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Equities

Markets on both sides of the border sank Thursday after a new report showed activity in the U.S. services sector fell to its lowest level in three years, fuelling concerns about the state of the U.S. economy.

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At 10:20 ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 105.23 points, or 0.65 per cent, at 16,205.74. Thursday’s weak opening marks the fifth consecutive down session for the index. Thursday’s weak start marks the fifth consecutive down session for the index.

The Dow Jones Industrial Average was down 232.00 points, or 0.89 per cent, at 25,846.62, the S&P 500 was down 21.15 points, or 0.73 per cent, at 2,866.46 just after 10 a.m. The Nasdaq Composite was down 62.66 points, or 0.80 per cent, at 7,722.59.

Recession fears have been stalking the market this week after readings on factory activity in the United States, Asia and the euro zone all disappointed investors. A below forecast reading on hiring by private U.S. firms also added to the downward pressure. A survey released Thursday, meanwhile, showed Britain’s dominant services sector took a surprise dive in September. A similar survey showed activity in the euro zone services sector also stalled last month.

Just after the opening bell, the Institute for Supply Management said its latest reading on growth in the U.S. services sector fell to its lowest level since August 2016. The September reading came in at 52.6, far below the 55.3 markets had been expecting. A reading above 50 indicates growth while a number below that level denotes contraction.

Trade concerns also persist after the United States said Wednesday it would enact a 10-per-cent tariff on European-made Airbus planes and 25-per-cent duties on French wine, Scotch and Irish Whiskies and cheese from across the continent. That move followed a World Trade Organization decision in a long-running trade war between the United States and Europe over aerospace subsidies.

“The [U.S. Institute for Supply Management factory activity] report caught investors off-guard, while the tariffs and ADP data delivered a mean right hook leaving them dazed and vulnerable,” OANDA senior market analyst Craig Erlam said. “With numerous services PMIs being released throughout the day and the jobs report tomorrow, the knockout punch may not be far away, leaving the Fed with little choice but to throw in the towel.”

On the corporate side, Tesla Inc. shares were down nearly 5 per cent in early trading after the electric car maker said deliveries in the third quarter rose less than 2 per cent, falling short of Wall Street forecasts. Total deliveries came in at a record 97,000 units for the quarter. However, markets had been looking for a number closer to 97,477 vehicles, according to IBES data from Refinitiv. Tesla has a target to deliver between 360,000 and 400,000 vehicles this year. Some analysts are now suggesting hitting that target is in doubt. The latest numbers were released after the close of trading on Wednesday.

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In earnings, shares of Constellation Brands were down more than 4 per cent just after the opening bell after the company took a US$839-million write down in the value of its investment in Canadian cannabis company Canopy Growth. (Last year, Constellation invested $5-billion in Canopy.) However, Constellation also raised its full-year forecast and posted adjusted earnings ahead of market expectations. Excluding one-time items, Constellation reported earnings per share of US$272 a share. Markets had expected earnings by that measure of US$2.60.

After the close, retailer Costco Wholesale releases its latest results.

Overseas, the pan-European STOXX 600 fell back below break even in afternoon trading, with basic resource stocks among the losers. Britain’s FTSE 100 was down 0.96 per cent. France’s CAC 40 gained 0.45 per cent. Germany’s DAX was closed.

In Asia, markets took their cue from Wednesday’s losses on Wall Street, with Tokyo’s Nikkei shedding 2 per cent. Hong Kong’s Hang Seng edged up 0.3 per cent and the Shanghai Composite was closed.

Commodities

Crude prices pulled back from early gains as economic concerns weigh on the outlook for demand.

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The day range on Brent so far is US$57.17 to US$57.92. The day range on West Texas Intermediate is US$54.25 to US$52.91. Brent lost about 2 per cent during Wednesday’s session. WTI fell 1.8 per cent. Both benchmarks had steadied in the early hours Thursday but began sliding as the North American session neared.

According to Reuters, Brent futures are now below levels seen before the Sept. 14 attacks on Saudi crude facilities which dramatically reduced the kingdom’s output.

“Oil prices continued their slide towards their 2019 lows on renewed global growth concerns, as plunging risk appetite dragged crude lower,” OANDA’s Mr. Erlam said. “We’ve tested these levels on multiple occasions this year in the US$55-57 range in Brent and US$50-52 in WTI but with the data softening in areas that held up before, they could be threatened this time around.”

Still, he said, such a drop could also trigger some profit taking in the near term.

At the moment, crude markets are focused on global economic weakness and the potential impact on demand.

Prices also took a hit after the U.S. Energy Information Administration reported Wednesday that crude inventories last week rose by 3.1 million barrels. Analysts had been expected an increase of 1.6 million barrels.

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Gold prices, meanwhile, held steady. Spot gold was steady at US$1,498.89 per ounce, while U.S. gold futures dipped 0.3 per cent to US$1,502.9 per ounce. Markets are now awaiting the Friday release of the September U.S. employment numbers.

“There was more positive momentum for gold after another round of weak data out of both Europe and the U.S.,” AxiTrader strategist Stephen Innes said.

“However, this is a move that was kicked off by risk markets flashing red lights after the worse-than-expected U.S. ISM manufacturing data, and while keeping in mind that the U.S. employment report data will likely provide a significant clue for gold and the U.S. dollar next direction, profit-taking on bounce above US$1500 so far appears to be the flavour of the day”

Currencies

The Canadian dollar was slightly weaker, hovering around the 75-US-cent mark as investors moved toward safe-haven investments.

The day range on the loonie, so far, is 74.97 US cents to $75.11 US cents.

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There were no major Canadian economic reports expected Thursday.

“The CAD will be pulled around by external developments and the broader tone of risk markets,” Scotiabank chief currency strategist Shaun Osborne said. “We think the CAD is undervalued and funds should struggle to extend gains significantly — but we have thought that for a while now.”

On world currency markets, the U.S. dollar was lower against both the yen and the euro. The greenback touched a week low of 106.95 yen. It slid to US$1.0964 per euro.

“Markets are beginning to look at the U.S. economy with a bit more concern,” Han Tan, a Kuala Lumpur-based market analyst at brokerage FXTM, told Reuters.

“The fear now is that the manufacturing slowdown in the global economy is feeding back into the U.S. as well,” he said.

“Bigger alarm bells would sound off if we started to see a bigger slowdown from U.S. consumers,” Tan added, noting investors’ attention would now turn to Friday’s U.S. jobs data for a fuller picture of the economy’s health.

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Elsewhere, Britain’s pound remained relatively steady at US$1.2304 after British Prime Minister Boris Johnson outlined his final Brexit plan.

In bonds, the yield on the U.S. 10-year note was slightly lower at 1.58 per cent. The yield on the 30-year note was also down at 2.066 per cent.

More business news:

The European Union’s highest court says that Facebook can be ordered by an individual member state to remove or block access to material which was previously declared unlawful and says that it can have a worldwide impact. The European Court of Justice ruling on Thursday is seen as a defeat for Facebook as it could increase their responsibility for what is appearing on the internet.

PepsiCo Inc beat quarterly revenue estimates, as ramped up advertising boosted demand for the company’s sodas and snacks. Net revenue rose 4.3 per cent to US$17.19-billion in the third quarter ended Sept. 7, beating analysts’ estimates of US$16.93-billion, according to IBES data from Refinitiv.

Imperial Brands Plc Chief Executive Officer Alison Cooper will step down once a replacement is found, a move that comes as the cigarette maker grapples with a regulatory backlash against e-cigarettes and declining tobacco sales. The departure of Ms. Cooper, who has led the maker of Davidoff cigarettes for nine years, comes days after it issued a full-year profit warning blaming the U.S. regulatory crackdown on vaping.

Shares of GoPro Inc fell after the company cut its revenue and profit forecasts for the rest of the year, hit by a delay in production of its latest Hero8 Black cameras, triggering a 19% drop in its shares. The company, which launched two new cameras including a ramped up version of its “HERO” line on Tuesday, said it would ship the cameras in the fourth quarter instead of the third quarter as planned earlier. The company forecast annual growth of 6 per cent to 9 per cent, below its previous estimated rise of 9 per cent to 12 per cent.

Economic new

Initial claims for U.S. state unemployment benefits increased 4,000 to a seasonally adjusted 219,000 for the week ended Sept. 28, the U.S. Labor Department said Figures for the prior week were revised to show 2,000 more applications received than previously reported.

(9:45 a.m. ET) U.S. Markit services and composite PMI for September.

(10 a.m. ET) U.S. factory orders for August. The Street expects a decline of 0.5 per cent from July.

(10 a.m. ET) U.S. non-manufacturing ISM for September. Consensus is a reading of 55.2, down from 56.4 in August.

With Reuters, The Canadian Press and The Associated Press

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