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Equities

Canada’s main stock index opened modestly lower Friday with energy stocks lower as renewed concerns about the pace of the spread of the coronavirus hit crude prices. South of the border, U.S. indexes were also hit by continued virus fears, with technology shares lagging.

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At 9:36 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 25.74 points, or 0.14 per cent, at 17,918.32, on course to end a four session winning streak. The index is set to end the week with gains about 0.3 per cent.

Energy stocks were down 1.7 per cent while financials advanced 0.1 per cent. Industrial stocks were off 0.6 per cent.

In the U.S., the Dow Jones Industrial Average fell 73.45 points, or 0.25 per cent, at the open to 29,146.53. The S&P 500 opened lower by 12.73 points, or 0.38 per cent, at 3,360.50. The Nasdaq Composite dropped 42.95 points, or 0.44 per cent, to 9,708.01 at the opening bell. New figures suggesting activity in the manufacturing and services sectors stalled in February also weighed on Wall Street.

Mainland China reported 889 new cases of the virus on Thursday , up from 394 a day earlier. The death toll rose by 119 to 2,236, mostly in Hubei. G20 finance ministers are set to meet this weekend in Saudi Arabia to discuss the risks posed by the outbreak to the global economy.

“The sudden shoot up in the number of coronavirus outside of China has seen sentiment sour again across markets,” Jasper Lawler, head of research for London Capital Group, said. “The Japanese yen, Korea’s KOPSI are under fire, automaker shares might be next, and the [U.S.] dollar and gold are the places of choice to take cover.”

In this country bank earnings season kicks off with results from Royal Bank of Canada. RBC said first-quarter profit rose about 11 per cent to $3.51-billion or $2.40 a share. The bank also hiked its quarterly dividend 3 per cent to $1.08. Royal Bank shares rose more than 1 per cent shortly after the start of trading.

Bank earnings continue next week. Robert Sedran, an analyst at CIBC World Markets, said in a recent note that he expects profits for Canada’s Big Six banks to rise by an average of 5.8 per cent compared with last year’s first quarter. So far this year, the S&P/TSX Composite Diversified Banks Index is up more than 3 per cent, although that trails the return of more than 4 per cent for the S&P/TSX Composite.

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Meanwhile, the Globe’s James Bradshaw reports that Canadian Imperial Bank of Commerce is expected to make major changes to its senior executive ranks and announce about 2,000 jobs cuts when it reports fiscal first-quarter earnings next week. The shakeup at the top of Canada’s fifth-largest bank will usher in new leadership for its underperforming retail banking division, and in key functions such as risk and technology, according to sources familiar with the plan.

Ahead of the North American open, investors also got results from Canadian minter Teck Resources Ltd. Teck, which is awaiting a federal cabinet decision on its proposed Frontier mine in the oil patch, said adjusted profit fell 76 per cent in the most recent quarter, hit by lower coal prices. The company also cautioned that future results would be hurt by the outbreak of the coronavirus. On an adjusted basis, income fell to $122-million, or 22 cents per share, in the quarter ended on Dec. 31, from $500-million, or 87 cents per share, in the previous year. Teck shares fell 10 per cent in early trading in Toronto.

On Wall Street, shares of heavy equipment giant Deere & Co. jumped 6 per cent at the open after the company posted a surprise rise in first-quarter profit. Deere, widely viewed as a bellwether for the health of the U.S. factor sector, reported net income of US$517-million or US$1.63 per share for the quarter ended Feb. 2, up from US$498-million or US$1.54 per share in the same period last year. That compares with average analyst estimates of US$1.26 per share, according to Refinitiv Eikon data.

Overseas, major European markets pared early losses with the pan-European STOXX 600 rising 0.02 per cent by afternoon after new figures showed a better-an-expected expansion in euro zone business activity. Britain’s FTSE 100 slipped 0.10 per cent. Germany’s DAX was flat. France’s CAC 40 fell 0.06 per cent.

In Asia, markets were mixed. The Shanghai Composite Index gained 0.31 per cent, helped by comments Friday from China’s Ministry of Commerce that work has been rapidly resuming provinces like Guangdong and Jiangsu. Elsewhere, the picture was dimmer. Hong Kong’s Hang Seng ended down 1.09 per cent. Japan’s Nikkei closed down 0.39 per cent. South Korea’s Kospi sank 1.49 per cent.

Commodities

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Crude prices dropped as the rise in coronavirus cases in China and weak factory figures out of Japan dampened sentiment.

The day range on Brent so far is US$58.11 to US$59.25. The range on West Texas Intermediate is US$52.90 to US$53.86.

“The oil and gas sector is an early underperformer as oil prices slip back on rising concern that the early optimism for a quick rebound in demand as concerns about coronavirus diminish may well have been premature,” Michael Hewson, chief market analyst with CMC Markets U.K., said.

In addition to virus worries, crude markets were also hit by the latest economic figures out of Japan, which showed factory activity suffered its steepest contraction in seven years in February.

The au Jibun Bank Flash Japan Manufacturing Purchasing Managers’ Index (PMI) fell to a seasonally adjusted 47.6 from a final 48.8 in January. A number below 50 indicates contraction in the sector. The February reading marked the 10th month below that level.

Other factors weighing on the market Friday included a rising U.S. dollar and indications from Russia’s energy minister that it no longer made sense for OPEC and its allies to meet before their scheduled session next month. Markets are hoping the group will further cut production to offset the impact of the coronavirus on crude demand.

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Elsewhere, gold prices saw the benefit of diminishing market optimism, touching a seven-year high.

Spot gold rose 0.8 per cent to US$1,632.65 per ounce, after hitting its highest since Feb. 14, 2013 at US$1,635.98 earlier in the session. For the week, prices have risen 3 per cent so far and were set to post their biggest weekly percentage gain since Aug. 9, Reuters reported.

U.S. gold futures jumped 1 per cent to US$1,636.50.

“Gold continues to see the bulk of haven demand today as investors are showing little fear in the face of another massive position build,” AxiTrader strategist Stephen Innes said.

Currencies

The Canadian dollar held relatively steady after Statistics Canada said retail sales in December were unchanged.

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The day range on the loonie so far is 75.37 US cents to 75.50 US cents. The dollar was trading little changed at 75.41 US cents just after the numbers were released at 8:30 a.m. ET.

Statscan said the flat reading came after a 1.1-per-cent gain in November. Retail sales volumes were also unchanged in December. Statscan also noted that online sales accounted for 4.7 per cent of December’s total, the biggest share on record.

For the year, sales rose 1.6 per cent to $615-billion compared with the year before.

“Retail sales extended the string of disappointing readings on the Canadian economy, but some of the stripped down measures proved more encouraging than the headline,” CIBC economist Royce Mendes said.

For example, he said, sales excluding autos were up a “more robust” 0.5 per cent. However, he also said, given the mixed details of the report, it’s likely that market reaction will be limited.

On global markets, the U.S. dollar index was off 0.2 per cent but that came after the it touched a three-year high overnight. The U.S. dollar has seen its best start to the year since 2015.

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The Japanese yen, meanwhile, bounced in European trading with investors moving back into the safe-haven currency after its worst four-day showing in more than two years. The yen lost 2 per cent against the U.S. dollar in the previous two days, but its early gains in London left it up 0.5 per cent on the day at 111.5 yen per U.S. dollar.

The euro, meanwhile, posted a small increase to US$1.0817 after IHS Markit’s Euro Zone Composite Flash PMI rose to 51.6 in February, topping market forecasts.

More company news

Auto parts maker Magna International Inc reported a better-than-expected quarterly profit on Friday, helped by lower costs. The company said it continues to expect lower sales in 2020, amid the coronavirus outbreak in China, which makes up about 5 per cent of its annual sales. Net income attributable to Magna fell to $440-million in the fourth quarter ended Dec. 31 from $456-million a year earlier. The company earned $1.41 per share in the quarter, above average analysts’ estimate of $1.33 per share, according to IBES data from Refinitiv. Total sales fell 7.3% to $9.40 billion.

Lululemon Athletica Inc. said Friday the majority of its 38 stores in China have been closed for a period of time since Feb. 3 with some now operating on a reduced schedule following guidance from local authorities as a result of the spread of the coronavirus. The company said it will monitor the situation and provide and update on the financial and operational impact on its fourth-quarter earnings call next month.

Home Capital Group Inc. reported a fourth-quarter profit of $37.2-million, up from $35.8-million in the same quarter a year earlier. The alternative mortgage lender says the profit amounted to 65 cents per share for the quarter ended Dec. 31 compared with a profit of 46 cents per share for the fourth quarter of 2018. On an adjusted basis, Home Capital says it earned 72 cents per share in its latest quarter, up from an adjusted profit of 46 cents per share a year earlier.

T-Mobile US and Sprint Corp said that they had agreed on new merger terms that would reduce the stake of major Sprint shareholder SoftBank, while leaving the offer to other shareholders unchanged. Under the revised deal, SoftBank will hold about 24% of the combined entity, down from 27% under the earlier terms. T-Mobile’s parent Deutsche Telekom will hold about 43% of the combined entity, up from the 42 per cent that the German group would have held.

Economic news

Statistics Canada said retail sales were flat in December after rising 1.1 per cent the previous month. Lower sales at auto and parts dealers and gasoline stations offset gains at building material and gardening retailers. Economists had been expecting a gain of 0.1 per cent in December.

The National Association of Realtors said existing U.S. home sales fell 1.3 per cent to a seasonally adjusted annual rate of 5.46 million units last month. December’s sales pace was revised down to 5.53 million units from the previously reported 5.54 million units.

With Reuters and The Canadian Press

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