Key indexes in Canada and the United States opened on the backfoot on Friday with investors remaining cautious despite efforts to stabilize regional U.S. bank First Republic.
At 9:31 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 87.72 points, or 0.45 per cent, at 19,451.29.
The Dow Jones Industrial Average fell 29.23 points, or 0.09%, at the open to 32,217.32.
The S&P 500 opened lower by 1.59 points, or 0.04%, at 3,958.69, while the Nasdaq Composite dropped 20.93 points, or 0.18%, to 11,696.35 at the opening bell.
Markets found some initial support in an unconventional private sector rescue for U.S. regional bank First Republic, designed to contain an emerging crisis in the sector. The Globe’s Tim Kiladze and Stefanie Marotta report that the agreement was brokered by the U.S. government, but is funded by 11 of the country’s largest lenders and investment banks. Bank of America, Citigroup, JP Morgan Chase and Wells Fargo, known as the Big Four U.S. banks, are leading the effort with US$5-billion each. First Republic were down more than 13 per cent in early trading on Friday.
“The fact that American institutions banded together to preserve First Republic Bank sends a message to speculators that they should be cautious when betting against the US financial system. Their actions have shown that Wall Street banks, as well as policymakers, are prepared to preserve the American financial system,” Naeem Aslam, chief investment officer with Zaye Capital Markets, said in an early note on Friday.
Traders are now looking ahead to next week’s Federal Reserve rate announcement. A volatile week had led some to speculate that the central bank, which had earlier been seeing delivering another 50-basis-point rate hike, might pullback. However, the European Central Bank on Thursday, faced with balancing the need to fight inflation with market volatility, opted to push ahead with a half percentage point rate increase.
“The ECB’s clear focus on inflation, and not on bank stress, reinforced the expectation of a 25bp hike from the Federal Reserve (Fed) next week,” Swissquote senior analyst Ipek Ozkardeskaya said.
“The ECB decision came as a hint that the Fed could also play down stress in banking sector, highlight that the liquidity issues could be addressed with available tools and keep focus on economic data.”
Meanwhile, the Paris-based OECD raised its forecast for global growth early Friday morning, citing easing inflation but also cautioning of the risks posed by higher interest rates.
The organization now expects global economic growth this year of 2.6 per cent That compares to 2.2 per cent forecast in its November outlook.
On the corporate side, Quebec-based cannabis Hexo Corp. reported a narrower net loss of $11.1-million in its latest quarter, compared with a loss of $690.3-million, which included $616 million in one-time impairment charges, in the same period a year ago. Hexo’s net revenue for the second quarter totalled $24.2-million, down 54 per cent from a year earlier and down 32 per cent from the previous quarter.
Friday morning, earnings are also due from Algonquin Power & Utilities Corp.
Overseas, the pan-European STOXX 600 opened higher but turned negative by late morning, falling 0.09 per cent. Britain’s FTSE 100 slid 0.02 per cent. Germany’s DAX and France’s CAC 40 lost 0.15 per cent and 0.20 per cent, respectively.
In Asia, Japan’s Nikkei finished up 1.2 per cent. Hong Kong’s Hang Seng added 1.64 per cent.
Crude prices turned lower and looked set for their worst weekly showing since December amid turbulence in the broader market.
The day range on Brent was US$74.45 to US$75.75 in the early premarket period. The range on West Texas Intermediate was US$68.07 to US$69.35.
Both benchmarks reveresed modest gains early Friday morning and are down about 10 per cent for the week so far. That’s the worst weekly decline since late last year.
“Monetary policy continues to get more restrictive as central banks continue to deliver more rate hikes,” OANDA senior analyst Ed Moya said.
“Global recession risks have never been greater and that is bad news for the crude demand outlook. The initial move lower for crude however might not last as traders might grow confident this will be the last rate hike for the ECB and that next week the Fed will stop after delivering one more.”
Prices drew some support from news of a meeting Saudi Arabia’s energy minister Prince Abdulaziz bin Salman and Russian deputy prime minister Alexander Novak on Thursday to discuss global markets and OPEC+’s efforts to maintain stability.
Both parties affirmed their commitment to OPEC+’s decision last October to cut production targets by two million barrels per day until the end of 2023, Reuters reported.
Gold prices, meanwhile, looked set for their best weekly performance since November as the global banking crisis heightened bullion’s appeal as a safe-haven holding.
Spot gold was up 0.7 per at US$1,931.90 per ounce by early Friday morning. Bullion has risen about 3.4 per cent this week, heading for a third consecutive weekly gain.
U.S. gold futures rose 0.7 per cent to US$1,936.10.
“Gold’s rally over the past week was rather impressive but might be out of steam,” Mr. Moya said.
“Wall Street is going to keep its eye on the banking sector but for this news cycle it appears optimism is growing that this banking crisis will be contained. If the news flow is more about efforts to support Credit Suisse and First Republic , then we might see risk appetite attempt a comeback here and that could have gold give up some of the recent rally.”
The Canadian dollar was higher, helped by improved risk sentiment, while its U.S. counterpart slid against a basket of currencies in the wake efforts to restore stability to the banking sector.
The day range on the loonie was 72.79 US cents to 73.12 US cents in the predawn period.
“It [the loonie] is trading a bit higher against the USD but, with a gain of a little under 0.2 per cent on the session, it is unremarkable and the CAD is underperforming relative to its commodity peers and most of the rest of the majors,” Shaun Osborne, chief FX strategist with Scotiabank, said.
“The improvement in risk appetite is a modest tailwind for the CAD versus the USD while US-Canada yield spreads across the curve are less onerous for the CAD following this week’s turmoil, they remain a drag.”
There were no major Canadian economic releases due Friday.
On world markets, the U.S. dollar index, which weighs the greenback against a group of currencies, fell 0.31 per cent to 104.07.
The euro, which saw a fairly muted reaction to Thursday’s decision by the ECB to hike interest rates by half a percentage point, was up 0.33 per cent at US$1.0647 by early Friday morning.
Britain’s pound edged up 0.4 per cent to US$1.2159, while the Swiss franc rose 0.35 per cent. Earlier in the week, the franc plunged the most against the U.S. dollar in a day since 2015, according to Reuters.
In bonds, the yield on the U.S. 10-year note was down at 3.539 per cent ahead of the North American opening bell.
More company news
Canada’s Suncor Energy Inc said on Friday it has amended an agreement with Elliott Investment Management to give the activist investor more time until March 31 to appoint an additional director to the energy company’s board. Elliott has been pushing for organizational changes and strategic review at Suncor since disclosing a 3.4% stake in the company in April last year. As part of its agreement with Elliott in July 2022, Suncor appointed three independent directors to its board. In January, the two parties had amended the agreement to extend the deadline to appoint another director until March 17 from Jan. 31. -Reuters
FedEx Corp raised its fiscal 2023 profit forecast, citing progress on its plan to shave $3.7 billion in costs from the global delivery firm’s operations. Shares jumped 11 per cent in premarket trading after executives boosted their fiscal 2023 adjust profit forecast to $13.80 to $14.40 per share. In December, their forecast called for profits of $12.50 to $13.50 per share. “Our cost actions are taking hold, driving an improved outlook for the current fiscal year,” CEO Raj Subramaniam said in a statement.
(8:30 a.m. ET) Canadian industrial product and raw materials price indexes for February.
(9:15 a.m. ET) U.S. industrial production for February.
With Reuters and The Canadian Press