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Equities

Canada’s main stock exchange moved lower Wednesday with financial shares slipping after the Bank of Canada kept borrowing costs unchanged and dropped language in its statement suggesting higher rates are imminent. On Wall Street, markets were little changed at the opening bell following the previous session’s record showing.

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At 9:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX Composite index was down 40.14 points, or 0.24 per cent, at 16,629.26.

The Dow Jones Industrial Average fell 3.83 points, or 0.01 per cent, at the open to 26,652.56. The S&P 500 opened higher by 0.32 points, or 0.01 per cent, at 2,934.00. The Nasdaq Composite gained 2.06 points, or 0.03 per cent, to 8,122.88 at the open.

Overseas, world markets stepped back on concerns that China will put stimulus plans on hold, with Europe’s major markets mixed after a weaker session in Asia.

During the previous session both the S&P and Nasdaq touched record highs on better-than-expected earnings from Twitter, Hasbro and Lockheed Martin. Jasper Lawler, head of research at London Capital Group, notes that U.S. equities are now up 25 per cent from pre-Christmas lows.

On Wednesday, results from Facebook, Microsoft and Tesla are all due after the close of trading. Boeing Co. reported before the North American open and said the ground of its 737 Max jets had cost the company US$1-billion in the first quarter. In this country, Cenovus Energy Inc. posted its latest quarterly earnings before the bell. Mr. Lawler says, to this point, 80 per cent of U.S. companies reporting have topped expectations in the latest quarter.

“Let’s be honest, expectations were fairly low coming in to earning season, the market was bracing itself for a pretty poor outpouring of numbers,” he said. “Yet time and time again we are seeing firms beat this low bar and are providing a strong forward guidance.”

Wednesday’s Insider Report: CEO unloads over $5-million worth of shares

In Canada, the Bank of Canada delivered its latest policy announcement. As expected, the bank kept its key rate at 1.75 per cent. However, the central bank also made no mention of raising interest rates, dropping language suggesting tighter policy would be needed in the future.

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“The Bank of Canada was widely expected to drop their mild tightening bias today and they did just that, now indicating current accommodation is warranted and Governing Council will ‘continue to evaluate the appropriate degree of monetary policy accommodation as new data arrive,’” RBC senior economist Josh Nye said. “A few other developments added to the dovish tone, including a sharp downward revision to their 2019 growth forecast (now several ticks below consensus) and a lower assumed neutral interest rate.”

On the corporate front, Canadian Pacific Railway Ltd. reported a 28-per-cent increase in quarterly profit despite a dip in freight volumes in the first quarter. For the three months ended March 31, CP posted earnings of $434-million or $3.09 a share, compared with $348-million or $2.41 in the same period a year earlier. Revenue was $1.77-billion, a 6-per-cent rise. Adjusted for foreign exchange on debt and lease liabilities, profit was $2.79 a share. Analysts expected adjusted per-share profit of $2.98 and revenue of $1.77-billion. The latest results were released after Tuesday’s close. CP shares were up more than 3 per cent in morning trading.

Cenovus, meanwhile, swung to a profit in the first quarter after a loss in the year earlier period, helped by higher Canadian crude prices. The company’s net income rose to $110-million, or 9 cents per share, from a loss of $914-million, or 74 cents per share, a year earlier. Total production fell to 447,270 barrels of oil equivalent per day from 487,464 boe/d in the quarter ended March 31. The company’s Toronto-listed shares were up 1.5 per cent just after the start of trading.

On Wall Street, U.S.-China trade issues shifted back into the spotlight after the White House said U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will travel to Beijing for trade talks beginning on April 30. Chinese Vice Premier Liu He, who will lead the Beijing talks for China, will also travel to Washington for more discussions starting on May 8. “The subjects of next week’s discussions will cover trade issues including intellectual property, forced technology transfer, non-tariff barriers, agriculture, services, purchases, and enforcement,” the White House said.

Wednesday's analyst upgrades and downgrades

Overseas, European markets were mixed in morning trading with the pan-European STOXX 600 trading just above break even after a weaker start. Better-than-forecast results from Credit Suisse helped bolster sentiment, with the bank’s shares climbing about 2 per cent. At last check, Britain’s FTSE 100 was off 0.26 per cent. Germany’s DAX added 0.78 per cent and France’s CAC 40 slipped 0.02 per cent.

In Asia, Chinese markets had a choppy session with investors concerned that Beijing would slow the pace of monetary policy easing after stronger-than-expected first-quarter economic growth. The Shanghai Composite Index finished up 0.09 per cent. Hong Kong’s Hang Seng closed down 0.53 per cent. In Japan, the Nikkei lost ground finishing down 0.3 per cent, although it remains near its best levels in more than four months.

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Commodities

Crude prices pulled back from six-month highs after a report from the International Energy Agency suggested that markets are “adequately supplied", easing market concerns about tightening supply amid U.S. sanctions on Iran and Venezuela. A morning report showing a higher-than-expected build in U.S. crude inventories put additional pressure on prices.

Brent crude was moving in a day range of US$74.02 to US$74.72. West Texas Intermediate has a range so far of US$65.77 to US$66.43. Despite weakness in prices on the day, Brent still looks set to record its fifth straight weekly gain while WTI should notch its eighth consecutive week of increases.

“Oil prices are under pressure this morning on a report that seems to be easing market worries about tightening supply. It has temporarily put an end to this recent rally that has taken prices to their highest level since Q4 2019, driven by OPEC+ output cuts and sanctions,” OANDA analyst Dean Popplewell said.

He also noted that the latest inventory figures from the American Petroleum Institute also put pressure on prices. The report showed that U.S. crude stocks rose by 6.9 million barrels last week, more than expected. On Wednesday morning, the U.S. Energy Information Administration said inventories rose by 5.5 million last week, more than expected. Gasoline futures, however, pared losses with the report showing inventories fell 2.1 million barrels.

Gold prices, meanwhile, edged higher as a rally in the U.S. dollar steadied. Spot gold was up 0.1 per cent at US$1,270.60 per ounce, after hitting its lowest price since the end of last year at US $1,265.90 in the last session. U.S. gold futures were 0.1 per cent lower at US$1,272.40 an ounce.

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“The recent weakness in gold has had more to do with a strong U.S. dollar. The dollar rally we saw on Tuesday did not continue today and that’s why gold looks constructive this morning,” ABN AMRO analyst Georgette Boele told Reuters.

“The crucial level for gold prices come at the 200-day moving average around $1,250. As long as that level holds, gold prices will be moving up.”

In other metals, silver was steady at US$14.83 per ounce, after declining to its lowest level since Dec. 26 at US$14.71 in the previous session. Platinum was up 0.6 per cent at US$889.98 per ounce, while palladium was 0.2 per cent lower at US$1,389.71 per ounce.

Currencies and bonds

The Canadian dollar fell after the Bank of Canada held interest rates steady and dropped language suggesting higher borrowing costs are coming. The loonie fell about half a cent after the decision, briefly slipping below the 74-US-cent mark. The day range on the loonie so far is 7398 US cents to 74.52 cents, with the low end of that spread being seen after the central bank’s decision.

“Birds of a feather flock together, and the Bank of Canada followed its dovish global counterparts in abandoning its hiking bias and seeing a significantly slower pace of growth ahead,” CIBC World Markets economist Royce Mendes said. “In holding rates steady, the Bank now only says that accommodative policy continues to be warranting.”

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In other currencies, the U.S. dollar index, which measures the U.S. currency versus a basket of six major rivals, stood at 97.622 after rising to 97.777 overnight, its highest since June 2017. Figures on Tuesday showed sales of new single-family homes in the U.S. jumped to a near 1-1/2-year high in March. U.S. first quarter GDP data on Friday could strengthen the case that while the current period of global expansion is in its late stages, the United States is on a firmer footing.

Elsewhere, Australia’s dollar fell 1 per cent after weak inflation figures raised the possibility of an interest rate cut in that country. The Australian dollar was among the biggest movers of the worlds main currencies falling to a one-and-a-half month low of 70.27 US cents.

In bonds, U.S. debt price yields edged lower as markets continue to weigh the onslaught of earnings. The yield on the U.S. was down at 2.538 per cent.

Stocks set to see action

Occidental Petroleum Corp on Wednesday offered to buy rival Anadarko Petroleum Corp in a US$57-billion deal, topping Chevron Corp’s agreement to buy Anadarko for US$50-billion. Both cash-and-stock deals include Anadarko’s debt. Occidental’s US$76 per share offer comprises US$38 in cash and 0.6094 shares of Occidental for each share of Anadarko, representing a premium of 19 percent to Anadarko’s closing price on Tuesday.

Boeing Co reported a 21-per cent decline in first-quarter profit and suspended its 2019 outlook as the world’s largest plane maker worked to get its 737 MAX jets back in the air after two deadly accidents. The company said it would be issuing a new forecast in the future when it has more clarity around the issues surrounding the 737 MAX. Excluding certain items, Boeing said its core earnings fell to US$1.99-billion, or US$3.16 per share, in the quarter ended March 31 from US$2.51-billion, or US$3.64 per share, a year earlier.

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Drug maker Biogen Inc reported a 20-per-cent rise in first-quarter profit on Wednesday, driven by higher sales of its muscle disease treatment Spinraza. Net income attributable to the company rose to US$1.41-billion, or US$7.15 per share, in the quarter ended March 31, from US$1.17-billion, or US$5.54 per share, a year earlier. On an adjusted basis, the company earned US$6.98 per share.

Canadian yoga-wear retailer Lululemon Athletica Inc. forecast annual revenue growth in the low teens for the next five years. The company also said it expects operating income growth to exceed revenue growth annually, and modest gross margin expansion, it said ahead of its investor day on Wednesday. The stock was higher in early going on the news.

Caterpillar Inc raised its full-year profit forecast as it booked a tax gain in the first quarter stemming from the overhaul of U.S. tax laws. The company said it now expects 2019 profit of US$12.06 per share to US$13.06 per share, compared with US$11.75 to US$12.75 per share forecast earlier.

EBay Inc. shares rose after the company raised its full-year sales and profit forecasts on Tuesday, as changes to its ecommerce platforms attracted more customers and also increased its advertising revenue. The company raised its full-year revenue forecast to range between US$10.83-billion and US$10.93-billion, and its profit to be between US$2.64 per share and US$2.70 per share. Net revenue rose 2.4 per cent to US$2.64-billion in the first quarter ended March 31, beating analysts’ average estimate of US$2.58-billion, according to IBES data from Refinitiv.

Swiss drug maker Novartis raised its 2019 profit target on Wednesday, striking an upbeat tone over a legal fight with peer and partner Amgen and on the safety of a key gene therapy that could win approval next month. Chief Executive Vas Narasimhan said he now sees 2019 core operating income growing at a high-single-digit percentage rate, up from the previous forecast of mid- to high-single-digit percentage growth. Sales are seen growing at the mid-single-digit rate, helped by heart failure drug Entresto and psoriasis medicine Cosentyx.

The Globe’s Jeffrey Jones reports that a U.S. activist investor is suing TransAlta Corp. in a bid to stop the power producer’s $750-million partnership deal with Brookfield Renewable Partners LP, claiming executives and directors are putting their own interests above those of shareholders. New York-based Mangrove Partners Master Fund Ltd. is seeking to have an Ontario judge set aside the Brookfield transaction after the fund last week abandoned an effort to persuade securities regulators to force TransAlta into delaying its annual meeting and holding a separate shareholder vote on the deal.

AT&T Inc missed Wall Street estimates for quarterly revenue, hit by lower-than-expected sales in its WarnerMedia unit and a shortfall in income from a wireless business where it has cut prices to draw in customers. Net income attributable to AT&T fell to US$4.1-billion, or 56 US cents per share, from US$4.66-billion, or 75 US cents per share, a year earlier. Excluding items, the company earned 86 US cents per share, in line with estimates. Total revenue rose nearly 18 per cent to US$44.83-billion but fell short of expectations of US$45.11-billion.

More reading:

This lender ranks at the top of Canada’s most abhorred stocks

Economic news

(10 a.m. ET) Bank of Canada policy announcement and monetary policy report (with press conference to follow at 11:15 a.m.)

With Reuters and The Canadian Press

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