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Inside the Market Before the Bell: What every Canadian investor needs to know today

Equities

Wall Street futures were lower early Thursday as optimism over trade talks between the United States and China gave way to concerns that there were few concrete signs of progress. Overseas, the new year rally stalled with Asian markets finishing mostly lower and Europe starting the day in the red. Bay Street futures were weaker with crude prices falling on trade and oversupply worries.

Ahead of the North American open, world markets saw a four-day rally come to an end after China said the three days of talks with the United States aimed at resolving trade differences resulted in a “foundation” but offered few details.

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“Stocks have slipped today as some of the positive sentiment surrounding U.S.-China trade talks has evaporated,” David Madden, markets analyst with CMC Markets U.K., said in an early note. "We were updated yesterday that the discussions ended on a positive note, but there is still some way to go."

He noted that China has agreed to buy more U.S. goods and progress was made on intellectual property rights "but the full picture has yet to be reveal. “The lack of new news has prompted dealers to take some profit off the table,” he said.

As well, economic reports out of China overnight - inflation in December cooled to 1.9 per cent and the producer price index fell to 0.9 per cent - offered further indications that the Chinese economy is slowing down, he said. Miners Rio Tinto, Anglo American and Glencore were all lower in European trading on the news.

In corporate news, Ford Motor Co. shares slightly higher in premarket trading after the automaker said it will cut thousands of jobs in Europe, leave unprofitable markets and discontinue loss-making vehicle lines. The efforts are part of a plan aimed at hitting a 6-per-cent operating margin in Europe. The announcement came as Britain’s biggest car maker Jaguar Land Rover (JLR) also announced it would slash 4,500 jobs, mainly in Britain amid a slowdown in China and slumping demand for diesel-powered vehicles.

On Bay Street, shares of retailer Aritzia Inc. could get some attention at the open after the company’s latest results topped analysts forecasts. After the close on Wednesday, Aritzia posted same-store sales growth of 12.9 per cent in the latest quarter and said net revenue rose by 18.8 per cent. Profit was up 16.1 per cent to $32.6-million. Adjusted profit rose to 31 cents a share, from 26 cents in the same period a year earlier. Analysts had been looking for profit by that measure of 29 cents a share in the quarter.

Earnings are due Thursday from Postmedia Network Canada Corp.

Overseas, markets in Europe were weaker with the pan-European STOXX 600 falling 0.25 per cent. Britain’s FTSE 100 was down 0.10 per cent. Germany’s DAX fell 0.23 per cent. France’s CAC 40 slid 0.63 per cent.

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In Asia, markets were mostly lower on China’s weaker-than-expected inflation reading. Japan’s Nikkei fell 1.29 per cent. The Shanghai Composite Index lost 0.36 per cent. Hong Kong’s Hang Seng bucked the trend, edging up 0.22 per cent.

Commodities

Crude prices gave back some of the previous sessions gains on trade concerns and continued worries about U.S. oversupply. Brent crude was weaker and had a range for the day so far of US$60.44 to US$61.40. West Texas Intermediate was also down and had a range of US$51.45 to $52.23. Both benchmarks gained roughly 5 per cent during the previous session.

“After a scintillating rally, oil markets are taking a bit of time out but remain well supported by OPEC cuts, U.S.-China trade talks a dovish Fed and the expectation of more PBOC [People’s Bank of China] stimulus after the soft factor gate inflation as the markets continue to lean against both the PBOC and Federal Reserve policy backstops,” OANDA analyst Stephen Innes noted.

Crude prices had got a lift alongside broader markets earlier this week after officials indicated talks over U.S.-China trade relations ended on a positive note. However, the lack of concrete details tempered that enthusiasm on Thursday.

As well, on Wednesday, figures released by the U.S. Energy Information Administration showed U.S. crude inventories fell by 1.7 million barrels to 439.74 million. Despite the drop, inventories were still above the five-year seasonal average of 435 million barrels, according to Reuters. The IEA also said crude production remained at a record 11.7 million barrels a day last week.

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OANDA analyst Dean Popplewell said a number of analysts have begun to cut their 2019 oil price forecasts by more than 10 per cent this week, citing weaker economic growth expectations and higher oil supply, especially from the U.S. He noted consensus now expects Brent to average around US$61 a barrel this year, down from a previous estimate of US$69, and U.S crude to average US$54, against a previous forecast of US$60.

In other commodities, gold prices were little changed near a six-month high. Spot gold was little changed at US$1,293.42 per ounce, holding near last week’s peak of US$1,298.42. That was the highest level seen by the precious metal since June. U.S. gold futures gained 0.2 per cent to US$1,294.20 per ounce.

“Ahead of the U.S open, gold prices have found support as growing expectations that the Fed will pause its rate tightening cycle this year and an impasse between President [Donald] Trump and Democrats on funding for a border wall is weighing on the dollar,” Mr. Popplewell said.

Currencies and bonds

The Canadian dollar was slightly weaker but still above the mid-75-US-cent mark and not far off its five-week after the Bank of Canada held interest rates steady on Wednesday but offered hints that it could still raise rates later in the year. The day range on the loonie so far is 75.48 US cents to 75.73 US cents.

“The BoC maintained a hawkish bias by indicating that interest rates will have to move to neutral levels over time in order to reach their 2-per-cent inflation target,” RBC chief currency strategist Adam Cole said.

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In its outlook, the central bank also cut its 2019 growth forecast to 1.7 per cent, from 2.1 per cent. However, it also said it remains committed to getting interest rates back to neutral levels “over time.” In a research note, Bank of America Merril Lynch said it expects the central bank to hike rates twice in 2019 “after a detour, with risks around that path mostly driven by oil prices.”

“Because the BoC interprets the negative shock to activity due to lower oil prices as temporary, it is communicating a pause or a detour on its way to continue hiking rates, but not a change in course,” the report said. "We agree with the assessment. Oil prices have already recovered somewhat (WTI is back above US$50) and the (Western Canada Select) differential with WTI corrected sharply after the cut to production in Canada."

The report noted that the rest of the economy continues with solid growth, with a job market that closed the year with the lowest unemployment rate on record and inflation around target levels.

On global markets, the euro managed a three-month high against the U.S. dollar after the Federal Reserve’s latest minutes signalled a more cautious approach to rate hikes. The minutes, released Wednesday afternoon, showed several policymakers favoured keeping rates steady this year.

The U.S. dollar index, meanwhile, was steady at 95.22, after falling 0.7 per cent on Wednesday on the Fed minutes. Reuters notes that the dollar index has now weakened in four of the last five sessions.

In bonds, the yield on the U.S. 10-year note was lower at 2.701 per cent. The yield on the 30-year note was also lower at 3.008 per cent.

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Stocks set to see action

Barrick Gold subsidiary Acacia Mining said on Thursday the Tanzanian government has fined the miner 300 million Tanzanian shillings ($173,000), two days after the government appointed a new mining minister, over allegations of breaching environmental regulations at its North Mara mine. Acacia said it has been asked verbally to build a new tailings storage facility (TSF), a structure for storing uneconomical ore, but had not yet received any written notice from the government.

Shares in Macy’s sank 18 per cent in premarket trading after the department store operator cut same-store sales forecast for the holiday quarter citing weak demand during mid-December. Sales from Macy’s stores and third-party licensees open for more than 12 months is now expected to grow about 2 per cent, lower than a prior forecast of between 2.3 per cent and 2.5 per cent.

Target Corp said on Thursday comparable sales grew 5.7 per cent for the last two months of the year on the back of a robust holiday selling season that was driven by strong online sales and customer visits. The company had expected same-stores sales growth of about 5 percent for the fourth quarter ending January, while comparable sales had grown 3.4 percent in the November-December period last year. Target shares were down more than 3 per cent.

American Airlines Group Inc cut its estimate for a closely watched performance metric for the fourth quarter, citing lower than anticipated improvement in demand in the domestic market. The airline said it now expects unit revenue, which compares sales to flight capacity, to increase about 1.5 per cent in the quarter, compared with its earlier expectation of a rise of 1.5 per cent to 3.5 per cent. Shares fell about 7 per cent in premarket trading.

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Economic news

Statistics Canada says the value of Canadian building permits rose 2.6 per cent in November to $8.3-billion. Plans for building in the commercial segment drove most of the gains.

The U.S. Labor Department said Initial claims for state unemployment benefits fell 17,000 to a seasonally adjusted 216,000 for the week ended Jan. 5. Figures for the prior week were revised higher to show 2,000 more applications received than previously reported.

(12:45 p.m. ET) U.S. Federal Reserve chair Jerome Powell to speak with the Economic Club of Washington.

With Reuters and The Canadian Press

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