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Equities

U.S. and Canadian markets opened lower Friday with disappointing economic reports here and overseas again raising concerns about prospects for the global and domestic economies.

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At 9:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 78.29 points, or 0.48 per cent, at 16,166.3. Nine of the index’s 11 major sectors were in the red with the energy sector falling more than 1 per cent on a decline in crude prices.

On Wall Street, the Dow Jones Industrial Average fell 117.86 points, or 0.45 per cent, at the open to 25,844.65. The S&P 500 opened lower by 10.36 points, or 0.36 per cent, at 2,844.52. The Nasdaq Composite dropped 38.70 points, or 0.49 per cent, to 7,800.25 at the opening bell.

Overseas, weak manufacturing numbers out of Germany took a toll, sending the euro lower and pushing major indexes into the red in early trading. Fresh figures showed the sector contracted for the third consecutive month. MSCI’s all-country index was down 0.2 per cent early Friday after touching its best levels in more than five months earlier in the week.

Meanwhile, the spread between the three-year and 10-year U.S. Treasury bills inverted on Friday for the first time since 2007 after the Markit Purchasing Managers’ Index came in below forecast, with the headline index falling 0.5 per cent. The three-month 10-year yield spread, the Federal Reserve’s preferred measure of the yield curve, narrowed to minus 0.56 basis points, according to figures from Reuters. An inverted yield curve is widely considered an indicator of a recession.

Related: Investors pull more than $20-billion out of stocks as pessimism takes hold

Ahead of the opening bell, Canadian investors also got readings on inflation and retail sales. Statistics Canada said the annual rate of inflation rose to 1.5 per cent in February, from 1.4 per cent a month earlier. The latest reading comes in just a touch above forecasts. Retail sales, meanwhile, fell 0.3 per cent, marking the third straight monthly decrease. Statscan says the decline was driven by the auto sector. Excluding sales in that category, retail sales were up 0.1 per cent. The Canadian dollar fell on the news.

“Over all, the weaker retail figure is a bit more dovish than any hawkish tilt from the headline CPI,” CIBC World Markets chief economist Avery Shenfeld said.

In corporate news, Nike shares were down more than 3 per cent in early going after the shoe giant reported quarterly revenue below Wall Street forecasts for the first time in more than a year. In results released after Thursday’s close, Nike said North America sales rose 7 percent to $3.81-billion in the third quarter, falling short of estimates of $3.87-billion, according to IBES data from Refinitiv. The company also said it expects low single-digit revenue growth in the current quarter. Analysts had been forecasting an increase of about 6.1 per cent.

Boeing Co. shares were down about 1 per cent after Indonesian carrier PT Garuda Indonesia said it would look to cancel a US$4.9-billion order for 49 of Boeing’s 737 Max 8 jets. The move marks the first time a carrier has sought to cancel an order for the jets in the wake of fatal crashes in Indonesia and Ethiopia.

On Bay Street, Ski-Doo maker BRP Inc. reported a 22.8-per-cent increase in fourth quarter revenue, topping analysts’ forecasts. BRP posted revenue of $1.51-billion in the quarter, up from $1.23 billion a year earlier. Analysts had been expecting revenue of $1.41-billion. Earnings per share rose 23.5 per cent to 84 cents in the latest quarter. That was also ahead of the 83 cents analysts had been forecasting. Shares jumped 7 per cent at the open.

Market movers: Stocks seeing action on Friday - and why

In Europe, equity markets started the day on the back foot after Germany’s manufacturing sector reported its worst reading since mid-2012, contracting for the third straight month. The pan-European STOXX 600 fell 0.6 per cent. Germany’s DAX was down 0.61 per cent. France’s CAC 40 fell 0.96 per cent and Britain’s FTSE 100 fell 0.88 per cent.

The weak manufacturing data also pushed Germany’s 10-year Bund yield temporarily into negative territory early this morning. That was the first time the yield went negative since October 2016. The 10-year yield hit a day low of 0.001 per cent in the wake of the economic report, according to a research note from OANDA.

In Asia, markets were little changed with the hangover from this week’s dovish Federal Reserve statement continuing cloud the outlook. Japan’s Nikkei edged up 0.09 per cent. The Shanghai Composite Index also gained 0.09 per cent. Hong Kong’s Hang Seng rose 0.14 per cent.

Commodities

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Brent crude and West Texas Intermediate both pulled back further from their best levels of the year but still remained on course for a third weekly gain on supply cuts and U.S. sanctions on Iran and Venezuela. The day range on WTI is US$59.33 to US$60.07. The range on Brent is US$67.08 to US$67.98.

On Thursday, Brent hit a four-month high of US$68.69. WTI also managed its highest price of the year so far, hitting US$60.39.

“Oil hovers just shy of this year’s high, supported by ongoing supply cuts led by OPEC+ and by U.S sanctions on Iran and Venezuela,” OANDA analyst Dean Popplewell said in a note. “However, market worries about an economic slowdown is capping crude prices from rallying further.”

He also noted that market consensus now believes that OPEC is likely to extend its current supply cut deal for the rest of the year. The next OPEC meeting is scheduled for June in Vienna.

“Russia has been a reluctant partner in the supply cuts but is expected to opt to preserve the deal and retain a leadership role within the group that accounts for +45 per cent of total global oil output,” he said.

Meanwhile, gold prices edged higher with weak economic data out of Europe pulling back investors’ risk appetite. Spot gold was up 0.2 per cent at US$1,311.71 per ounce, while U.S. gold futures gained 0.3 per cent to US$1,311.2. Spot prices rose to their highest since Feb. 28 at US$1,320.22 on Thursday.

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Mr. Popplewell noted that spot gold has rallied about 0.5 per cent so far this week and looks headed for its third consecutive weekly gain.

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Currencies and bonds

The Canadian dollar fell after Statscan reported a third straight month of declines in retail sales and an inline reading on the annual rate of inflation. The loonie was trading around the mid-74-US-cent mark in the wake of the two reports. The day range on the loonie is 74.48 US cents to 74.89 US cents. The bottom end of that spread marks an 11-day low for the loonie.

Statscan said retail sales fell 0.3 per cent in January. Economists had expected a slight increase. The annual rate of inflation, meanwhile, rose to 1.5 per cent in February, from 1.4 per cent a month earlier. Economists had been looking for the annual inflation rate to remain mostly unchanged.

“Indeed, to the extent that today’s data hits the Bank of Canada’s radar, it will likely serve to provide comfort on their recent shift back to wait and see mode,” TD senior economist Brian DePratto said.

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In other currencies, the euro fell more than half a per cent against the U.S. dollar on weak Germany factory numbers, trading below US$1.13. The decline was the biggest in two weeks for the bloc’s currency. Reuters reports that sterling bounced after suffering its biggest daily drop overnight so far this year after Prime Minister Theresa May bought a bit more time to resolve when and how Britain exits from the European Union.

The U.S. dollar index gave back some of its overnight gains, sliding 0.2 per cent after rising three-quarters of a per cent in the previous session. The index hit a six-week low on Wednesday following the dovish Fed statement.

In bonds, the yield on the U.S. 10-year note was lower at 2.494 per cent.

Stocks set to see action

Tiffany & Co reported a 1-per-cent drop in quarterly sales on Friday, two months after the luxury retailer signaled soft demand in the holiday season because of weak spending by Chinese tourists and slowing sales in Europe and at home. Tiffany’s net sales fell to US$1.32-billion, while analysts on average were expecting sales of $1.33 billion, according to IBES data from Refinitiv. The company’s net earnings rose to US$204.5-million, or US$1.67 per share, in the fourth quarter ended Jan. 31, from US$61.9-million, or 50 US cents per share, a year earlier, when the company had higher provisions for income taxes. Tiffany shares were higher in morning trading after the company said it expected profit growth to resume in the second half of the year and stuck to its fiscal 2019 revenue and profit forecasts.

Paulson & Co Inc will not support Newmont Mining Corp’s planned $10-billion takeover of rival Goldcorp Inc as the premium offered is unjustified, the investor said in a letter on Thursday. The transaction is dilutive to Newmont shareholders and only Goldcorp shareholders would benefit from the deal’s synergies, Founder John Paulson and Partner Marcelo Kim said in the letter to Newmont Chief Executive Officer Gary Goldberg. Newmont made a friendly offer in January for Goldcorp in what would be the gold sector’s biggest-ever takeover transaction, a bid to create the world’s largest gold producer. Paulson & Co holds 14.2 million Newmont shares, according to the letter. That gives it 2.7 per cent of the company, making it one of its biggest shareholders.

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Deutsche Bank paid its management board members their first bonuses in four years in 2018, with Christian Sewing’s 7 million euro (US$8-million) total pay package making him one of the best paid chief executives in European banking. Deutsche Bank’s politically sensitive pay disclosures, which were revealed in its annual report on Friday, come as it contemplates a merger with Commerzbank, which unions fear could lead to up to 30,000 job cuts, Reuters reports. Sewing, who became CEO in April last year, led Deutsche Bank to its first profit in four years and is heading the talks with Commerzbank. He earned 2.9 million euros for 2017.

Facebook left millions of user passwords readable by its employees for years, the company acknowledged Thursday after a security researcher exposed the lapse . By storing passwords in readable plain text, Facebook violated fundamental computer-security practices. Those call for organizations and websites to save passwords in a scrambled form that makes it almost impossible to recover the original text.

Australian department store Myer will stop selling Apple Inc products due to the sales being unprofitable, operator Myer Holdings said on Friday. The decision will apply to Myer’s department stores and online sales, it said. “Myer has made it clear that it will not chase unprofitable sales and has made this decision as we could not reach acceptable commercial terms that were in the best interests of the Company and shareholders,” a spokesman said in an emailed comment to Reuters.

Cosmetics maker Avon Products Inc , which split itself three years ago, has been considering a deal that would put the company back together, the Wall Street Journal reported on Friday. Avon’s directors have discussed a sale to Brazilian rival Natura & Co, and the talks include a scenario in which Natura would buy Avon’s now private North American business, in addition to the publicly traded Avon, the report said, citing a person familiar with the matter.

The talks are preliminary and may not result in a deal, the report added.

More reading:

Wall Street’s bond king calls U.S. Federal Reserve’s reversal on rates ‘stunning’

Friday’s analyst upgrades and downgrades

Economic news

Canada’s annual rate of inflation rose to 1.5 per cent in February, from 1.4 per cent in January. On a monthly basis, the consumer price index rose 0.3 per cent.

Canadian retail sales fell 0.3 per cent in January to $50.1-billion. Economists had been expecting a modest increase.

The seasonally adjusted IHS Markit Flash U.S. Manufacturing Purchasing Managers’ Index fell to 52.5 in January, down from 53.0 in February. The latest reading was the lowest since June 2017. Analysts had been expecting a reading closer to 53.6,

The National Association of Realtors said U.S. existing home sales rose 11.8 per cent to a seasonally adjusted annual rate of 5.51 million units last month.

With Reuters and The Canadian Press

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