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Equities

Canada’s main stock index opened lower on Wednesday, after higher Canadian inflation data, and weak economic data from China and the United States revived fears of slowing global economic growth.

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At 9:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX Composite index was down 47.45 points, or 0.29 percent, at 16,237.08.

Canada’s annual inflation rate edged up to 2 per cent in April from 1.9 per cent in March, driven in part by a carbon levy that pushed up gasoline prices in six provinces, Statistics Canada data showed on Wednesday. Prices gained 0.4 per cent from the previous month, led by a 10-per-cent rise in gasoline prices, Statscan said, which was in line with a Reuters survey of analysts.

Canada-U.S. trade is also in focus with Foreign Minister Chrystia Freeland on her way to Washington to meet with U.S. Trade Representative Robert Lighthizer as talks over ending the Trump administration’s tariffs on Canadian steel and aluminum intensify after months of deadlock.

In corporate news, Shaw Communications Inc. is unloading its 38.6-per-cent stake in Corus Entertainment Inc. in a $548-million share sale, after struggling to sell the position to a single buyer last year. The offering, announced after the market closed on Tuesday, is priced at $6.80 per Class B share, representing a 15.6-per-cent discount to Corus’s closing price. Corus owns the Global television network and a slate of specialty TV channels, such as Food Network Canada and HGTV Canada. Its shares rose 0.2 per cent.

Health care stocks were the biggest decliners, down 1.2 per cent with Aurora Cannabis off nearly 3 per cent after posting disappointing earnings. Cronos Group was down 1.8 per cent and Bausch Health fell 1.4 per cent.

Energy stocks were off 1.1 per cent as energy prices came under pressure. Baytex Energy down 3.4 per cent, Cenovus off 1.5 per cent and Encana down 0.9 per cent.

Consumer discretionary stocks slid 0.6 per cent with Dollarama down 1.4 per cent but Restaurant Brands up 1.1 per cent after outlining its global expansion plans.

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U.S. stocks opened lower on Wednesday, as a surprise decline in domestic retail sales and underwhelming data from China raised growth concerns.

The Dow Jones Industrial Average fell 131.92 points, or 0.52 per cent, at the open to 25,400.13. The S&P 500 opened lower by 14.03 points, or 0.49 per cent, at 2,820.38. The Nasdaq Composite dropped 51.69 points, or 0.67 per cent, to 7,682.80 at the opening bell.

Government data showed U.S. retail sales unexpectedly fell in April as motor vehicle purchases slumped, while data from China also showed surprisingly weak growth in retail sales and industrial output for April, adding pressure on Beijing to roll out more stimulus.

“The U.S. retail sales report is clearly disappointing. It implies that job and wage growth have not been enough to propel consumer spending at a faster pace,” said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.

“The slow patch in one place is consistent with a slow patch everywhere else. We aren’t looking at recessionary numbers, but it is a yellow flag.”

Markets took a breather on Tuesday after U.S. President Donald Trump called the trade war with Beijing “a little squabble” and said he would talk to Chinese President Xi Jinping at a G20 Summit in Japan late next month.

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The optimistic comments followed a market rout on Monday, when the S&P 500 and the Dow recorded one of Wall Street’s worst declines this year as the two sides imposed tit-for-tat tariffs on each others imports.

“We’re waiting to see how the U.S. is going to hold their position on the trade issue, and so far the U.S. economy has been able to stay through just fine,” said Charlie Smith, chief investment officer at Pittsburgh-based Fort Pitt Capital Group.

Concerns that the trade dispute could be protracted and may impact the global economy have kept investors on the edge over the past couple of days, with the benchmark S&P index now about 4 per cent below its all-time high reached two weeks ago.

Tariff sensitive Boeing Co declined 1.4 per cent, while Caterpillar Inc dipped 1.6 per cent.

Perrigo Company Plc dropped 3.2 per cent as Jefferies lowered its price target on the generic drugmaker after the company’s recent move to divest its higher margin generic pet care business.

Macy’s Inc. initially rose 2.7 per cent, but then slid 0.7 per cent after the open after its quarterly same-store sales topped Wall Street estimates, benefiting from increased digital sales and higher demand for discounted luxury items sold at its off-price stores.

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Overseas, France’s benchmark slipped 0.8 per cent. Data confirming that Germany’s economy had returned to growth in the first quarter failed to cushion the DAX which fell 0.8 per cent. London’s FTSE was up 0.04 per cent.

In China, overall retail sales in April rose 7.2 per cent from a year earlier, the slowest pace since May 2003, data from the National Bureau of Statistics (NBS) showed. That undershot March’s 8.7 per cent and forecasts of 8.6 per cent.

Growth in industrial output slowed more than expected to 5.4 per cent in April on-year, pulling back from a 4-1/2-year high of 8.5 per cent in March, which some analysts had suspected was boosted by seasonal and temporary factors. Analysts polled by Reuters had forecast output would grow 6.5 per cent.

The data didn’t keep Chinese stocks down as the blue-chip CSI300 and Shanghai composite indexes both closed up about 2 per cent. Japan’s Nikkei rose 0.6 per cent and Hong Kong’s Hang Seng rose 0.5 per cent.

Commodities

Oil fell on Wednesday after data showed a surprise rise in U.S. crude inventories and the U.S.-Chinese trade dispute threatened oil demand, although Middle East tensions capped losses.

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Brent crude futures were at US$70.84 a barrel, down 40 cents. U.S. West Texas Intermediate (WTI) crude futures were at US$61.22 per barrel, down 56 cents.

U.S. crude stockpiles rose last week by 8.6 million barrels in the week to May 10 to 477.8 million, data from industry group the American Petroleum Institute showed on Tuesday. This compared with analyst expectations for a decrease of 800,000 barrels.

Official data on stocks from the U.S. Energy Department’s Energy Information Administration (EIA) will be released later on Wednesday.

Oil prices have drawn support after Saudi Arabia said on Tuesday that armed drones struck two of its oil pumping stations, two days after the sabotage of oil tankers near the United Arab Emirates.

“Given that nearly one-third of global oil production and nearly all of global spare capacity are in the Middle East, the oil market is very sensitive to any attacks on oil infrastructure in this region,” Swiss bank UBS said, adding it expected Brent prices to rise toward US$75 in coming weeks.

The attacks took place against a backdrop of U.S.-Iranian tension following Washington’s decision this month to try to cut Iran’s oil exports to zero and to beef up its military presence in the Gulf in response to what it said were Iranian threats.

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Meanwhile, the Organization of the Petroleum Exporting Countries said that world demand for its oil would be higher than expected this year as supply growth from rivals including U.S. shale producers slows. That points to a tighter market if the exporter group refrains from raising output.

The International Energy Agency said the world would require very little extra oil from OPEC this year as booming U.S. output will offset falling exports from Iran and Venezuela.

Gold prices steadied on Wednesday, having retreated from a one-month peak hit in the previous session as optimism surrounding trade talks between Washington and Beijing soothed investor concerns, boosting global stocks and the dollar.

Spot gold was steady at US$1,296.49 an ounce. U.S. gold futures edged 0.1 per cent higher to US$1,297.20 an ounce.

“Gold is restrained as people are still interested in the dollar. The US$1,300 level also looks like a good resistance,” said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.

Among other precious metals, silver rose 0.2 per cent to US$14.81 an ounce, while platinum fell 0.2 per cent to US$853.75. Palladium fell 0.7 per cent to US$1,326.25 an ounce.

Currencies and bonds

The Canadian dollar fell slightly on Wednesday, trading at the 74.18 cents US level as oil prices fell and ahead of inflation data.

RBC expects a 2 per cent year-over-year increase in April’s headline inflation number “due to continued moderation in year-ago gas price declines (expected close to flat),” said Sue Trinh, head of Asia FX strategy with Royal Bank of Canada-Hong Kong Branch.

The data could help guide expectations for Bank of Canada interest rate policy. Money markets see a nearly 40-per-cent chance of a rate cut by the end of the year.

Domestic data on Tuesday showed that home prices failed to rise for the eighth consecutive month in April.

In currency markets, the Australian dollar – a proxy of China-related trades – fell to its lowest level in three months amid the China data fallout.

The U.S. dollar held broadly steady at 109.51 yen, having pulled away from a three-month low of 109.020 plumbed on Monday when trade war worries boosted investor demand for the safe-haven Japanese currency.

The Chinese yuan was a shade firmer at 6.9056 per dollar in offshore trade, having edged away from a five-month trough of 6.9200 set on Tuesday. The euro remained anchored at $1.1214 while the dollar index against a basket of six major currencies was nearly flat at 97.524 after gaining 0.2% the previous day.

The pound remained near a two-week low after Prime Minister Theresa May’s spokesman said late on Tuesday she planned to put forward her thrice-rejected Brexit deal in early June to try to secure an agreement on how to extract Britain from the European Union before the summer holiday.

The U.S. two-year Treasury yield fell to a 15 month low of 2.139 per cent after the U.S. retail sales disappointed. The 10-year Treasury yield fell to 2.364 per cent. Canada’s 10-year bond yield was down at 1.636 per cent.

More corporate news

Tilray Inc. saw its revenue grow 195.1 per cent to US$23-million for the first quarter ended March 31, compared with US$7.8-million in the same quarter the previous year. The company’s net loss was US$30.3-million or 32 cents per share, compared with US$5.2-million or seven cents per share for the first quarter of the previous year. Its adjusted net loss, which accounts for non-recurring acquisition related charges, was US$25.2-million or 27 cents per share. Analysts surveyed by Thomson Reuters Eikon expected revenue of US$20.2-million and a net loss of US$22.8-million or 25 cents per share. Its U.S.-listed shares were down 0.4 per cent after rising in premarket trading.

Aurora Cannabis Inc. is reporting 20 per cent higher revenue and a 33 per cent lower net loss for the first three months of 2019 compared with the last quarter of 2018. The Edmonton-based company credited higher production and sales for a $158-million loss on net revenue of $65 million, compared with a loss of $238 million on revenue of $54 million in the prior quarter. Analysts had expected a net loss of $52.6 million on net revenue of $77 million in the quarter ended March 31, according to Thomson Reuters Eikon. Its shares were down 0.9 per cent.

Shares of retailer Macy’s Inc. initially rose 6.5 per cent in premarket trading but then fell 0.5 per cent after it reported first-quarter earnings and same-store sales that beat analyst estimates. While sales still fell from a year ago it reaffirmed its profit outlook for the year.

Restaurant Brands International Inc said on Wednesday it plans to expand all three of its brands to more than 40,000 restaurants globally in the next 8-10 years, making it one of the largest restaurant companies in the world. The owner of the three iconic brands- Burger King, Tim Hortons and Popeyes, also expects its coffee, burger and chicken markets to grow between 5 per cent and 6 per cent per year over the next five years. CNBC also reported the Tim Hortons chain was adding Beyond Meat plant-based sausage to its menu. RBI’s shares were up 0.4 per cent but Beyond Meat shares fell 3.4 per cent.

The Desmarais family’s Power Corp. of Canada is facing increasing shareholder dissatisfaction with its governance, with a large minority of public shareholders voting against reappointing co-CEOs Paul Desmarais Jr. and André Desmarais to the board. It shares were down 0.9 per cent.

Chinese e-commerce giant Alibaba Group Holding Ltd. beat fourth-quarter revenue forecasts on Wednesday, thanks to growth in its core business and its diversification into cloud computing and other services. It reported a 51 per-cent increase in group revenue for January-March from a year earlier to 93.50 billion yuan (US$13.6-billion), beating estimates of 91.58 billion yuan, according to IBES data from Refinitiv. Its U.S.-listed shares were up 0.7 per cent.

Henry Schein Inc. fell 2 per cent after SVB Leerink downgraded the dental products distributor to “market perform” from “outperform,” citing competitive threat from online suppliers such as Amazon.com Inc and eBay Inc.

Earnings include: Birchcliff Energy Ltd.; Boardwalk REIT; Boyd Group Income Fund; CCL Industries Inc.; Element Fleet Management Corp.; Gamehost Inc.; Harte Gold Corp.; Imperial Metals Corp.; Just Energy Group Inc.; Savaria Corp.; Seabridge Gold Inc.; Storm Resources Ltd.; Sylogist Ltd.

Economic news

Canada’s annual inflation rate edged up to 2.0 per cent in April from 1.9 per cent in March, driven in part by a carbon levy that pushed up gasoline prices in six provinces, Statistics Canada data showed on Wednesday. Prices gained 0.4 per cent from the previous month, led by a 10 per cent rise in gasoline prices, Statscan said, in line with a Reuters survey of analysts. The annual rate rose to the Bank of Canada’s 2 per cent target for the first time since December.

U.S. retail sales slipped last month, as Americans cut back their spending on clothes, appliances, and building materials. The Commerce Department said Wednesday that sales dropped 0.2 per cent in April, after a big 1.7-per-cent jump in March. Sales also fell in February after rising in January. The figures suggest that despite steady hiring and decent wage gains, Americans remain cautious in their spending. Car sales fell 1.1 per cent in April. Sales at electronics and appliances stores declined 1.3 per cent and dropped 0.2 per cent at clothing stores.

The Canadian Real Estate Association says home sales in April posted their first year-over-year increase since December 2017. The association says home sales last month were up 4.2 per cent compared with a year ago, when they hit a seven-year low for the month. The improvement came as gains in Montreal and the Toronto region outweighed a decline in the B.C. Lower Mainland. On a month-over-month basis, sales through the Multiple Listing Service rose 3.6 per cent in April.The national average price for homes sold in April was $494,978, up 0.3 per cent from the same month in 2018. Excluding the Greater Vancouver and Greater Toronto Area, two of the country’s most expensive markets, the average price was just over $391,000.

(9:15 a.m. ET) U.S. industrial production and capacity utilization for April. Estimate is unchanged from March.

(10 a.m. ET) U.S. business inventories for March. Consensus is unchanged from February.

With files from Reuters

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