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Equities

Markets on both sides of the border opened at record levels Thursday, buoyed by the signing of a first-phase trade pact between the U.S. and China. Wall Street got an added lift from better-than-expected results from Morgan Stanley.

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At 9:32 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 30.55 points, or 0.18 per cent, at 17,445.72.

Shares of Bombardier Inc. sank 30 per cent at the opening bell in Toronto after the company said it expects full-year results to be lower than previously forecast and and warned it may have to write down the value of its partnership with Airbus on A220 jets.

In the U.S., the Dow Jones Industrial Average rose 101.73 points, or 0.35 per cent, at the open to 29,131.95.

The S&P 500 opened higher by 13.68 points, or 0.42 per cent, at 3,302.97. It was the first time the S&P 500 crossed the 3,300 mark. The Nasdaq Composite gained 54.75 points, or 0.59 per cent, to 9,313.45 at the opening bell.

On Wednesday, U.S. President Donald Trump and Chinese Vice Premier Liu He signed the phase-one agreement, offering markets some relief after months of acrimony. The deal will see China buy US$200-billion worth of U.S. farm products and other goods and services over two years. Markets welcomed the pact with the Dow closing above 29,000 for the first time.

However, analysts also say market attention now shifts to the second phase of the deal, particularly given that tariffs on Chinese imports will remain in place until the secondary pact is signed.

“Amongst a number of downsides was the fact that the deal still means that tariffs still remain on US$360-billion of Chinese goods, and are likely to remain there for at least another 12 months, at the very least,” Michael Hewson, chief market analyst with CMC Markets U.K., said, noting tariffs are set to stay in place until the second phase is finalized.

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“Given that it has taken nearly two years to pick off the low hanging fruit of a phase-one deal, it does stand to reason that phase two is likely to take much longer. It also probably suits President Trump’s narrative to incorporate the prospect of a phase two deal into his re-election campaign,” Mr. Hewson said.

On the corporate side, Morgan Stanley shares were up more than 6 per cent in New York after the bank reported a 53-per-cent increase in quarterly profit. The bank said earnings attributable to common shareholders rose to US$2.09-billion, or US$1.30 per share, in the quarter ended Dec. 31, from US$1.36-billion, or 80 US cents per share, a year ago. Analysts had expected a profit of 99 US cents a share.

On Bay Street, Magna International said it expects lower sales in 2020 and discontinued its partnership with Lyft to co-develop self-driving technology. Magna said it expects 2020 sales to be between US$38-billion and US$40-billion and net income attributable to be in the range of US$1.8-billion to US$2-billion. Analysts on average expect Magna to report revenue of US$39.97-billion and profit of US$1.94-billion, according to IBES data from Refinitiv. Magna shares were modestly higher in early trading.

Overseas, markets in Europe gave up early gains with the pan-European STOXX 600 flatlining by afternoon. Britain’s FTSE 100 slid 0.41 per cent. Germany’s DAX slid 0.13 per cent. France’s CAC 40 edged up 0.05 per cent.

In Asia, Japan’s Nikkei edged up 0.07 per cent to finish at 23,933.13. Hong Kong’s Hang Seng rose 0.38 per cent. The Shanghai Composite Index fell 0.52 per cent.

Commodities

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Crude prices gained on trade headlines but a forecast from the International Energy Agency saying it expects production to outstrip demand for crude from OPEC countries put a cap on the gains.

The day range on Brent crude is US$64.17 to US$64.80. The range on West Texas Intermediate is US$57.87 to US$58.39.

“Oil markets, which are currently basking in the afterglow of China’s pledged to buy more than $50-billion in energy supplies from the U.S. over the next two years, have caught a fresh bid on the headline,” AxiTrader strategist Stephen Innes said. “But the eye-watering products build and the prospects of a warmer winter could keep the oil bears coming back for more.”

In its latest forecast, the IEA says it expects production to exceed demand for crude from the Organization of the Petroleum Exporting Countries even if members comply fully with a pact with its allies to limit output.

“Even if they adhere strictly to the cuts, there is still likely to be a strong build in inventories during the first half of 2020,” the IEA said.

The agency estimated OPEC crude production at 29.3 million barrels per day (bpd) in January, 700,000 barrels a day above above the expected demand.

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Crude prices drew some support from the U.S. Energy Information Administration’s weekly inventory figures, which showed a decline in oil stocks of 2.5 million barrels last week, far more than the market had been expecting. However, the report also showed U.S. gasoline stockpiles last week hit their highest since February, while distillate inventories rose to the most since September 2017.

In other commodities, gold prices slid as investors sought out riskier assets in the wake of the U.S.-China trade agreement.

Spot gold fell 0.2 per cent to $1,552.69 per ounce. U.S. gold futures eased 0.1 per cent to $1,553.10.

“We are seeing a slight pullback in gold prices as markets are relieved that a first phase of the trade deal is signed,” Ajay Kedia, director at Kedia Advisory in Mumbai, told Reuters.

Currencies

The Canadian dollar edged higher in early going, supported by higher crude prices, although the broader exchange markets showed muted reaction to the signing of the phase-one trade deal.

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The day range on the loonie is 76.64 US cents to 76.73 US cents.

There were no major Canadian economic releases on the calendar to offer direction for the dollar.

On broader currency markets the euro was trading up 0.1 per cent against the U.S. dollar at US$1.1164, matching the one-week high it reached the day before.

The U.S. dollar index, which weighs the greenback against six major currencies, slid to 97.14, its lowest level in eight days.

“Fading short-term trade-war concerns and evaporating geopolitical risks continue to bolster global equity and credit markets,” AxiTrader’s Stephen Innes said in a note. “However, FX markets are more cautious; the rally in Asian currencies took a breather today.”

The Chinese yuan, the currency most sensitive to the trade row, was up 0.1 per cent at 6.8852 per U.S. dollar in the offshore market, not far from the six-month high of 6.8662 seen on Tuesday.

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In bonds, the yield on the U.S. 10-year note was little changed at 1.786 per cent.

More company news

Barrick Gold Corp said it expects fourth-quarter gold production to be higher than third quarter, benefiting from strong output from its Turquoise Ridge gold mine in Nevada. Total preliminary gold production rose to 1.44 million ounces in the quarter ended Dec.31, from 1.31 million ounces in the third, while copper output gained 4.5 per cent to 117 million pounds.

Bank of New York Mellon Corp posted a 67-per-cent jump in quarterly profit, helped by a one-time gain from the sale of an equity investment. The bank said net income applicable to common shareholders rose to US$1.39-billion, or US$1.52 per share, in the fourth quarter ended Dec. 31, from US$832-million, or 84 US cents per share, a year earlier.

Retailer Canadian Tire Corp. says it has named Gregory Craig as its new chief financial officer. He replaces Dean McCann, who had previously announced plans to retire. Canadian Tire also named Mahes Wickramasinghe as president of Canadian Tire Financial Services and president and chief executive of Canadian Tire Bank. Both appointments are effective March 2.

An expert committee on Thursday recommended the Federal Aviation Administration require Boeing Co and other aircraft manufacturers to adopt new safety management tools in the wake of two fatal Boeing 737 MAX crashes. Boeing grounded its entire 737 Max fleet, halting deliveries of its best selling commercial airliner after an Ethiopian Airlines flight crashed in March last year. It was the second 737 Max to crash in a matter of months. A Lion Air plane crashed in Indonesia in October, 2018. A total of 346 peopled died in the two crashes. The expert panel, led by a retired Air Force general and a former head of the Air Lines Pilot Association, also called for improvements in how the Federal Aviation Administration certifies new planes. But it did not back ending the long-standing practice of delegating some certification tasks to aircraft manufacturers.

Southwest Airlines Co said it would extend cancellations of 737 MAX flights through June 6, as the grounding of the Boeing Co jet threatens to impact the upcoming U.S. summer travel season. Southwest, the largest operator of MAX airplanes worldwide, said the revision would remove roughly 330 weekday flights from its total peak-day schedule of more than 4,000 daily flights.

Economic news

Initial claims for U.S. state unemployment benefits fell by 10,000 to a seasonally adjusted 204,000 for the week ended Jan. 11, the U.S. Labor Department said.

The U.S. Commerce Department said retail sales increased 0.3 per cent last month, in line with forecasts. November’s figures were revised up to a gain of 0.3 per cent, from the previously reported 0.2-per-cent increase.

U.S. import prices rose 0.3 per cent last month, lifted by gains in the costs of petroleum products. The increase matched forecasts by economists polled by Reuters.

(10 a.m. ET) U.S. NAHB Housing Index for January.

(10 a.m. ET) U.S. business inventories for November.

With Reuters and The Canadian Press

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