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Canada’s main stock index followed world markets higher early Friday as investors showed renewed enthusiasm for the prospect of a U.S. interest rate cut later this month. On Wall Street, markets were up across the board on dovish Federal Reserve comments and a record showing by Microsoft Corp. stock on the back of strong earnings.

At 9:48 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 77.74 points, or 0.47 per cent, at 16,571.97. Materials stocks gained 1.4 per cent, the most among all major sectors, as mining companies benefited after copper prices hit a two-month high. Higher oil prices also helped bolster energy shares.

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The Dow Jones Industrial Average rose 23.41 points, or 0.09 per cent, at the open to 27,246.38. The S&P 500 opened higher by 9.15 points, or 0.31 per cent, at 3,004.26. The Nasdaq Composite gained 34.10 points, or 0.42 per cent, to 8,241.34 at the opening bell.

Speaking on Thursday, New York Fed President John Williams said the best strategy is to “take swift action” and noted that "it’s better take preventative measures than to wait for disaster to unfold. The Fed is slated to make its next rate decision at the end of the month. While the markets have priced in a quarter point rate cut at that meeting, the latest comments again raise the prospect of a deeper half point reduction, although analysts remain skeptical that the central bank will go that far.

“Despite this clarification investors appear once again to be hearing what they want to hear with respect to future Fed policy actions,” Michael Hewson, chief market analyst with CMC Markets U.K., said. “While it is looking increasingly certain that the Fed will probably cut rates this month, it is stretching credibility to suggest that they will cut by 50 basis points, something markets are assigning an almost 50 per cent probability of happening.”

However, he said the data doesn’t support such a drastic action and “while one could also argue the case that a 25 basis point cut isn’t needed either, it would now be major surprise were the Fed not to act, by at least shaving 25 points of the Fed funds rate on the 31st July.”

Friday’s small-cap stocks to watch

On the corporate side, Microsoft stock hit record levels just after the open, adding more than 2 per cent on strong results. The software giant’s revenue and profit both topped market forecasts. Microsoft’s net income rose to US$13.19-billion or US$1.71 per share in the fourth quarter, from US$8.87-billion or US$1.14 per share a year earlier. Excluding items, the company earned US$1.37 per share, topping estimates of US$1.21 per share. Total revenue rose 12 per cent to US$33.72-billion, above average analysts’ estimates of US$32.77-billion.

U.S. companies reporting Friday include American Express and BlackRock.

Market movers: Stocks seeing action Friday - and why

On Bay Street, The Globe and Mail reports this morning that the board of CannTrust Holdings Inc. has hired Bay Street law firm McCarthy Tétrault LLP and appointed U.S. sporting goods executive Robert Marcovitch to lead a special committee that is investigating how the company illegally grew 12,700 kilograms of cannabis in unlicensed facilities, and who knew about it. Federal inspectors from Health Canada are auditing Toronto-based CannTrust after discovering the company grew cannabis in five unlicensed rooms over a five-month period in its greenhouse in Pelham, Ont. Sanctions could range from penalties for management to the cancellation of the company’s cannabis production licences, which would effectively shut down the business. CannTrust’s stock price has dropped about 40 per cent since it disclosed the regulatory issues on July 8. CannTrust shares were lower just after the start of trading in Toronto.

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Overseas, the pan-European STOXX 600 was up 0.17 per cent in afternoon trading on the latest Fed news. Britain’s FTSE 100 gained 0.13 per cent. France’s CAC 40 added 0.17 per cent and Germany’s DAX gained 0.11 per cent.

In Asia, Japan’s Nikkei surged 2 per cent. The Shanghai Composite Index rose 0.79 per cent. Hong Kong’s Hang Seng gained 1.07 per cent.

Commodities

Crude prices firmed as tensions remained high in the Middle East following news a U.S. Navy ship destroyed an Iranian drone in the Strait of Hormuz.

The day range on Brent so far is US$62.50 to US$63.32. The range on West Texas Intermediate is US$55.62 to US$56.36. Despite Friday’s gains, both benchmarks looked set for a decline of roughly 6 per cent on the week.

The United States said on Thursday that a U.S. Navy ship had “destroyed” an Iranian drone in the Strait of Hormuz after the aircraft threatened the vessel, but Iran said it had no information about losing a drone.

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Heightened expectations of a Fed rate cut at the end of the month were also supporting crude prices.

“Oil saw an enormous amount of volatility in the past 24 hours,” David Madden, market analyst with CMC Markets U.K., said. “It sold-off severely yesterday after the Iranian regime requested that sanctions are lifted in exchange for the enhanced inspections of its nuclear program. More recently, the U.S. have destroyed an Iranian drone in the strait of Hormuz, and the energy market has jumped on the rising tensions.”

In other commodities, gold prices were down amid profit taking after bullion breached US$1,450 an ounce for the first time in six years on the latest dovish Fed comments.

Spot gold hit US$1,452.60 an ounce in early trade, its highest since May 2013, and was down 0.5 per cent at $1,439.41, according to Reuters. Gold now looks set to record its second weekly gain in a row. U.S. gold futures were up about 1 per cent at US$1,440.50.

Currencies

The Canadian dollar fell to its lowest level in nine days Friday after Statistics Canada reported that retail sales fell for the first time in four months in May. The loonie was trading near the lower end of the day range of 76.34 US cents to 76.83 US cents after the release of the report.

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Statscan said sales slid 0.1 per cent to $51.5-billion. Economists had been expecting an increase of about 0.3 per cent. Excluding auto and parts sales, sales were down 1 per cent. Overall, sales were down in four of 11 retail sectors.

“The miss versus consensus should shave down tracking forecasts for second quarter GDP and weigh on the Canadian dollar today, although GDP is still running around 2.5 per cent for the quarter, rebounding from the prior period of virtual stagnation,” CIBC economist Royce Mendes said.

In morning trading, the currency hit its weakest level since July 10.

The loonie’s declines early Friday also came as its U.S. counterpart steadied on world markets following the Fed comments suggesting a rate cut late this month is a lock. The greenback staged a slight recovery after losing ground following Thursday’s remarks.

The U.S. dollar index , which hit a two-week low of 96.648, bounced to 96.855.

Comments from the New York Fed president have the markets fully expecting at least a quarter percentage point rate cut, although some have suggest a half point cut isn’t off the table.

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“Fed rate cut expectations have only resulted in modest U.S. dollar weakness so far which has been more evident recently against higher yielding currencies given the renewed search for yield,” MUFG analysts wrote.

In bonds, U.S. Treasury yields moved higher on expectations of a rate cut. The yield on the 10-year note was up at 2.047 per cent. The yield on the 30-year note was also higher at 2.575 per cent.

More company news

Barrick Gold Corp. has struck a deal to buy out fellow shareholders in Acacia Mining after raising its offer to end a two-month standoff between the world’s second biggest gold miner and its African unit. Acacia shares jumped about 20 per cent in early Friday trading towards the offer price. The deal was announced hours before a regulatory deadline for Barrick to make a firm bid or walk away. Barrick spun off Acacia in 2010, but still owns a 64-per-cent stake and said earlier this year it wanted to take back full control as it sought to resolve a protracted dispute between Acacia and Tanzania over valuable mining assets.

West Fraser Timber Co Ltd. reported a loss in its second quarter as it saw a substantial reversal compared with a year ago as lower lumber prices and export duties cut into its results. The Vancouver-based company says it lost $58-million or 85 cents per share in the quarter compared with earnings of $346-million or $4.52 per share in the same quarter last year. Sales totalled $1.32-billion, down from $1.83-billion a year ago. On an adjusted basis, it lost $17-million, or 25 cents per share for the quarter ending June 30, compared with earnings $397-million or $5.19 a share last year. The results were well below analyst expectations of adjusted earnings of nine cents per share according to Thomson Reuters Eikon.

American Express Co reported an 8.5-per-cent rise in second-quarter profit on Friday, boosted by higher customer spending. Net income rose to US$1.76-billion, or US$2.07 per share, in the quarter ended June 30, from US$1.62-billion, or US$1.84 per share, a year earlier, the company said. Total revenue, excluding interest expense, rose 8.4 per cent to US$10.84-billion.

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Publicis shares slumped on Friday after the world’s third-biggest advertising group cut its 2019 revenue growth guidance. Publicis was down 7.5 per cent at 43.88 euros in early session trading in Paris, with the stock touching its lowest level since December 2012, and its woes also affected British rival WPP whose shares also fell 1.5 per cent. Late on Thursday Publicis, whose revenue is being squeezed by competition from Facebook and Google as well as tightening advertising budgets by major clients, said it now expected a “broadly stable net revenue” in 2019, excluding the impact of acquisitions and foreign exchange.

BlackRock Inc., the world’s largest asset manager, missed analysts’ estimates for quarterly profit on Friday, as investment advisory and securities lending revenue fell and costs rose. Its institutional funds added US$87.36-billion in the second quarter, up from US$29.12-billion in the first quarter. Investors poured more money into BlackRock’s actively managed funds aimed at beating the market over the low-fee passive-investment products. Total revenue fell 2.2 per cent to US$3.52-billion from a year earlier. The New York-based company’s net income attributable to BlackRock fell to US$1-billion, or US$6.41 per share, in the quarter ended June 30 from US$1.07-billion, or US$6.62 per share, a year earlier. Analysts had expected a profit of US$6.50 per share, according to IBES data from Refinitiv.

Economic news

Statistics Canada says retail sales fell for the first time in four months in May, slipping 0.1 per cent to $51.5-billion.

(10 a.m. ET) U.S. releases its July consumer sentiment report. Consensus is for a reading of 98.5.

With Reuters and The Canadian Press

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