Equities
Canada’s main stock index opened lower today on the back of a jobs report showing that unemployment has inched up and that the rate cut expected south of the border is unlikely to come as soon as expected. Wall Street opened lower on the same news despite a much more positive jobs report.
At 10:09 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 85.37 points, or 0.51 per cent, at 16,503.48. Materials stocks, which include precious and base metals miners, slumped 2.7 per cent, the most among the major 11 sectors. Gold prices fell nearly 2 per cent, hitting stocks such as Kirkland Lake Gold and Iamgold Corp.
The Dow Jones Industrial Average fell 98.25 points, or 0.36 per cent, at the open to 26,867.75. The S&P 500 opened lower by 11.57 points, or 0.39 per cent, at 2,984.25. The Nasdaq Composite dropped 46.95 points, or 0.57 per cent, to 8,123.28 at the opening bell.
Statistics Canada reported today that the economy lost 2,200 jobs in June while unemployment rose to 5.5 per cent. In the U.S., nonfarm payrolls outpaced analysts’ expectations with an increase to 224,000 in June, while unemployment rose from 3.6 per cent to 3.7 per cent and average hourly earnings gained 0.2 per cent.
The positive jobs news out of the U.S. has investors paring their bets that a rate cut is coming from the U.S. Federal Reserve. The market had previously priced in a rate cut for this month, contributing to the recent rally to record highs for stocks.
Meanwhile, simmering, continuing trade stresses with China provide tension in the market against dovish expectations of interest rate cuts from the U.S. Federal Reserve and other central banks. The pain from the tit-for-tat U.S.-China tariff war on the semi-conductor industry once again came to the fore after Samsung Electronics forecast a plunge in its second-quarter operating profit. In Europe, the long-drawn trade spat showed its impact on Swedish industrial technology group Hexagon, which announced 700 job cuts and warned of a drop in quarterly organic sales, citing China as the cause.
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In Asia, Tokyo’s NIKKEI was up 0.2 per cent, the Shanghai Composite Index was up near 0.2 per cent and Hong Kong’s Hang Seng Index near flat.
European markets were down today, with London’s FTSE dipping 0.27 per cent, Frankfurt’s DAX down 0.33 per cent, and Paris’ CAC down 0.42 per cent. Basic resource and industrial goods and services sectors fell the hardest as the European markets grappled with poor economic data out of Germany showing that factory orders are down 2.2 per cent this month, far lower than analysts’ expectations.
Commodities
Crude prices fell today on weak economic indicators from the U.S. and Germany, despite tensions around Iran threatening global supply and a commitment this week from producers to extend a supply cut deal until next year. The day range on Brent is US$62.91 to US$63.71 a barrel, with West Texas Intermediate holding a day range of US$56.29 to US$57.57.
An Iranian Revolutionary Guards commander threatened to seize a British ship in retaliation for the capture of an Iranian supertanker in Gibraltar by Royal Marines. The U.K. says the tanker was carrying 2 million barrels of crude to Syria, in violation of European Union sanctions against the civil war-wracked country. This comes at a tense time for both EU-Iran and U.S.-Iran relations, which heated up dramatically following a spate of mysterious attacks on oil tankers near the linchpin Strait of Hormuz and escalated after Iran downed a U.S. drone that it says flew into its airspace.
Global oil supply is expected to contract after the Organization of the Petroleum Exporting Countries and other producers such as Russia, a group known as OPEC+, agreed earlier this week to extend oil production cuts until March, 2020. The impact on oil prices in the wake of the the OPEC+ decision has been less than expected.
“Oil markets are set to close the week with the biggest weekly drop since May, as OPEC+ decision to curb production for additional nine months was interpreted as insufficient to match the waning global demand,” wrote Ipek Ozkardeskaya. “This was the worst market reaction to an OPEC production-cut decision over the past four years.”
Gold prices dipped lower as the U.S. dollar gained on the jobs data and investors pared their bets on a rate cut from the Fed.
Spot gold was down near 2 per cent to US$1,389.87 per ounce, while U.S. gold futures were down over 2 per cent to US$1,391.20.
Currencies and bonds
The dollar is down against the greenback following the reported shortfall in Canadian jobs, hovering around the low to mid 76-U.S.-cent mark. The day range on the loonie is 76.18 U.S. cents to U.S. 76.65 U.S. cents.
“A trend reversal in oil prices and soft employment report could curb gains in Loonie,” according to Ms. Ozkardeskaya. “But the divergence between the Federal Reserve and the BoC’s monetary policy expectations could give a further support to the Canadian dollar against the greenback. The next natural target for USD/CAD stands at 1.30.”
The U.S. dollar index, against a basket of six major currencies, stood little changed at 96.823, having spent the previous day in a tight range as U.S. financial markets were closed for the Independence Day holiday.
The euro edged lower and is on track for its biggest weekly drop in three weeks as a slide in core government bond yields ramped up pressure for fresh stimulus policies from global central banks. Germany’s 10-year Bund yield breached the European Central Bank’s deposit rate of -0.40 per cent, a level analysts say acts as a psychological barrier even though shorter-dated German bond yields already trade well below it.
The pound ended its tough week with sterling sitting at US$1.2545, down near 0.3 per cent against the greenback since yesterday. Amid concerns about the U.K.'s future relationship with the European Union and the looming threat of a hard Brexit, investors are pricing in their options. “With Britain running out of patience, a possibility of a no-deal Brexit becomes increasingly plausible. This is at least what the pound markets have been pricing in,” wrote Ms. Ozkardeskaya. “Both Boris Johnson and Jeremy Hunt are determined to lead the country out of the European Union, though front-runner Boris Johnson is ready to make appeal to more drastic measures, such as suspending parliament, to get it done with the EU membership.”
At last check, the yield on the benchmark 10-year U.S. Treasury was at 1.965 per cent.
Company news
Acacia Mining reported a 13-per-cent rise in gold reserves at the end of May for its Gokona Mine in North Mara, Tanzania, adding weight to its view that majority shareholder Barrick Gold’s buyout proposal undervalued the miner. Acacia Mining last month strongly disagreed with the world’s No. 2 gold miner’s valuation of the company, saying the proposal undervalued its mine plans and appeared to have ignored the value of its exploration and development assets.
Wells Fargo & Co’s Irish subsidiary was fined $6.6-million for a prolonged series of regulatory reporting breaches, the second largest fine ever handed down by Ireland’s Central Bank. The Central Bank said Wells Fargo Bank International Unlimited Company admitted to five breaches from 2014 to 2019, including a failure to accurately report its capital position that revealed “serious and systemic weaknesses” in its reporting capability.
Jaguar Land Rover is making a multimillion-dollar investment to build electric vehicles in Britain, in a major boost for the UK government and a sector hit by the slump in diesel sales and Brexit uncertainty. Britain’s biggest car company, which built 30 per cent of the UK’s 1.5 million cars last year, will make a range of electrified vehicles at its Castle Bromwich plant in central England, beginning with its luxury saloon, the XJ.
The U.K. competition watchdog is investigating Amazon’s purchase of a significant stake in food delivery service Deliveroo. The Competition and Markets Authority decision Friday will put any merger plans on hold. The authority says it has “reasonable grounds for suspecting” that the deal could “result in Amazon and Deliveroo ceasing to be distinct.”
Google has suspended an email alerting system in New Zealand following criticism by the government for publishing suppressed details of a murder case, the company said on Friday. The suspension of the service comes as the Alphabet-owned giant and its peers, such as Facebook Inc and Twitter Inc, as well as governments around the world, wrestle with the question of responsibility for the content published on the platforms.
BMW CEO Harald Krueger is stepping down amid weakening profits at the luxury automaker and pressure to meet challenges from new technologies. The Germany company said that Mr. Krueger, 53, would not seek an extension of his contract, which expires at the end of April 2020. The board of directors will meet to discuss the issue of a successor on July 18 and Mr. Krueger will remain in his job until a decision is made. BMW’s Oliver Zipse, currently board member for production, is the frontrunner to become the next chief executive, sources told Reuters. The news comes after BMW lost money on its automotive business in the first quarter of the year after the company was hit by a 1.4 billion euro ($1.6 billion) charge for an anti-trust case and by higher upfront costs for new technology. Only the financial services and motorcycle divisions kept the group as a whole in profit.
Economic news
Canada’s economy posted a loss of 2,200 jobs in June, a month that saw the jobless rate stay near its four-decade low and wages rise to their highest level in over a year. Statistics Canada says the unemployment rate edged up to 5.5 per cent, compared to 5.4 per cent in May — which was its lowest mark since the government started collecting comparable data in 1976. Economists on average had expected an addition of 10,000 jobs in June and the unemployment rate to rise to 5.5 per cent, according to Thomson Reuters Eikon.
Even with the small decline, the numbers show the economy added 248,000 new positions — almost all of which were full time — over the first half of 2019 to give Canada its strongest six-month stretch of job growth to start a year since 2002. Year-over-year average hourly wage growth for all employees was 3.8 per cent in June, giving the indicator its strongest month since May 2018 and second-best reading in a decade.
U.S. job growth rebounded strongly in June, but moderate wage gains and mounting evidence that the economy was slowing sharply could still encourage the Federal Reserve to cut interest rates this month.
The U.S. Labor Department’s closely watched employment report suggested May’s sharp slowdown in hiring was probably a fluke. Lack of concrete progress in resolving an acrimonious trade war between the United States and China, however, means the bar could be very high for the Federal Reserve not to lower borrowing costs at its July 30-31 policy meeting. Nonfarm payrolls increased by 224,000 jobs last month, the most in five months, the government said. The economy created 11,000 fewer jobs in April and May than previously reported. Economists polled by Reuters had forecast payrolls rising 160,000 jobs in June.
The U.S. unemployment rate rose one-tenth of a percentage point to 3.7 per cent as people entered the labour market. Some of the recent drop in the jobless rate has been because of people leaving the labour market. A broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, rose to 7.2 per cent in June from 7.1 per cent in May.
With files from Reuters and the Associated Press.
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Jack Denton