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Equities

Canada’s main stock index rose at open on Thursday, helped by energy stocks, which gained on the back of higher oil prices, and as a private survey showed higher job additions in April.

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The market was buoyed by more big news in the airline industry.

At 9:32 a.m. ET, the Toronto Stock Exchange’s S&P/TSX Composite index was up 36.43 points, or 0.22 per cent, at 16,354.57.

Industrials rose 0.7 per cent as Air Canada gained 1.9 per cent after it said it is in talks to buy Canadian tour operator Transat A.T. Inc. in an all-cash deal valued at $520-million as the airline looks to create a Montreal-based global travel services company. Transat’s shares soared 18 per cent.

The deal comes days after WestJet Airlines received a $3.5-billion buyout offer from billionaire Gerry Schwartz’s private equity firm Onex Corp. WestJet shares were down 0.6 per cent and Onex stock was off 0.3 per cent.

Energy stocks rose 1.2 per cent as oil prices gained. Crescent Point Energy rose 2.4 per cent, Encana gained 1.9 per cent and Husky Energy was up 1 per cent.

Tech stocks rose 1 per cent as Shopify gained 2.75 per cent, Open Text added 0.5 per cent and Sierra Wireless was up 0.4 per cent.

U.S. stocks opened higher on Thursday, helped by upbeat earnings from Cisco and Walmart, although the Trump administration’s move to blacklist Chinese telecom company Huawei kept chip stocks under pressure.

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The Dow Jones Industrial Average rose 44.12 points, or 0.17 per cent, at the open to 25,692.14. The S&P 500 opened higher by 4.84 points, or 0.17 per cent, at 2,855.80. The Nasdaq Composite gained 10.43 points, or 0.13 per cent, to 7,832.58 at the opening bell.

Walmart Inc. rose 3 per cent after it reported its best first-quarter same-store sales growth in nine years. However, the big box retailer said prices for shoppers will rise due to higher tariffs on Chinese imports.

Cisco Systems Inc gained 5.2 per cent on an upbeat sales forecast and after the network gear maker said minimal sales exposure to China and changes to its supply chains have helped cushion the impact from trade dispute.

“Strong results from Cisco will spillover to tech names, which are likely to be beneficiaries from the earnings,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

“Economic strength will help investors look past any kind of issues and I do not expect any kind of sharp pull backs.”

The Commerce Department said U.S. homebuilding increased more than expected in April, suggesting declining mortgage rates were starting to provide some support to the struggling housing market.

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Another report showed the number of Americans seeking unemployment benefits fell more than expected last week, pointing to sustained labour market strength that should underpin the economy as growth slows.

Investors have been closely watching trade-related news, which has been mixed so far. Washington said it was adding Huawei Technologies Co to its “Entity List,” in a move that bans it from acquiring components and technology from U.S. firms without prior approval.

Canada’s Trudeau government signalled Wednesday that it won’t be rushed into making a decision on whether to ban Huawei from the next generation of wireless networks in Canada, despite Mr. Trump’s executive order.

The move took global markets by surprise as sentiment had steadied somewhat in the previous session on news that U.S. President Donald Trump was planning to delay tariffs on auto imports after a swathe of weak U.S. and Chinese economic data.

China on Thursday slammed a decision by the U.S. government to put telecom equipment giant Huawei on a blacklist and said it will take steps to protect its companies, in a further test of ties as the economic heavyweights clash over trade.

Trade concerns have dented a rally in stocks this year and has put the benchmark index more than 3 per cent below its all-time high that it hit just two-weeks ago.

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However, U.S. stock indexes posted gains in the previous two sessions on hopes the protracted trade dispute that has threatened global growth could be resolved, as the two sides were expected to resume talks in Beijing soon.

Huawei’s suppliers Qorvo Inc, Skyworks Solutions Inc, Qualcomm Inc, Xilinx Inc, Micron Technology Inc, Nvidia Corp fell between 1 per cent and 3.6 per cent.

First-quarter earnings have been largely positive. Of the 457 S&P 500 companies that have reported results, about 75 per cent have beaten profit expectations, according to Refinitiv data.

Analysts now expect first-quarter earnings growth of 1.4 per cent, a significant turnaround from the 2 per cent loss seen on April 1.

Overseas, broad weakness in European markets was somewhat offset by small gains in Chinese and Hong Kong stock indexes leading to only marginal losses on a global stock index as investors expected state authorities to step in to support the market and stabilize sentiment.

“Chinese stocks are up as markets expect authorities to intervene to support sentiment but this kind of activity is not sustainable and unless we see a clear resolution in the China-U.S. trade conflict, overall sentiment will remain weak,” said Neil Mellor, a senior FX strategist at BNY Mellon in London.

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Britain’s FTSE was up 0.11 per cent, Germany’s DAX was up 0.63 per cent and France’s CAC gained 0.20 per cent.

Benchmark indexes in China and Hong Kong were up. China’s Shanghai index added 0.58 per cent and Hong Kong’s Hang Seng rose 0.02 per cent. Japan’s Nikkei was down 0.6 per cent.

Commodities

Oil prices rose on Thursday for a third day running as fears of supply disruption amid heightened tensions in the Middle East overshadowed swelling U.S. crude inventories.

Brent crude futures were up 35 cents at US$72.12 a barrel, heading for the biggest weekly rise in six weeks.

U.S. West Texas Intermediate (WTI) crude futures were up 46 cents at US$62.48.

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Oil was drawing support from the risk of conflict in the Middle East, with helicopters carrying U.S. staff from the U.S. embassy in Baghdad on Wednesday out of apparent concern over perceived threats from Iran.

“Brent looks poised to breach the upper bound of its recent US$70-US$73 a barrel price range as bullish headlines from the (Mideast) Gulf continue worrying investors,” Citi said in a note.

A rise in U.S. crude oil inventories to their highest since 2017 helped to cap prices, though government data pointed to a smaller increase than previous industry data, with falling gasoline stocks also providing some price support.

Also keeping prices in check is uncertainty about whether Organization of the Petroleum Exporting Countries (OPEC) and other producers will continue supply cuts that have boosted prices more than 30 per cent so far this year.

OPEC said on Tuesday that world demand for its oil would be higher than expected this year.

Gold slipped on Thursday, pressured by technical selling after repeatedly failing to breach US$1,300 this week, though U.S. sanctions on Chinese telecoms company Huawei dented risk appetite and limited bullion’s losses.

Spot gold was down 0.2 per cent at US$1,294.31 an ounce, holding in a relatively narrow range of about $4. U.S. gold futures were down 0.2 per cent at US$1,294.90.

“We have seen repeated attempts in the last few days to rise above US$1,300 and it (gold) appears to be facing some kind of barrier. There is clearly some selling when it hits that level,” said Capital Economics analyst Ross Strachan, adding that trade tensions and global economic growth concerns continue to offer support for bullion.

Among other metals, silver edged 0.1 per cent higher to US$14.80 an ounce while platinum fell 0.4 per cent to US$842.65. Palladium lost 0.6 per cent to US$1,336.60 and has slumped by about 17 per cent since the metal used in catalytic converters in car exhaust systems scaled a record peak of US$1,620.53 in March.

Currencies and bonds

The Canadian dollar was trading higher at the 74.5 cents US level. The loonie continued to strengthen against its U.S. counterpart as oil prices rose and investors grew more optimistic that the United States would remove metals tariffs on Canada.

The United States is close to resolving a dispute over steel and aluminum tariffs with Canada and Mexico, U.S. Treasury Secretary Steven Mnuchin said as high-level American and Canadian officials met to discuss trade issues.

“It is good for the Canadian dollar because it allows firms to have greater confidence in cross-border supply channels,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York.

It shows that even if a new trade agreement between the United States, Mexico and Canada does not get ratified that “the U.S. and Canada will trade on friendlier terms,” Anderson added.

The dollar could react to manufacturing sales and the Bank of Canada’s financial system review, where Governor Stephen Poloz will likely again highlight household debt vulnerability.

The euro edged higher against the U.S. dollar and sterling on Thursday as the threat of U.S. tariffs on autos was pushed back, though the rise was capped by unease about this weekend’s European parliamentary elections.

The single currency was up 0.1 per cent at $1.1209 and up 0.2 per cent against sterling at 87.41 pence, adding to late gains in the previous session after U.S. officials said President Donald Trump was expected to delay implementing tariffs on cars and parts by up to six months.

The U.S. Dollar Index was up 0.02 per cent at 97.59.

“The news had a limited impact – the stock market reacted a little bit more - but we think the euro will be much more about domestic politics now,” said Credit Agricole FX strategist Manuel Olivieri.

Yields on 10-year U.S. Treasury bonds eased to 2.366 per cent , near a 15-month low of 2.340 per cent touched on March 28.

Fed funds rate futures are fully pricing in a rate cut by the end of this year and more than a 50 per cent chance of a move by September.

Canada’s 10-year bond yield was up slightly at 1.671 per cent.

Other corporate news

The head of Europe’s Airbus said it was too early to talk about acquiring a Belfast factory placed on sale by Canada’s Bombardier. Bombardier said this month that it would sell the plant which makes wings for the CSeries jet. Airbus bought the loss-making CSeries program from Bombardier last year while leaving it with control of the aerostructures operations. Analysts have said the plant could be attractive to Airbus but CEO Guillaume Faury told reporters on Thursday that the discussion was “premature.”

Pacific Gas & Electric Co edged up 0.07 per cent after state fire investigators formally determined that the company’s transmission lines caused the California wildfire that killed 85 people last year, officials said.

Pfizer was named a “top pick” at Credit Suisse after it met with the company’s management. Its shares were up 0.7 per cent.

Barclays, Citigroup, JP Morgan, MUFG and Royal Bank of Scotland were fined a combined 1.07 billion euros (US$1.2 billion) by the European Union on Thursday for rigging the multi-trillion dollar foreign exchange market. The financial industry has been hit with billions of euros in fines worldwide over the last decade for the rigging of benchmarks used in many day-to-day financial transactions. The European Commission said the banks formed two cartels to manipulate the spot foreign exchange market for 11 currencies, including the U.S. dollar, the euro and the pound.

Warren Buffett’s Berkshire Hathaway Inc. said it owned US$860.6-million of Amazon shares at the end of March, after the billionaire earlier this month admitted to having underestimated the online retailer and its chief executive, Jeff Bezos.

Nestle has entered exclusive talks to sell its skin health business to a consortium led by EQT Partners for 10.2 billion Swiss francs (US$10.1-billion), as the food group shifts its portfolio in response to changing consumer demands. The proposed transaction with private equity firm EQT, a unit of the Abu Dhabi Investment Authority and PSP Investments, is expected to close in the second half of 2019 pending regulatory approval, Nestle said on Thursday.

Earnings include: ATS Automation Tooling Systems Inc.; Applied Materials Inc.; Inovalis REIT; New Pacific Metals Corp.

Economic news

Statistics Canada says manufacturing sales increased 2.1 per cent to $58.0 billion in March, boosted by the transportation equipment, petroleum and coal product, and primary metal industries. Economists had expected a 1.1 per cent increase for the month, according to Thomson Reuters Eikon. Sales were up in 12 of 21 industries, representing 56.4 per cent of the Canadian manufacturing sector. Sales of transportation equipment increased 4.5 per cent to $11.1 billion in March, helped by a 6.5 per cent increase in motor vehicle sales. The petroleum and coal product industry reported sales rose 8.2 per cent to $6.2 billion, while primary metal sales climbed 5.3 per cent to $4.4 billion. Overall manufacturing sales rose 1.6 per cent in volume terms.

U.S. homebuilding increased more than expected in April and activity in the prior month was stronger than initially thought, suggesting declining mortgage rates were starting to provide some support to the struggling housing market. Land and labor shortages, however, continue to constrain builders’ ability to construct more lower priced houses. This segment has experienced an acute shortage of inventory, holding back home sales. Investment homebuilding has contracted for five straight quarters. Housing starts rose 5.7% to a seasonally adjusted annual rate of 1.235 million units last month, driven by gains in the construction of both single- and multi-family housing units, the Commerce Department said on Thursday. Groundbreaking was also likely boosted by drier weather in the Midwest. Data for March was revised up to show homebuilding rising to a pace of 1.168 million units, instead of falling to a rate of 1.139 million units as previously reported. Economists polled by Reuters had forecast housing starts would increase to a pace of 1.205 million units in April.

(10:30 a.m. ET) Bank of Canada Financial System Review (with press conference to follow at 11:15 a.m.)

With files from Reuters

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