the world economic expansion into the back end of last year, both Chinese fourth quarter growth of 6.8 per cent and December industrial output growth of 6.2 per cent were ahead of expectations.

Most Asian bourses were closing when the data landed but had briefly set a new all-time record after the U.S. blue chip Dow Jones Industrial closed above 26,000 points for the first time on Wednesday.

China's yuan finished strongly to hit its highest since December 2015. Europe's main FTSE, Dax and CAC40 markets ticked higher too, though moves were choppy in the cross currents of rising bond yields.

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After a week of trying, the 10-year U.S. Treasury yield passed 2.6 per cent to hit 2.613, its highest since March 2017. It drove European counterparts up too with Germany's 10-year bond yield near a 5-1/2 month top at 0.52 percent.

With such encouraging data coming through, "the likelihood we have higher inflation in the big economies is well over 50 percent, so that is the next turning point for the markets," said SEB investment management's global head of asset allocation Hans Peterson.

He said that raised two big questions. How will central banks respond? And will the rise in bond yields happen at such a pace that it impacts optimism around assets like equities?

"We are going to change the regime probably within the next 2-3 months," he said. "Will it be accompanied by rising producer prices? If so then we can live with higher bond yields, otherwise it is a problem for us."

The break higher in U.S. yields also lifted the dollar off a three-year low hit earlier in the day in Asia.

Ahead of U.S. trading though, the euro was regaining traction and last stood at $1.2245, up 0.5 percent on the day but well below a peak of $1.2323 set on Wednesday, the euro's strongest level since December 2014.

Some top European Central Bank policymakers speaking in Frankfurt may have been caught off guard by the speed of the euro's appreciation, said Lee Jin Yang, macro research analyst for Aberdeen Standard Investments in Singapore.

"Maybe they are trying to manage volatility or slow down the rise," Lee said referring to Austria's Ewald Nowotny, who told reporters on Wednesday that the euro's recent strength against the dollar was "not helpful".

TRAINED LIKE DOGS

Wall Street moved only fractionally, with investors already digesting another deluge of fourth-quarter company results as well as some mixed jobs and housing market data.

One showed the number of Americans filing for unemployment benefits had fallen to the lowest level in 45 years while the other revealed the biggest drop in U.S. homebuilding in over a year.

Emerging markets must navigate a number of key interest rate meetings including in Turkey, which kept its rates on hold having seen last year's 18-per-cent slump in the lira versus the euro drive inflation back into double digits.

South Africa's central bank also stood pat, which helped the rand score new long-term highs after being sickly for much of 2017. A sounder political backdrop has made it one of the best performing currencies in the world so far this year.

"In the near term the rand is expected to remain sensitive to sentiment generated by political developments," South African Reserve Bank Governor, Lesetja Kganyago, said.

Rising U.S. bond yields could cause turbulence for EM debt markets, however. As well as the gains for benchmark Treasuries, the two-year yield hovered at a nine-year high of just over 2 percent.

"In emerging markets we are trained like dogs," UBP's EM macro and FX strategist Koon Chow said about the rising yields. "When we hear that bell ring we want to just run."

In commodities, crude oil prices rose earlier on data showing a decline in U.S. crude inventories and as rebels in Nigeria threatened to attack the country's petroleum infrastructure, before trimming their gains.

U.S. crude futures were 10 cents higher at $64.07 a barrel have hit a three-year high of $64.89 on Tuesday.

Spot gold was steady at $1,333 an ounce, with the dollar's bounce pulling it back from a four-month high of $1,344.43 set on Monday.

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