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Equities

Canada’s main stock index opened down sharply Wednesday as crude prices fell after Saudi Arabia and the United Arab Eremites announced plans to boost oil production. South of the border, major U.S. indexes were also deep in the red as investors look for concrete details about the U.S. government’s stimulus plans to offset the economic impact of the novel coronavirus.

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At 9:42 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index had dropped 356.93 points, or 2.39 per cent, to 14,601.16 after posting solid gains on Tuesday.

Energy shares led the declines, with that sector dropping more than 3 per cent on further weakness in crude prices.

In the U.S., the Dow Jones Industrial Average fell 413.53 points, or 1.65 per cent, at the open to 24,604.63 and the S&P 500 opened lower by 56.63 points, or 1.96 per cent, at 2,825.60.

The Nasdaq Composite dropped 208.01 points, or 2.49 per cent, to 8,136.25 at the opening bell.

“It’s just another reminder of how volatile and sensitive these markets are,” OANDA senior analyst Craig Erlam said. “Investors are desperate for a reason to jump back in but these are highly uncertain times so this kind of whipsawing is likely to continue.”

Reports have suggested that U.S. President Donald Trump has pitched the idea of cutting the payroll tax to 0 per cent for the rest of the year as part of a package of measures designed to counter the impact of the spread of the coronavirus. Earlier in the week, Mr. Trump also said he would take “major steps” to ease the economic impact of the health crisis, helping spark Tuesday’s rally.

“Perhaps once the [U.S. stimulus] measures are confirmed, investors will have something to celebrate but the concern now is that anything will take time,” Mr. Erlam said.

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In this country, the federal government pledged $1-billion to fight the virus. Prime Minister Justin Trudeau announced the aid package in Ottawa on Wednesday morning, saying Canada needs to be prepared for all scenarios. The plan includes money to help buy masks and supplies for health-care workers and easing of restrictions on employment insurance for people who are off work due to illness.

Sentiment in Europe, meanwhile, got an initial boost when the Bank of England unexpectedly slashed its interest rate by half a percentage point in an emergency response to the spread of the virus. Britain now has about 373 confirmed cases of COVID-19 and six deaths. The cut also comes as the British government readies its latest budget, which could also contain measures aimed at boosting the economy.

The Bank of England’s move follows similar cuts by the U.S. Federal Reserve and the Bank of Canada. The European Central Bank meets on Thursday and is also expected to enter the fray.

However, by afternoon, most of the glow from the Bank of England rate cut had faded for European investors. The pan-European STOXX 600 gave back early gains to trade down 0.15 per cent. Britain’s FTSE 100 fell 0.23 per cent. Germany’s DAX slid 0.08 per cent. France’s CAC 40 edged up 0.21 per cent.

In Asia, volatility continued to weigh with Tokyo’s Nikkei ending down 2.27 per cent. The Shanghai Composite Index closed down 0.94 per cent and Hong Kong’s Hang Seng lost 0.63 per cent.

Commodities

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Crude prices fell in early going after Saudi Arabia and UAE said they plan to increase production capacity in the wake of the collapse of a output agreement among OPEC and its allies.

The day range on Brent so far is US$36.44 to US$39.70. The range on West Texas Intermediate is US$33.54 to US$36.35. Both benchmarks were down more than 1 per cent in the predawn hours after posting gains of roughly 3 per cent in the previous session.

Early Wednesday, Saudi Aramco chief executive Amin Nasser said the state-run oil company had been asked by the Ministry of Energy to boost its production capacity to 13 million barrels per day (bpd) from the current 12 million barrels. The move comes after a plan to curb production among OPEC and its allies fell apart last week when Russia refused to participate, resulting in a deep rout this week that saw prices post their biggest single day decline since the Gulf War.

UAE national oil company ADNOC also it would raise crude supply to more than 4 million barrels a day in April and accelerate plans to increase its output capacity to 5 million bpd, a target it previously planned to hit by 2030.

Traders had been holding out at least some hope that the OPEC+ pact could be salvaged after Russia indicated this week that it was open to continued talks.

Still, Ipek Ozkardeskaya, senior analyst at Swissquote Bank, noted that Russia has also threatened to raise its production by 500,000 barrels a day in response to Saudi suggestions that it could boost output, leaving the two sides in a stalemate.

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“If the world’s biggest oil producers go down that road, the consequences for mid-term oil prices could be dramatic, though we believe that Russia may not [be able to] afford to let prices fall too much below the US$30 level," she said.

In other commodities, gold prices gained as risk sentiment wavers with investors awaiting firm details on stimulus measures.

Spot gold was up 0.7 per cent at US$1,661.21 per ounce, having fallen nearly 2 per cent on Tuesday on hopes for global stimulus efforts. U.S. gold futures gained 0.1 per cent to $1,661.70.

“Gold continues to provide a safety net as financial markets tumble,” AxiCorp strategist Stephen Innes said. “It just feels flat out comfortable owning gold in this environment.”

Currencies

The Canadian dollar dipped below the 73-US-cent mark in early going as the risk rally on global markets fades.

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“FX is slavishly following risk appetite,” RBC chief currency strategist Adam Cole said, noting U.S. equities managed a strong finish on Tuesday only to see futures reverse course this morning.

The day range on the loonie so far is 72.75 US cents to 73.08 US cents.

In the day’s only Canadian data release, Statistics Canada said Canadian industries operated at 81.2 per cent of their production capacity in the fourth quarter, down from 81.5 per cent in the third quarter.

In an early note, Shaun Osborne, Scotiabank’s chief FX strategist, said the loonie’s slide at the start of the week have left few tailwinds that would convince the market that it would test levels as low as 87.72 US cents in the near future.

“For that to be avoided at least one of a suite of developments must take place somewhat soon,” he said. “The Canadian government announces a large stimulus package tackling the coronavirus outbreak and the collapse in oil prices, OPEC+ members come back to the negotiating table (lifting oil prices) to avoid an escalation of Saudi Arabia and Russia’s crude war (probably not soon), or (more unlikely and less effective in lifting the CAD) greater recovery green shoots appear in Asia that would suggest a faster rebound in global economic activity.”

On global markets, Britain’s pound took a hit after the Bank of England cut rates by half a percentage point. The pound last traded at US$1.2873, almost flat on the day but tumbled from the day’s high of US$1.2937 after the Bank of England cut its key rate for the first time since 2016.

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Against Japan’s yen, the U.S. dollar fell 0.9 pe cent to 104.67 yen, down more than a full yen from Tuesday’s high of 105.915, according to Reuters. The Swiss franc gained 0.65 per cent to 0.9335 franc per U.S. dollar while the euro also rose 0.6 per cent to US$1.1349.

In bonds, the yield on the U.S. 10-year note was lower at 0.719 per cent around 6 a.m. ET. The yield on the 30-year note was also down at 1.20 per cent.

More company news

Brookfield Asset Management has put the $2-billion sale or potential listing of its coal export terminal in Australia on hold due to travel restrictions amid the spread of coronavirus, Reuters reports, citing two sources. Running a sale and listing process had become impossible given travel bans due to the global outbreak, the sources told the news agency, declining to be identified because they were not allowed to talk to the media. The decision makes the Dalrymple Bay Coal Terminal (DBCT) the largest and most high profile corporate transaction in Australia to fall victim to the volatile financial market conditions sparked by the epidemic.

Metro Inc. said it will invest $420-million to build a new, automated distribution centre in Terrebonne, Que., and expand its produce and dairy products facility in Laval, Que. The Terrebonne centre is slated to open in 2023. The Laval expansion is expected to be complete in 2024.

PepsiCo Inc said on Wednesday it would buy Rockstar Energy Beverages for US$3.85-billion, in the soda giant’s biggest push into the energy drinks market, where rival Coca-Cola Co has been rapidly expanding. Pepsi, which already distributes Rockstar drinks, has a smaller presence in the energy space with its Mountain Dew Kickstart and Mountain Dew Game Fuel brands.

Hong Kong’s Cathay Pacific Airways said on Wednesday it expects to report a substantial loss in the first half of this year and slash more capacity as the coronavirus outbreak erodes travel demand, after posting a drop in 2019 earnings. It posted a net profit of HK$1.69-billion (US$218-million) for the year ended December 2019, down 28 per cent from a HK$2.35-billion profit in 2018. That was in line with an average estimate of HK$1.63-billion from 11 analysts polled by Refinitiv.

Economic news

Statistics Canada says Canadian industries operated at 81.2 per cent of their production capacity in the fourth quarter, down from 81.5 per cent in the third quarter. The decline marked the fifth decrease in six quarters, the agency said.

The U.S. Labor Department said its consumer price index rose 0.1 per cent last month, matching January’s gain. In the 12 months through February, the CPI rose 2.3 per cent, following a 2.5-per-cent increase in January.

With Reuters and The Canadian Press

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