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Canada’s main stock index started Thursday on the back foot with energy shares struggling as crude prices pulled back and materials stocks falling on weaker gold prices. U.S. stocks opened on a down note as Netflix Inc. shares took a hit after the streaming giant’s latest subscriber numbers disappointed investors.

At 9:46 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 7.3 points, or 0.04%, at 16,476.91.

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Energy shares were down 0.4 per cent while the materials sector was off 0.5 per cent. Health-care stocks were down 0.88 per cent.

On Wall Street, the S&P 500 opened lower by 5.55 points, or 0.19 per cent, at 2,978.87. The Nasdaq Composite dropped 33.44 points, or 0.41 per cent, to 8,151.76 at the opening bell. The Dow Jones Industrial Average fell 27.87 points, or 0.10 per cent, at the open to 27,191.98.

Netflix shares were down more than 9 per cent in early trading after the streaming giant’s latest subscriber numbers failed to resonate with investors. After Thursday’s close, Netflix said it had lost 126,000 paid subscribers in the United States, marking the first time the service had shed domestic subscribers since launching its digital service more than a decade ago. During the quarter, Netflix added 2.7 million worldwide subscribers, short of the 5 million expected.

“Netflix delivered a huge subscriber growth miss both internationally and domestically,” OANDA senior market analyst Edward Moya said. "Netflix lost customers in the second quarter in what was their worst performance in eight years. Rising competition from Disney and Comcast will make the road ahead harder for the streaming giant. "

Thursday’s small-cap stocks to watch

U.S. earnings on Thursday include Morgan Stanley and Union Pacific before the start of trading. Microsoft Corp. reports after the close. For Microsoft, analysts are expecting earnings per share of US$1.21 on revenue of US$32.73-billion, which would represent record sales and profit. So far this year, Microsoft stock is up more than 30 per cent.

On Bay Street, West Fraser Timber Co. Ltd. releases its second-quarter results after the markets close.

In corporate news, Aurora Cannabis Inc. said it has been the sole winner of the Italian government’s public tender to supply medical cannabis in that country. The two-year supply contract is expected to be signed in December. The company will supply a minimum of 400 kilograms of medical cannabis. Shares were down 3 per cent shortly after the open in Toronto.

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Air Canada shares were up more than 3 per cent after CIBC raised its 12 to 18-month price target on the airline to $50 from $48.

Thursday’s analyst upgrades and downgrades

Overseas, major European markets were in the red. Britain’s FTSE 100 was down 0.46 per cent by afternoon. France’s CAC 40 fell 0.13 per cent. Germany’s DAX lost 0.69 per cent.

In Asia, trade uncertainty took a toll on markets with Japan’s Nikkei dropping 1.97 per cent. The Shanghai Composite Index fell 1.04 per cent. Hong Kong’s Hang Seng lost 0.46 per cent.

“With no movement on the China/US soft-pedal commitments made in Japan concerning the delay of new US tariff increases, pledges of Chinese purchases of U.S. agricultural products and a loosening of the US ban on Huawei, markets have returned to an elevated state of caution,” Stephen Innes, managing partner at Vanguard Markets, said in morning note.

Commodities

Crude prices wavered after a weak start following reports Iran had seized a foreign tanker in the Gulf. Brent and West Texas Intermediate both started the day on the back foot but pushed above break even as trading continued.

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The day range on Brent is US$63.42 to US$64.25. The range on WTI is US$56.42 to US$57.30. Both benchmarks have struggled through the week, losing 3 per cent on Tuesday and more than 1 per cent each on Wednesday. Prices were just below break even at last check on Thursday after a choppy early session which saw crude start lower, move higher on the Iran news and then flatten out as the session progressed.

Crude prices drew support early Thursday from continued tensions in the Middle East. Iranian state TV quoted Iran’s revolutionary guard as saying Tehran had seized a foreign tanker smuggling fuel in the Gulf. “A foreign vessel smuggling one million litres of fuel in the Lark Island of the Persian Gulf has been seized,” the station said, adding that the ship was seized on Sunday.

Prices had been under pressure earlier after the U.S. Energy Information Administration reported that gasoline stocks rose 3.6 million barrels. Markets had been expecting a decline. Those numbers took the shine off a bigger draw down in crude inventories.

“Oil sold-off aggressively yesterday when gasoline stockpiles surged,” CMC Markets analyst David Madden said. "Oil inventories dropped by 3.11 million barrels, while traders are expecting a draw of 2.69 million barrels. Gasoline inventories jumped by 3.56 million barrels, while the consensus estimate was for a decline of 925,000 barrels."

Mr. Madden also noted that a renewal of trade fears has also added to the drop in energy this week.

In gold prices, bullion pulled back Thursday as investors took profits after the metal hit a two-week high earlier in the session following the release of the Federal Reserve’s beige book, which said the U.S. economy continued to grow at a “modest” rate.

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Spot gold slipped by 0.4 per cent to US$1,421.06 an ounce. Prices had jumped about 1.5 per cent in the previous session and extended gains early on Thursday to hit US$1,426.80, gold’s highest since July 3.

“Gold has been broadly range bound recently, but while it holds above the US$1,382 mark, the wider bullish trend is likely to remain intact,” Mr. Madden said.

Currencies

The Canadian dollar was slightly lower as its U.S. counterpart fell fora second day as a disappointing read on the U.S. housing market and comments from the Fed on the broader economy renewed the debate over the size of a U.S. rate cut likely later this month.

During a choppy session, the loonie was trading in a fairly narrow range of 76.56 US cents to 76.67 US cents. The loonie drew some support on Wednesday from a fresh inflation figures, which showed headline inflation at an annual rate of 2 per cent in June. Separately, Statistics Canada also said factory shipments in May rose 1.6 per cent, erasing the previous month’s 0.4-per-cent deceline.

“All in all, (Wednesday’s) data comforts our view that there is no need for imminent rate cuts in Canada given a GDP rebound in Q2 as well as inflation and labour market momentum,” National Bank economists Matthieu Arseneau and Kyle Dahms said in a note. National Bank now sees second-quarter economic growth coming in at an annual rate of 2.9 per cent, ahead of the 2.3-per-cent growth most recently forecast by the Bank of Canada in its latest monetary policy report.

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In other currencies, the U.S. dollar slipped for a second day against its rivals on the back of softer U.S. Treasury yields after weak housing data as investors geared up for a policy meeting later this month where Fed officials expected to cut interest rates. Against a basket of its rivals, the dollar edged 0.1-per-cent lower to 97.09.

U.S. Treasury yields, meanwhile, rose after a Philadelphia manufacturing index rebounded strongly in July, adding to recent data that shows an improving U.S. economy. The Philadelphia Fed said that its index of business conditions rose to the highest level in a year.

“The Philly Fed I think was the impetus for the move higher in yields,” Gennadiy Goldberg, an interest rate strategist at TD Securities in New York, told Reuters. “There were some pretty solid underlying fundamentals as well, so it does suggest that maybe we are seeing a little bit of basing in some of the manufacturing indices.”

The yield on the 10-year note was slightly higher 2.071 per cent at last check. The yield on the 30-year note was also up at 2.591 per cent.

Other company news

Morgan Stanley reported a 10-per-cent fall in quarterly profit as low market volatility crimped trading and advisory revenue. The bank said earnings attributable to Morgan Stanley fell to US$2.20-billion, or US$1.23 per share, in the second quarter ended June 30, from US$2.44-billion, or US$1.30 per share, a year ago.

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International Business Machines Corp posted a 4.2-per-cent fall in quarterly revenue, in line with analysts’ estimates, as weakness in its legacy businesses of selling hardware and software offset growth in its high-margin cloud computing unit. The company’s net income rose to US$2.50-billion, or US$2.81 per share, in the second quarter ended June 30, from US$2.40-billion, or US$2.61 per share, a year earlier. Total revenue slipped 4.2 per cent to US$19.16-billion, in line with analysts’ estimates of US$19.16-billion. Shares were down slightly in premarket trading. IBM’s results were released after Wednesday’s close.

Qualcomm, the world’s no.1 chip maker, was fined US$272-million by the European Commission on Thursday for blocking a rival from the market about a decade ago, its second EU antitrust penalty. The European Commission, the EU’s competition regulator, accused Qualcomm of predatory pricing between 2009 and 2011 aimed at forcing out British phone software maker Icera, now part of Nvidia Corp. “Qualcomm’s strategic behavior prevented competition and innovation in the market,” Competition Commissioner Margrethe Vestager said in a statement.

Honeywell International Inc reported a 21.6-per-cent rise in quarterly profit, as higher demand for air travel drove sales of its aircraft parts and spares. Net income rose to US$1.54-billion, or US$2.10 per share, in the second quarter ended June 30, from US$1.27-billion, or US$1.68 per share, a year earlier. Revenue fell about 15 per cent to US$9.24-billion due to certain divestitures.

General Motors Co was set on Thursday to unveil its newly designed mid-engine 2020 Corvette in a splashy tribute to its emblematic sports car, even as the No. 1 U.S. automaker faces mounting pressures in a sluggish and uncertain global sales environment. Revved up to take on high-performance European rivals with the all-new model dubbed the C8, top GM executives plan a glitzy evening presentation in Orange County outside Los Angeles of the long-awaited eighth generation of the 66-year-old “Vette” to enthusiasts, dealers and media.

Economic news

ADP Canada says total nonfarm payroll employment in this country rose by 30,400 jobs in June. May’s decline was revised down to 36,700 from 16,000.

U.S. initial claims for state unemployment benefits rose 8,000 to a seasonally adjusted 216,000 for the week ended July 13, the Labor Department said on Thursday, putting them in the middle of their 193,000-230,000 range for this year.

(10 a.m. ET) U.S. releases its June leading economic indictators. Consensus is for an increase of 0.1 per cent.

With Reuters and The Canadian Press

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