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Canada’s commodity-heavy main stock index retreated from a record high on Thursday, weighed by weakness in miners and energy stocks, while disappointing corporate earnings from Rogers Communications further dented sentiment.

At 9:31 a.m. ET (13:31 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was down 60.11 points, or 0.28%, at 21,128.08.

U.S. markets started slightly weaker as well. IBM and Tesla fell after their quarterly results, with investors awaiting more reports to see the impact of supply chain disruption and labor shortages on companies.

In Canada, Rogers Communications reported quarterly results this morning that missed Street estimates for its top line. The company’s total revenue was $3.67 billion in the quarter ended Sept. 30, compared with estimates of $3.68 billion, according to Refinitiv Data. Its shares are down slightly in early trade.

Leading declines on the TSX was materials sector, which includes precious and base metals miners and fertilizer companies, falling 1.1%.

The heavyweight energy sector fell -0.6%, snapping its two-day winning streak, tracking oil prices that eased as some investors took profits on signs the rally was looking overstretched.

“Generally it looks like the market is ready for a pause near to the weekend after hitting all time highs again,” said Gregory Taylor, portfolio manager at Purpose Investments.

After snapping a seven-month winning streak in September, the Canadian equity index rebounded and was on track to have its best monthly performance since Nov. 2020 aided by stronger commodities and hopes of a seasonally strong period for the market.

In the U.S. market, Tesla Inc rose 2% in early trading, reversing from losses in the premarket, after saying on Wednesday that its upcoming factories and supply-chain headwinds would put pressure on its margins after it beat Wall Street expectations for third-quarter revenue.

IBM slipped 6.7% after it missed market estimates for quarterly revenue as its managed infrastructure business suffered from a decline in orders.

Investors are keeping a close eye on growth outlook from companies facing rising costs, labour shortages and supply chain disruptions, with analysts expecting profit of S&P 500 companies to rise 33% from a year earlier, according to Refinitiv data.

In economic data today, the number of Americans applying for unemployment benefits fell last week to a new low point since the pandemic erupted, evidence that layoffs are declining as companies hold onto workers. Unemployment claims dropped 6,000 to 290,000 last week, the third straight drop, the Labor Department said Thursday.

Asian stocks were mixed overnight and the STOXX 600 Index of European stocks this morning is down 0.23%.

“For lack of anything else, fingers are pointing at China as the culprit.  Evergrande’s problems intensified overnight,” Derek Holt, Scotiabank Economics’ Head of Capital Markets Economics, said in a note. “They abandoned plans to sell a stake in its property management unit and reported awful home sales figures while saying they may not be able to meet obligations and with the 30-day grace period on prior skipped payments about to expire into next week.  The last time Evergrande’s shares traded was way back on September 30th before a holiday was imposed as the company explored sales prospects; they traded over 10% lower today.  China needs to up its game around this risk in my opinion.”

Equities

Commodities

Brent oil hit a three-year high above US$86 a barrel on Thursday driven by tight supply and a global energy crunch, although prices eased as some investors took profits on signs the rally is looking overstretched.

Helping to drive the latest gain, a supply report from the U.S. Energy Information Administration on Wednesday showed crude and fuel inventories tightened, with crude inventories at the Cushing storage hub falling to a three-year low.

Brent crude rose as high as $86.10, the highest since October 2018, but is now trading lower. U.S. West Texas Intermediate crude fell 64 cents, or 0.8%, to $82.78.

“We saw some correction, but overall sentiment remained firm as there have been no large increases in output by the United States or OPEC,” said Satoru Yoshida, a commodity analyst with Rakuten Securities.

Oil also came under pressure from a drop in coal and natural gas prices. In China, coal fell 11% on Thursday, extending losses this week since Beijing signalled it might intervene to cool the market.

“With coal and gas prices easing and with the relative strength index technical indicators still in overbought territory, the odds of a sharp, but material fall in oil prices are rising,” said Jeffrey Halley, analyst at brokerage OANDA.

Even so, some analysts are calling for oil to rally even more as OPEC+ is likely to stick to its plan for gradual output increases while demand is expected to reach pre-pandemic levels.

In other commodities, copper prices fell on Thursday as a short squeeze on the London Metal Exchange eased and attention refocused on the threat of slowing demand in top consumer China.

Currencies and bonds

The Canadian dollar is trending slightly weaker this morning amid a bounce in the greenback. Higher-than-expected inflation data for Canada on Wednesday didn’t have much impact on the currency, as traders have already been pricing in a fairly steep increase in interest rates starting in the second half of next year.

Scotiabank has raised its own forecasts for the path of Bank of Canada rate hikes for the next couple of years. It now expects 100 basis points of tightening by the bank in the second half of next year and a further 100 basis points in 2023.

“We expect the CAD the strengthen a little more in the medium term, reaching 1.20 (83.3 cents US) in H2 next year, and to stay stronger for a little longer as a consequence of our upgraded BoC forecast,” Scotiabank forex strategists said in a note today. “Markets continue to price quite aggressively for H1 of next year, with the first rate hike more or less fully priced into the April OIS [overnight index swap] contract. We expect the BoC to continue to roll back its asset purchase program next week but the risk of policy makers pushing back a little on the front-loading of tightening expectations cannot be excluded. We look for the CAD to retain a firm undertone over the next few days but more cautious trading could develop ahead of Thursday’s policy decision.”

The U.S. 10-year yield this morning is at 1.664%, a modest tick up from Wednesday.

Other corporate news

Union Pacific Corp on Thursday reported a 23% rise in quarterly profit as the railroad operator shipped more chemicals, metals, minerals, paper and plastics to meet U.S. industrial demand. Net income rose to $1.67 billion, or $2.57 per share, for the third quarter ended Sept. 30, from $1.36 billion, or $2.01 per share, a year ago.

Precision Drilling Corp. says it lost $38 million in its latest quarter as drilling ramped up and revenue rose more than 50 per cent compared with a year ago. The Calgary-based company says the loss amounted to $2.86 per diluted share for the year ended Sept. 30, compared with a loss of $28.5 million or $2.08 per diluted share in the same quarter last year.

Miner Freeport-McMoRan Inc reported a quarterly profit on Thursday that more than tripled, helped by higher copper prices and an increase in demand for the metal. Freeport’s adjusted net income attributable to common stock was $1.3 billion, or 89 cents per share, in the third quarter ended Sept. 30, compared with $430 million, or 29 cents per share, a year earlier.

AT&T Inc rose 1% after the telecom operator’s quarterly revenue and monthly phone bill paying subscriber additions beat market expectations.

Dow Inc gained 1.1% after it posted a more than a five-fold jump in third-quarter profit as economic recovery boosted prices for chemicals.

Economic news

The number of Americans filing new claims for unemployment benefits dropped to a 19-month low last week, pointing to a tightening labor market, though a shortage of workers could keep the pace of hiring moderate in October. Initial claims for state unemployment benefits fell 6,000 to a seasonally adjusted 290,000 for the week ended Oct. 16, the Labor Department said on Thursday. That was lowest level since the middle of March in 2020, when the nation was in the early stage of the COVID-19 pandemic. It was also the second straight week that claims remained below 300,000 as employers hold on to workers in the face of an acute labor shortage. Economists polled by Reuters had forecast 300,000 claims for the latest week.

Canada added 9,600 jobs in September, driven by a pick-up in hiring in construction and professional business services, a report from payroll services provider ADP showed.

(10 a.m. ET) U.S. existing home sales for September. Consensus is an annualized rate increase of 2.6 per cent.

(10 a.m. ET) U.S. leading indicator for September.

With files from Reuters

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