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Market News The close: TSX gains on energy lift, stimulus hopes

Canada’s main stock index rose on Monday, led by energy companies, as sentiment was buoyed by signs of an interest rate reform in China that raised hopes that major economies would act to counter slowing economic growth.

China’s central bank unveiled a key interest rate reform on Saturday to help steer borrowing costs lower for companies and support a slowing economy that has been hurt by a trade war with the United States.

This follows Friday’s report that Germany’s right-left coalition government would be prepared to ditch its balanced budget rule and take on new debt to counter a possible recession.

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The Toronto Stock Exchange’s S&P/TSX composite index was up 154.16 points, or 0.96 per cent, at 16,304.05.

As risk appetite in markets across the world improved, government bond yields in the euro zone, as well as the United States eased off record low levels.

The energy sector climbed 2.5 per cent, the most among the major sectors, as crude prices rose after a weekend attack on a Saudi oil facility by Yemeni separatists and as traders looked for signs of progress in U.S.-China trade negotiations.

The industrials sector rose 1.2 per cent, while tech stocks increased 1.1 per cent.

Tech companies pushed stocks broadly higher on Wall Street Monday afternoon, placing the market on track for its third straight gain.

The surge in technology stocks followed a decision by the U.S. to give Chinese telecom giant Huawei another 90 days to buy equipment from American suppliers. As China’s biggest phone maker, sales to Huawei account for a significant portion of revenues for some U.S. suppliers, including chipmakers Qualcomm, Intel and Micron. Shares in those companies and other chipmakers rose.

Financial stocks also rose as bond prices headed lower, sending yields higher. Wells Fargo added 1.9 per cent and Citigroup rose 1.3 per cent.

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The rise in bond yields is a reversal from much of August, when the escalating trade war between the U.S. and China prompted investors to seek the safety of U.S. government bonds, sending yields sharply lower. The yield on the 10-year Treasury note climbed to 1.60 per cent from 1.54 per cent late Friday.

Stocks were coming off their third weekly loss in a row as investors try to parse conflicting signals on the U.S. economy and determine whether a recession is on the horizon.

Last week, many stock indexes around the world struck their lowest levels this year, before a late rally suggested some calm was returning to the markets in what is a traditionally low-volume time of the year. Analysts say the concerns that drove last week’s sell-off could resurface at any time.

“Today is an up day because we have some better news on China,” said Kate Warne, chief investment strategist at Edward Jones. “There’s likely to be many of these 1 per cent higher, 1 per cent lower days, as investors search for a longer-term direction. And that’s what we don’t have yet.”

Big department store chains also rose Monday, recovering some of the ground lost last week after Macy’s slashed its profit forecast for the year. Nordstrom gained 3.1 per cent, Gap added 4.4 per cent and Kohl’s picked up 5.9 per cent. Macy’s rose 0.9 per cent.

Energy stocks led all other sectors in the S&P 500 with a gain of 2.1 per cent. The stocks climbed along with a pickup in crude oil prices. Hess was up 5.6 per cent.

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Traders will also be weighing new data on sales of new U.S. homes Friday and earnings reports from several big retailers this week, including Home Depot, Target and Gap, for any hints about the health of consumer spending.

The Dow Jones Industrial Average rose 249.58 points, or 0.96 per cent, to 26,135.59, the S&P 500 gained 34.88 points, or 1.21 per cent, to 2,923.56 and the Nasdaq Composite added 106.82 points, or 1.35 per cent, to 8,002.81.

Major stock indexes in Europe also rose.

This week offers investors a couple of opportunities to gauge the Federal Reserve’s willingness to cut interest rates further.

The central bank is releasing the minutes from its last meeting of policymakers Wednesday. Two days later, Fed Chairman Jerome Powell is scheduled to deliver a speech at the central bank’s annual conference in Jackson Hole, Wyoming.

Investors are hoping the Fed will continue to cut interest rates to shore up economic growth. The Fed lowered interest rates by a quarter-point at its last meeting. It was the first time it lowered rates in a decade.

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In two tweets Monday, President Donald Trump called on the Fed to cut interest rates by at least a full percentage point “over a fairly short period of time,” saying that such an action would make the U.S. economy even better and would also “greatly and quickly” enhance the global economy.

The steadier mood on Wall Street was evident in the fact that markets appeared to shrug off a report showing that one-third of economists surveyed by the National Association for Business Economics said they believe a slowing U.S. economy will tip into recession in 2021. That’s up from 25 per cent in the equivalent survey taken in February.

Trump spent a good portion of the last week tweeting about the U.S. economy from his New Jersey golf club, trying to allay concerns of recession and offering an optimistic outlook for the economy after last week’s steep drop in the financial markets.

“I don’t think we’re having a recession,” Trump told reporters Sunday as he returned to Washington from his New Jersey golf club.

Investors are weighing how much of an impact the trade conflict between Washington and Beijing will have on global economies, some of which are already showing signs of slowing.

Earlier this month, Trump announced plans to extend tariffs across virtually all Chinese imports, many of them consumer products that were exempt from early rounds of tariffs. The tariffs have been delayed, but ultimately will raise costs for U.S. companies bringing goods in from China.

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Huawei has become part of the trade war, with the White House showing a willingness to use sanctions against the company as a bargaining chip. The U.S. government blacklisted Huawei in May, deeming it a national security risk, meaning U.S. firms aren’t allowed to sell the company technology without government approval.

Investors greeted the Trump administration’s decision to extend a limited reprieve on U.S. sales to Huawei as a positive sign.

Oil prices gained roughly 2 per cent on Monday after a weekend attack on a Saudi oil facility by Yemen’s Houthi forces threatened crude supplies and as traders looked for signs that top economies would take measures to counteract a global slowdown.

Brent crude, the international benchmark for oil prices, settled at $59.74 a barrel, rising $1.10, or 1.88 per cent.

U.S. West Texas Intermediate (WTI) crude futures settled at $56.21 a barrel, up $1.34, or 2.44 per cent.

Signs of a slight softening of the trade war between the United States and China, including Washington extending a reprieve that permits China’s Huawei Technologies to buy components from U.S. companies, also helped oil prices.

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A drone attack by the Houthi group on an oilfield in eastern Saudi Arabia on Saturday caused a fire at a gas plant, adding to Middle East tensions, but state-run Saudi Aramco said oil production was not affected.

“The oil market seems to be pricing in again a geopolitical risk premium following the weekend drone attacks on Saudi Arabia, but the premium might not sustain if it does not result in any supply disruptions,” said Giovanni Staunovo, oil analyst for UBS.

Reuters and The Associated Press

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