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Equities

Major indexes on both side so the border were mostly lower early Wednesday after Federal Reserve chair Jerome Powell warned that the U.S. could face an extended period of weak growth as it contends with the fallout from the COVID-19 pandemic.

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At 9:36 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 118.86 points, or 0.8 per cent, at 14,762.3.

In the U.S., the Dow Jones Industrial Average fell 62.62 points, or 0.26 per cent, to 23,702.16 at the open.

The S&P 500 was lower by 6.05 points, or 0.21 per cent, at 2,864.07. The Nasdaq Composite managed modest gains, rising 3.49 points, or 0.04 per cent, to 9,006.05 at the opening bell.

Ahead of Wednesday’s open, Mr. Powell, in highly anticipated remarks, said the U.S. response to the crisis has bee “particularly swift and forceful.” However, he also cautioned that a recovery likely won’t be immediate.

“The recovery may take some time to gather momentum,” he said, adding the rebound will likely be closely linked to the progress in fighting the virus. Mr. Powell also indicated that the Fed isn’t looking at negative interest rates right now, despite calls from U.S. President Donald Trump to move in that direction.

U.S. markets saw a sharp selloff on Tuesday after Dr. Anthony Fauci, the top infectious disease expert in the United States, told Congress that lifting the sweeping lockdowns could touch off new outbreaks of the illness. While some states are moving to reopen economies, Los Angeles County said Tuesday its stay-at-home order was likely to be extended by three months.

Investors are closely watching the experience in countries like South Korea and Germany, which have made moves toward reopening. In Germany, the reproduction rate for the coronavirus pandemic fell below a critical threshold on Tuesday, according Robert Koch Institute for public health and disease control. On Wednesday, Austria said the Austrian-German border is likely to reopen in a month.

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“There is rising apprehension as various economies start to take baby steps out of lockdown that a secondary wave on infections, will cause politicians to slam on the brakes, and bring an end to the wave of optimism that has seen equity markets trade strongly off their March lows,” CMC chief markets analyst Michael Hewson said.

Also weighing on sentiment Wednesday is renewed concern about trade relations between the United States and China. A leading U.S. Republican senator is proposing legislation that would give Mr. Trump the authority to impose sanctions on China if it fails to give a full account of events leading to the coronavirus outbreak.

In this country, energy stocks are in the spotlight after the Norwegian central bank on Wednesday excluded four Canadian oil and gas companies from its $1-trillion wealth fund, the world’s largest, for producing too much greenhouse gas emissions. Canadian Natural Resources Ltd, Cenovus Energy Inc., Suncor Energy Inc, and Imperial Oil Ltd were excluded from the fund due to “unacceptable greenhouse gas emissions,” Norges Bank said in a statement.

Overseas, major European markets were sharply lower by afternoon. The pan-European STOXX 600 fell 1.01 per cent. Germany’s DAX fell 1.31 per cent. France’s CAC 40 lost 1.56 per cent. Britain’s FTSE 100 was down 0.80 per cent after new figures showed the U.K. economy shrank by a record 5.8 per cent in March.

In Asia, Hong Kong’s Hang Seng slid 0.27 per cent. Japan’s Nikkei declined 0.49 per cent. The Shanghai Composite Index ended up 0.22 per cent.

Commodities

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Crude prices recouped early losses to edge higher as concerns about a second wave of virus infections and rising U.S. inventories continue to temper sentiment.

The day range on Brent so far is US$28.92 to US$29.69. The range on West Texas Intermediate is US$25.07 to US$25.81.

“Oil prices are being undercut by fears that a resurgence of the coronavirus may prompt countries to keep lockdowns in place for longer, hurting global economic activity and energy demand,” Avtar Sandu, manager, commodities at Phillip Futures in Singapore, told Reuters.

Late Tuesday, the American Petroleum Institute reported that crude stocks rose by 7.6 million barrels last week to 526.2 million barrels. Analysts had been expecting an increase of about 4 million barrels. However, stocks at the Cushing, Oklahoma, hub fell by 2.3 million barrels, indicating the first decline since February.

Official U.S. government inventory figures will be released by the U.S. Energy Information Administration on Wednesday morning.

CMC Markets analyst David Madden said crude markets have drawn some support from reports that OPEC Plus wants to keep the current 9.7 million barrel-a-day production cut in place beyond June. Those reports came from unnamed sources linked to the group, he said.

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“The oil market has rebounded in the past couple of weeks, so it is possible the body [is] keen to prop up [prices]," Mr. Madden said.

In other commodities, gold prices were steady.

Spot gold was unchanged at US$1,702.52 per ounce. U.S. gold futures fell 0.1 per cent to US$1,705.90 per ounce.

“This kind of indecision (by investors) really has to do with uncertainty about whether the Fed would be successful with all this stimulus and a desire for liquidity,” DailyFx currency strategist Ilya Spivak said.

Currencies

The Canadian dollar was slightly firmer as its U.S. counterpart pulled back somewhat against global counterparts ahead of Mr. Powell’s remarks.

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The day range for the loonie is 71 US cents to 71.25 US cents.

“CAD-specific news is scant,” Shaun Osborne, Scotiabank’s chief FX strategist, said. “The VIX [volatility] index rebounded sharply yesterday as U.S’ stocks fell and while the rebound has stalled on the day so far (and the index remains below the sensitive 40 level), we feel the CAD remains something of a hostage to broader risk appetite and swings in sentiment around economic re-opening.”

There were no major economic releases on the Canadian calendar on Wednesday.

On global markets, the U.S. dollar index slid 0.1 per cent to 99.98, just below its three-week high of 100.44. The U.S. dollar index is up about 5 per cent from early March.

Elsewhere, the New Zealand dollar slumped 1 per cent to 60.14 US cents against the greenback after the central bank expanded asset purchase to NZ$60-billion from NZ$33-billion while its policy minutes said that negative interest rates are a future option.

Britain’s pound edged up 0.3 per cent to US$1.2288 as bond yields fell on the latest reading on U.K. GDP.

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More company news

Aimia Inc. says it has acquired a 10-per-cent stake in Chinese outdoor advertising firm Clear Media Ltd. for $75-million. The move comes as the company works to transform itself from a loyalty rewards company into an investment holding firm. Aimia says it has acquired 58.8 million common shares in Clear Media, including 19.6 million previously held by clients of Mittleman Investment Management which is also Aimia’s largest shareholder.

The Associated Press reports that it appears the dispute between Tesla and San Francisco Bay Area authorities over the reopening of a factory in the face of shutdown orders is coming to an end. The Alameda County Public Health Department announced on Twitter early Wednesday that the Fremont, California, plant will be able to go beyond basic operations this week and start making vehicles this coming Monday — as long as it delivers on the worker safety precautions that it agreed to.

High demand for video games during the coronavirus pandemic lifted first quarter revenue at Chinese gaming and social media giant Tencent Holdings by 26%, beating forecasts. The world’s largest gaming firm by revenue said on Wednesday that its profit for booked the three months through March was 28.90 billion yuan ($4 billion), ahead of an analyst average estimate of 23.84 billion yuan, Refinitiv data showed.

Sony Corp expects operating profit to drop at least 30% this financial year to its lowest in four years as the company anticipates a hit to demand for its TVs, cameras and smartphone image sensors from the coronavirus outbreak. Sony has halted production at some plants and experienced supply-chain disruptions as governments around the world imposed lengthy restrictions on movement and business activity to contain the virus. Chief Financial Officer Hiroki Totoki said the consumer electronics business such as TVs “has been hardest hit right now, but the impact will expand to other businesses as well.”

Nissan Motor Co plans to cut US$2.8-billion in annual fixed costs as part of its restructuring plan, Bloomberg News reported on Wednesday, as it braces for a drop in sales that could complicate its recovery from years of poor profitability. Following a three-year spell of tumbling profits, Nissan will announce its restructuring plan on May 28, its latest attempt to slash costs after a strategy of aggressive selling to chase market share has pummelled its bottom line.

Economic news

The Labor Department said on Wednesday its producer price index for final demand tumbled 1.3 per cent last month after slipping 0.2 per cent in March. In the 12 months through April, the PPI decreased 1.2 per cent.

(9 a.m. ET) U.S. Fed Chair Jerome Powell discusses current economic issues at the Peterson Institute for International Economics

With Reuters and The Canadian Press

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