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Equities

Energy shares helped push Canada’s main stock exchange higher Thursday while Wall Street recovered from the previous day’s sell off despite lingering concerns about U.S.-China trade relations.

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At 9:47 a.m. ET, the Toronto Stock Exchange’s S&P/TSX Composite index was up 13.44 points, or 0.08 per cent, at 16,144.91. The gains follow two back-to-back sessions of declines.

Energy stocks were up 0.3 per cent, driven by an increase in Tourmaline Oil Corp. shares after BMO raised its rating on the company to ‘outperform.' Financials were up 0.2 per cent. Five of the index’s 11 main sectors were higher by midmorning.

The Dow Jones Industrial Average rose 13.53 points, or 0.05 per cent, at the open to 25,139.94. The S&P 500 opened higher by 3.92 points, or 0.14 per cent, at 2,786.94. The Nasdaq Composite gained 18.15 points, or 0.24 per cent, to 7,565.46 at the opening bell. Trade tensions have knocked more than 5 per cent off the value of major U.S. indexes since the start of May.

Overseas, European markets edged higher in morning trading and German Bund yields rose for the first time in four days after touching record lows. Wall Street’s main indexes lost about 1 per cent during Wednesday’s session, slammed by threats that China would retaliate in the trade war with the U.S. by restricting rare earth sales.

“This morning some traders are licking their wounds in the wake of yesterday’s severe declines, while others are out bargain hunting,” David Madden, market analyst with CMC Markets UK, said. “‘Don’t say we didn’t warn you’ was a quote in a Chinese state newspaper, and that same line echoes statements made ahead of conflicts that China have been involved in down through the years.”

Early Thursday, China’s vice foreign minister called recent U.S. actions on tariffs on Chinese imports as “naked economic terrorism.”

“Tensions are clearly running high and investors are treading lightly today,” Mr. Madden said.

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On Bay Street, National Bank and Laurentian Bank close out bank earnings.

Thursday's analyst upgrades and downgrades

National Bank hiked its dividend as second-quarter profit advanced. The Montreal-based bank’s net income for the quarter ended April 30 amounted to $558-million or $1.51 per diluted share, compared with $547-million or $1.44 per diluted share in 2018. The most recent per-share profit missed analysts’ forecasts by a penny. National Bank raised its dividend 3 cents to 68 cents. Shares were down slightly shortly after the open.

Ahead of the open, Ski-Doo maker BRP inc. reported revenue of $1.33-billion in the latest quarter, up 17.3 per cent and topping analysts forecasts which called for a number closer to $1.25-billion. Net income rose to $23.8-million or 25 cents a share. BRP shares jumped 11 per cent in early trading.

South of the border, markets get results from Dollar Tree and Dollar General before the start of trading. Costco Wholesale, Uber and Gap Inc. all report after the close.

Tesla Inc. shares were slightly firmer even as Barclays cut its 12-month price target on the stock to US$150 from US$192 and said the company is “stalling as a niche automaker.”

Overseas, European markets were in the black in morning trading. The pan-European STOXX 600 advanced 0.43 per cent with oil and gas stocks among the session’s winners. Britain’s FTSE 100 gained 0.49 per cent. Germany’s DAX rose 0.57 per cent and France’s CAC 40 gained 0.45 per cent.

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In Asia, markets followed Wall Street’s hand off to finish mostly lower. Japan’s Nikkei ended down 0.29 per cent. On mainland China, the Shanghai Composite Index finished down 0.31 per cent. Hong Kong’s Hang Seng lost 0.44 per cent.

Commodities

Crude prices wavered early on helped by a report showing a bigger-than-expected decline in U.S. inventories. The day range on Brent so far is US$68.77 to US$69.96. The range on West Texas Intermediate is US$58.83 to US$59.70. WTI was higher out of the gate but Brent struggled.

“Oil prices are small better bid after U.S. inventory reports showed a bigger-than-expected decline in crude stocks, although concerns that the Sino-U.S. trade war will trigger a global economic downturn is capping gains,” OANDA analyst Dean Popplewell.

Figures from the American Petroleum Institute released Wednesday afternoon showed U.S. crude inventories fell by 5.3 million barrels last week. Analysts had expected a decline of about 857,000 barrels. More official figures are due later Thursday morning when the U.S. Energy Information Administration releases its weekly inventory report.

Mr. Popplewell said crude prices remain supported by output cuts from OPEC and its allies as well as falling supplies from Iran. Data this week showed that Iranian May crude exports dropped to less than half of April levels at around 400,000 barrels a day, he said, adding crude exports remain Iran’s main source of income. Mr. Popplewell also noted that markets continue to expect OPEC to extend output cuts when it meets early this summer, especially since Saudi Arabia wants to keep prices from falling back to levels seen seven months ago.

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“For the crude ‘bears,’ concerns that the trade dispute between the U.S and China will trigger a global economic downturn and a slowdown in fuel consumption is capping any significant gains for now,” he said.

Gold prices, meanwhile, held near a one-week low as the U.S. dollar firmed and bonds rallied. Spot gold was up 0.2 per cent at US$1,281.58 per ounce, having fallen to its lowest level since May 23 at US$1,274.44 earlier in the session. U.S. gold futures edged 0.1 per cent lower to US$1,285.70 an ounce.

“A strong U.S. dollar is weighing on the gold prices. The dollar has been strong lately; it seems like investors prefer to hold U.S. debts and other low risk serving bonds as opposed to gold,” SP Angel analyst Sergey Raevskiy told Reuters.

“However, gold is still very supported around these prices. You would expect gold to be higher in this environment, but for now, it looks like the investors’ focus is elsewhere.”

Currencies and bonds

The Canadian dollar was modestly higher early on after touching its lowest level in five months during the previous session following a less hawkish statement from the Bank of Canada than the markets had been expecting.

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The central bank left rates unchanged for the fifth straight meeting and offered an optimistic view of the Canadian economy, noting that recent weakness was proving temporary. Still the bank flagged concern over global trade and offered no clear indication that rates would climb any time soon. Bank of Canada senior deputy governor Carolyn Wilkins is scheduled to speak in Calgary later on Thursday, offering a progress report on the Canadian economy.

The day range on the loonie so far is 73.96 US cents to 74.13 US cents.

“We expect the BoC to keep the overnight rate target at 1.75 per cent for the rest of the year,” Bank of America Merrill Lynch analysts said in a note. “With the U.S. Fed on hold, we expect the BoC to keep the spread between the overnight rate and the Fed Funds rate at 75 basis points, providing monetary stimulus.”

They also said they expect the Bank of Canada to resume hiking rates by early next year. “The risk to our call is that the BoC remains on hold for longer or that it is forced to cut if our expectations for economic recovery fail,” they said.

On broader currency markets, the U.S. dollar neared its best level in a week as investors moved to the greenback amid escalating trade tensions. Against a basket of its rivals, the dollar was generally firm at 98.22, with gains more pronounced against rivals such as the euro and the pound. It was on track to rise for a fourth consecutive month, according to Reuters.

In bonds, the yield on the U.S. 10-year note was higher at 2.262 per cent. The yield on the 30-year note was also up slightly at 2.684 per cent.

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More corporate news

Canadian asset manager Brookfield is close to sealing a deal with U.S. infrastructure fund KKR and Spain’s Ribera family to buy a 50-per-cent stake in solar group X-Elio, Reuters reports citing three sources with knowledge of the matter. The transaction values the whole company, which builds and operates photovoltaic plants in the United States, Europe, Africa and Asia, at around 1.05 billion euros (US$1.17-billion) including debt, two of the sources said. Brookfield plans to buy a 20-per-cent stake in the company from the Riberas family, an industrial dynasty from northern Spain that founded car parts maker Gestamp.

Dollar General Corp beat analysts’ estimates for quarterly same-store sales on Thursday, as customers spent more on groceries, seasonal products and home goods at the discount retailer’s stores. The company reported a 3.8-per-cent rise in same-store sales, beating the average analyst estimate of a 2.88-per-cent increase, according to IBES data from Refinitiv. Net income rose to US$385-million, or US$1.48 per share, in the first quarter ended May 3, from US$364.9-million, or US$1.36 per share, a year earlier. Shares were up 6 per cent in early trading in New York.

Axel Springer’s share price jumped more than 20 per cent after the German publisher said its main owners were in talks with U.S. investor KKR to take the US$5.4-billion company private and pursue a long-term growth strategy. Springer’s shares had lost more than a quarter in value over the past 12 months as investors grew impatient over its heavy digital investments and the drag from circulation declines at legacy media titles including the Bild daily. In turning to private equity house KKR, founder Axel Springer’s 76-year-old widow, Friede, is bringing in an investor known for making long-term media investments in Germany, focusing on digital transformation and international expansion.

More reading:

With the bond outlook gloomy, why are stock markets so calm?

Economic news

Statistics Canada said current account deficit in the first quarter widened to $17.3-billion, reflecting a higher trade in goods and services deficit and moderated by a lower investment income deficit.

Initial claims for U.S. state unemployment benefits fell by 1,000 to a seasonally adjusted 211,000 last week, the U.S. Labor Department said on Thursday. Figures for the prior week was unrevised.

U.S. first-quarter growth was revised down slightly to 3.1 per cent, from a previous estimate of 3.2 per cent.

(2:15 p.m. ET) Bank of Canada senior deputy governor Carolyn Wilkins gives the Economic Progress Report at Calgary Chamber of Commerce.

With Reuters and The Canadian Press

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