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At the open: TSX flat as resource stock losses offset lumber jump

A man walks past an old Toronto Stock Exchange (TSX) sign in Toronto, June 23, 2014

Mark Blinc/Reuter

Canada's main stock index opened flat on Friday, as resources stocks and marijuana producers weighed, lumber companies bounced higher and an oil and gas explorer jumped after announcing a reduced capital spending plan.

The Toronto Stock Exchange's S&P/TSX composite index was up 17.49 points, or 0.11 per cent, to 16,304.43 shortly after the open. It is heading for a 0.3-per-cent fall on the week.

The S&P and the Dow opened higher on Friday on gains in banking shares, while the Nasdaq was dragged 5 percent lower by losses in Facebook.

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The Dow Jones Industrial Average rose 80.35 points, or 0.31 percent, to 25,655.08. The S&P 500 gained 2.31 points, or 0.083467 percent, to 2,769.87. The Nasdaq Composite dropped 6.13 points, or 0.08 percent, to 7,205.65.

Record high world stocks headed for an eighth straight week of gains on Friday, while the euro sailed to a three-year high as progress on forming a German government added to signs the ECB may accelerate an end to its stimulus.

MSCI's broadest gauge of the world's stock markets hit yet another all-time high as it bulldozed towards its longest weekly winning streak since 2010.

It has already surged 3.5 per cent since the start of the year. U.S. stocks were also set to open 0.1-0.4 percent higher, which should ring in yet more Wall Street records and erase any remaining memory of the short-lived losses seen midweek.

With dollar traders still dazed by the euro's gains over the last 24 hours, the main focus is set to be consumer price inflation data due at 1330 GMT that will further feed the debate on the pace of Fed rate hikes this year.

"This bull market is highly related to the fact we are facing good growth, low inflation and soft monetary policy normalization," said Jeanne Asseraf Bitton, head of cross-asset research at Lyxor Asset Management. "If any of those were to be shaken that would be a big problem."

Germany's 10-year Bund yield had briefly hit a fresh five-month high of 0.54 per cent after Chancellor Angela Merkel's conservatives and the Social Democrats agreed a blueprint for formal coalition negotiations, news that also buoyed the euro.

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Germany's DAX gained as much as 0.3 per cent with most of Europe following suit but the strength of the euro, which was almost matched by Britain's pound and the Swiss franc, eventually dragged them back to almost flat on the day.

The euro's leap took it as high as 1.2128, the pound was up 0.7 per cent at $1.3636 while the franc enjoyed the view from a three-month high of 97.85 cents per dollar.

The euro's overnight index swap rates have risen sharply this week as traders priced in a higher chance of a rate hike early next year.

While the currency's rise has reflected growing optimism over the bloc's economic recovery, investors have flagged it as a potential brake on stocks. Monica Defend, head of strategy at Amundi Asset Management, said the currency, for which she has a target of $1.22, was the biggest risk to European equities.


A sell-off in European bonds eased slightly after yields were driven higher by minutes on Thursday of the European Central Bank's December meeting that showed policymakers think it should revisit its communication stance in early 2018.

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Lyxor's Bitton said Bund yields were already near to hitting her target for the first quarter. U.S. Treasury were starting to creep higher again too ahead of U.S. trading. They hovered at 2.56 per cent having eased back from Wednesday's 10-month high of 2.597 per cent.

"Markets were a bit too complacent about bonds so they took some excuses to correct," she said. "We were a little surprised that the market reacted so strongly to the ECB."

The minutes showed that with the euro zone seeing its best growth in a decade, ECB policymakers were considering a gradual shift in its stance to reduce the focus on bond purchases and raise the emphasis on interest rates.

The ECB has pledged to continue its bond purchase program at least until September, and investors expect any rate hike to take place only next year.

Amundi's Defend said the gradual removal of liquidity from central banks would drive volatility higher across asset classes this year.

"Our target for U.S. 10-year treasuries is 2.8 -- and we might afford up to 3 percent -- but going beyond that it's becoming an alert signal," said Amundi's Defend.

The dollar was firmly in the doldrums too. It was eyeing CPI data due shortly after figures on Thursday showed U.S. wholesale prices dipped in December from November, reinforcing investors' expectations that inflation will remain low.

The dollar index slipped to a six-week low, down 0.5 percent.

Bitcoin fought back 6 per cent to $14,000 on the Bitstamp exchange, having fallen 11.1 per cent on Thursday after the government in South Korea, a major source of digital currency demand, unveiled plans to ban cryptocurrency trading.

Oil prices fell on Friday after hitting a three-year high of more than $70 a barrel the previous day, but they were still on track to post a fourth straight week of gains.

Brent crude futures traded 55 cents lower at $68.71 a barrel. The contract broke above $70 on Thursday for the first time since December 2014.

U.S. West Texas Intermediate (WTI) crude futures were at $63.14 a barrel, down 66 cents. WTI the day before rose to its strongest since late 2014 at $64.77.

"It is remarkable to see that most market analysts believe that prices have rallied too far since consensus forecasts are significantly lower than the current spot prices," Hans van Cleef, senior energy economist at ABN Amro, said in a note.

"On the other hand, most investors are still positioned to benefit from further price gains," he said.

Analysts and traders have warned about the risk of a price correction since the start of 2018, but they say overall market conditions remain strong, mainly due to output cuts led by the Organization of the Petroleum Exporting Countries and Russia.

Fatih Birol, head of the Paris-based International Energy Agency, said on Friday that oil prices at $65 to $70 a barrel risked encouraging more oversupply from U.S. shale drillers.

But OPEC Secretary General Mohammed Barkindo said there was "no panic" about rising prices.

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