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Equities

Canada’s main stock index fell at the open Thursday as crude prices dropped on rising U.S. inventories and worries over how the spread of the coronavirus could affect demand. U.S. indexes also slid in early trading with investor fears over the spread of the virus and a mixed earnings picture dragging down sentiment.

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At 9:38 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 40.16 points, or 0.23 per cent.

Energy shares were down 0.5 per cent. Materials stocks were down 0.3 per cent.

In the U.S., the Dow Jones Industrial Average fell 94.29 points, or 0.33 per cent, at the open to 28,640.16. The S&P 500 opened lower by 16.95 points, or 0.52 per cent, at 3,256.45. The Nasdaq Composite dropped 64.02 points, or 0.69 per cent, to 9,211.15 at the opening bell.

MSCI’s all-country index fell 0.5 per cent and European markets started lower following the lead of a weak session in Asia as economists attempt to gauge the impact of the spread of the virus on the Chinese economy. The World Health Organization was scheduled to meet Thursday to determine whether the spread of the virus should be considered a global emergency.

Reuters reports that one Chinese government economist has estimated that the health crisis could cut first-quarter growth in the world’s second biggest economy by to 5 per cent or lower. Citi said it now expects China’s growth to slow to 5.5 per cent for the year, down from an earlier estimate of 5.8 per cent.

“Investors are acutely aware that this tragic situation has much further to run, and this leaves equities vulnerable to further falls,” Chris Beauchamp, chief market analyst with IG, said.

“The retreat in risk assets over the past 24 hours confirms that there is more downside to come, equities being firmly in a ‘sell the rally’ mode, something we haven’t seen since early September,” Mr. Beauchamp noted.

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On the corporate side, earnings continue to dominate the North American picture.

Shares of Tesla Inc. shot up nearly 7 per cent in early trading after the electric vehicle company posted its second quarterly profit in a row on record vehicle deliveries. Tesla, which reported its latest results after Wednesday’s close, said it would comfortably make more than half a million units this year. In the fourth quarter, Tesla’s revenue rose to US$7.38-billion from US$7.23-billion a year earlier. Analysts had expected revenue of US$7.02-billion, according to IBES data from Refinitiv.

On the flip side, shares of Facebook Inc. fell more than 8 per cent just after North American open after the social media giant said growth would continue slow as its business matured. Facebook also reported higher total costs and expenses in the most recent quarter, squeezing margins. However, the company also said. daily active users rose to 1.66 billion, slightly ahead of estimates of 1.65 billion, according to IBES data from Refinitiv.

After the close of trading, Wall Street will get results from online retail behemoth Amazon.com Inc.

On Bay Street, Open Text reports its latest quarter after markets close.

Shares of Montreal-based Resolute Forest Products Inc.fell more than 9 per cent at the open after the company reported a net loss of $71-million, or 79 cents a share, compared to net income of $36-million, or 38 cents a diluted share a year earlier. Sales were $668-million in the quarter, down $264-million from the year-ago period. Excluding one-time items, Resolute posted a net loss of 59 cents a share, compared with net income of 4 cents in the year-earlier period. “Our fourth-quarter results reflect bottom-of-the-cycle conditions in market pulp, ongoing pricing pressures in paper grades and the slow pricing recovery in lumber,” Yves Laflamme, president and chief executive officer, said.

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Overseas, major European markets were weaker with the pan-European STOXX 600 falling 0.91 per cent by afternoon. Tech stocks were among the biggest losers. Britain’s FTSE 100 fell 1.25 per cent per cent. Germany’s DAX fell 1.11 per cent. France’s CAC 40 dropped 1.49 per cent.

In Asia, Hong Kong’s Hang Seng tumbled more than 2.5 per cent. Japan’s Nikkei dropped 1.72 per cent.

Commodities

Crude prices fell on continued concern over the economic fallout from the spread of the coronavirus and new figures showing a rise in U.S. inventories.

The range for the day so far for Brent is US$58.65 to US$59.65. The range for West Texas Intermediate is US$52.28 to US$53.20. Both benchmarks are set to post declines for the month.

In addition to market concerns about the spread of the virus, prices are also feeling downward pressure from the latest weekly U.S. inventory figures, which showed a rise in crude stocks of 3.5 million barrels last week.

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“Just as bearish sentiment was peaking owing to the lack of incremental bad news on coronavirus, oil prices were dealt the cruelest hand of them all after the EIA reported that American crude inventories rose by a bearish to consensus 3.5 million barrels,” AxiTrader strategist Stephen Innes said.

“Not only was the report a momentum stopper, but it was a stark reminder of the big-as-life global supply overhang that continues to hang like an anvil under the market’s nose.”

When taken alongside the potential impact of the spread of the coronavirus, he said, the report is “possibly even more damaging."

“Timing is everything when it comes to market price action, even more so in the finely balanced supply and demand action that continues to play out in the global oil markets,” he said.

If there’s a silver lining, he said, it will probably come in the form of a response from OPEC ahead of the next planned meeting in March. That, Mr. Innes said, “should provide some semblance of a floor until traders can better come to grips with the demand deviation fallout from this insidious flu ravaging China.”

Gold prices, meanwhile, gained on the uncertain global picture.

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Spot gold rose 0.3 per cent to US$1,581.75 per ounce and U.S. gold futures gained 0.7 per cent to US$1,580.90.

“The uncertainties surrounding the spread of the virus and its economic impact are supporting gold,” Hareesh V, head of commodity research at Geojit Financial Services, told Reuters.

Currencies

Risk aversion and weaker crude prices continued to weigh on the Canadian dollar, with the loonie trading lower in early going.

At last check, the Canadian dollar was nearer the low end of the day range of 75.62 US cents to 75.80 US cents.

“The tone of markets is moderately risk-off again overnight, though moves have been small,” RBC chief currency strategist Adam Cole said. "Aside from the steady increase in the death toll and infection rates (170 and 8000), there is little new news on the coronavirus.”

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For the loonie, the week’s key event will be Friday’s reading of November GDP. Ahead of that report, Bank of Canada deputy governor Paul Beaudry will speak in Quebec on monetary policy and financial vulnerabilities. His remarks will be published on the bank’s website at 3:15 p.m. ET.

On global markets, the U.S. dollar index last stood at 98.04, flat on the day but still near the two-month high seen on Wednesday. The U.S. dollar is the best performing G10 currency in January with the index rising 1.6 per cent so far, according to a Reuters report.

The Japanese yen, which has fallen about 0.3 per cent against the greenback this month, was up 0.1 per cent to 108.90 yen per U.S. dollar.

The British pound advanced against the U.S. dollar after the Bank of England held interest rates steady.

In bonds, the yield on the U.S. 10-year note was lower at 1.5668. The yield on the 30-year note was also down at 2.033 per cent.

More company news

The Globe’s Andrew Willis reports that the chief executive at Teck Resources Ltd., Canada’s largest mining company, walked back support for a $20.6-billion oil sands project on Wednesday, the latest sign of flagging interest in Alberta energy plays. Teck CEO Don Lindsay told a CIBC investor conference in Banff, Alta., the company may not move ahead on the massive Frontier oils sands mine even if it receives pending government approval, because of weak energy prices, daunting development costs and lack of the pipeline capacity needed to get its crude oil to refineries. Mr. Lindsay said: “We’ve told the government that for it to be developed, we need three Ps: The first is the pipeline has to be finished, not just started, finished. We need a partner. We need price.”

Coca-Cola Co reported quarterly revenue above market expectations, driven by demand for its sparkling soft drinks, teas and coffees. Net revenue grew 16 per cent to US$9.07-billion. Wall Street was expecting US$8.89-billion, according to IBES data from Refinitiv.

United Parcel Service Inc forecast 2020 earnings below estimates after reporting a 3.6-per-cent rise in revenue for the key holiday quarter, helped by demand from e-commerce companies. The company said it expects adjusted 2020 earnings per share between US$7.76 and US$8.06, below the midpoint of analysts’ average estimate of US$8.07 per share, according to IBES data from Refinitiv.

Eli Lilly and Co reported a 33-per-cent rise in fourth-quarter profit on Thursday, boosted by higher sales of its top-selling diabetes drug, Trulicity. Net income rose to US$1.50-billion, or US$1.64 per share, in the quarter ended Dec. 31, from US$1.13-billion, or US$1.10 per share, a year earlier. Revenue rose to US$6.11 billion from US$5.64 billion.

Deutsche Bank posted a loss of 1.6 billion euros (US$1.78-billion) in the fourth quarter of 2019, pushing the total loss for the year to 5.7 billion euros, as it undergoes a costly overhaul, the lender said on Thursday. This was the German top bank’s third consecutive quarterly loss and fifth straight annual loss. After calling off merger talks with rival Commerzbank last year, the lender embarked on a 7.4-billion euros restructuring plan to cut 18,000 jobs, close some businesses and overhaul management.

Swedish fashion giant H&M appointed company veteran Helena Helmersson as chief executive officer on Thursday as it reported its first rise in annual profit since 2015. Ms. Helmersson has been with H&M for over two decades and has held positions from chief operating officer to head of sustainability and global head of production. She replaces the founder’s grandson Karl-Johan Persson, who moves to the chairman role. The retailer’s shares jumped as much as 10 per cent.

Microsoft Corp beat analysts’ estimates for quarterly revenue on Wednesday, supported by another strong performance from its flagship cloud computing platform, Azure. The tech giant’s revenue rose 13.7 per cent to US$36.91 billion in the second quarter ended Dec. 31, beating analysts’ estimates of US$35.68-billion, according to IBES data from Refinitiv. The results were released after Wednesday’s close. Shares were up more than 3 per cent in the premarket.

Verizon Communications Inc added more-than-expected mobile phone subscribers who pay a monthly bill in the fourth quarter, benefiting from offering a free, one-year subscription to Disney+ with some of its plans. The company said on Thursday it added 790,000 postpaid phone customers, above the average analysts’ estimate of 525,000 subscribers, according to research firm FactSet.

Economic news

The U.S. Commerce Department said the U.S. economy grew 2.3 per cent last year. That was the slowest since 2016 and came after growth of 2.9 per cent in 2018. Gross domestic product increased at a 2.1-per-cent annual rate in the fourth quarter.

U.S. initial claims for state unemployment benefits fell 7,000 to a seasonally adjusted 216,000 for the week ended Jan. 25, the U.S. Labor Department said. Claims figures for the prior week were revised to show 12,000 more applications received than previously reported.

The Bank of England held its benchmark rate steady at 0.75 per cent. The bank’s monetary policy committee voted 7-2 in favour of the decision.

Reuters and The Canadian Press

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