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Equities

U.S. stock futures gave back modest early gains and looked set for a lower start Thursday as world markets sank after the Federal Reserve failed to serve up a more dovish outlook on rate hikes in the new year. MSCI’s all-country index, which has fallen about 10 per cent this year, was down 0.4 per cent and looked headed for a fifth day of declines. Shares in Europe started the day weaker and Asia followed Wall Street’s sell off to close in the red. On Bay Street, futures were modestly higher as oil prices continued to struggle but gold prices rose.

On Wednesday, the Fed delivered its fourth interest rate hike of the year and signaled “some further gradual” increases while also indicating no plans to cut its bond portfolio. Traders had been looking for a clearer indication from the central bank of a pause in the tightening cycle given recent market concern over signs of slowing global economic growth and warning signals from the bond market.

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“The decision to raise rates was not a surprise, however the guidance was, in that it wasn’t dovish enough,” Michael Hewson, chief market analyst with CMC Markets U.K., said. “Fed chairman Jay Powell did recognize some of these concerns by saying that growth and inflation were likely to be weaker, yet his overall tone came across as steady as she goes, as the U.S. central bank continued to act as if the sun was shining, slapping on the sun screen, instead of investing in some form of storm insurance, as dark rain clouds start to loom larger.”

Mr. Hewson noted that the Fed offered no indication that it was ready to rein in the pace of balance sheet reduction and, while they indicated two rate hikes were likely next year instead of three, “it was almost as if they were offering a tin ear to market concerns.”

Heading into Thursday’s trading day, BlackBerry Ltd. reported a quarterly profit of US$59-million in the third quarter, compared with a loss of US$275-million a year earlier. (The year-earlier period included a one-time charge of US$149-million related to a payment dispute with Finland’s Nokia Oyj.) Revenue was unchanged at US$226-million. BlackBerry’s U.S.-listed shares were up more than 4 per cent in premarket trading on the results.

In other corporate news, U.S.-listed shares of B.C.-based cannabis company Tilray Inc. were up 14 per cent in premarket trading on news of a joint venture that will see Labatt Brewing Company Ltd., AB InBev’s Canadian subsidiary, and Tilray will each contribute up to US$50-million to a joint venture focused on researching tetrahydrocannabinol (THC) and cannabidiol (CBD)-infused drinks, the companies said on Wednesday.

On Wall Street, Nike Inc. reports its latest quarter after the close of trading. Analysts polled by Zack’s Investment Research are looking for earnings per share in the quarter of 45 US cents, down from 46 US cents a year earlier.

Overseas, European markets were lower at the open, although the pan-European STOXX 600 managed to claw back some early losses to trade down 0.96 per cent as the morning progressed. Britain’s FTSE 100 was down 0.44 per cent. Germany’s DAX lost 0.94 per cent and France’s CAC 40 sank 1.55 per cent in morning trading. Reuters notes that, during early trading, markets in Germany, Britain and France all hit their lowest levels since 2016.

In Asia, markets were broadly weaker following Wall Street’s lead. The Shanghai Composite Index finished down 0.52 per cent with banks trading lower after China’s central bank said Thursday it would keep short-term rates unchanged. Hong Kong’s Hang Seng lost 0.94 per cent. Japan’s Nikkei dropped 2.84 per cent. The broader Topix lost 2.51 per cent.

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Commodities

Crude oil saw the previous sessions rally fade in early going with prices dropping sharply early Thursday on the combined impact of market concern about global oversupply and continued volatility in equity markets. Both Brent crude and West Texas Intermediate were down by more than 3 per cent - earlier in the morning prices had been down by as much as 4 per cent - at last check. Brent has a day range of US$54.64 to US$56.75. WTI’s range so far is US$45.82 to US$47.51.

“Oil markets are faring poorly as traders are back dealing with the supply-demand equation which suggests the path of least resistance remain lower given we are in the middle of a developing year-end washout in risk and equity markets,” OANDA analyst Stephen Innes said. “Its mighty choppy with liquidity a bit thin heading into the London open so be nimble and be quick.”

Both Brent and WTI rallied on Wednesday but, with Thursday’s losses, are now back to lowest levels in more than 15 months. Crude prices are down about 30 per cent October’s highs.

“While markets are trying to recover, however, the thick layers of bearish sentiment are everywhere which continues to thwart any recovery so far,” Mr. Innes said.

Sentiment got some support from the latest weekly inventory figures from the U.S. Energy Information Administration. The report showed crude stocks 497,000 barrels last week, although analysts had been looking for a draw of more than 2 million barrels.

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In other commodities, gold prices edged up as the U.S. dollar slipped following the latest Fed decision. Spot gold rose 0.5 per cent to US$1,249.46 an ounce after falling by the most since late November on Wednesday. U.S. gold futures were down 0.3 per cent to US$1,252.80.

“While the Fed decision is temporarily outweighing the positive from the equity market rout, gold should remain well supported above US$1,240 as risk sentiment could continue to struggle,” Mr. Innes said in an early note. “But overall it could be time to shut it down as year-end position squaring is likely to take hold.”

Currencies and bonds

The Canadian dollar was modestly higher early Thursday after touching its weakest level since mid 2017 during the previous session. The day range on the loonie is 74.05 US cents to 74.36 US cents. The dollar’s gains came as the its U.S. counterpart slid to one-month lows on worries that interest rate hikes come as global growth slows.

The loonie held early gains after Statistics Canada reported that wholesale trade in October rose 1 per cent, better than the 0.4-per-cent gain the market had been expecting and more than offsetting September’s 0.7-per-cent decline. More significant news for currency markets comes early Friday with retail sales GDP figures for October. Retail sales are seen rising 0.6 per cent from September (up 0.4 per cent excluding autos) and GDP is expected to edge up 0.2 per cent for the month. The Bank of Canada’s latest business outlook survey also lands on Friday morning.

On Tuesday, the loonie took a hit from softer-than-expected inflation data and volatile markets in the wake of the Fed decision, falling as low as 74.04 US cents. That was its weakest since June 2017.

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“The Canadian jobs market is robust, but the inflation figures might lead the Bank of Canada to hold fire on interest rates in January especially in light of the Fed’s dovish hike,” David Madden, CMC market analyst, said.

In world currencies, the U.S dollar index fell 0.8 per cent against its rivals to 96.258, its lowest level in a month. Reuters notes that, on a daily basis, the index is set for its biggest percentage decline in six weeks.

In bonds, U.S. yields fell in the wake of the Fed move. The yield on the U.S. 10-year note was lower at 2.774 per cent. The yield on the 30-year note was also down at 2.978 per cent.

Stocks set to see action

Husky Energy Inc. says it plans to spend about $3.4-billion on its capital program in 2019, down about $300-million that forecast at the company’s investor day in May. The 2019 figure includes spending reductions stemming from Alberta’s mandated oil production cuts, the company said.

Aphria Inc. said Thursday it has signed a letter of intent with Argentinian state-owned Cannabis Avatãra Sociedad del Estado to expand Aphria’s operations into the province of Jujuy. Under the agreement, Aphria’s ABP SA subsidiary establish a facility for the cultivation and processing of cannabis, as well as for the manufacturing of cannabis derivative products.

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Marlboro cigarette maker Altria Group Inc on Thursday announced it would pay US$12.8-billion to take a 35-per-cent stake in electronic cigarette maker Juul Labs Inc. The deal values San Francisco-based Juul at US$38-billion, more than double the roughly US$16-billion valuation it fetched in a July private funding round, highlighting what Altria sees as its next phase of growth in the face of declining smoking rates and cigarette sales in the United States. Altria shares were up modestly in premarket trading.

Walgreens Boots Alliance Inc posted a better-than-expected quarterly profit on Thursday, and said it would cut costs to save more than US$1-billion in three years. Same-store sales at its U.S. pharmacies rose 2.8 percent, beating analysts’ estimates of a 2.6 per cent increase, according to IBES data from Refinitiv. Net income attributable to the company rose to US$1.12-billion, or US$1.18 per share, in the first quarter ended Nov 30 from US$821-million, or 81 US cents per share, a year earlier.

A German court ruled on Thursday that iPhone maker Apple Inc infringed a hardware patent of Qualcomm Inc and said the U.S. company could no longer sell some iPhone models in Germany which contain a particular component. The ruling will not go into immediate effect if Apple appeals, judge Matthias Zigann told the court.

Cruise operator Carnival Corp.'s shares were down about 5 per cent ahead of the open after the company posted a 9.5-per-cent drop in profit in the latest quarter on higher costs for fuel and food. Carnival also forecast first-quarter profit below analysts' expectations.

More reading:

Thursday’s small cap stocks to watch

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Economic news

The Bank of England kept interest rates unchanged Thursday and said that Brexit uncertainty had “intensified considerably” in the last month.

Canadian October wholesale trade rose 1 per cent to $63.8-billion, offsetting September’s decline of 0.7 per cent, Statistics Canada says. Sales rose in four of seven subsectors, representing 68 per cent of total sales.

U.S. weekly jobless claims totaled 214,000 last week, roughly in line with market expectations.

(10 a.m. ET) U.S. leading indicator for November. Consensus is unchanged from previous month.

With Reuters and The Canadian Press

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