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Equities
Canada’s main stock index fell broadly at the open on Friday as Chinese media took a tough stance on the trade war between the United States and China, reviving fears of a global economic slowdown.
At 9:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX Composite index was down 60.36 points, or 0.37 per cent, at 16,383.5.
Energy stocks were down 0.5 per cent with Seven Generations off 1.55 per cent, Baytex Energy down 1.5 per cent and Arc Resources off 1.45 per cent.
Financials were down 0.5 per cent with Brookfield Asset Management down 1 per cent, Industrial Alliance down 0.7 per cent and National Bank off 0.7 per cent.
Bank of Montreal was down 0.4 per cent after the bank is trimming the ranks of its capital-markets arm, eliminating approximately 100 jobs as the bank continues to hunt for ways to control its costs. The job cuts were announced internally over the course of a few days this week, sources said.
U.S. stocks opened lower on Friday, following a three-day run of gains, as trade worries returned after Chinese media took a hard stance on the tariff dispute between the United States and China.
The Dow Jones Industrial Average fell 142.73 points, or 0.55 per cent, at the open to 25,719.95. The S&P 500 opened lower by 17.72 points, or 0.62 per cent, at 2,858.60. The Nasdaq Composite dropped 69.01 points, or 0.87 per cent, to 7,829.03 at the opening bell.
The trade war will only make China stronger and will never bring the country to its knees, the ruling Communist Party’s People’s Daily wrote in a front-page commentary.
The escalation of the tone from China came after U.S. President Donald Trump’s bid to block Chinese telecom tech company Huawei from buying American technology.
In addition, Chinese buyers dropped orders for 3,247 metric tonnes of U.S. pork – the biggest cancellation in more than a year, according to U.S. Department of Agriculture data released on Thursday.
Beijing’s higher tariffs on U.S. products on a US$60-billion target list will take effect on June 1, which could prompt Washington to go ahead with tariffs on a further US$300-billion worth of Chinese goods.
The two sides are expected to meet in China to resume talks soon.
“Mounting trade worries and geopolitical tensions are weighing on investors nerves,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
“The trade war tensions are overcoming the positive in markets so investors are skeptical and markets are caught in a trading range.”
Markets got a slight reprieve after the White House said on Friday that U.S. President Donald Trump is delaying a decision by up to six months on whether to impose tariffs on imported cars and parts to allow for more time for trade talks with the European Union and Japan.
Industrial machine maker Caterpillar fell 0.9 per cent.
Technology companies including iPhone maker Apple Inc and chipmakers, which rely on China for a large portion of their revenue, were also hit by trade fears.
Apple Inc. fell nearly 1.2 per cent also weighed down by Nomura Instinet’s price target cut on its stock, citing headwinds from the tariff war.
The escalating tensions between the world’s two largest economies also led farm equipment maker Deere & Co to cut its full-year forecast. Its shares declined 4.2 per cent.
All three major indexes have posted gains three days in a row this week as upbeat quarterly results and a batch of strong economic data helped ease worries of a global economic slowdown.
The S&P 500 index is now about 2 per cent away from its record high hit earlier this month.
Shares of Micron Technology Inc, Broadcom Inc and Intel Corp fell between 0.5 per cent and 2 per cent.
Applied Materials Inc gained 5 per cent after the chip gear maker’s upbeat third-quarter profit eased concerns about waning chip demand.
Online scrapbook company Pinterest Inc slumped 10 per cent after the recent Wall Street debutant forecast 2019 revenue broadly in line with Wall Street targets.
Under Armour Inc rose 4.3 per cent after JP Morgan upgraded the sports wear maker to “overweight” from “neutral.”
Also on investors watch is the debut of Luckin Coffee Inc , the Chinese challenger to Starbucks Corp.
In Europe, Germany’s exporter-heavy DAX fell the most, down 0.9 per cent. Britain’s FTSE was down 0.4 per cent as Britain’s Prime Minister Theresa May battled to keep her Brexit deal, and her premiership, intact amid growing fears of a disorderly departure from the European Union. France’s CAC was off 0.5 per cent.
Overseas, Shanghai stocks finished 2.5 per cent in the red and the yuan hit its weakest in nearly five months amid growing fallout from the trade war.
The drop in the yuan saw it ease past 6.9400 per dollar in the offshore market for the first time since November 2018.
Its slide has been steepening in recent days. Sources in China told Reuters the central bank would intervene to ensure it did not weaken past 7 to the dollar in the near term.
While breaking 7 could reduce some of the effects of U.S. tariff increases, it could hit confidence and trigger fund outflows, one of the sources said.
MSCI’s broadest index of Asia-Pacific shares outside Japan was at 15-week lows and down 2.6 per cent for the week at the end of trading.
Japan’s Nikkei bounced 0.9 per cent and Hong Kong’s Hang Seng was down 1.2 per cent.
Commodities
Oil edged higher to US$73 a barrel on Friday, supported by a host of supply cuts and concern of further disruption to Middle East shipments as tensions rise, and was heading for a weekly gain.
U.S. sanctions on Iran have cut the OPEC member’s crude exports further in May, adding to supply curbs resulting from an OPEC-led pact. Meanwhile, rising tension in the Middle East this week has raised concern about additional supply disruption.
Brent crude was up 43 cents to US$73.05 a barrel. The global benchmark is up about 3 per cent this week, having ended last week steady and fallen the week before. U.S. West Texas Intermediate crude added 60 cents to US$63.47.
“The Middle East is acting as a tinderbox for conflict,” said Stephen Brennock of oil broker PVM. “So long as this remains the case, the energy complex will continue to be supported by bullish supply-side signals.”
The mounting tension overshadowed bearish developments for oil prices this week, such as an unexpected increase in U.S. crude inventories.
A Saudi-led military coalition in Yemen carried out several air strikes on the Houthi-held capital Sanaa on Thursday after the Iranian-aligned movement claimed responsibility for drone attacks on two Saudi oil pumping stations.
Gold held steady on Friday after posting its biggest one-day percentage fall in a month in the previous session, with gains curbed by a firmer dollar and a pullback in global equities on U.S.-China trade tensions offering support.
Spot gold was flat at US$1,285.01 per ounce. U.S. gold futures were little changed at US$1,285.10 an ounce.
Spot gold fell 0.8 per cent on Thursday, its biggest one-day percentage decline since April, as investors became a little more receptive to taking on risk following strong economic data from the United States.
“On one end, gold has support from prevailing uncertainties in the financial markets relating to the trade talks and concerns over growth outlook. At the same time, the dollar is expected to stay strong for at least the next two weeks,” said Julius Baer analyst Carsten Menke.
“Gold is expected to be rangebound.”
Among other metals, silver was down 0.7 per cent at US$14.46 an ounce, after hitting its lowest since Dec. 7 at US$14.42 an ounce. Silver is also on track for about a 2 per cent decline for the week. Platinum dipped 0.6 per cent to US$824.95 per ounce, having hit a two-month low at US$818.50 earlier in the session.
Palladium slipped 0.8 per cent to US$1,320.43 an ounce. It has slumped about 19 per cent since the metal used in catalytic converters in car exhaust systems hit a record high of US$1,620.53 in March. Both platinum and palladium are set to record weekly falls, with platinum on course for its biggest such drop in 10 weeks.
Currencies and bonds
The Canadian dollar weakened to a three-week low against its U.S. counterpart on Friday and was on track for its biggest weekly decline since March, as investors became more worried about the trade dispute between the United States and China.
At 9:11 a.m., the Canadian dollar was trading 0.3 per cent lower at $1.3501 to the greenback, or 74.07 U.S. cents. The currency, which was down 0.7 per cent for the week, touched its weakest level since April 25 at $1.3514.
On Thursday, the Bank of Canada said the overall risk to the Canadian financial system was slightly higher than in June 2018 and expressed concern about the increasing threat posed by fragile corporate debt funding.
Canadian government bond prices were higher across a flatter yield curve, with the two-year up 4 cents to yield 1.566 per cent and the 10-year rising 33 cents to yield 1.644 per cent.
The gap between the 2- and 10-year yields narrowed by 1.4 basis points to a spread of 7.8 basis points in favour of the longer-dated bond, its narrowest gap since March 29.
Canada’s interest rate markets are due to close early ahead of the Victoria Day holiday on Monday.
The U.S. dollar has benefited as a safe-haven currency even as the United States and China remain locked in a trade dispute.
It was bolstered on Thursday by data that showed U.S. home building increased more than expected in April.
On Friday, it held near a two-week high against its peers, supported by the strong data and a bounce in Treasury yields.
The dollar index against a basket of six major currencies stood little changed at 97.802 after reaching 97.882 on Thursday, its highest since May 3.
The yield on U.S. 10-year Treasuries fell 0.035 to 2.37 per cent while the yield on the 10-year Canada bond was down 0.026 to 1.652 per cent.
Other corporate news
Supercomputer manufacturer Cray Inc said on Friday it would be bought by Hewlett Packard Enterprise Co in a deal valued at about US$1.30-billion, net of cash. The US$35 per share value represents a premium of 17.4 per cent to Cray’s last close. Cray’s shares jumped 17 per cent and Hewlett’s shares gained 1 per cent.
Pinterest Inc. late Thursday forecast 2019 revenue broadly in line with Wall Street targets, disappointing investors who had expected more from the freshly public, high flying stock, and sending its shares down 11 per cent.
Tesla Inc Chief Executive Officer Elon Musk told employees Thursday that he will increase scrutiny of the company’s expenses in his latest initiative to cut costs at the electric car maker. In addition, a Tesla Model 3 involved in a fatal crash with a semitrailer in Florida March 1 was operating on the company’s semi-autonomous Autopilot system, federal investigators have determined. Its shares were down 4.5 per cent.
Amazon has taken a stake in British online food delivery company Deliveroo, leading a $575 million fundraising to pit itself against Uber Eats in the global race to dominate the market for takeaway meals.
Canada’s Iamgold Corp. is exploring a possible sale of all or parts of the gold miner business, Bloomberg reported late Thursday, citing people familiar with the matter. Its shares in Toronto fell 1.4 per cent.
Graphics chipmaker Nvidia Corp. rose 1.3 per cent after forecasting second-quarter revenue above analysts’ estimates.
Applied Materials Inc. gained 5.2 per cent after the chip gear maker’s upbeat third-quarter profit eased concerns about waning chip demand.
Earnings include: CAE Inc.
Economic news
(10 a.m. ET) U.S. quarterly services survey for Q1.
(10 a.m. ET) U.S. University of Michigan Consumer Sentiment Index for May. Consensus is a reading of 97.4, up from 97.2 in April.
(10 a.m. ET) U.S. leading indicators for April. The Street expects an increase of 0.2 per cent from March.
With files from Reuters