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Canadian and U.S. markets traded sharply lower Thursday with investors bracing for the possibility of higher tariffs as contentious trade talks between the United States and China resume in Washington.

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At 10:19 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 89.71 points, or 0.55 per cent, at 16,307.69. Seven of the index’s 11 major sectors were lower. The health-care sector was down more than 2 per cent. The energy sector was off 0.9 per cent while financials slid 0.5 per cent.

At 9:43 a.m. ET, the Dow Jones Industrial Average was down 245.57 points, or 0.95 per cent, at 25,721.76. The S&P 500 was down 27.83 points, or 0.97 per cent, at 2,851.59 and the Nasdaq Composite was down 93.95 points, or 1.18 per cent, at 7,849.37.

Speaking in Florida on Wednesday, U.S. President Donald Trump warned China would face stiff penalties if no trade agreement was reached after accusing the country of breaking its earlier agreement. “You see the tariffs we’re doing?” Mr. Trump told a rally with supporters in Florida. “Because they broke the deal. ... They broke the deal. So they’re flying in. The vice premier tomorrow [Thursday] is flying in, but they broke the deal. They can’t do that. So they’ll be paying. If we don’t make the deal, nothing wrong with taking in more than US100-billion a year.” China’s Commerce Ministry said Thursday that Beijing “will have to take necessary countermeasures” if the U.S. hikes tariffs.

“We would assign a 75-per-cent probability of Trump raising the trade tariffs on Chinese goods to 25 per cent,” Jasper Lawler, head of research at London Capital Group, said. “Purely from a negotiating standpoint, to threaten the higher tariffs then back off a week later would look weak."

Thursday's analyst upgrades and downgrades

On the corporate side, Canada’s Magna International Inc. cut its 2019 profit forecast early Thursday, citing higher costs on some programs and lower earnings form a transmission joint venture in China. Magna said it now expects net income attributable to the company to be between US$1.9-billion and US$2.1-billion this year, lower than an earlier estimate of US$2.1-billion to US$2.3-billion. Magna shares were down about 5 per cent at the open.

Quebecor, meanwhile, announced that it was raising its quarterly dividend more than 100 per cent from 5.5 cents to 11.25 cents. The news came as the company reported net income of $189-million or 74 cents a share, up from $57.1-million or 24 cents a year earlier.

Canadian earnings Thursday include Canadian Tire, Telus, Cineplex, Canadian Natural and Crescent Point.

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Market movers: Stocks seeing action on Thursday - and why

Shares of Stars Group Inc., owner of PokerStars, saw its shares spike about 15 per cent in early trading in Toronto on news that it was joining with Fox Sports in a US$236-million deal to launch a U.S. sports betting partnership called Fox Bet. Stars Group and the unit of Fox Corp. say they expect to launch two products this fall. One will be a free game that awards cash prizes to players who correctly predict the outcome of games. The second will give customers in states with regulated betting the chance to place real money wagers on sports events. Under the deal, Fox Corp. will acquire 14.3 million newly issued common shares of the Stars Group, equalling nearly 5 per cent of the outstanding shares, at US$16.44 per share.

South of the border, investors will be watching the price on ride-sharing company Uber’s initial public offering, which is expected to be the biggest of the year so far. The New York Times reports that Uber plans to price its IPO at or below the midpoint of its expected price range. The ride-hailing company had set an initial price range last month of US$44 to US$50 a share. At the midpoint of the range, US$47 a share, Uber would be valued at about US$86-billion — well below the US$100-billion that the company had forecast to some of its investors last month, the report said.

“This appears much more likely given the performance of its smaller sector peer Lyft’s shares yesterday, as they dropped another 10 per cent to close at just below US$53, another new low, and almost 20 per cent below its IPO launch price,” Michael Hewson, chief market analyst with CMC Markets U.K., said in a note.

“With short positions on Lyft building up by the day, Uber management may find themselves in a similar situation in a few days’ time if the skepticism around Lyft’s valuation starts to seep into the markets mindset around Uber’s similarly unrealistic price tag.”

Overseas, markets slid in midday trading on renewed trade concerns. The pan-European STOXX 600 was off 1.28 per cent. Trade-sensitive auto stocks led the losses, although most major sectors were underwater. Britain’s FTSE 100 fell 0.68 per cent. Germany’s DAX fell 1.30 per cent and France’s CAC 40 sank 1.68 per cent.

The picture was similar in Asia. Japan’s Nikkei nded down 0.93 per cent. Hong Kong’s Hang Seng dropped 2.39 per cent. On mainland China, the Shanghai Composite Index finished down 1.48 per cent.

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Commodities

Trade concerns extended into the crude market early Thursday with worries over talks overshadowing a drop in U.S. inventories. The range for the day on West Texas Intermediate is US$61.34 to US$62.10. The range on Brent so far is US$69.57 to US$70.50.

“Oil [prices] are under pressure this morning as an escalating Sino-U.S trade battle is outweighing any upward pressure from a surprise decline in U.S inventories of crude,” OANDA analyst Dean Popplewell said, noting Brent now looks to be heading for a second straight loss while WTI could book its third consecutive week of losses.

“With market hopes fading for a Sino-U.S trade agreement, globe growth worries now dominate proceedings and is putting upward pressure on ‘black’ gold.”

However, a surprise decline in U.S. crude stocks helped put a floor under prices. The U.S. Energy Information Administration reported Wednesday that U.S. crude inventories fell by 4 million barrels last week. Analysts had been expecting an increase of more than 1 million barrels.

Gold prices, meanwhile, firmed on the latest trade headlines. Spot gold edged up 0.3 per cent to US$1,284.32 per ounce, having climbed to its highest since April 15 at $1,291.39 on Wednesday. U.S. gold futures were also 0.3 per cent higher, at US$1,285.20 an ounce.

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“Panic flight to safety has yet to occur, expect the yellow metal to gyrate throughout trade talks,” Mr. Popplewell said.

In other metals, silver prices were down 0.2 per cent at US$14.81. Platinum prices fell 0.1 per cent to US$855.39.

Currencies

The Canadian dollar weakened slightly after Statistics Canada reported that this country’s trade deficit narrowed less than expected in March. In the wake of the report, the dollar was trading closer to the low end of the day range of 74.09 US cents to 74.23 US cents.

Statscan said exports rose 3.2 per cent in March, led by higher energy exports. Imports increased 2.5 per cent, mostly on shipments of consumer goods. The resulting trade deficit came in at $3.2-billion in March, down from February’s $3.4-billion but still more than the $2.4-billion most economists had been forecasting.

“The headline trade deficit looked uglier than expected, but the details were at least slightly prettier,” CIBC economist Royce Mendes said.

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“Exports were revised lower in February, largely focused in the oil sector. That said, both imports and exports picked up in the most recent month, with volumes also both increasing at a solid pace.”

On broader markets, the Japanese yen jumped to a three-month high against the U.S. dollar as investors sought out the safe-haven currency. Reuters notes that trade-related moves by global currencies have been fairly muted so far this week, but Thursday’s jump in the yen suggests investors are increasingly on edge.

The biggest casualties have been the Australian dollar , seen as a proxy for Chinese economic prospects, the U.S. dollar and the Chinese yuan. The yuan on Thursday fell half a per cent to a four-month low and was headed for its worst four-day decline in a year, according to Reuters.

“The Chinese yuan really is the world’s most important currency,” said Societe Generale analyst Kit Juckes. “It isn’t the most traded but is an anchor of stability for all markets and if that anchor is dislodged it will lead the dollar and yen higher.”

More corporate news

Telus Corp. raised its dividend as it reported a first-quarter profit of $437-million, up from $412-million a year ago. The telecommunications company will now pay a quarterly dividend of 56.25 cents per share, up from 54.5 cents per share. Telus says its profit for the quarter amounted to 71 cents per share for the quarter ended March 31, up from 69 cents per share a year ago. Operating revenue totalled nearly $3.51-billion, up from nearly $3.38-billion in the first quarter of 2018, helped by higher wireless and wireline data services revenue growth.

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Chevron Corp abandoned its pursuit of Anadarko Petroleum Corp on Thursday, outmanoeuvred by a higher rival bid of US$38-billion that included more than three times as much cash. The decision leaves Occidental Petroleum Corp as the likely victor in a contest that again proved the allure of U.S. shale. Occidental has said it plans to shed most of Anadarko’s non-shale properties in a deal that cements its position in the Permian Basin, the top U.S. shale field.

Canadian Tire Corp Ltd reported a 1.7-per-cent drop in profit due to higher interest expense and lease liabilities. Sales at its Canadian Tire unit, which accounts for the bulk of company’s total revenue, rose 7.4 per cent in the first quarter ended March 31. The company, which offers products ranging from automotive parts to sporting goods and also provides financial services, said consolidated same-store sales rose 6.1 per cent. Net income fell to $97.4-million, or $1.12 per share, in the quarter from $99.1-million, or $1.18 per share, a year earlier.

Oil and gas producer Canadian Natural Resources Ltd reported a better-than-expected first-quarter profit, boosted by higher prices for its crude on the back of Alberta’s output curtailments. The company’s production fell 8 per cent to 1.04 million barrels of oil equivalent per day (boepd) and it realized $53.98 per barrel of crude oil and natural gas liquids (NGLs) in the reported period. In the year-earlier quarter, average realized prices for crude oil and NGLs was $43.06 per barrel. Canadian Natural’s net earnings rose to $961-million, or 80 cents per share, in the first quarter ended March 31, from $583-million, or 48 cents, a year earlier. On an adjusted basis, the company earned 70 cents per share, beating analysts’ estimates of 51 cents per share, according to IBES data from Refinitiv.

Cineplex Inc. reported a net loss of $7.4-million or 12 cents in its latest quarter compared with a profit of $15.2-million or 24 cents a year earlier. Total revenue fell to $364.9-million from $390.9-million last year. Theatre attendance fell 15.6 per cent. The company said first-quarter results were affected by “the anticipated soft box office product.”

The Globe’s Marina Strauss reports the country’s second largest grocer is more than doubling its bet on e-commerce technology – to $190-million – with plans to build a robotic warehouse in Montreal in addition to the one under construction in Vaughan, Ont., north of Toronto, for home-delivered goods. The massive Vaughan warehouse, the size of 15 hockey rinks, is on track to open in the spring of 2020 and will cost $95-million, $25-million more than its original 2018 estimate, said Sarah Joyce, senior vice-president of e-commerce at Sobeys, which is owned by parent company Empire Co. Ltd. The steeper figure is mainly because of higher-than-expected prices for steel and other construction material and added design elements, she said.

French bank Natixis has agreed to buy an 11 per cent stake in Canadian asset manager Fiera Capital for around $128-million. Natixis Investment Managers CEO Jean Raby will join Fiera Capital’s board, while Fiera Capital will repurchase for cancellation 2.45 million Fiera Class A shares from National Bank of Canada.

Brookfield Asset Management Inc. reported its first-quarter profit fell compared with a year ago. The alternative asset manager, which keeps its books in U.S. dollars, says it earned US$1.26-billion or 58 US cents per diluted for the quarter ended March 31. That compared with a profit of US$1.86-billion or 84 US cents per diluted share in the first three months of 2018. Revenue totalled US$15.21-billion, up from US$12.63-billion.

Walt Disney Co reported second-quarter profit and revenue that beat analysts’ estimates, as more visitors flocked to its theme parks. Excluding certain items, Disney earned US$1.61 per share, above analysts’ average expectations of US$1.58 per share, according to IBES data from Refinitiv. The results were released after the close of trading on Wednesday.

More reading:

Thursday’s small-cap stocks to watch

Economic news

Canada’s trade gap narrowed to $3.2-billion in March, from $3.4-billion in February. The markets had been expecting the trade deficit to fall to about #$2.4-billion.

The U.S. trade deficit increased slightly in March even though the deficit with China fell to the lowest point in five years, according to The Associated Press. The Commerce Department said Thursday that the total deficit in goods and services edged up 1.5 per cent to US$50-billion in March, after falling 3.6 per cent in February.

Initial claims for U.S. unemployment benefits fell to 228,000 last week, down 2,000. Economists had been expecting the number to fall to 220,000.

With Reuters and The Canadian Press

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