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Equities

North American stock markets opened lower Friday after China unveiled retaliatory tariffs against US$75-billion worth of American goods as the trade row between the two powers escalates.

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Investors are also awaiting remarks from Federal Reserve chair Jerome Powell, looking for clarity on the U.S. central bank’s next move on interest rates.

At 9:31 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 28.5 points, or 0.18 per cent, at 16,224.96 with energy shares on the decline as crude prices fell.

On Wall Street, the Dow Jones Industrial Average fell 118.03 points, or 0.45 per cent, at the open to 26,134.21. The S&P 500 opened lower by 11.88 points, or 0.41 per cent, at 2,911.07. The Nasdaq Composite dropped 47.74 points, or 0.60 per cent, to 7,943.65 at the opening bell.

On Friday, China unveiled retaliatory tariffs against US$75-billion worth of U.S. goods, escalating the already tense trade row between the two countries. China’s commerce ministry said in a statement it would impose additional tariffs of 5 per cent or 10 per cent on a total of 5,078 products originating from the United States that include agricultural products, crude oil, small aircraft and cars, according to Reuters. Tariffs on some products would take effect on Sept. 1 and others on Dec. 15.

Meanwhile, Mr. Powell’s address is scheduled for just after the North American open. At this point, markets have priced in a 93.5-per-cent chance of a cut next month, down from 100 per cent at the start of the week, although some policy makers recently suggested they don’t back continuing on an easing path. Kansas City Fed President Esther George and Philadelphia Fed President Patrick Harker both said earlier this week they reluctantly backed the July cut - the first since the financial crisis - but didn’t see the need to go further at this point.

“To say that the stakes are high for the meeting is an understatement,” Jasper Lawler, head of research with London Capital Group, said. “His (Powell’s) speech comes amid heavy interference from [U.S. President Donald] Trump. The President’s “Powell bashing” on Twitter is an almost daily occurrence now. He is looking for the Fed to drop interest rates by 1 per cent.”

Mr. Lawler noted that the Fed has insisted that the July move was a mid-cycle adjustment rather than the start of an easing cycle. That, he said, has been supported by strong economic data, although a report this week showing factory activity contracted for the first time in 10 years could be cause for concern for the Fed. Still, manufacturing only makes up about 12.5 per cent of the U.S. economy so factory activity alone isn’t enough to tip the U.S. into a recession, Mr. Lawler said.

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On Bay Street, Transat A.T. Inc. shareholders meet Friday morning to vote on Air Canada’s $720-million bid for the company. That meeting is set for 10 a.m. ET. Earlier this week, Transat repeated its recommendation that investors support the Air Canada bid after Pierre Karl Péladeau hinted he may make an offer. On Monday, Mr. Péladeau, who said he owns about a 1.6-per-cent stake in the company, said he plans to vote against the Air Canada bid because it is “contrary to the public interest.”

Shares of cargo services company Cargojet Inc. surged in Toronto on news that it had signed a deal with Amazon that could see the retail giant take a stake in the company. Under the agreement, Cargojet will issue warrants to Amazon for variable voting shares that will vest based on commercial milestones related to Amazon’s business with Cargojet. The first tranche will allow Amazon to buy up to 9.9 per cent of Cargojet’s variable voting shares at an exercise price of $91.78 per share. They will vest over a period of six and a half years, with vesting tied to the delivery by Amazon of up to $400-million in business.

On Wall Street, Foot Locker is the latest U.S. retailer slated to report results.

Overseas, the pan-European STOXX 600 went negative on the latest China-U.S. trade news. Britain’s FTSE 100 was up 0.18 per cent, although off early morning highs. Germany’s trade-sensitive DAX fell 0.28 per cent and France’s CAC 40 dropped 0.27 per cent.

In Asia, markets finished the week higher. China’s yuan recovered early losses but still looked set for its third weekly loss in four. Japan’s Nikkei ended up 0.4 per cent while the broader Topix gained 0.23 per cent. The Shanghai Composite Index advanced 0.49 per cent. Hong Kong’s Hang Seng rose 0.50 per cent.

Commodities

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Crude prices sank on news of new tariffs by China on U.S. goods. Prices had been relatively steady through the early morning but dropped as news broke. Both Brent crude and West Texas Intermediate were down by more than 2 per cent at last check.

Brent crude was trading in a day range of US$58.51 to US$60.29. West Texas Intermediate had a spread of US$53.91 to US$55.60. Both benchmarks had been heading to weekly gains before the morning pullback.

As with equities, traders are also awaiting Mr. Powell’s remarks for clues about the direction of interest rates.

“Oil appears to be waiting nervously for the Powell appearance, not sharing the optimism it seems that equity traders are showing,” OANDA analyst Craig Erlam said. “We’ve seen a rebound in recent weeks but it’s far from convincing. If Powell triggers the recession warnings again today, oil prices could tumble and head back towards the summer lows as traders lose hope that the Fed has their backs.”

Also weighing on crude prices were U.S. manufacturing figures released on Thursday which showed factory activity contracted for the first time in roughly a decade in August. The reading was seen as suggesting that the current trade row with China could pull down the U.S. economy. The yield curve between the U.S. two-year and 10-year bonds inverted briefly after those figures were released. An inversion of that yield curve is widely seen as an indicator of a coming recession.

In other commodities, gold prices were lower early Friday and looked set for their worst week in five months. Spot gold was down 0.2 per cent to US$1,495.80 per ounce. The metal has lost nearly 1.2 per cent so far this week, on track for its biggest weekly percentage decline since March 29. U.S. gold futures also slipped 0.2 pe cent to US$1,505.50 an ounce.

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“There is no clear direction on what the Fed is doing, so people are on the sidelines until they hear concrete answers,” Brian Lan, managing director at dealer GoldSilver Central in Singapore, told Reuters.

“Some people are taking out profits off the table,” he added.

Currencies

The Canadian dollar was trading near the low end of the day range of 75.04 US cents to 75.23 US cents as crude prices steadied and the U.S. dollar advanced ahead of Mr. Powell’s speech.

The lone economic report Friday was Statistics Canada’s reading on June retail sales. The agency said sales for the month were largely flat. Higher sales in most subsectors were offset by weakness in autos and gasoline sales. The dollar held near earlier levels following the release of the figures.

“There was no swoon in June for Canadian retailers, once you looked past a soft month for auto dealers,” Avery Shenfeld, chief economist with CIBC World Markets, said.

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“Retail sales matched our above consensus call for a flat reading in June, but that hid a big 0.9-per-cent gain for ex-auto sales, and overall volumes of sales (including autos) were up 0.4 per cent. That represents a solid contribution to June GDP.”

On broader currency markets, the U.S. dollar was broadly stronger with Mr. Powell’s Jackson Hole address and the weekend G7 summit as the main events. The U.S. dollar index which tracks the dollar against six major currencies was up by 0.2 per cent at 98.35.

The euro, meanwhile, was down 0.1 per cent at US$1.1067 after falling to a three-week low of US$1.1061 earlier.

China’s offshore yuan stabilized at 7.0920 after dropping to an 11-day low of 7.1072 overnight as the People’s Bank of China lowered its official yuan midpoint to an 11-year low, according to Reuters. The British pound gave back some Thursday’s gains madeon the back of German Chancellor Angela Merkel giving Britain 30 days to come up with a Brexit plan, dropping 0.4 per cent to US$1.2208 .

In bonds, U.S. Treasury yields fell on the latest trade headlines. The yield on the U.S. 10-year note was lower at 1.603 per cent. The yield on the 30-year note was little changed at 2.104 per cent.

More company news:

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Hasbro Inc. is purchasing Toronto-based Entertainment One Ltd. in a US$4-billion all-cash deal that brings together the maker of Transformers toys and the Monopoly game with the producer of children’s shows, Peppa Pig and Clifford the Big Red Dog.

Gap Inc’s quarterly same-store sales fell short of analysts’ estimates on Thursday, hit by weakness at its Gap and Old Navy brands. Sales at the company’s Gap, Old Navy and other stores open for at least a year fell 4% in the second quarter ended Aug. 3, compared with analysts’ estimates of a 3.09-per-cent drop, according to IBES data from Refinitiv. The San Francisco-based company said net income fell to US$168-million, or 44 US cents per share, from US$297-million, or 76 US cents per share, a year earlier. Gap shares were down in premarket trading. The results were released after the close on Thursday.

HP Inc said Chief Executive Officer Dion Weisler is stepping down after nearly four years in the role, and forecast fourth quarter profit below Wall Street estimates. The company said Mr. Weisler, 52, is leaving the role to attend to a family health matter. Enrique Lores, a 30-year veteran with the company and currently president of HP’s imaging, printing and solutions business, will take over the CEO position on Nov. 1. For the third quarter ended July 31, HP Inc reported revenue of US$14.60-billion, slightly below analyst estimates, hurt by weak sales in its printing business. The company reported adjusted earnings of 58 US cents per share, above 55 US cents estimated by analysts.

Economic news

Statistics Canada says June retail sales were essentially flat with stronger sales across most subsectors being offset by lower auto and gasoline sales.

(10 a.m. ET) U.S. new home sales for July. Consensus is an annualized rate decline of 0.4 per cent.

(10 a.m. ET) U.S. Fed chair Jerome Powell speaks at Jackson Hole on “Challenges for Monetary Policy”

With Reuters and The Canadian Press

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