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Canada’s main stock market opened lower early Thursday with weakness in financial and material companies offsetting gains seen in the energy sector on climbing oil prices. Traders were awaiting remarks later in the day by a senior Bank of Canada official. On Wall Street, markets started the day in the red as financial stocks took a hit after the European Central Bank pushed back rate-hike plans and announced fresh stimulus to bolster the bloc’s flagging economy.
Just after 10 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index 99.08 points, or 0.62 per cent, at 15,992.99. Eight of 11 major sectors were in the red.
The Dow Jones Industrial Average fell 28.01 points, or 0.11 per cent, at the open to 25,645.45. The S&P 500 opened lower by 4.92 points, or 0.18 per cent, at 2,766.53. The Nasdaq Composite dropped 22.13 points, or 0.29 per cent, to 7,483.79.
Bank of America Corp, JPMorgan Chase & Co, Morgan Stanley, Citigroup Inc and Morgan Stanley were all lower. Declines by tech giants Apple Inc. and Microsoft Corp. were also contributing to the market’s negative sentiment.
Major European markets, meanwhile, found some early support in the ECB’s latest move but quickly lost steam. The euro also lost ground against the U.S. dollar on the news.
"The ECB officially joined the growing roster of growingly cautious central banks, offering more help to support growth and keeping rates lower for longer, " Jennifer Lee, senior economist with BMO Capital Markets, said. “This does not come as a shock… the latter could’ve arguably been made in December when QE ended but better late than never. The former is a bit surprising but not overtly so, as various ECB officials have hinted at such action recently, as did the Minutes to the previous meeting.”
In this country, Canadian Natural Resources Ltd. opened slightly higher helped by a dividend hike despite a net loss in the latest quarter on weaker crude prices. Canadian Natural reported a net loss of $776-million, or 64 cents per share, in the fourth quarter ended Dec. 31, compared to a profit of $396-million, or 32 cents, a year earlier. The company’s daily output rose 6 per cent to 1.08-million barrels of oil equivalent per day (boe/d), although average realized prices of crude oil and natural gas liquids more than halved to $25.95 per barrel. Analysts on average were expecting production of 1.07-million boe/d, according to IBES data from Refinitiv. Still, the company raised its quarterly dividend to 37.5 cents a share, from 33.5 cents.
Pengrowth Energy Corp. shares fell about 4 per cent in early trading following news the company has put up a ‘For Sale’ sign as it looks to deal with looming deadlines on its debt. Pengrowth has launched a strategic review, which is sales could result in a sale, divestiture of assets, recapitalization or refinancing. Both RBC and CIBC cut their price target on Pengrowth.
Later in the day, Bank of Canada deputy governor Lynn Patterson speaks in Hamilton, Ont., delivering an economic report card. The remarks are set to be released at 12:30 p.m. ET. Her speech will be followed by a news conference. On Wednesday, the Bank of Canada held interest rates steady and cautioned that it expects to see weaker-than-expected growth in the first half of this year, casting doubt on the course of future rate hikes.
“If the BoC isn’t comfortable with the market’s reaction (pricing small odds of cuts this year) then this is their opportunity to walk things back,” Bank of Montreal economist Benjamin Reitzes said.
In U.S. earnings, Costco Wholesale Corp. reports after the close.
Overseas, European markets got a lift from the ECB decision. As expected, the bank left rates unchanged but it also cut its forecast and indicated that rates are on hold through this year. The ECB also announced a fresh set of loans to banks starting in September aimed at propping up the bloc’s economy.
The pan European STOXX 600 dropped back into the red as the markets digested the ECB’s decision, falling 0.66 per cent. Britain’s FTSE 100 was off 0.79 per cent. Germany’s DAX fell 0.90 per cent and France’s CAC 40 slid 0.67 per cent.
In Asian, markets finished mixed on the lack of U.S.-China trade news. Japan’s Nikkei closed down 0.65 per cent. Hong Kong’s Hang Seng slid 0.89 per cent. The Shanghai Composite Index rose 0.14 per cent.
Crude prices were flat Thursday morning as rising U.S. inventories offset the combined impact of production cuts by OPEC and its allies alongside U.S. sanctions on Venezuela.
Brent crude had a range for the day of US$65.81 to US$67. The range for the day on West Texas Intermediate is $56.08 to US$56.99.
“Gains are being capped by a record U.S crude output and rising commercial fuel inventories,” OANDA analyst Dean Popplewell said.
Despite the impact of production cuts and sanctions, he said “oil remains in plentiful supply, thanks to surging U.S production, which has resulted in weaker WTI vs. Brent prices.”
Figures released Wednesday showed U.S. crude stockpiles rose more than expected last week. The U.S. Energy Information Administration said inventories rose by 7.1 million barrels to 452.93 million barrels.
Gold prices, meanwhile, prices fell as the U.S. dollar advanced against the euro following the ECB’s policy announcement. Spot gold slipped 0.2 per cent to US$1,283.71 an ounce, trading close to a more than five-week low of US$1,280.70 hit this week. U.S. gold futures fell 0.3 per cent to US$1,284.40.
In other metals, silver fell 0.3 per cent and touched US$14.99 early in the session, its weakest level since late December.
Currencies and bonds
The Canadian dollar was slightly firmer but still languishing around the mid 74-US-cent mark early Thursday, helped by advancing crude prices. The loonie sank to its lowest level in two months during the previous session on a dovish Bank of Canada statement while the gap between Canadian and U.S. bond yields hit its widest in more than a decade.
The day range on the loonie so far is 74.36 US cents to 74.55 US cents.
Elsa Lignos, RBC’s global head of FX strategy, said yesterday’s movement in the loonie versus the greenback “seems fair” and the magnitude - about 0.5 per cent - is in line with post Bank of Canada moves over the past year. In order for the Canadian dollar to fall further, she said, markets would likely need to see a much more bearish outlook from Ms. Patterson this afternoon or signs of a slowdown in jobs growth in Friday’s employment report.
In other currencies, the U.S. dollar index stood at 96.875. On Wednesday, the U.S. Federal Reserve’s Beige Book pointed to a bigger-than-expected slowdown in the first quarter, mostly due to the impact of the U.S. partial government shutdown.
The euro dipped below US$1.13 following the ECB’s announcement on rates and stimulus.
In bonds, the spread between Canada’s two-year yield and its U.S. counterpart started widening late last week after a report showed slower Canadian growth in the fourth quarter. Following the Bank of Canada announcement, the spread widened spread widened by 2.5 basis points to about 84 basis points in favour of the U.S. bond, its widest since February 2007, according to Reuters.
Early Thursday, the yield on the U.S. 10-year note was slightly lower at 2.684 per cent.
Stocks set to see action
Canada’s Crescent Point Energy Corp reported a bigger net loss in the fourth quarter on Thursday, hurt by an impairment charge of $3.69-billion. The oil and gas producer said net loss widened to $2.39-billion, or $4.35 per share, in the quarter ended Dec.31, from $56.4-million, or 10 cents per share, a year earlier. Total average production fell to 178,198 barrels of oil equivalent per day (boe/d) from 178,975 boe/d. Shares were down 8 per cent by late morning.
Obsidian Energy said Thursday David French will step down as chief executive officer. Michael Faust has been named interim president and CEO. “Mike’s strong leadership and technical skills will be a great asset as we sharpen our focus on developing Obsidian’s world-class Cardium assets,” said Gord Ritchie, Chair of the Board. “The board and I are confident that with Mike’s leadership we can make uninterrupted progress on executing our strategic plan for 2019.” Obsidian stock was down more than 6 per cent in early trading.
Xerox Corp said it will adopt a structure in which the printer maker will become a wholly-owned unit of a new holding company. The reorganization is expected to be implemented in mid-2019. Shares of the new holding company will trade on the New York Stock Exchange under its current ticker “XRX.” Xerox was off nearly 2 per cent in morning trading.
German fashion house Hugo Boss said it expected its operating profit to rise faster than sales in 2019, predicting strong momentum in its online business and Asia. Known for its smart men’s suits, Hugo Boss has introduced more casual and sportswear styles to appeal to a younger audience and invested heavily in its online offer after a bid to go upmarket backfired a few years ago. The company said it expected a high single-digit percentage increase in operating profit for 2019 and a mid single-digit percentage rise in currency-adjusted sales.
American Eagle Outfitters Inc forecast current-quarter profit below analysts’ estimates as the apparel maker spends more on advertising and new Aerie store openings. American Eagle forecast first-quarter adjusted earnings of 19 US cents to 21 US cents per share, below analysts’ expectations of 24 US cents, according to IBES data from Refinitiv. The shares were down 0.80 per cent around 10 a.m. ET.
Kroger Co projected annual profit below Wall Street estimates on Thursday, as the grocer spends billions of dollars on modernizing its stores and delivery to compete better with Walmart and Amazon. Its shares slid 12.4 per cent in morning trade after the retailer also reported a 10 per cent fall in fourth-quarter revenue and lower-than-expected earnings for the first time since October 2017.
The value of building permits issued in January fell 5.5 per cent to $8.4-billion, from December’s record levels, Statistics Canada said. Lower plans for construction of commercial buildings were behind the monthly decline.
The number of Americans filing claims for initial unemployment benefits fell 3,000 to a seasonally adjusted 223,000 last week.
With Reuters and The Canadian Press