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Equities

Canada’s main stock index hit a record high early Friday as gold prices advanced and world markets gained on optimism over coming trade talks between the United States and China. South of the border, Wall Street also started positive with both the Dow and S&P within striking distance of record levels.

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At 9:52 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 84.88 points, or 0.51 per cent, at 16,728.16. Seven of the index’s 11 main sectors were higher with materials, which includes gold miners, climbing 1.4 per cent. Energy shares gained 0.5 per cent.

The Dow Jones Industrial Average rose 34.22 points, or 0.13 per cent, at the open to 27,216.67.

The S&P 500 opened higher by 2.64 points, or 0.09 per cent, at 3,012.21. The Nasdaq Composite dropped 3.90 points, or 0.05 per cent, to 8,190.57 at the opening bell.

On the trade front, China’s official news agency reported Friday that China’s State Council will exclude some agricultural products, including soybeans and pork, from additional tariffs on U.S. goods.

That move is the latest in a series of conciliatory measures seen this week between the two countries as they prepare for mid-level talks in Washington set to take place as early as next week. Higher-level talks are expected to follow in October with delegates from China meeting with U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer.

Friday’s analyst upgrades and downgrades

If Friday’s early gains hold, the Dow could top its intraday record of 27,398.68, while the S&P 500 isn’t far off its previous record of 3,027.98 points. On Thursday, the S&P/TSX Composite Index hit a record high during the trading day but ended just below its best close on April 23. The benchmark index climbed to 16,696.40 midday before finishing the session at 16,643.28, about 26 points short of the record.

“Equities want to rip higher and even if we see a band-aid of a solution with the US-China trade war, the prospects of fresh stimulus from all the major central banks will keep the bulls happy,” OANDA senior market analyst Edward Moya said.

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In corporate news, shares of Broadcom Inc. were down about 2 per cent in early trading on Wall Street after the company said demand for microchips had hit bottom and would remain at current levels. The company, which reported earnings after Thursday’s close, also said there was no clear indication when a recover would take place. Revenue from the company’s semiconductor solutions business fell about 5 per cent to US$4.35-billion in the most recent quarter from a year ago. Total net revenue rose to US$5.52-billion from US$5.06-billion, but fell short of analysts’ estimates of $5.54 billion, according to IBES data from Refinitiv.

On Bay Street, the Globe’s Tim Kiladze reports that the fight to control Aimia Inc.’s future is escalating after a second set of shareholders questioned the Canadian loyalty program provider’s leadership and launched a campaign to shake up its board of directors. The shareholders, who collectively own at least 5 per cent of the company and who include LFF Partners and LARC Capital Holdings, have requested a special meeting to nominate four directors to Aimia’s board. The shareholders also want to boot the four longest-serving directors on Aimia’s board – a group that includes chief executive Jeremy Rabe. Aimia stock opened down slightly in Toronto.

Overseas, trade optimism gave Asian markets a boost with Japan’s Nikkei ending up 1.05 per cent. The broader Topix gained 0.93 per cent. Hong Kong’s Hang Seng finished up 0.98 per cent. Markets n China were closed for a public holiday.

In Europe, markets were mixed in the wake of the ECB’s aggressive stimulus move, which saw the central bank cut its key rate and launch a major bond-buying program in a bid to bolster the bloc’s flagging economy. The central bank promised to keep the purchase program in place for as long as necessary. The pan-European STOXX 600 was up 0.15 per cent in afternoon trading. Britain’s FTSE 100 slid 0.07 per cent. Germany’s DAX added 0.41 per cent and France’s CAC 40 gained 0.25 per cent.

Commodities

Crude prices steadied in early going with concerns about global demand offsetting the impact of improved U.S.-China relations.

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The day range on Brent so far is US$59.60 to S$60.60. The range on West Texas Intermediate is US$54.44 to US$55.38. Brent - which is up more than 10 per cent so far this year - now looks set for its first weekly drop in five weeks while WTI is likely to see its first weekly decline in three.

This week reports from both OPEC and the International Energy Agency suggested oil surpluses are likely next year despite efforts by OPEC and its allies to shore up the market through production caps.

“Energy stocks were left behind as well, after the EIA warned that the OPEC could face a ‘daunting surplus’ in 2020 as a result of growing supply from competitors,” Ipek Ozkardeskaya, senior market analyst with London Capital Group, said. “Saudi Arabia said the cartel could discuss deeper production cuts in December to fight back a further tumble in oil prices on prospects of increased surplus from non-OPEC producers and weakening global demand.”

An OPEC+ monitoring committee met this week and secured pledges from OPEC members Nigeria and Iraq to deliver their share of the cut, something they have failed to do so far, but made no progress on possibly deepening the supply cut, according to a Reuters report. While the markets are looking for OPEC to deepen current production cuts, such a decision doesn’t appear likely until closer to the end of the year. Saudi Arabia’s new energy minister said this week that that issue wouldn’t be addressed by the group until its December meeting.

In other commodities, gold prices edged higher but moved in a fairly tight range as investors sought riskier holdings. Spot gold rose 0.4 per cent to US$1,503.93 per ounce. Prices are down about 0.3 per cent so far this week in what could be their third straight weekly drop. U.S. gold futures rose 0.3 per cent to US$1,511.40 per ounce.

“The immediate focus of the gold market may now shift to the FOMC meeting next week and its impact on the U.S. dollar,” Stephen Innes, Asia-Pacific market strategist for AxiTrader, said.

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“If the confluence of diminishing risks continues, and central banks continue to walk back the markets dovish rate cut expectations, gold may ease further,” he added.

Currencies

The Canadian dollar tracked crude prices lower and was trading in a day range of 75.59 US cents to 75.72 US cents.

The loonies current levels aren’t far off the one-week low seen during the previous session.

“With no data releases scheduled today, oil prices will likely remain as the main catalyst for USD/CAD,” Daria Parkhomenko, FX strategy associate with RBC, said.

On broader currency markets, the euro gained as investors bet that the ECB’s bold move on Thursday marked the likely end of stimulus from the central bank.

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The euro was up 0.3 per cent at US$1.1096 after climbing earlier to $1.11095. That was its best level since late August.

“There is still scope for the euro to fall, particularly if US/Chinese trade talks reach yet another impasse, higher tariffs are introduced and the USD/CNY rises as we expect (to 7.5) or higher,” Kit Juckes, macro strategist with Société Générale, said. “But the inability of [ECB president Mario] Draghi to drive the euro lower with his latest ‘QEternity’ announcement is further evidence that euro weakness from here would have less to do with the ECB, than what happens elsewhere.”

The U.S. dollar was last down 0.1 per cent at 107.99 versus the yen after surging to a six-weeks high of 108.265 on continuing easing of tensions between the United States and China. A weaker greenback and receding concerns about a no-deal Brexit pushed Britain’s pound to a seven-week high of US$1.2435 on Friday.

In bonds, the yield on the U.S. 10-year note was higher at 1.808 per cent. The yield on the 30-year note was also up at 2.285 per cent.

More company news:

WeWork owner The We Company said it plans to list its stock on the Nasdaq and announced changes to its corporate governance, including curbs in the voting power of founder and CEO Adam Neumann, ahead of the roadshow for its stock market launch. WeWork also said no member of Neumann’s family will be on the company’s board and any future successor will be selected collectively by the board.

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As the grounding of the Boeing 737 Max airplane nears the eight-month mark, Air Canada says the busy summer travel season just past was a test of its abilities to replace much of the lost capacity, the Globe’s Eric Atkins reports. Air Canada’s 24 737 Max planes, which represent 10 per cent of its capacity, are part of the global fleet that was grounded in March by regulators after two crashes in five months killed 346 people.

London Stock Exchange has rejected Hong Kong Exchange’s takeover offer, opting to stick with its planned purchase of data and analytics group Refinitiv. The LSE said in a statement that it has fundamental concerns about key aspects of the proposal. “Accordingly, the board unanimously rejects the conditional proposal and, given its fundamental flaws, sees no merit in further engagement,” the LSE said in a statement.

Economic news

Statistics Canada said Canadians’ household debt-to-income ratio fell to 177.1 per cent on a seasonally-adjusted basis.

The U.S. Commerce Department says U.S. retail sales rose 0.4 per cent in August, lifted by spending on motor vehicles, building materials, healthcare and hobbies.

(10 a.m. ET) U.S. business inventories for July. Consensus is a rise of 0.3 per cent from June.

(10 a.m. ET) U.S. University of Michigan Consumer Sentiment Index for September (preliminary). Consensus is a reading of 90.4, up from 89.8 in August.

With Reuters and The Canadian Press

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