North American markets opened sharply lower Wednesday as inverting U.S. bond yields and weak economic reports from Europe and China fuelled recession fears and sent investors from stocks to safer holdings like gold and the Japanese yen.
At 9:35 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 108.64 points, or 0.66 per cent, at 16,242.2. Ten of the index’s 11 major sectors were lower. Energy stocks were down 2.2 per cent, the most of any main sector, on the back of dropping crude prices.
The Dow Jones Industrial Average fell 244.83 points, or 0.93 per cent, at the open to 26,035.08, tracking losses on other major global markets as economic numbers from China and Germany also disappointed.
The S&P 500 opened lower by 32.17 points, or 1.10 per cent, at 2,894.15. The Nasdaq Composite dropped 139.03 points, or 1.73 per cent, to 7,877.33 at the opening bell.
Overseas, European markets tanked in morning trading after a report showed Germany’s economy shrank by 0.1 per cent in the second quarter. On Bay Street, futures were down as crude prices fell and global economic concerns weighed.
U.S. markets spiked Tuesday after the U.S. Trade Representative said it would hold off imposing duties on cellphones, laptops and other consumer items. U.S. President Donald Trump said the move was aimed at blunting the impact of tariffs on the U.S. holiday sales season. However, Germany’s weak second-quarter showing along with a disappointing reading on euro zone growth and weaker-than-forecast industrial output in China all combined to reintroduce some uncertainty into the markets on Wednesday.
“The big question is whether it [easing trade tensions] will last and it is here that optimism is likely to give way to realism, with the extent of this current rebound likely to have limits, particularly if the situation in Hong Kong deteriorates further and prompts a response from China,” Michael Hewson, chief market analyst with CMC Markets U.K., said.
“Investors need to remember that while some of the more consumer sensitive tariffs have been delayed until the 15th December, and some dropped completely, the ante is still higher than it was before President Trump announced the tariffs increases, at the beginning of the month.”
Meanwhile, market relief over the easing trade row was also tempered by flashing signals from the bond markets warning of an economic downturn. Early Wednesday, the yield on the 10-year note broke below that of the U.S. two-year note, marking a yield curve inversion widely seen as a prerecession indicator because investors are demanding higher interest rates on short-term debt. Dow futures were down by triple digits heading toward the North American open.
On the corporate side, investors will likely have an eye on pot stocks.
In early trading, U.S.-listed shares of Canadian cannabis company Tilray Inc. were down as much as 11 per cent after the company reported a wider-than-forecast quarterly loss after Tuesday’s close and cautioned that growth in the Canadian recreational marijuana market would likely be muted in the second half of this year. Tilray’s net loss widened to US$35.1-million in the quarter ended June 30, from US$12.8-million a year earlier, and the loss per share of 36 US cents was deeper than the 25-cent loss expected on average by analysts, according to IBES data from Refinitiv.
Shares of restaurant owner Freshii Inc. sank more than 16 per cent at the open in Toronto after the company reported a higher quarterly profit but said same-store sales fell 4 per cent. The restaurant chain earned US$433,000 or a penny per share for the 13-weeks ended June 30 compared with a profit of US$298,000 or a penny per share a year ago.
After the markets close, investors will get results from cannabis producer Canopy Growth. Other companies reporting Wednesday include Canada Goose, Metro Inc. and Aimia Inc.
On Wall Street, shares of retailer Macy’s Inc. fell 11 per cent in premarket trading after the company cut its full-year earnings outlook and posted a 48-per-cent drop in second quarter profit. Net income attributable to Macy’s shareholders fell to US$86-million, or 28 US cents per share, in the second quarter ended Aug. 3, from US$166-million, or 53 US cents per share, a year earlier. Macy’s now expects 2019 adjusted profit to be between US$2.85 per share to US$3.05 per share, from earlier guidance of US$3.05 to US$3.25.
Overseas, Asian markets ended higher following Wall Street’s hand off on news that U.S. tariffs on Chinese imports would be delayed, with most Apple Inc. suppliers advancing. The Shanghai Composite Index rose 0.42 per cent. Hong Kong’s Hang Seng edged up 0.08 per cent with tensions remaining high between police and antigovernment protesters. Protests had disrupted flights for two days this week out of Hong Kong’s airport although travel resumed on Wednesday. Japan’s Nikkei gained 0.98 per cent.
In Europe, markets sank in afternoon trading as recession concerns roiled stocks. The pan-European STOXX 600 was down 1.62 per cent. Britain’s FTSE 100 fell 1.39 per cent. Germany’s DAX tumbled 2.04 per cent. France’s CAC 40 was down 1.95 per cent.
The combined impact of weak European economic data and rising U.S. inventories pushed crude prices lower.
The day range on Brent so far is US$60.51 to US$61.08. The spread on West Texas Intermediate is US$56.74 to US$56.85. Both were down by more than 1 per cent in predawn trading. Brent rose 4.7 per cent during Tuesday’s session while WTI added 4 per cent. Brent’s gain represented the biggest percentage increase since December.
“Oil shot higher on the tariff announcement as a rare piece of good news for the economy brought some long sought after relief for prices and likely triggered some profit taking,” OANDA analyst Craig Erlam said. “Oil prices have been hammered by the economic slowdown and increasing risks to the outlook, which naturally has consequences for demand growth at a time when oversupply has already weighed heavily on prices.”
However, he also said, that “it’s too early to celebrate” because the move is “unlikely to prove to be the tension-thawing act some are hoping.”
Meanwhile, inventory figures from the American Petroleum Institute were holding prices back early Wednesday. Crude stocks last week rose by 3.7 million barrels to 443 million. Analysts had been looking for a decrease of about 2.8 million barrels. More official numbers a due later Wednesday morning when the U.S. Energy Information Administration reports its latest weekly inventory numbers.
As well, the impact of weaker European economic figures were compounded by a report out of China showing a drop in industrial output growth.
Gold price, meanwhile, jumped nearly 1 per cent as investors sought safe holdings. Spot gold was up 0.9 per cent at US$1,514.33 per ounce. U.S. gold futures were up 0.8 per cent at US$1,525.70.
“We got some poor Chinese data out, we’re seeing some slowing there, and the German data showing that the economy contracted in the second quarter so, all these slowdown concerns support gold,” ING analyst Warren Patterson said.
The Canadian dollar sank early Wednesday as recession concerns and weak global economic reports sent investors to seeking safer holdings. Falling crude prices also weighed on the dollar. The day range on the loonie was 75.14 US cents to 75.69 US cents. At last check, the dollar was sitting near the bottom of that range.
There were no major economic releases due Wednesday meaning moves would like happen alongside world currencies.
On broader currency markets, Japan’s yen, viewed as a safe haven currency, jumped as U.S. bond yields inverted, signalling concerns a recession is on the way. The yen, which was already trading stronger on the day, received a further boost after the inversion and headed towards a near 1-1/2 year high versus the U.S. dollar, according to Reuters.
Elsewhere, China’s offshore yuan gave up some of its earlier gains on Wednesday as weaker-than-expected economic data tempered the optimism generated by the U.S. decision to delay tariffs. The U.S. dollar index was little changed around 97.7 despite the yield curve inverting. The index is down about 1 per cent since the start of the month.
In bonds, the U.S. Treasury bond yield curve inverted on Wednesday for the first time since 2007, in a sign that investors are bracing for recession risks in the world’s biggest economy.
The gap between U.S. two-year and 10-year bond yields, a closely watched metric for recession signals, declined to minus 0.45 basis points, the narrowest since June 2007. Such a curve inversion occurred last in June 2007 as the U.S. sub-prime mortgage crisis gathered pace, according to Reuters. Thirty-year U.S. bond yields meanwhile tumbled to a record low of 2.608 per cent.
More company news
Aimia Inc. earned $43.5-million in its latest quarter, boosted by gains related to investments, as it worked to transform itself following the sale of its flagship Aeroplan program earlier this year. The loyalty rewards company says the profit amounted to 29 cents per share for the quarter ended June 30, compared with a profit of $11.1-million or four cents per share a year ago. Revenue from continuing operations fell to $31.0-million compared with $42.8-million in the same quarter last year. On an operating basis, Aimia reported a loss of $21.7-million from continuing operations for the quarter compared with an operating loss of $39.5-million a year earlier.
Canada Goose Holdings Inc’s first-quarter revenue beat analysts’ estimates on Wednesday, as the company sold more expensive jackets and parkas to department stores and opened several retail outlets. The Toronto-based luxury apparel company’s net loss widened to $29.4-million, or 27 cents per share, in the quarter ended June 30, from a loss of $18.7-million, or 17 cents per share, a year earlier. Revenue rose 59.1 per cent to $71.1-million, while analysts had expected $54.38-million, according to IBES data from Refinitiv.
WeWork owner The We Company on Wednesday filed with regulators for an initial public offering and published detailed financial statements for the first time. The preliminary filing with the U.S. Securities and Exchange Commission did not give any details of the size of the offering or the exchange where the shared office space manager would list its shares.
Metro Inc. reported a profit of $222.4-million in its latest quarter, up from $167.5-million a year ago, as sales also climbed higher. The retailer says the profit amounted to 86 cents per diluted share for the 16-week period ended July 6 compared with a profit of 69 cents per diluted share in the same quarter last year. Sales in what was the company’s third quarter totalled $5.23-billion, up from $4.64-billion, boosted by the addition of Jean Coutu Group.
Freshii Inc. reported its second-quarter profit was up from a year ago as revenue also climbed higher. The restaurant chain, which keeps its books in U.S. dollars, says it earned US$433,000 or a penny per share for the 13-weeks ended June 30 compared with a profit of $298,000 or a penny per share a year ago. Revenue totalled $5.8 million, up from $5.6 million, as gains in franchise revenue more than offset lower company-owned store revenue. Franchise revenue amounted to $5.1 million, up from $4.7 million a year ago, while company-owned store revenue fell to $666,000 from $876,000.
CAE Inc reported a 11.4-per-cent fall in quarterly profit on Wednesday, as the world’s largest civil aviation training company was hit by higher expenses. The company said net income attributable to shareholders fell to $61.5-million, or 23 cents per share, in the first quarter of fiscal year 2020 ended June 30, 2019, from $69.4-million, or 26 cents per share, a year earlier. Revenue rose to $825.6-million from $722-million.
The Labor Department said on Wednesday import prices increased 0.2 per cent last month as a rebound in the cost of petroleum products offset declines in prices for capital goods and motor vehicles. Data for June was revised down to show import prices dropping 1.1 per cent instead of falling 0.9 per cent as previously reported.
With Reuters and The Canadian Press
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.