Canada’s main stock index retreated on Friday, after three straight sessions of gains, as sentiment was weighed by fears over the fate of debt-ridden Chinese developer Evergrande.
The Toronto Stock Exchange’s S&P/TSX composite index opened down 45.08 points, or 0.22%, at 20,416.85.
U.S. stock indexes also opened lower following a strong two-day rally. The Dow Jones Industrial Average fell 2.51 points, or 0.01%, at the open to 34,762.31. The S&P 500 opened lower by 10.94 points, or 0.25%, at 4,438.04, while the Nasdaq Composite dropped 90.63 points, or 0.60%, to 14,961.62 at the opening bell.
Treasury yields, which shot up on Thursday amid hawkish remarks by central banks, were only modestly higher on Friday, with the 10-year U.S. note near 1.447%.
Fears about a sooner-than-expected tapering amid signs of stalling U.S. economic growth and concerns over a spillover from China Evergrande’s default have rattled investors in September, putting the benchmark S&P 500 index on course to snap a seven-month winning streak.
On Wednesday, the Fed signaled it would reduce its monthly bond purchases as soon as November and that interest rates could rise quicker than expected. Still, Wall Street’s main indexes rallied in the past two session and are set for small weekly gains.
China Evergrande has left global investors guessing over whether it will make a key interest payment, adding to fears that Beijing will let overseas bondholders swallow large losses as a liquidity crisis deepens at the world’s most indebted property company.
Evergrande owes $305 billion, has run short of cash and investors are worried a collapse could pose systemic risks to China’s financial system and reverberate around the world.
A Thursday deadline for paying US$83.5 million in interest of a dollar bond passed without remark from Evergrande, and bondholders had not been paid nor heard from the company, two people familiar with the situation told Reuters.
The firm has a 30-day grace period and will default if that passes without payment.
The Globe and Mail is reporting this morning that Canada’s largest pension funds and banks have limited direct ties to the Evergrande Group debt crisis, but there’s little question the Chinese company’s collapse would have painful knock-on effects, even if those indirect reverberations are difficult to quantify.
In corporate news this morning, Nike Inc shed 4.6% after the sportswear maker cut its fiscal 2022 sales expectations and warned of delays during the holiday shopping season.
Shares of cryptocurrency-related firms Coinbase Global , MicroStrategy Inc, Riot Blockchain and Marathon Patent Group slid between 3% and 6.1% after China’s central bank vowed to crack down on cryptocurrency trading.
Ten Chinese government agencies, including the central bank as well as banking, securities and foreign exchange regulators, said in a joint statement they would work closely to maintain a “high-pressure” clampdown on trading of cryptocurrencies.
The People’s Bank of China (PBOC) said cryptocurrencies must not circulate in markets as traditional currencies and that overseas exchanges are barred from providing services to mainland investors via the internet.
The PBOC also barred financial institutions, payment companies and internet firms from facilitating cryptocurrency trading.
The price of bitcoin this morning is down about 8%.
Oil prices steadied on Friday near a two-month high above $77 a barrel and were headed for a third straight week of gains, supported by global output disruptions and inventory draws.
The rally was slightly dampened by China’s first public sale of state crude reserves.
Brent crude was down 3 cents, or 0.04%, at $77.22 a barrel by 1112 GMT, after earlier rising as high as $77.74, its highest since July 6, and close to its highest since October 2018.
U.S. oil was down 15 cents, or 0.2%, at $73.15 a barrel, having closed 1.5% in the previous session, the highest since the start of August.
Oil prices have been supported in recent weeks by major disruptions in U.S. Gulf Coast production following Hurricane Ida and other storms, disruptions which could last for months in some cases, that have led to sharp draws in U.S. and global inventories.
U.S. oil refiners on the hunt for replacements for the Gulf crude have turned to Iraqi and Canadian oil, analysts and traders said.
Gold prices bounced off 1-1/2-month lows on Friday, buoyed by safe-haven demand as investors grew wary over cash-strapped China Evergrande’s fate while a softer dollar also lifted the metal’s allure for holders of other currencies.
Spot gold was up about 0.6% to $1,753.50 per ounce in morning trade. Prices hit their lowest level since Aug. 11 at $1,737.46 on Thursday. U.S. gold futures rose 0.3% to $1,754.40.
The dollar index lingered near a one-week low touched on Thursday.
“Asian investors could be building gold to protect against undesirable developments in the Evergrande saga over the weekend,” said Jeffrey Halley, a senior market analyst for Asia Pacific at OANDA, adding the metal was likely to trade in a $1,740-$1,780 range in the near term.
Currencies and bonds
The Canadian dollar is softer this morning against the greenback, following a bullish day for the loonie on Thursday.
“The CAD is still tracking a decent 0.6% gain for the week that puts it in the top tiers of the majors league thanks to a roughly 2% gain in crude oil prices and a widening of its yield advantage against the USD in the 5-yr space,” Scotiabank forex strategists said in a note this morning. “Retail sales data published yesterday showed a smaller-than-expected contraction in July at 0.6% m/m vs the initial estimate of –1.7% m/m, and guidance from Statcan for August was a solid 2.1% m/m gain (though this is also subject to revision) which points to a strong recovery in retail sales in Q3 after the Q2 drop amid virus lockdowns.”
Scotiabank notes that next Friday, Statistics Canada releases August monthly GDP figures that will be monitored for revisions to the very disappointing guidance of a 0.4% contraction in July. “We think the BoC remains on a clear path to end its QE programme this year—and eventually hike rates in 2022—but the market’s focus on the Fed’s hawkish ‘turn’ offers limited room for CAD gains against the USD,” he said.
Other corporate news
Transcontinental Inc. says chief executive Francois Olivier will retire in December after 28 years with the company, including 13 years as CEO. The printing and packaging company says Peter Brues, a member of its board of directors since 2018 and chair of the audit committee, will succeed him.
SNC-Lavalin Group said on Thursday Quebec’s chief prosecutor had offered to negotiate a remediation agreement with the company in a case related to alleged fraud against the Canadian government about two decades ago.
(10 am ET) U.S. new home sales. Consensus is for a 0.1% rise to an annualized rate of 709,000.
(10 am ET) Fed chair Powell provides opening remarks at Fed Listens Event. A number of Fed members will also be speaking throughout the day.
With files from Reuters