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Equities

Indexes on both sides of the border opened down Friday with rising tensions between the United States and China and continued concerns over spiking coronavirus infections sideswiping investor sentiment.

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At 9:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 38.09 points, or 0.24 per cent, at 15,980.56.

The Dow Jones Industrial Average fell 118.92 points, or 0.45 per cent, at the open to 26,533.41. The S&P 500 opened lower by 17.08 points, or 0.53 per cent, at 3,218.58, while the Nasdaq Composite dropped 167.01 points, or 1.60 per cent, to 10,294.41 at the opening bell.

“With COVID-19 rampaging across the U.S., risks are increasing that the recovery could stall,” OANDA senior market analyst Jeffrey Halley said.

“Ahead of the weekend, and having rallied strongly this week, it probably didn’t take much for investors with itchy trigger fingers to head for the exit door,” he said. “Notably, tech-led the move down, having outperformed this week.”

On Friday, China ordered the United States to close its consulate in the city of Chengdu, retaliating for a U.S. demand earlier in the week that Beijing shutter its consulate in Houston.

“An escalation in U.S.-China tensions that could have hugely negative consequences on stock market leadership, particularly around the US tech giants, is worrying,” AxiCorp chief market strategist Stephen Innes said.

“Even more so, if President Trump pulls the free pass into China, and things could turn quite ugly into the weekend as traders will have no option but pare risk.”

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On the corporate side, Wall Street will get earnings Friday from Verizon and Honeywell International.

Shares of chip maker Intel sank 17 per cent in early trading after the company said on Thursday its new 7-nanometer chip technology was six months behind schedule. Chief Financial Officer George Davis told Reuters that Intel had discovered a “critical defect mode” in part of the 7nm chipmaking process technology and was making adjustments.

In this country, forestry company Canfor reported earnings per share in the latest quarter of 48 cents. Adjusted earnings per share for the period totalled 67 cents a share. Quarterly sales totalled $1.115-billion, down from $1.313-billion a year earlier but ahead of analysts’ forecasts of $1.03-billion, according to Refinitiv IBES data.

Overseas, the pan-European STOXX 600 was down 1.39 per cent. Britain’s FTSE 100 fell 1.16 per cent in afternoon trading. Germany’s DAX slid 1.55 per cent. France’s CAC 40 fell 1.20 per cent. The declines came even as the latest reading in euro zone business activity showed a rebound in July. The Flash Markit PMI rose to 54.8 for the month, indicating growth in the sector for the first time since February.

In Asia, The Shanghai Composite Index sank 3.86 per cent. Hong Kong’s Hang Seng dropped 2.21 per cent. Markets in Japan were closed for a public holiday.

Commodities

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Crude prices crept higher in early going as a softer U.S. dollar helped offset concerns over rising U.S.-China tensions and a weaker-than-expected reading on the health of the U.S. employment market.

The day range on Brent is US$43.03 to US$43.68. The range on West Texas Intermediate is US$40.72 to US$41.46.

“Struggling employment metrics are perhaps the most poignant reality check for oil markets,” AxiCorp chief market strategist Stephen Innes said in an early note.

“Even an extension of U.S. unemployment benefits may only paper over the cracks and possibly will not ease that sense of permanency getting reflected through the claims data.”

On Thursday, the U.S. Labor Department said the number of Americans filing for state unemployment benefits rose to 1.416 million, the first increase in four months.

Sentiment was also tempered by news that Beijing had ordered Washington to close its consulate in Chengdu after the U.S. made a similar demand regarding China’s consulate in Houston earlier in the week.

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Crude prices, however, drew some support from a weakening U.S. dollar, with the U.S. dollar index falling to its lowest point in nearly two years on Thursday. A weaker greenback helps spur buying of commodities because they become cheaper to holders of other currencies.

In other currencies, gold also drew some support from a softer U.S. dollar.

Spot gold was up 0.3 per cent at US$1,893.21 an ounce, having hit its highest since September 2011 at $1,897.16 on Thursday. Prices are up more than 4 per cent this week.

Currencies

The Canadian dollar was slightly weaker, trading around the mid-74-US-cent mark, as risk sentiment fades on global markets amid rising tensions between the U.S. and China.

The day range on the loonie so far is 74.38 US cents to 74.75 US cents.

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“The CAD is still the tail of the FX dog and, with no domestic data ahead until next Friday’s GDP report, the CAD will remain a slave to USD flows, crude oil, and the broader market tone—even if its correlation with equities has weakened, it remains relatively strong,” Shaun Osborne, chief FX strategist with Scotiabank, said.

There were no major Canadian economic reports on Friday’s calendar.

On global markets, the euro was flat against the U.S. dollar at US$1.1601.

Japan’s yen was last up 0.6 per cent at 106.25, its highest since June 23, in the wake of the latest U.S.-China headlines.

“Typically when we would be entering into more of a risk- averse posture, the dollar would strengthen,” Shannon Saccocia, CIO at Boston Private Wealth, told Reuters. But because the United States has managed the coronavirus pandemic worse than Europe or China, “it seems like there is more promise outside of the United States.

“I think we’re going to continue to see pressure on the dollar” as expectations of a steady return to growth diverge between the United States and elsewhere, she said.

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Elsewhere, the British pound fell 0.2 per cent against the U.S. dollar and the euro, to US$1.2721 and 91.19 pence respectively.

More company news

Credit card issuer American Express Co reported a 85-per-cent drop in quarterly profit on Friday after it set aside nearly $628-million to prepare for a flood of potential defaults caused by coronavirus-led layoffs. The company’s net income fell to $257-million, or 29 cents per share, in the second-quarter ended June 30, from $1.76-billion, or $2.07 per share, a year earlier.

Malaysia on Friday said U.S. investment bank Goldman Sachs has agreed to a $3.9-billion settlement with the government over the multi-billion dollar 1MDB scandal. The deal includes a $2.5-billion cash payout by Goldman and a guarantee by the bank to return at least $1.4-billion in assets linked to 1MDB bonds, Malaysia’s finance ministry said in a statement. Malaysian prosecutors filed charges in December 2018 against three Goldman Sachs units for misleading investors over bond sales totalling $6.5-billion that the bank helped raise for sovereign wealth fund 1MDB (1Malaysia Development Bhd).

Walt Disney Co postponed the debut of its movie “Mulan” indefinitely, the company said on Thursday, dealing a new blow to theater operators who were counting on the live-action epic to help attract audiences during a pandemic. “Mulan” was scheduled to reach theaters in March but its release has been postponed several times as many movie theaters remain closed to help keep the novel coronavirus from spreading. It had most recently been set to debut on Aug. 21.

Aecon Group Inc. swung to a loss in the second quarter as some construction projects were slowed by the COVID-19 pandemic and its stake in Bermuda’s airport operations was hurt by a suspension of flights. The Toronto-based construction firm says it lost $6.2-million for the period ended June 30, compared with a $20.4-million profit a year earlier. That translated into a loss of 10 cents per dilute share, down from a profit of 31 cents per share in the prior year quarter.

Diversified U.S. manufacturer Honeywell International Inc reported a 30-per-cent slump in quarterly profit, hit by a sharp fall in demand for aircraft spare parts as airlines park or retire thousands of planes due to the COVID-19 pandemic. Net income attributable to Honeywell fell to $1.08-billion, or $1.53 per share, in the second quarter ended June 30, from $1.54-billion, or $2.10 per share, a year earlier. Revenue for the company, which makes parts for planes made by Boeing Co and Airbus SE, fell about 19 per cent to $7.48-billion.

Hertz Global Holdings Inc said it has reached an interim $650-million deal with its lenders to resolve a bankruptcy court fight over the company’s plan to reduce its leased fleet of rental cars. Under the agreement, Hertz will pay $650-million in cash in equal monthly installments from July to December. The car rental company will also dispose of at least 182,521 leased vehicles between June and December.

Economic news

(945 a.m. ET) U.S. preliminary July market PMIs.

(10 a.m. ET) U.S. new home sales for June.

With Reuters and The Canadian Press

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