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Equities

Canada’s main stock index opened slightly higher this morning on the back of a very positive jobs report revealing the lowest unemployment since 1976, the furthest back comparable data is available. South of the border, Wall Street opened higher following a disappointing U.S. jobs report that is bolstering investors’ bets that the Federal Reserve will cut interest rates.

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As of 9:40 a.m. ET, the Toronto Stock Exchange’s S&P/TSX Composite index was up 26.1 points, or 0.16 per cent, at 16,253.9. Seven of the index’s 11 major sectors were higher, led by the technology sector which rose 0.6 per cent. Bay Street had expected a gain of 0.03 per cent (or 5,000 jobs) from April and an employment rate holding steady at 5.7 per cent. Instead, Statistics Canada revealed 27,700 jobs added this month and an unemployment rate of a record low 5.4 per cent.

On Wall Street, the Dow Jones Industrial Average rose 48.06 points, or 0.19 per cent, at the open to 25,768.72. The S&P 500 opened higher by 9.38 points, or 0.33 per cent, at 2,852.87. The Nasdaq Composite gained 37.42 points, or 0.49 per cent, to 7,652.97 at the opening bell. The U.S. jobs report under performed analysts’ expectations of an increase of 180,000 jobs from April. Only 75,000 jobs were added and the unemployment rate remained 3.6 per cent.

“Today’s labour market reading continues to the string of healthy data releases and reinforces our view that second quarter growth will outstrip the Bank of Canada’s published forecast,” CIBC economist Royce Mendes said. “The Canadian dollar is trading stronger, but that’s partly attributable to the soft non-farm payroll print in the US. As a result of the disappointment on U.S. data, Canadian yields have fallen with their southern counterparts.”

Friday's upgrades and downgrades

On the corporate front, shares of Beyond Meat Inc. are up 25 per cent after the maker of plant-based burgers and sausage said it expects to more than double its revenue this year. In reporting its latest results after Thursday’s close, the company said it expects to record revenue of US$210-million in 2019, with break-even earnings, before interest, tax, depreciation and amortization (EBITDA). Analysts on average forecast full-year sales of US$205-million, and a loss, before interest, tax, depreciation and amortization, of US$10.28-million, according to Refinitiv IBES data.

Marketing company and newspaper printer Transcontinental Inc. shares fell 5.3 per cent, the most on the TSX, after multiple analysts cut price targets on the company following quarterly results reported after yesterday’s close.

European stocks gained ground today with hopes that central banks would loosen policy to offset trade friction and the threat of global recession. London’s FTSE and Frankfurt’s DAX were both up just under 1 per cent at last check, with Paris’ CAC up over 1.5 per cent. The broader STOXX 600 was up 0.9 per cent, putting European indexes on a course for their best weekly rally since early April. Oil stocks led the gains, after slumping earlier in the week. This came despite disappointing data on expected economic growth out of Germany, with the Bundesbank assessing 2019 growth at a low 0.6 per cent.

Trading in Asia saw a positive end to the week, with Japan’s Nikkei up 0.53 per cent to close at 20,884.71, and South Korea’s KOSPI up 0.16 per cent to 2072.33. Markets in China and Hong Kong were closed today for a public holiday.

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In central banking news, finance ministers from the G20 and central bank governors prepare to convene in Fukuoka, Japan, tomorrow for a weekend of talks. Meanwhile, in Tsubuka, G20 ministers will meet to discuss trade and the digital economy. These talks are occurring at a point when all eyes are on monetary policy, with investors taking a hard look at the possible timing of a rate cut by the U.S. Federal Reserve. Markets have fully priced in a cut at the central bank’s July 31 meeting, and expect two more by mid-2020. Some see the prospect of three cuts by the end of this year. Yesterday the European Central Bank nudged off expectations of an immediate rate cut, with ECB president Mario Draghi ruling out the possibility of a rate increase and pledging to keep rates at present levels through the first half of 2020. Draghi reassured investors that the central bank was ready to act if needed to support an economy hurt by weaker global trade, and that it could even resort to drastic measures. “If the Fed starts its first rate cut soon, it will change the outlook,” said Christophe Barraud, chief economist and strategist at Paris brokerage Market Securities. “Global central banks will be more accommodative until trade growth recovers.”

The ongoing trade war between the U.S. and China, as well as the prospect of drastic tariffs that President Donald Trump is threatening to impose on Mexico, underscores uncertainty in the global economy that has seen investors flock to the stability offered by gold and bonds. Christine Lagarde, head of the International Monetary Fund, told Reuters that the U.S.-China trade war will not cause a global recession but that the trade spat amounted to “self-inflicted wounds.”

Economic reports out of the U.S. today also include wholesale trade for April, at 10:00 a.m. ET, which is expected to increase 0.2 per cent since March, and consumer credit for April, which is expected to rise US$12-billion.

Commodities

Crude prices jumped Friday after Saudi Arabia’s energy minister suggested OPEC and its allies would extend current production caps.

Both Brent and West Texas Intermediate appeared headed for their best daily showing since April in the wake of the comments. The day range on Brent so far is US$62.10 to US$63.12. The range on WTI is US$52.92 to US$53.83.

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Speaking at an economic conference in St. Petersburg, Saudi Energy Minister Khalid al-Falih said OPEC is close to an agreement to extend its current pledge to curb production by 1.2 million barrels a day. That limit took effect at the start of this year.

“On the OPEC side, a rollover is almost in the bag. The question is to calibrate with non-OPEC,” he said.

“I’m hoping it will be an easy decision and that we’ll roll over, but if it’s not, we will be flexible in terms of our position in the kingdom.”

Analysts also said a positive tone out of the coming G20 summit could set the stage for further gains.

"West Texas Intermediate crude found major support from the US$50 a barrel level and could see further bullish momentum if we see something constructive out of the G20 talks this weekend," Edward Moya, senior market analyst with OANDA, said. "If the Fed cuts rates sooner than later, that could provide dollar weakness which should be supportive for crude prices. The main driver for higher oil will remain on a pickup in global demand and that would likely stem from positive progress on all trade wars."

In other commodities, gold prices were on track for their best week in more than a year as market speculation that the Federal Reserve could cut interest rates continues to build.

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Spot gold was steady at US$1,335.27 per ounce at 0902 GMT, while U.S. gold futures were down 0.2 per cent to US$1,339.60.

"The yellow metal is poised for another major move higher if we see further dollar weakness," Mr. Moya said. "Fed cut rate bets have been on an upward trajectory and that could be confirmed if we see the strongest part of the US economy, the labor market show signs of weakness."

So far, gold is up more than 2 per cent on the week and looks headed for its best weekly gain since late March 2018.

Currencies and bonds

The Canadian dollar jumped in the wake of a better-than-expected reading on Canadian hiring in May. In the wake of the report, the loonie breached 75 US cents, although weakness in the employment report south of the border also contributed to the morning’s gain.

At last check, the loonie was sitting just below the upper end of the day range of 74.81 US cents to 75.19 US cents.

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Statistics Canada said the economy added 27,700 new jobs last month. The employment rate fell to 5.4 per cent, the lowest since record keeping began in 1976. CIBC economist Royce Mendes, however, noted the numbers may not be quite as strong as the headline reading suggests. He noted that the unemployment rate fell in part because of a lower participation rate. As well, full-time work accounted for all of the gains in hiring, but the jobs were all focused in self-employment with paid employment falling in May.

“It’s always difficult to forecast the LFS [labour force survey] employment print, and the risk was to the upside versus consensus, given that many large outliers have been followed up with subsequently healthy prints,” he said.

Meanwhile, U.S. hiring slowed sharply during the same month. Figures showed hiring rose by 75,000 jobs, far fewer than the 180,000 expected.

The U.S. dollar slid against a basket of world currencies after that release, falling to 96.60. Even before the numbers, the U.S. dollar index had been on track for its worst week of the year.

“The weaker than expected data have seen bond yields and the US$ fall,” CIBC economist Andrew Granthan said.

At 8:57 a.m., the yields on U.S. 10-year Treasury notes were 5.90 basis points lower at 2.064 per cent, while two-year yields were 8.80 basis points lower at 1.793 per cent.

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More company news:

Barnes & Noble Inc said on Friday it would be bought by hedge fund Elliott Management Corp in an all-cash deal valued at about US$683-million, including debt. Shareholders of the once-dominant U.S. book retailer would be paid US$6.50 per share, representing a premium of about 42 per cent as of Wednesday’s close. The company’s shares surged about 34 per cent on Thursday after the Wall Street Journal reported that a deal between the activist hedge fund and bookseller could be reached soon.

The attorneys general of Arizona, Michigan and Pennsylvania have joined a group of states probing T-Mobile’s plan to buy rival Sprint for US$26-billion, which is believed to be nearing the end of a regulatory review. The state attorneys general made the filings this week, telling the Federal Communications Commission they planned to join a Justice Department probe and need access to documents. The deal won FCC support last month. FCC Chairman Ajit Pai said on Thursday he planned to circulate a proposed order asking his fellow commissioners to approve the deal in the coming weeks, but officials said it might not be finished until early July.

Toyota Motor Corp aims to have half of its global sales from electrified vehicles by 2025, five years ahead of schedule, and said it will tie up with Chinese battery makers to accommodate an accelerated shift to electric power. The change illustrates both the breakneck growth in the electric vehicle (EV) market - which is transforming the global auto industry - and an acknowledgment by Japan’s top automaker that it may not be able to meet demand for batteries on its own. There “may be a gap” between Toyota’s battery needs and what it could produce, as stringent emissions regulations expected in Europe, Japan and China fuel demand, Executive Vice President Shigeki Terashi told a briefing. Toyota said on Friday that it would partner with leading Chinese battery maker Contemporary Amperex Technology Co Ltd (CATL), as well as Chinese EV maker BYD Co Ltd for supplies.

A unit of Insys Therapeutics Inc is set to plead guilty on Friday to fraud charges as part of an $225 million deal with the U.S. Justice Department resolving claims that the drugmaker bribed doctors to prescribe an addictive opioid medication. The expected plea in federal court in Boston by the Chandler, Arizona-based Insys’ operating subsidiary is coming in one of the few criminal prosecutions to date of a corporation accused of helping fuel the nation’s deadly opioid epidemic.

Economic news

(8:30 a.m. ET) Canadian employment for May.

(8:30 a.m. ET) U.S. employment for May.

(10 a.m. ET) U.S. wholesale trade for April.

With files from Reuters and the Canadian Press.

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