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Equities

Canada’s main stock index sank alongside world markets Thursday with a drop in crude prices hitting energy shares. On Wall Street, major indexes started sharply lower in the wake of a downbeat economic forecast from the Federal Reserve and rising concerns over an increase in coronavirus infections and hospitalizations in some regions of the U.S.

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At 9:31 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 359.25 points, or 2.29%, at 15,342.08.

In the U.S., the Dow Jones Industrial Average fell 707.48 points, or 2.62 per cent, at the open to 26,282.51. The Nasdaq Composite dropped 229.11 points, or 2.29 per cent, to 9,791.24 at the opening bell. The S&P 500 was down 88.15 points, or 2.76 per cent, at 3,101.99 after market open.

On Wednesday, the Fed forecast that the U.S. economy would shrink by 6.5 per cent this year and signalled plans for years of support as the economy recovers from the impact of the COVID-19 pandemic. Fed chair Jerome Powell said he was “not even thinking about raising rates.” He also said policy would have to be proactive with rates near zero to 2022.

“A cursory glance at market reaction to [Wednesday]’s Fed would suggest that Powell was a major disappointment for investors," Chris Beauchamp, chief market analyst with IG, said.

“That is not really fair, however, since the Fed’s commitment to long-term support for the U.S. economy is now stronger than ever. Quite apart from leaving rates in deep freeze for the next two years (at least), the clear message has been that the world’s most-powerful central bank is committed to repairing the damage to the U.S. economy wrought by Covid-19, regardless of what markets do.”

Reports of rising cases of coronavirus infections in some U.S. states as the country reopens has also raised concern among investors, analysts says.

Total cases of the novel coronavirus in the United States surpassed 2 million on Wednesday, according to Reuters.

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“An increase in cases in Florida, Texas and California have caused some alarm that while economies elsewhere appear to be getting on top of the virus, there are some pockets in the U.S. economy which may take a lot longer,” Michael Hewson, chief market analyst with CMC Markets U.K., said.

On the corporate side, Transat AT Inc. said it plans to resume flights and tour operations starting on July 23. The Montreal-based tour company says it will begin a gradual resumption of operations with plans for 23 international routes over the summer as well as some domestic operations. The news came as Transat reported a loss of $179.5-million or $4.76 per diluted share in the quarter ended April 30 compared with a loss of $939,000 or two cents per diluted share a year ago.

After the close, investors will get results from retailer Lululemon.

South of the border, the U.S. Labor Department said claims for initial state unemployment totalled 1.54 million last week, from 1.897 million the week before.

Overseas, Europe’s major markets were sharply lower by afternoon. The pan-European STOXX 600 fell 2.85 per cent. Britain’s FTSE 100 was down 2.9 per cent. Germany’s DAX lost nearly 3 per cent. France’s CAC 40 dropped 3.14 per cent.

In Asia, Japan’s Nikkei closed down 2.82 per cent. Hong Kong’s Hang Seng fell 2.27 per cent.

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Commodities

Crude prices were lower on as U.S. inventories touched record levels and the Fed signalled a long road back for the U.S. economy from the COVID-19 crisis.

The day range on Brent so far is US$40.10 to US$41.01. The range on West Texas Intermediate is US$37.87 to US$39.09.

The U.S. Energy Information Administration said Wednesday that U.S. crude stocks rose a record 5.7 million barrels last week. Gasoline inventories also grew more than expected to 258.7 million barrels. Distillate stockpiles also increases, although the rise was smaller than in previous weeks.

“The U.S. economy has been reopening lately so one would imagine that demand for oil is on the rise, but the inventory data suggests otherwise,” David Madden, market analyst with CMC Markets, said.

Analysts also said the Fed’s cautious forecast for the U.S. economy and reports of rising cases of coronavirus infections in some regions of the U.S. dampened sentiment.

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“Up until yesterday financial markets didn’t appear overly concerned about the prospect of a second wave, however those OECD predictions which outlined the potential hit of a second wave to GDP prospects, appear to have concentrated minds in the wake of recent gains,” CMC Markets chief market analyst Michael Hewson said.

“Oil prices have also come under pressure, as concerns over a second wave compress expectations for demand over the rest of the year.”

Elsewhere, gold prices fell as investors took profits.

Spot gold was down 0.5 per cent at US$1,728.40 per ounce, after hitting its highest since June 2 at US$1,739.68 earlier in the session. U.S. gold futures climbed 1 per cent to US$1,737.80.

“Gold has struggled around these levels repeatedly over the last couple of months, which is probably why we’re seeing profit taking kicking in once again,” OANDA analyst Craig Erlam said.

Currencies

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The Canadian dollar was weaker as crude prices fell and risk sentiment took a hit in the wake of the Fed’s latest economic forecast.

The day range on the loonie so far is 74.08 US cents to 74.63 US cents.

“After a lot of volatility, most risk proxies are slightly lower in the week so far,” RBC chief currency strategist Adam Cole said.

"The FOMC was unambiguously dovish, the dot plot showing all members forecasting rates flat at zero to end-2021 and only two looking for a hike in 2022. Powell reinforced this message at the press conference, saying the Fed is not even “thinking about thinking about rate hikes.”

There were no major Canadian economic releases on Thursday’s calendar.

On global markets, safe-havens like the Japanese yen and Swiss franc gained on the Fed’s dovish comments.

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Versus the Swiss franc, the U.S. dollar slipped to a three-month low and it languished near a one-month low versus the yen, according to Reuters.

The U.S. dollar index weakened 0.1 per cent to 96.04 after edging 0.2 per cent higher in Asian trade as global stock markets struggled.

More company news

Bombardier Inc is to cut around 400 jobs in its Northern Ireland operations, it said on Thursday, part of plans announced last week to cut 2,500 jobs or about 11% of the workforce in its global aviation unit. Bombardier, which produces wings for Airbus’s A220 jet in Belfast, is the largest high-tech manufacturer in Northern Ireland with a workforce of around 3,500.

Walt Disney Co plans to reopen the Disneyland Park and Disney California Adventure park on July 17, pending approval from state and local authorities. The theme parks based in Anaheim, California have been shut since March 14 to help curb the spread of the COVID-19 pandemic. Disney also plans to reopen its Grand Californian Hotel & Spa and Paradise Pier Hotel on July 23.

The European Union is planning on filing formal antitrust charges against Amazon.com Inc over its treatment of third-party sellers, the Wall Street Journal reported on Thursday, citing people familiar with the matter. The EU has been building its case and circulating a draft of the charge sheet for a couple of months and could officially file the charges as early as next week or the week after, the report added.

Economic news

(8:30 a.m. ET) U.S. initial jobless claims for week of June 6. The Street expects 1.6 million, down 277,000 from the previous week.

(8:30 a.m. ET) U.S. producer price index for May. Consensus projection is a rise of 0.1 per cent from April and down 1.3 per cent year-over-year.

With Reuters and The Canadian Press

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