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Equities
Canada’s main stock index opened higher Wednesday helped by a jump in shares of retailer Aritzia Inc. in the wake of better-than-expected earnings and gains by mining stocks. South of the border, markets started in the red with weak retail sales figures and renewed concerns over U.S.-China relations dampening the mood.
At 9:39 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 14.43 points, or 0.09 per cent, at 16,432.82. Five of the index’s 11 subsectors were higher.
On Wall Street, the Dow Jones Industrial Average fell 52.49 points, or 0.19 per cent, at the open to 26,972.31.
The S&P 500 opened lower by 6.00 points, or 0.20 per cent, at 2,989.68. The Nasdaq Composite dropped 28.90 points, or 0.35 per cent, to 8,119.81 at the opening bell.
“Stocks are softer on softer-than-expected U.S. retail sales and fading trade optimism between the world’s two largest economies after the U.S. gave support to pro-democracy protesters in Hong Kong,” OANDA senior analyst Edward Moya said.
Market sentiment remains fragile in the wake of last week’s trade talks between China and the United States. Early Wednesday, China’s Foreign Ministry cautioned that it would take “strong countermeasures” if the U.S. Congress enacts legislation supporting Hong Kong protesters.
The U.S. Commerce Department, meanwhile, said sales fell 0.3 per cent in September. That was the first decline in seven months. American consumers spent less on vehicles and building materials.
On the corporate side, markets will be closely watching Netflix Inc. results due after the close.
Ipek Ozkardeskaya, senior market analyst with London Capital Group, notes that the streaming giant has had a tough quarter with its stock price falling more than 33 per cent since July on doubts over its business model and intense pressure in the sector, which is soon to include a major new competitor, Apple TV.
“Investors need Netflix to exceed its 7-million-subscriber additions target and reveal a good-looking fourth-quarter guidance,” she said. “We believe that the Netflix original series, documentaries and movies remain a major attraction to viewers, but it is unsure how the company will manage to reduce its US$3.5-billion free cash flow deficit in an increasingly heated competitive environment.”
On Bay Street, retailer Aritzia Inc. shares jumped 11 per cent in Toronto after the company reported a 19-per-cent increase in profit in the latest quarter, helped by growing online sales and a higher store count. The Vancouver-based retailer reported net income of $17.9-million in the second quarter, compared with $15.1-million for the same quarter a year earlier. The company said adjusted earnings per share rose 12.5 per cent to 18 cents. Analysts had been expecting earnings by that measure of 13 cents a share. The results were released after markets closed on Tuesday.
South of the border, Bank of America shares rose 2.8 per cent in early trading after the lender’s profit topped analyst forecasts in the latest quarter. Excluding the impact of a pretax impairment charge, Bank of America reported earnings per share in the latest quarter of 75 US cents. Analysts had been expecting earnings of 51 US cents. Net income applicable to common shareholders fell to US$5.27-billion, or 56 cents per share, from US$6.70-billion, or 66 US cents per share, a year earlier. Then latest quarter includes US$2-billion in pretax impairment charge.
Overseas, Europe’s major markets were lower and the pound was off recent highs as Britain and the European Union resume talks to avert a hard Brexit ahead of an EU summit on Thursday and Friday. Markets had hoped for a breakthrough in the talks overnight but sentiment turned more cautious as a deal failed to emerge. Reports suggest the EU has said a deal is impossible unless Britain moves.
“Much of the major gains that were made yesterday were driven by the prospect of a deal being achieved, so now some dealers are reversing their positions,” CMC markets analyst David Madden said.
The pan-European STOXX 600 was down 0.42 per cent in morning trading with resource stocks among the losers. Britain’s FTSE 100 fell 0.21 per cent. Germany’s DAX slid 0.19 per cent and France’s CAC 40 was off 0.42 per cent.
In Asia, Tokyo’s Nikkei gained 1.2 per cent, and Hong Kong’s Hang Seng 0.6 per cent, while the Shanghai Composite lost 0.4 per cent. In economic news in the region, South Korea’s central bank cut interest rates for a second time in three months in an effort to bolster that country’s economy.
Commodities
Crude prices steadied after a choppy morning with demand concerns lingering after the International Monetary Fund cut its global growth outlook for the year.
The day range on Brent so far is US$58.44 to US$59.06. The range on West Texas Intermediate is US$52.29 to US$53.12.
“Prices remain under pressure and are hovering around the summer lows, with Brent still holding up around the $55-57 region,” OANDA senior analyst Craig Erlam said. “Naturally this wasn’t helped by the IMF’s downward revision to this year’s growth forecast to the lowest since the financial crisis, with traders being particularly concerned about falling oil demand in the face of a slowdown.”
In a forecast released this week, the IMF predicted global growth this year of 3 per cent, down from 3.2 per cent in its previous forecasts and below last year’s 3.6 per cent growth rate. (The IMF kept its forecast for growth in Canada unchanged at 1.5 per cent for this year.)
Earlier in the session, crude had managed modest gains on signals from OPEC that it could deliver deeper production cuts to underpin the market. On Tuesday, OPEC Secretary-General Mohammad Barkindo said OPEC and its allies will do “will do whatever [is] in its power” to bring stability to the market. Previously, he had said deeper output cuts was one of the options.
OPEC, Russia and other producers have a deal now to cut oil output by 1.2 million barrels per day until next March. They meet in early December in Vienna to review that decision.
Later in the session, markets will also get a reading on U.S. inventories with the release of weekly figures from the American Petroleum Institute. (That report was delayed a day due to the U.S. government holiday on Monday.) A preliminary Reuters survey suggests U.S. inventories likely grew last week. More official government figures are due Thursday from the U.S. Energy Information Administration.
“Should EIA inventories illustrate for a fifth consecutive week build, we expect for strong selling pressure to afflict oil prices on an intraday basis,” Benjamin Lu from Phillip Futures said in a note.
Gold prices edged higher early on after falling more than 1 per cent the previous session with uncertainty over Brexit tempting investors back into the market.
Spot gold was up 0.1 per cent at US$1,482.54 per ounce. U.S. gold futures were 0.2-per-cent higher at US$1,486.90 per ounce.
“There are some uncertainties since there is a lot to go through on Brexit. For instance even if both EU and U.K. negotiators agree on terms it still has to go through the parliament,” AxiTrader market strategist Stephen Innes said.
Currencies
The Canadian dollar was slightly weaker as markets again shy away from riskier holdings as tensions once again rise between the United States and China and uncertainty hovers over Brexit talks.
The day range on the loonie so far is 75.60 US cents to 75.78 US cents.
The loonie slid to the lower end of that spread after Statistics Canada said the country’s annual rate of inflation held at 1.9 per cent in September, matching the August rate. Economists had been expecting the rate to climb to 2.1 per cent. On a monthly basis the consumer price index edged down 0.1 per cent.
“The Bank of Canada’s three core measures are still averaging a hair above 2 per cent, with the core-common actually accelerating a tick to 1.9 per cent,” CIBC economist Royce Mendes said. “Overall, no significant implications for the Bank of Canada which we expect to remain on hold later this month.”
On broader markets, the U.S. dollar touched its lowest level in four weeks as trade tensions return to the headlines. The U.S. dollar index, which weighs the greenback against a selection of world currencies, fell to 98.16 on Wednesday, its lowest level since Sept. 20. The yen firmed against the U.S. dollar as investors shifted back into safer holdings.
Britain’s pound, meanwhile, was off about 0.5 per cent, falling from its recent five-month highs as uncertainty over Brexit talks takes hold. The pound had gained about 5 per cent against the U.S. dollar as investors priced in the possibility of an eleventh-hour Brexit deal.
In bonds, the yield on the U.S. 10-year note was lower at 1.724 per cent. The yield on the 30-year note was also lower at 2.207 per cent.
More company news:
Cannabis company Hexo Corp. is moving to undercut prices in the illicit market with a new 28-gram product that costs consumers as much as one dollar less per gram than at the average illegal dispensary, The Canadian Press reports. The product, under the brand Original Stash, which will be on sale in Quebec cannabis stores starting Thursday for $125.70, or $4.49 per gram, including taxes, the company said. That’s cheaper than the average cost of a gram of cannabis at $7.37 per gram during the third quarter, with the price of legal and illegal weed at $10.23 and $5.59 per gram, respectively, according to the latest Statistics Canada analysis of crowdsourced data.
United Airlines on Tuesday topped Wall Street estimates for quarterly profit, boosted by higher fares and lower fuel costs, and lifted its 2019 profit target despite the continued grounding of the Boeing 737 MAX. Adjusted net income rose to US$1.05-billion, or US$4.07 per share, in the third quarter, from US$834-million or US$3.05 per share a year earlier. Analysts on average had forecast US$3.95 per share, according to IBES data from Refinitiv.
Britain’s competition regulator said on Wednesday it had launched a formal investigation into Amazon.com Inc’s investment in food delivery company Deliveroo, setting a December 11 deadline for a decision on the first phase of its probe. The Competition and Markets Authority (CMA) said it was looking into whether Amazon’s investment in May, when it led a US$575-million fundraising, could result in a “substantial lessening of competition” within the United Kingdom.
Alexion Pharmaceuticals Inc agreed to buy small biotech Achillion Pharmaceuticals Inc in a US$930-million deal, to boost its pipeline of rare disease treatments. Alexion’s offer of US$6.30 per share represents a premium of 72.6 per cent to Achillion stock’s close on Tuesday.
U.S. chip maker Broadcom has been ordered to halt exclusivity deals with six TV and modem makers for up to three years while EU antitrust enforcers investigate whether these agreements are aimed at thwarting rivals. The move by European Competition Commissioner Margrethe Vestager suggests she may be more willing to take temporary but rapid action against tech giants deemed to be abusing their dominance rather than wait for investigations to be finalized.
Bank of New York Mellon Corp reported a 7-per-cent fall in quarterly profit, as the bank earned lower fees and took a hit from a drop in interest rates. Net income applicable to common shareholders fell to US$1-billion in the third quarter ended Sept.30, from US$1.08-billion a year earlier. On a per share basis, net income rose to US$1.07 from US$1.06, reflecting buybacks that have lowered the number of shares.
Economic news
Canada’s annual rate of inflation held at 1.9 per cent in September. On a monthly basis, the consumer price index slid 0.1 per cent.
U.S. retail sales fell for the first time in seven months. The U.S. Commerce Department said sales fell 0.3 per cent in September.
(10 a.m. ET) U.S. NAHB Housing Index for October.
(10 a.m. ET) U.S. business inventories for August.
With Reuters and The Canadian Press
Terry Weber