Equities
Canada’s main stock index hit its lowest level in five months on Thursday with recession concerns driven by the inversion of the country’s yield curve and sliding crude prices hitting investor sentiment. South of the border, markets found their footing after the previous session’s huge rout with strong Walmart earnings and solid retail sales figures offsetting a threat of retaliation from China for U.S. tariffs.
At 9:46 a.m., the Toronto Stock Exchange’s S&P/TSX composite index was down 39.07 points, or 0.24%, at 16,006.87. Seven of the index’s 11 main sectors were lower. Energy stocks were down 0.8 per cent. Financials and industrials were both down 0.2 per cent.
On Wall Street, the Dow Jones Industrial Average rose 34.83 points, or 0.14 per cent, at the open to 25,514.25.
The S&P 500 opened higher by 5.60 points, or 0.20 per cent, at 2,846.20. The Nasdaq Composite gained 16.26 points, or 0.21 per cent, to 7,790.20 at the opening bell.
Wall Street saw some of the year’s biggest losses on Wednesday with the Dow dropping 800 points after inverting bond yields signalled the possibility of a coming recession. Overnight, global markets whipsawed, gaining on U.S. rate-cut hopes then falling on renewed concern about U.S.-China trade before advancing again in the wake of Walmart’s better-than-expected results and strong U.S. retail sales data.
“Jitters have well and truly set in and equity markets are suffering the consequences as investors head for safety in numbers,” OANDA analyst Craig Erlam said in an early note.
Thursday’s analyst upgrades and downgrades
Early Thursday, China’s finance ministry said U.S. tariffs breach a consensus reached by leaders of both countries Earlier this month, the U.S. said it would put duties on US$300-billion in Chinese goods starting Sept. 1, effectively hitting all of China’s exports to the U.S. Earlier this week, U.S. President Donald Trump delayed duties on some imports, including cellphones and other consumer staples, saying he wanted to avoid affecting holiday season sales. Tariffs would still apply to those items starting in mid-December.
However, Walmart’s latest quarterly results helped offset the negative tone. Shares were up about 6 per cent at the open after the retail giant hiked its full-year earnings forecast after U.S. same-store sales topped forecasts in the second quarter. Sales at U.S. stores open at least a year rose 2.8 per cent, excluding fuel. Analysts had been looking for an increase of about 2.07 per cent.
On the corporate side, Canopy Growth were down 10 per cent in early trading in Toronto after the Canadian cannabis producer said quarterly revenue fell to $90.5-million, down 4 per cent from the prior quarter and below analysts’ forecasts. Canopy also reported a quarterly net loss of $1.28-billion, or $3.70 per share. Most of this was attributed to a one-time charge related to revaluing warrants held by Constellation Brands Inc., which holds a major stake in the company. The company’s operating loss was $123.1-million, an improvement from the $174.5-million operating loss in the preceding quarter. The results were released after the close of trading on Wednesday.
On Wall Street, shares of Cisco Systems Ltd. shed more than 6 per cent after the company said it expects profit in the current quarter to come in below market forecasts. The network gear maker said it expects first-quarter revenue growth of between 0 per cent and 2 per cent. This implies a range of between US$13.07-billion and US$13.33-billion, according to Reuters, while analysts forecast revenue of US$13.40-billion, according to IBES data from Refinitiv. Cisco expects adjusted earnings of 80 US cents to 82 US cents per share in the first quarter of 2020, below analysts’ estimates of 83 US cents.
Other companies slated to report Thursday include Canadian Solar Inc. and Applied Materials Inc.
Overseas, the pan-European STOXX 600 was down 0.13 per cent by early afternoon, off the morning’s lows. Britain’s FTSE 100 fell 0.75 per cent. France’s CAC 40 gained 0.09 per cent. Germany’s DAX fell 0.31 per cent.
In Asia, markets finished the day mixed. Japan’s Nikkei ended down 1.21 per cent. However, The Hang Seng gained 0.76 per cent following news that Mr. Trump raised the prospect of a meeting with Chinese President Xi Jinping to discuss ongoing protests in Hong Kong. The Shanghai Composite Index rose 0.25 per cent.
Commodities
Crude prices continue to fall with trade and global economic growth concerns hitting sentiment.
Brent crude fell below US$60 a barrel, losing as much as 2 per cent at one point, to trade in a day range of US$58.07 to US$59.42. West Texas Intermediate was also under water and was trading toward the low end of the day’s spread of US$54.10 to US$55.33.
Thursday’s declines come on the heels of a 3-per-cent drop during the previous session triggered by recession fears after the U.S. Treasury yield inverted for the first time since 2007. Disappointing economic reports out of Germany and China added to the downward pressure.
“With the markets in a heightened state of recessionary fearmongering, there could be limited risk appetite until we get more positive signals (Trump Tweets) that some sign of progress is being made ahead of US-China trade talks due to re-start next month,” Stephen Innes, managing partner with VM Markets, said in an early note.
Crude markets were also struggling with a surprise build in U.S. inventories. The latest figures released by the U.S. Energy Information Administration earlier this week showed U.S. crude stocks rose by 1.6 million barrels last week. Traders had been expected a drop of about 2.8 million barrels.
Elsewhere, gold prices added to the previous session’s 1-per-cent gain as recession fears push investors toward safer holdings. Spot gold was up 0.2 per cent at US$1,519.71 per ounce, while U.S. gold futures were up 0.2 per cent at US$1,530.60. Spot gold has risen about 8 per cent since the start of August, driven by trade and growth concerns and analysts suggest more gains are likely in the current environment.
“We think gold could rise to as much as US$1,580-US$1,600 over the remainder of the year – we think risks are skewed to the upside and would not rule out a temporary breach of the upper end of that range,” analysts at UBS said in a note.
Currencies
The Canadian dollar was little changed holding just above the 75-US-cent mark with a day range of 75.03 US cents to 75.25 US cents.
There were no major Canadian economic releases on the docket for the day.
On broader currency markets, Japan’s yen saw the benefit of global growth fears. After starting off weaker Thursday, the yen gained 0.1 per cent at 105.85 at the start of trading in London. During the previous session, the yen rallied 0.8 per cent against the U.S. dollar, marking its best showing in two weeks.
The U.S. dollar index, which measures its value against a basket of world currencies, fell 0.1 per cent to 97.853. The euro edged higher against the dollar, rising 0.2 per cent to US$1.1155.
U.S. markets get a reading on July sales just ahead of the North American open. Markets are expecting an increase of about 0.3 per cent, with a rebound in sales at gasoline stations on the back of firmer gas prices, Elsa Lignos, RBC’s global head of FX strategy, said. Excluding autos, markets are expecting an increase of 0.4 per cent.
In bonds, the investor rush to government debt pushed the yield on the U.S. 30-year bond below 2 per cent for the first time. At last check, the yield on the 30-year note was lower at 1.972 per cent. The yield on the 10-year note was also lower at 1.534 per cent.
More company news:
Warren Buffett’s Berkshire Hathaway Inc. on Wednesday said it boosted its stake in Amazon.com Inc. by 11 per cent during the second quarter, increasing its bet on the powerful online retailer even as stocks traded near record highs. Berkshire said it ended June with 537,300 Amazon shares worth about US$1.02-billion, up from 483,300 shares three months earlier. It made the disclosure in a regulatory filing detailing the $208.1-billion of U.S.-listed stocks it owned as of June 30.
China’s Alibaba Group Holding Ltd reported a 42-per-cent jump in quarterly revenue that beat estimates on Thursday, aided by growth in its core e-commerce and cloud computing businesses. Revenue rose to 114.92 billion yuan (US$16.32-billion) in the first quarter ended June 30 from 80.92 billion yuan, a year earlier. Analysts had expected revenue of 111.73 billion yuan, according to IBES data from Refinitiv.
J.C. Penney Co Inc reported a steeper-than-expected drop in quarterly comparable-store sales, as the struggling department store operator stopped selling appliances and furniture in its stores. The Plano, Texas-based company said sales at stores open for at least 12 months fell 9 per cent in the second quarter ended Aug 3. Excluding the impact of the businesses it exited, comparable sales decreased 6 per cent. Analysts on average were estimating a drop of 5.15 per cent, according to IBES data from Refinitiv.
Economic news
U.S. retail sales rose 0.7 per cent in July, better than the 0.3-per-cent increase markets had been forecasting. June’s increase was revised to 0.3 per cent, from the previously reported increase of 0.4 per cent.
ADP Canada says employment in this country increased by 73,700 jobs in July.
Initial claims for U.S. state unemployment benefits increased 9,000 to a seasonally adjusted 220,000 for the week ended Aug. 10, the Labor Department said on Thursday.
Canadian home sales rose 3.5 per cent in July from the previous month, the fifth consecutive month of higher sales, the Canadian Real Estate Association said. CREA said actual sales, not seasonally adjusted, rose 12.6 per cent from a year earlier, while the group’s Home Price Index was up 0.2 per cent from July last year.
With Reuters and The Canadian Press
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Terry Weber