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Equities

Major Canadian and U.S. indexes started firmly in positive territory Wednesday in the wake of reports suggesting China remains open to a partial trade deal despite a move by the U.S. to blacklist tech companies and restrict visas for some officials.

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High-level trade talks between the U.S. and China are set to resume on Thursday in Washington.

At 9:41 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 57.4 points, or 0.35 per cent, at 16,351.35. Eight of 11 subsectors were higher. Energy stocks gained 0.4 per cent as crude prices rose. Financials were up 0.3 per cent.

On Wall Street, the Dow Jones Industrial Average rose 144.19 points, or 0.55 per cent, at the open to 26,308.23.

The S&P 500 opened higher by 18.04 points, or 0.62 per cent, at 2,911.10 with gains in tech shares powering the advance. The Nasdaq Composite gained 72.18 points, or 0.92 per cent, to 7,895.96 at the opening bell.

Early Wednesday, a Bloomberg report suggesting that China would open to a partial deal. Markets have been struggling with expectations over the coming talks after the U.S. introduced visa restrictions on Chinese officials and added more Chinese companies to a U.S. trade blacklist. The Bloomberg report said China would accept a limited deal as long as no more tariffs are imposed by the U.S., including those set to take effect this month and in December. China, in return, would offer non-core concessions, like purchases of agricultural products, the report, which cites an unnamed source, said.

The Financial Times, meanwhile, also reported that Beijing was offering to increase its annual purchases of U.S. agricultural products.

Wednesday’s analyst upgrades and downgrades

“These discussions are being invested with so much importance that it feels as if the very future of the bull market is probably at stake,” Chris Beauchamp, chief market analyst with IG, said. "In reality, this is probably overstating the case, but it is unlikely that sentiment will improve much if the talks break down in acrimonious recriminations."

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He added a better earnings season - reports from major U.S. companies start rolling in next week - and a continued soft Federal Reserve policy should help soothe market jitters, although trade concerns remain at the root of investor concerns. “Hints of a Chinese willingness to accept a partial trade deal have bolstered European markets in morning trading, suggesting that there might be reason for optimism despite the chest-beating of the past few days,” he said.

Markets also drew some solace from comments from Federal Reserve chair Jerome Powell, who again suggested that the powerful U.S. central bank is open to a rate cut at its meeting late this month. In remarks on Tuesday afternoon, Mr. Powell noted that recent data revisions showed less job growth in the year through to March than previously estimated. He also again said the Fed would act “as appropriate” on policy decisions.

“We will be data dependent, assessing the outlook and risks to the outlook on a meeting-by-meeting basis. Taking all that into account, we will act as appropriate,” Mr. Powell said. “Looking ahead, policy is not on a preset course.”

In corporate news, shares of Johnson & Johnson were down more than 1 per cent in early trading in New York after a Philadelphia jury awarded US$8-billion in punitive damages against the company and a subsidiary in a suit over claims the antipsychotic drug Risperdal is linked to abnormal growth of female breast tissue in boys. Johnson & Johnson called the decision “excessive and unfounded” and said it would fight the finding.

On Bay Street, shares of The Green Organic Dutchman Holdings Ltd. were down more than 10 per cent in morning trading after the company said it was reviewing financing alternatives to complete construction for facilities in Ancaster, Ont, and Valleyfield, Que. The cannabis company cited “changing market conditions” for the move.

Overseas, European markets held gains heading in afternoon trading after the latest reports on the China-U.S. trade talks. The pan-European STOXX 600 rose 0.60 per cent. Britain’s FTSE 100 advanced 0.66 per cent. France’s CAC 40 was up 0.78 per cent and Germany’s trade-sensitive DAX added 1.22 per cent.

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In Asia, Tokyo’s Nikkei lost 0.6 per cent, and Hong Kong’s Hang Seng shed 0.8 per cent, while the Shanghai Composite gained 0.4 per cent.

Commodities

Crude prices edged higher as hopes for this week’s U.S.-China trade talks helped offset worries about the impact of global growth on demand.

The day range on Brent so far is US$57.91 to US$58.64. The range on West Texas Intermediate is US$52.31 to US$53.04.

“Oil prices remain sensitive to market sentiment and trade talks later this week,” OANDA senior market analyst Craig Erlam said.

“Trump’s decision to add 28 Chinese companies to its entity list ahead of the talks doesn’t exactly fill anyone with optimism, which means a prolonged trade war, lower growth and greater risks of recession,” he added. “Not ideal at a time when demand growth fears are dragging oil prices lower.”

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Worries about global growth, meanwhile, continue to put a cap on gains. On Tuesday, Kristalina Georgieva, the new chief of the International Monetary Fund, said the global economy was undergoing a “synchronized slowdown” and cautioned that the situation could worsen unless governments address trade rifts.

Also weighing on prices was a report late Tuesday from the American Petroleum Institute that showed weekly U.S. crude inventories rose by 4.1 million barrels last week. Markets had been expecting a build closer to 1.4 million barrels. Official government statistics will be released later Wednesday by the U.S. Energy Information Administration.

On the supply side, Saudi Aramco Chief Executive Amin Nasser said Wednesday that Saudi Arabia has now fully restored production after September attacks knocked about 5 per cent of the world’s crude production offline.

In other commodities, gold prices were relatively steady, with markets looking ahead to the release Wednesday afternoon of the latest Fed minutes.

Spot gold slid 0.2 per cent to US$1,502.82 per ounce, but still held above the key $1,500 level after gaining about 1 per cent on Tuesday. U.S. gold futures rose 0.3 per cent to US$1,508.10 per ounce.

“Gold was buoyed on Tuesday by the prospect of more stimulus but this has quickly run its course, with the yellow metal once again running into resistance before trading lower today,” Mr. Erlam said. “Despite last week’s surge, gold continues to look vulnerable although the bulls are putting up quite a fight.”

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Currencies

The Canadian dollar edged higher in early going as global currency markets showed a modest tolerance for risk, although a recent report from Capital Economics suggests the loonie could be heading for a period of weakness.

The day range on the Canadian dollar is 75.03 US cents to 75.21 US cents. At last check, the currency was sitting near the upper end of the range, following broader market gains in the wake of more optimistic reports about the prospect for U.S.-China trade talks.

In a report issued Wednesday, Simona Gambarini, market economist with Capital Markets, said the relative strength seen in the Canadian dollar this year isn’t likely to hold.

“We expect appetite for risk and monetary policy to continue to be more important factors than commodity prices in determining the direction of the Aussie, kiwi and loonie,” she said. “With that in mind, we think that the relative resilience of the loonie so far this year won’t last in the final quarter. But all three currencies will stabilize in 2020 in our view.”

So far this year, she said, commodity currencies like the Australian and New Zealand dollars have fallen sharply against the greenback even as key commodity exports like iron ore and dairy have increased. By contrast, the loonie has gained despite the fact that oil, Canada’s major commodity export, is broadly unchanged on the year.

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That divergence, she said, can be explained by two factors.

“The first is interest rate differentials, which have moved against the Aussie and kiwi but in favour of the loonie in 2019,” she said. "The second is global risk aversion on the back of an escalation of the U.S./China trade war. This has hit the Aussie and kiwi especially hard as China is a major trading partner of both countries, while the loonie – being more dependent on the fortunes of the economy in the U.S. – has been supported by relative strong growth there so far this year.

Right now, Capital Economics expects the loonie to finish the year lower than its current levels. The forecast for the loonie suggests it could fall as low as about 73 US cents before improving slightly in 2020.

“We think that appetite for risk will return as looser financial conditions cause global growth to pick up. If so, some of the safe-haven flows which we expect to prop up the dollar against most other majors later this year should gradually unwind,” she said.

In other currencies, the euro was up 0.2 per cent at US$1.09785. The index that tracks the dollar against a basket of six other currencies was down 0.1 per cent at 99.007. Britain’s pound was slightly higher, though not far from the one-month low it reached the day before. Sterling was up 0.2 per cent at US$1.2237.

More company news:

Toronto-based Just Energy Group Inc. has signed a deal to sell its U.K. operations to Shell Energy Retail Ltd. for as much as $17-million. The company says the sale of Hudson Energy Supply UK Ltd. is part of its strategy to focus on its North American operations and improve liquidity. Under the agreement, Just Energy will receive approximately $3.2-million at closing and up to $13.8-million depending on whether the Office of Gas and Electricity Markets or the Department for Business, Energy and Industrial Strategy reinstate the capacity market payments within a specified period of time. Just Energy shares were down about 2 per cent in early trading in Toronto.

American Airlines is pushing back the expected return of its Boeing 737 Max jets into next year. The airline said Wednesday that it expects to slowly bring the plane back into its schedule starting Jan. 16. That’s six weeks later than American planned just last month, and the sixth time the airline has pushed back the plane’s return.

Exxon Mobil has appointed Bank of America Merrill Lynch to run the sale of its Malaysian oil and gas assets as the U.S. firm accelerates a vast disposal program, banking and industry sources told Reuters. The Malaysian assets, which include stakes in two large fields, are expected to fetch over $2 billion, the sources said. Irving, Texas-based Exxon has ramped up sales of assets around the world in recent months with the goal of raising US$15-billion from disposals by 2021. Those include production in Norway, Australia, Nigeria, Azerbaijan and Britain.

British firm Hays Travel says it will buy all 555 U.K. stores operated by defunct tour company Thomas Cook, which collapsed last month. Hays says it will offer jobs to hundreds of Thomas Cook employees. David Chapman, the official receiver handling the winding up of Thomas Cook, said Wednesday that the deal “represents an important step in the liquidation process, as we seek to realize the company’s assets.”

Russian internet company Mail.RU said on Wednesday it had agreed a joint venture with Alipay, the mobile payments arm of Alibaba Group, along with the Russian Direct Investment Fund (RDIF) and two other Russian partners. The RDIF, Russian mobile group Megafon and Mail.Ru have also agreed to set up another joint venture with Alibaba called AliExpress Russia, RDIF’s Kirill Dmitriev told Reuters separately. AliExpress, controlled by Russian shareholders, will target Russia’s rapidly growing e-commerce market, which has annual turnover of more than US$14-billion. Consumers will be able to use AliExpress to buy products online, including clothing and consumer electronics. The Alipay joint venture will go ahead once the AliExpress deal is completed, Mail.Ru said.

Economic news

U.S. job openings fell 1.7 per cent in August and hires edged down, bolstering views that the labour market may lose momentum as economic uncertainty and a manufacturing recession squeeze employers. The Labor Department says employers advertised 7.1 million available jobs in August, down from 7.2 million available jobs in July.

(11 a.m. ET) U.S. Fed chair Jerome Powell gives opening remarks at Fed session in Kansas City.

(2 p.m. ET) U.S. Fed minutes are released.

With Reuters, The Canadian Press and The Associated Press

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