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Inside the Market Before the Bell: Wall Street futures turn mixed on jobs report; TSX heads for firmer start

Equities

U.S. stock futures turned mixed after the latest reading on U.S. employment fell short of forecasts but still suggested a solid jobs market. Dow futures dipped into the red following the release of the report while S&P 500 and Nasdaq futures remained in the black. In this country, TSX futures were positive ahead of the open as oil prices steadied. Overnight, world stocks edged lower with continued trade worries offsetting the positive impact of Wall Street’s tech rally during the previous session.

The MSCI all-country index, which weighs stocks in 47 countries, was off slightly with European markets moving higher in morning trading. The MSCI index looks set to post a down week after four straight weeks of gains. Tech gains on Wall Street on Thursday filtered through to Asian trading, but worries about the escalating trade row between the United States and China put a ceiling on the gains.

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“Trade wars have once again proven a distraction for investors this week, one that started with a suggestion that the U.S. and China were ready to engage in discussions but quickly turned sour again, as it was reported that the Trump administration is now proposing a 25 per cent tariff on US$200-billion of imports, up from 10 per cent,” OANDA’s Craig Erlam said in a note. “This apparent escalation, intended to put further pressure on the world’s second largest economy, has instead only added fuel to the fire prompting China to respond with threats of retaliatory measures. Naturally, investors have become more risk averse in response.”

Ahead of the start of trading, the U.S. Labor Department said 157,000 new jobs were created in that country last month, below the roughly 200,000 economists had been expecting. The jobless rate held steady at 3.9 per cent.

“After a barn-burner quarter for growth, payrolls weren’t able to continue that momentum into [the third quarter],” CIBC economist Royce Mendes said. “Nevertheless, while a 157,000 gain in non-farm payrolls was well below the 193,000 expected for July, an upward revision of almost 60,000 to the prior two months leaves the level of employment roughly where the consensus had forecast.”

Mr. Mendes said the latest figures were unlikely to dissuade the Federal Reserve from hiking rates at its upcoming meeting.

On Bay Street, the battle between Aeroplan-operator Aimia Inc. and Air Canada took another turn Thursday evening when Aimia rejected a hostile bid from the carrier and three financial partners. The move came after the two sides exchanged offers but couldn’t agree on a price, The Globe’s Tim Kiladze reports. The Air Canada bid was raised to $325-million but Aimia said that price - and the original offer - didn’t reflect the value of the company. Separately, Aimia reported earnings Friday morning, posting adjusted profit per share of 33 cents, ahead of the 18 cents analysts had been forecasting.

In other Canadian earnings, reports are also due from Telus Corp. and Enbridge Inc. South of the border, Kraft Heinz and Berkshire Hathaway are among the big names reporting results.

Overseas, the pan-European STOXX 600 was up 0.57 per cent with most sectors in the black on solid corporate results. Britain’s FTSE 100 gained 0.68 per cent at 6:30 a.m. ET. Germany’s DAX rose 0.52 per cent and France’s CAC 40 rose 0.36 per cent.

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The picture in Asia was more mixed with trade concerns casting a broad shadow. Japan’s Nikkei edged up 0.06 per cent helped by gains in auto and energy shares. The broader Topix, however, slid 0.54 per cent with most of its subsectors finishing lower. The Shanghai Composite Index ended down 0.97 per cent. Hong Kong’s Hang Seng closed out the week down 0.14 per cent. Consumer goods, services and materials shares were all lower on the day in Hong Kong.

Markets in Canada will be closed Monday for the holiday long weekend.

Commodities

Crude prices clawed back early and looked set for a mixed week with Brent heading to its fourth weekly loss in five while West Texas Intermediate appeared set for a flat weekly finish. Both saw choppy trading overnight. Brent crude has a day range so far of US$73.08 to US$73.69. The range on WTI is US$68.52 to US$69.22. During the previous session, crude prices bounced on figures showing lower U.S. inventories at the key Cushing storage hub in Oklahoma. Inventories at that hum fell by 1.3 million barrels to the lowest level since the fall of 2014. Over all, however, U.S. crude inventories rose by 3.8 million barrels last week, the latest figures from the U.S. Energy Information Administration said.

Traders said Friday’s movement was partly the result of a light day on the markets.

“Trade volume is pretty low in futures today. Yesterday you had a strong rebound supported by Cushing but there’s not a lot else that is driving prices higher so we are seeing a bit of a correction,” Olivier Jakob at Petromatrix consultancy told Reuters.

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In other currencies, gold hit its lowest level in 17 months as the U.S. dollar strengthened. At last check, prices were down slightly. Earlier in the session, bullion hit its lowest level since March 2017 at US$1,204. Spot gold is down more than 1 per cent for the week. U.S. gold futures were weaker ahead of the North American open.

“As long as the dollar remains strong – we believe another couple of months – demand should stay soft and prices should trade rather range bound,” Julius Baer analyst Carsten Menke said in a note.

Silver prices were up a touch but still looked headed for their eighth straight week of losses. That’s the longest losing streak since late 200.

Currencies and bonds

The Canadian dollar edged closer to the 77 US cent mark after Statistics Canada said June’s trade deficit narrowed more than expected. Immediately after the release of the figures, the loonie popped above 77 US cents before pulling back a touch. It remained closer to the high end of the day range of 76.70 US cents to 77.01 US cents.

Statscan said the trade gap with the rest of the world narrowed to $626-million from May’s $2.7-billion. Economists had expected an improvement on the deficit but most were expecting a figure closer to $2.3-billion in the latest report.

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“The result looks to bump [second-quarter] GDP tracking to above 3 per cent, ahead of the Bank of Canada’s last projection by a few ticks,” CIBC Capital Markets chief economist Avery Shenfeld said in a note. "Bullish for the C$, bearish for fixed income, as the data will have markets adding a bit of weight to the odds for a September hike, or at a minimum, gaining even more confidence about one in October. "

Meanwile, the U.S. dollar index, which weighs the greenback against a basket of currencies, turned negative after rising earlier in the morning. At last check the index was down at 95.112..

In other currencies, China’s yuan surged after the Chinese central bank raised the forward reserve requirement for foreign exchange. Earlier in the week, the yuan fell to a 14-month low.

“Its all about the dollar-yuan. That move there has been driving action across currency markets and pulling the dollar down broadly,” Valentin Marinov, Head of G10 FX Strategy at Credit Agricole, told Reuters.

“This move [by the central bank] makes it more difficult to bet against the yuan but the chances are we won’t see a trend reversal in the dollar. The trade war, and the threat to China’s economy, is the more dominate driver in the market.”

In bonds, they yield on the U.S. 10-year note was slightly lower at 2.971 per cent after the jobs report. The yield on the 30-year note was also lower at 3.109 per cent.

Stocks set to see action

Enbridge Inc.’s quarterly profit rose 16.5 per cent, driven by tight leash on costs and strong growth in its oil transportation business. The company said net income attributable to common shareholders rose to $1.07-billion, or 63 cents per share, in the second quarter ended June 30, from $919-million, or 56 cents per share.

Telus Corp. posted net income attributable to its shareholders rose to $390-million in the second quarter ended June 30, from $389-million a year earlier. On a per-share basis, the company earned 60 cents per share, unchanged from last year. Excluding items, the company earned 70 cents per share, in line with analysts’ average estimates, according to Thomson Reuters I/B/E/S.

Aimia and Porter regional airline are forming a new Aeroplan partnership to become effective July 2020, after Aimia’s partnership with Air Canada ends.

Kraft Heinz Co topped quarterly sales estimates as it raised prices to tackle higher input costs, sending its shares up nearly 5 percent before the bell. Net income attributable to the company’s shareholders fell to US$756-million, or 62 US cents per share, in the second quarter ended June 30, from US$1.16-billion, or 94 US cents per share, a year earlier.

Toyota Motor Corp said higher U.S. auto tariffs would ramp up the cost of vehicles produced locally along with those imported to the United States from Japan, which would have a “big impact” on its bottom line. Like its global rivals, Toyota is bracing for the possibility of a rise in U.S. auto import tariffs, which could cloud its outlook as it would raise the cost of selling vehicles in the world’s second-biggest vehicle market. Such uncertainty took the shine off strong quarterly results announced on Friday. Toyota posted a 19-per-cent increase in April-June operating profit to 683 billion yen (US$6-billion), beating estimates and marking its strongest quarterly performance in two-and-a-half years on the back of higher sales and cost reductions in Asia.

U.S. satellite TV service provider Dish Network Corp reported a 5-per-cent drop in quarterly revenue, as the company lost 151,000 net pay-TV subscribers. Net income attributable to the company rose to US$439-million, or 83 US cents per share, in the second quarter ended June 30 from US$40-million, or 9 US cents per share, a year earlier. Revenue fell to US$3.46-billion from US$3.64-billion.

Britain’s Royal Bank of Scotland will pay its first dividend since it nearly collapsed and took a state bailout in 2008, paving the way for the government to further reduce its stake in the lender. Taxpayer-owned RBS said it would pay an interim dividend of 2 pence per share, subject to the finalization of a US$4.9-billion settlement with the U.S. Department of Justice over the bank’s sale of mortgage-backed securities in the run up to the financial crisis.

Perry Ellis International Inc said it had received a revised buyout offer of US$28.90 per share from men’s accessories maker Randa. Randa Accessories offered US$28 per share in July, a month after the company agreed to its second-largest shareholder Feldenkreis’s US$27.50 per share, or US$437 million, proposal.

More reading:

Friday’s small-cap stocks to watch

Economic news

U.S. economy added 157,000 new jobs in July. Econonomists had been expecting closer to 200,000 new jobs. The jobless rate fell to 3.9 per cent from 4 per cent a month earlier.

Canada’s trade deficit in June narrowed to $626-million from $2.7-billion the month before.

The U.S. Commerce Department said that country’s trade gap surged 7.3 per cent to US$46.3-billion. The drop in percentage terms was the biggest since November 2016. Data for May was revised slightly to show the trade deficit falling to US$43.2-billion, instead of the previously reported US$43.1-billion.

With Reuters and The Canadian Press

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