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Equities

Indexes in Canada and the U.S. opened lower Monday with mounting tension between the United States and China over the spread of the novel coronavirus injecting fresh uncertainty into the markets.

At 9:32 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 87.87 points, or 0.6 per cent, at 14,532.47.

In the U.S., the Dow Jones Industrial Average fell 142.14 points, or 0.60 per cent, at the open to 23,581.55.

The S&P 500 opened lower by 15.70 points, or 0.55 per cent, at 2,815.01. The Nasdaq Composite dropped 49.63 points, or 0.58 per cent, to 8,555.32 at the opening bell.

On Sunday, U.S. Secretary of State Mike Pompeo said there was a “significant amount of evidence” that the virus originated from a lab in the Chinese city of Wuhan, although he did not provide evidence or address earlier U.S. intelligence conclusions that the virus was not man made.

An editorial in China’s Global Times called on the U.S. to present its evidence and said Mr. Pompeo was “bluffing.”

“The recent trade agreement has been standing on shaky ground from the very beginning and the current crisis could now move U.S. President [Donald] Trump to announce new tariffs on Chinese products,” Milan Cutkovic, Market Analyst at AxiCorp, said.

"This could have a serious impact on the risk appetite of investors, as there are already plenty of uncertainties caused by the COVID-19 pandemic, and a continuation of the trade war would be a nightmare come true. Investors will need strong nerves in the coming weeks."

In this country, earnings continue to roll in with Air Canada reporting its latest results ahead of the opening bell. The global airline industry has been devastated by the COVID-19 pandemic. Last month, Air Canada announced it would tap into the federal government’s wage subsidy plan to rehire 16,500 laid off workers.

In the latest quarter, Air Canada reported a $1-billion net loss, or $4 per share, compares with a profit of $345-million or $1.26 a share in the same period a year earlier. Air Canada said revenue fell by $712-million to $3.7-billion in the first three months of 2020, compared with the year-earlier period. The operating loss was $433-million, compared with a profit of $127-million in the first quarter of 2019. Air Canada shares were down more than 8 per cent in morning trading.

Shares in U.S. carriers were lower in premarket trading after billionaire investor Warren Buffett said over the weekend that Berkshire Hathaway had unloaded its entire stake in the four biggest American airlines. Shares in Delta Air Lines American Airlines and United Airlines were all down more than 13 per cent after the start of trading.

Overseas, the simmering U.S.-China dispute weighed heavily on Europe’s major markets, with the pan-European STOXX 600 trading down more than 2 per cent by afternoon.

In Asia, Hong Kong’s Hang Seng sank 4.18 per cent. Markets in China and Japan were closed.

Commodities

Crude prices were lower in early going as the threat of a renewed trade war between the United States and China weighed on already fragile sentiment.

The day range on Brent so far is US$25.50 to US$26.50. The range on West Texas Intermediate is US$18.10 to US$19.53.

Last week, U.S. President Donald Trump had raised the prospect of new tariffs on Chinese imports in retaliation for that country’s response to the COVID-19 crisis.

“To what extent escalation in U.S.-China tensions matters for investors depends on whether investors expect U.S. import tariffs on a broader range of goods or a mark upon existing ones,” Stephen Innes, chief market analyst with AxiCorp, said.

“But with corporate America already in the throes of an economic collapse in demand, it seems unlikely that U.S.-China tensions will escalate from threats to higher tariffs in the near term.”

The latest forecast from Goldman Sachs, meanwhile, helped underpin prices, offering some optimism about prices next year on lower production and a partial recovery in demand.

Goldman raised its 2021 forecast for global benchmark Brent to US$55.63 per barrel from $52.50 earlier. The bank hiked its estimate for WTI to US$51.38 a barrel from US$48.50 previously, according to Reuters.

In other commodities, gold prices advanced, building on last week’s gains as rising tensions between the U.S. and China inject fresh uncertainty into the market.

Spot gold gained 0.3 per cent to US$1,703.77 per ounce. U.S. gold futures rose 0.9 per cent to US$1,715.20.

“Some sort of fears are there that the trade war might be ignited and such events are good for gold. All these comments from officials indicate a new round of hostility as far as the trade is concerned with China,” said Avtar Sandu, a senior commodities manager at Phillip Futures.

Currencies

The Canadian dollar was trading below the 71-US-cent mark as crude prices slid and markets shifted away from riskier assets.

The day range on the loonie is 70.66 US cents to 71.12 US cents.

“Markets have retained the risk-off tone from Friday,” RBC chief currency strategist Adam Cole said, noting the U.S. dollar was higher against nearly all G10 currencies.

"Concern on the potential for another flare up between the U.S. and China is dominating price action as U.S. Secretary of State Pompeo said there was ‘enormous evidence’ that COVID-19 originated in a laboratory in Wuhan, echoing Trump’s comments last week."

For the loonie, the week’s main economic event comes Friday with the release by Statistics Canada of the April employment figures.

“We know that the just over 1 million fall in employment in March was just the tip of the iceberg and we see about a 5 million follow-up drop in April,” Mr. Cole said.

"Applications to federal government support programs imply such a magnitude, but translating this to the unemployment rate is less clear."

Mr. Cole said RBC is forecasting that the April jobless rate will roughly double from March’s 7.8 per cent.

On world currency markets, the euro was last down 0.4 per cent at US$1.0932. Britain’s pound was also down by 0.4 per cent at US$1.2442.

The biggest mover in the currency markets was the Chinese yuan, which fell to a six-week low of 7.1555 against the U.S. dollar in the offshore market, Reuters reported.

More company news

J. Crew Group Inc filed for bankruptcy protection on Monday with a plan to hand over control to lenders, adding to a list of brick-and-mortar retailers pushed to the brink by widespread store closures in response to the COVID-19 pandemic. The New York-based chain filed for bankruptcy in a Virginia federal court with an agreement to eliminate its roughly $1.65 billion of debt in exchange for ceding ownership to creditors. It is the first big retailer to fail during the pandemic.

Uber said on Monday it was closing down its Uber Eats operations in eight markets because they did not offer a clear route to becoming the number one or number two online food delivery operator, its stated aim for its Eats business. “We have made the decision to discontinue Uber Eats in Czech Republic, Egypt, Honduras, Romania, Saudi Arabia, Ukraine, and Uruguay, and to wind down the Eats app and transition operations to Careem in UAE,” a Uber spokesman told Reuters.

Canopy Rivers Inc. says it has made a $2-million investment in Dynaleo Inc., an Edmonton-based company focused on edible cannabis gummies. Dynaleo has built a manufacturing facility and submitted the supporting documentation for a standard processing licence to Health Canada. The company plans white-label production of CBD and THC edibles for the Canadian market that can be customized to meet customer’s needs and regulatory requirements.

Tyson Foods Inc said it expects meat sales volume to fall in the second half of this year, as restaurants are being forced to operate at a limited capacity due to the COVID-19 pandemic. The biggest U.S. meat processor’s sales rose to $10.89-billion from $10.44-billion, in the second quarter ended March 28. Net income attributable to Tyson fell to $364-million, or $1 per share, from $426-million, or $1.17 per share, a year earlier.

Economic news

(10 a.m. ET) U.S. factory orders for March. The Street is projecting a decline of 9.2 per cent from February.

With Reuters and The Canadian Press

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:00pm EDT.

SymbolName% changeLast
AC-T
Air Canada
-0.15%19.61

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