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Equities

Canada’s main stock index broadly slipped at the open on Wednesday, as investors dumped riskier assets on worries over a prolonged U.S.-China trade war.

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At 9:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 84.42 points, or 0.51 per cent, at 16,342.05.

Energy stocks were the biggest decliner, down 1.2 per cent as Prairiesky Royalty fell 2.5 per cent, Husky Energy fell 2.4 per cent and Baytex Energy was off 2.3 per cent.

Materials fell 0.8 per cent. Franco-Nevada was off 1.3 per cent after being downgraded by RBC.

Barrick fell 0.3 per cent after it offered US$285-million in stock to buy the minority share of Acacia Mining PLC it doesn’t already own, in a move that may finally end a multiyear export ban in Africa that has crippled a portion of its gold production. Barrick already owns 63.9 per cent of London-listed Acacia.

Financial stocks fell 0.7 per cent as banks began reporting their earnings. CIBC’s quarterly profit missed analyst estimates as sluggish loan growth and higher loan-loss provisions in retail banking more than offset gains in its capital markets business. Adjusted net income attributable to shareholders rose to $1.36-billion, or $2.97 per share. Analysts on average had expected $2.99 per share, according to Refinitiv IBES data. Its stock fell 2.2 per cent, the biggest decliner in the sector.

Bank of Nova Scotia was off 1 per cent, Bank of Montreal was off 0.65 per cent and TD Bank was down 0.5 per cent.

In economic news, Statistics Canada says retail sales rose 1.1 per cent to $51.3 billion in March boosted by higher sales at gas stations and sellers of building materials, garden equipment and supplies. Economists had expected an increase of 1.0 per cent for the month, according to Thomson Reuters Eikon.

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U.S. stocks opened lower on Wednesday, as reports that Washington could impose sanctions on another Chinese company raised fears of an escalation in trade tensions, with the S&P 500 also dragged down by losses in chipmaker Qualcomm and home improvement chain Lowe’s.

The Dow Jones Industrial Average fell 58.87 points, or 0.23 per cent, at the open to 25,818.46. The S&P 500 opened lower by 8.30 points, or 0.29 per cent, at 2,856.06. The Nasdaq Composite dropped 35.92 points, or 0.46 per cent, to 7,749.81 at the opening bell.

The reports come after Washington’s decision to temporarily ease curbs on Huawei Technologies allayed investors concerns on Tuesday over a hit to the global technology sector from the Trump administration’s decision last week to add the Chinese telecoms equipment maker to a trade blacklist.

However, sentiment soured on reports of similar restrictions on Chinese video surveillance firm Hikvision.

“What investors are looking at is the fact that this could be another retaliation,” said Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh. “The negotiations have been more of a tit for tat than actual conversation.”

The back-and-forth between the United States and China has kept investors on edge and has knocked the benchmark S&P 500 index 3 per cent off its all-time high hit on May 1.

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Markets also waited for minutes from the Federal Reserve’s two-day policy meeting in late April when it held interest rates steady. The minutes are due at 2 p.m. ET.

Fed’s St. Louis chief James Bullard, a voter in the rate-setting committee this year, said on Wednesday further weakness in inflation could prompt the central bank to cut rates, even if economic growth maintains its momentum.

Among stocks, Qualcomm Inc slumped 10.4 per centafter a federal judge ruled that the chipmaker unlawfully suppressed competition in the market for cellphone chips and used its dominant position to exact excessive licensing fees.

Retailers wrapped up the first-quarter earnings season on a low note, with Lowe’s Cos Inc falling 10 per cent after the home improvement chain cut its full-year profit forecast.

Nordstrom Inc declined 10.4 per cent after the department store operator reduced its forecast for full-year sales and profit, a day after disappointing earnings from rivals Kohl’s Corp and J.C. Penney Co Inc.

Among the bright spots was retailer Target Corp, which jumped 7.8 per cent after its quarterly same-store sales and profit beat Wall Street estimates.

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Overseas, global stocks were slightly lower on Wednesday as investors sought safety in bonds, the Japanese yen and Swiss franc in muted trade amid renewed worries over the U.S.-China spat.

MSCI world equity index, which tracks shares in 47 countries, was down slightly, as investors shunned assets considered risky in times of economic and political strife.

“Some in the markets will continue to cling on to hopes of the United States and China reaching an agreement at the upcoming G20 meeting,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management.

“But the ongoing trade conflict looks to be a protracted one, and its potentially negative impact on various economies is becoming a running concern.”

Leaders from G20 nations are scheduled to gather for a summit in Japan at the end of June.

In Europe, Britain’s FTSE was up 0.03 per cent, Germany’s DAX fell 0.26 per cent and France’s CAC fell 0.41 per cent.

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The Chinese markets, which have endured a volatile few months, were on the backfoot. The Shanghai Composite Index closed down 0.5 per cent. Hong Kong’s Hang Seng rose 0.18 per cent and Japan’s Nikkei added 0.05 per cent.

Commodities

Oil prices fell on Wednesday after industry data showed an increase in U.S. crude inventories and on demand concerns linked to a protracted trade war between China and the United States.

However, analysts said oil markets remained tight amid supply cuts led by producer group OPEC and as political tension escalates in the Middle East.

Brent crude futures were down 70 cents at US$71.48 a barrel and are set for their biggest daily decline in eleven days.

U.S. West Texas Intermediate (WTI) crude futures for July delivery were down 68 cents at US$62.45.

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“Buying pressures are sandwiched between mounting geopolitical disruption risks in the Middle East and jitters over the fallout from the intensifying U.S.-China trade dispute,” PVM’s Stephen Brennock said in a note.

“As a result, the oil market is at a crossroad with both these risks carrying the potential to send prices US$10 a barrel in either direction... Even a modest bout of profit taking could quickly cascade into a selling frenzy.”

Gold edged lower on Wednesday to hover near a two-week low, as a stronger dollar and signs of easing Sino-U.S. friction dented demand for bullion ahead of the minutes from U.S. Federal Reserve’s latest meeting.

Spot gold edged down 0.1 per cent to US$1,273.47 per ounce. In the previous session, the metal fell to US$1,268.97, its lowest since May 3. U.S. gold futures were unchanged at US$1,273.20 an ounce.

“A stronger dollar and Washington’s extension to Huawei for three months has put the knife into gold,” OANDA analyst Jeffrey Halley said.

Among other precious metals, silver fell 0.2 per cent to US$14.41 per ounce. Platinum shed 0.4 per cent to US$809.92 an ounce, while palladium was down 0.3 per cent to US$1,315 per ounce.

Currencies and bonds

The Canadian dollar edged higher trading, adding to Tuesday’s gains, and was at 74.65 cents US even as commodity prices edged lower.

On Tuesday, the loonie strengthened to an 11-day high against the greenback as investors calculated that the threat of trade uncertainty would ease for Canada even as they ramped up on countries with close economic links to China.

On a positive note, the United States has agreed to lift tariffs on steel and aluminum from Canada and Mexico. Canadian Foreign Minister Chrystia Freeland has since said that Canada will move quickly to ratify the new North American trade pact, called the United States-Mexico-Canada Agreement, or USMCA.

“The Canadian dollar just gets a pass,” said Mark McCormick, North American head of FX strategy at TD Securities. “What’s clear is that [U.S. President Donald] Trump seems to only have the ability to fight one trade war at a time and that speeds up the process of trying to get USMCA ratification complete.”

The U.S. dollar largely kept to familiar trading ranges on Wednesday, as it found support near a 3-1/2-week high on higher U.S. yields after the United States eased trade restrictions on Chinese telecommunications equipment maker Huawei Technologies.

The move came as a relief to markets hit by escalating trade tensions between the United States and China, though analysts said sentiment remained fragile with tariff negotiations between the world’s two largest economies yet to produce a durable solution.

“The trade dispute won’t be resolved easily, so the risk-off mood won’t come off all of a sudden, said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank. “I think market sentiment will rather improve one small step at a time.”

Against a basket of key rival currencies, the dollar was largely steady at 98.031, having brushed a 3-1/2-week high of 98.134 overnight. The index has risen 1.9 per cent this year.

In bonds, the U.S. 10-year Treasury yield was down slightly at 2.421 per cent. Canada’s 10-year bond yield was down slightly at 1.747 per cent.

Other corporate news

Canada Pension Plan’s investment arm is spending $200-million to acquire a 7.1-per-cent stake in Premium Brands Holdings Corp., forming a relationship with the Canadian company that supplies Starbucks Corp. with its popular breakfast sandwiches. Based in Richmond, B.C., Premium Brands has grown from a local purveyor of pork to a North American powerhouse that does business with Starbucks, controls more than 40 brands of meats and seafood and also supplies the Keg and Boston Pizza.

Apparel maker VF Corp forecast full-year revenue below expectations on weak demand for its North Face apparel and Vans sneakers, sending its shares down 9 per cent in premarket trading.The company is completing spinning off its less profitable jeans business, including Lee and Wrangler brands, this week to better focus on high-margin brands such as Vans and North Face. Its shares fell 6.6 per cent in premarket trading.

Tesla has reduced the prices of its two most expensive models, raising concerns about fading interest in its cars and whether the company can generate enough cash to pay all the bills. On Monday, Tesla cut $3,000 from the price of the Model S sedan and $2,000 from the Model X SUV. The company said in a statement that it periodically adjusts prices and available options like other car companies. The decreases offset price increases from a month ago when Tesla offered longer battery range and added a new drive system and suspension. The statement didn’t say if slowing sales influenced the decision. Its shares were down 2.8 per cent in premarket trading.

Qualcomm Inc fell 9.8 per cent in premarket trading after a federal judge ruled that the chipmaker unlawfully suppressed competition in the market for cellphone chips and used its dominant position to exact excessive licensing fees.

Nordstrom Inc plunged 11 per cent in premarket trading after the department store operator cut its forecast for full-year sales and profit.

Earnings include: Analog Devices Inc.; Canadian Imperial Bank of Commerce; Lowe’s Companies Inc.; Neptune Wellness Solutions Inc.; Target Corp.; VF Corp.

Economic news

Statistics Canada says retail sales rose 1.1 per cent to $51.3 billion in March boosted by higher sales at gas stations and sellers of building materials, garden equipment and supplies. Economists had expected an increase of 1.0 per cent for the month, according to Thomson Reuters Eikon. Sales were higher in seven of 11 subsectors tracked by Statistics Canada. Sales at gasoline stations gained 6.0 per cent in March due in large part to higher prices at the pump, while sales at gasoline stations in volume terms were relatively unchanged from February. Building material and garden equipment and supplies dealers increased sales 4.3 per cent in March. Sales at motor vehicle and parts dealers decreased 0.7 per cent in March as sales at new car dealers fell. Excluding the auto sector, overall retail sales were up 1.7 per cent for the month.

(2 p.m. ET) U.S. Fed minutes for April 30-May 1 meeting released.

With files from Reuters

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