Equity Markets
Canada's main stock index opened higher on Friday, touching its strongest level in nearly eight months as financials led the broad-based gains.
The Toronto Stock Exchange's S&P/TSX composite index rose 52.52 points, or 0.33 per cent, to 15,870.52 shortly after the open.
Consumer staples was the lone declining sector among the index's 10 main groups.
The Canadian dollar weakened against its U.S. counterpart on Friday, pressured by data showing a surprise drop in domestic retail sales and as the greenback broadly gained.
Retail sales fell by 0.3 per cent in August from July, with lower sales at food, building supplies and home furnishing retailers. Analysts had forecast an increase of 0.5 per cent.
"That suggests there is a little more deceleration in the economy than the market expected," said Andrew Kelvin, senior rates strategist at TD Securities.
"It does support recent price action which has seen markets price in a smaller and smaller chance of (further) tightening from the Bank of Canada this year."
Chances of another interest rate increase this year fell to less than 50 per cent from 57 per cent before the data, while the probability of a hike as soon as next week slipped to less than 20 per cent, the overnight index swaps market indicated.
The central bank will make an rate decision on Wednesday. It hiked in July and September, the first rate increases since 2010, after rapid expansion in the domestic economy in the first half of the year.
But economists expect growth to slow in the second half of the year, and separate data on Friday showed that inflation remains well below the central bank's 2-per-cent target.
The annual inflation rate increased to 1.6 per cent in September from 1.4 per cent in August, matching forecasts.
The U.S. dollar rose as progress on a U.S. tax overhaul raised prospects of a fiscal boost to the economy.
The Canadian dollar was trading at $1.2578 to the greenback, or 79.50 U.S. cents, down 0.7 per cent.
The currency traded in a range of $1.2477 to $1.2582.
Wall Street opened higher on Friday, with the S&P and the Dow recording new highs, on growth optimism as the Trump administration inched a step closer to implementing its tax-cut plan.
The Dow Jones Industrial Average rose 79.88 points, or 0.34 per cent, to 23,242.92. The S&P 500 gained 7.96 points, or 0.310683 per cent, to 2,570.06. The Nasdaq Composite added 28.86 points, or 0.44 pe rcent,
The Republican-controlled Senate approved by a 51-to-49 vote a budget blueprint for the 2018 fiscal year in a pursuit to legislate the tax-cut package without Democratic support.
Hopes of tax cuts have helped the market rally, as companies expect the move to lift economic growth and inflation.
"The good thing is we're seeing incremental positives as we move toward tax cuts," said Art Hogan, chief market strategist at Wunderlich Securities in New York.
"Commodity stocks are helping boost the FTSE this morning, with Antofagasta leading the way after copper prices jumped to the highest level in over three years," IG analyst Josh Mahoney said in an early note. "Not all commodities are made equal though, with crude oil gains being unwound, with Brent falling back to the lowest level in a week this morning."
In U.S. economics, the key event will be a speech later in the day by Federal Reserve chair Janet Yellen. Ms. Yellen's remarks come as the markets weigh who will replace her when her term ends early next year. U.S. President Donald Trump has reportedly spoken with five possible candidates. Reuters has reported that an announcement could come within weeks.
Overseas, resource stocks helped boost European shares with copper prices managing their best level in three years. A carry-over could be seen in North America, although oil's early declines could counter gains.
Shares in Europe were higher helped by solid earnings. Volvo shares spiked 6 per cent on better-than-expected quarterly core earnings. Britain's FTSE 100 advanced 0.18 per cent while Germany's DAX was up 0.07 per cent and France's CAC 40 rose 0.18 per cent.
In Asia, Japan's Nikkei logged its 14th straight session of gains. That's the longest winning streak for the index since 1961. The Nikkei ended the session up 0.04 per cent. Hong Kong's Hang Seng rose 1.17 per cent and the Shanghai composite index advanced 0.18 per cent. MSCI's broadest index of Asia-Pacific shares outside Japan was up slightly after hitting a 10-year high earlier in the week.
Commodities
Oil prices were down early Friday and looked headed for weekly loses as investors took profits. In early going, WTI was below $51 (U.S.) a barrel with a day range of $50.70 to $51.57. Brent crude prices were also lower early in the session. Despite the declines, analysts remain bullish on market rebalancing, although short-term risks remain.
"Hopes that the OPEC would extend production cuts in November meeting and Iraqi crisis are favourable for a further positive consolidation in oil prices," LCG senior market analyst Ipek Ozkardeskaya said in note.
"Although the OPEC has little incentive to intervene verbally when prices consolidate near two-year top levels. On the other hand, Iraqi oil fields have been impacted less than feared during the recent tensions with the Kurds. Therefore, we do not rule out the possibility of a further short-term slide before a renewed upside attempt if any."
Reuters reported oil exports from Iraq's Kurdistan towards the Turkish port of Ceyhan were flowing at average rates on Friday of 216,000 barrels per day versus the usual flows of 600,000 bpd, a shipping source said. Iraqi troops regained control of two major oilfields northwest of Kirkuk from Kurdish Peshmerga forces this week, and the oil ministry in Baghdad expects to bring the fields back on stream on Sunday. As well, Russia's biggest oil company, Rosneft, has agreed to take control of Iraqi Kurdistan's main oil pipeline in a $1.8-billion investment, the news agency reported.
In other commodities, gold prices were lower after the U.S. dollar got a lift from the U.S. Senate's approval of the budget blueprint. Spot gold was lower early on and looked set for weekly losses of 1.8 per cent. U.S. gold futures for December delivery were also lower.
Silver prices were also lower and were heading to weekly losses of 1.6 per cent. London copper prices edged higher and were on track for the fourth week of gains. Prices were just below the three-year highs of $7,000 a tonne seen at the start of the week.
Currencies and bonds
The Canadian dollar dropped sharply after Statistics Canada reported a softer-than-expected reading on inflation and a surprise drop in retail sales. The loonie fell a quarter of a cent immediately after the release of the two reports. The day's range on the dollar so far is 79.60 cents (U.S.) to 80.15 cents. The dollar was near the low end of that range at last check.
The two reports come just days before the Bank of Canada's Oct. 25 interest-rate decision. The central bank is widely expected to hold steady after two rate hikes earlier this year.
"We expect this month's weakness to be temporary given the much stronger economy and diminishing excess capacity as shown by the (Bank of Canada's) business outlook survey published earlier this week," National Bank senior economist Matthieu Arseneau said in a note. "Inflation expectations of corporations are still tilted below the Bank of Canada mid-point target but it is improving and that should help the central bank to reach its objective."
In other currencies, the U.S. dollar was higher and looked set for its first weekly rise in two. The U.S. Senate's approval of the budget plan helped lift the greenback because it was seen as opening the door for Republican's to push ahead of with Mr. Trump's tax-cut plan without support of the Democrats. The U.S. dollar index, which weighs the greenback against a basket of currencies, was higher ahead of the North American open.
"In a move which removes the possibility of a filibuster by the Democrats, the Republicans voted 51 to 49 in favour of the resolution, heightening the chances of Trump finally passing one of his major election promises," IG's Josh Mahoney said. " The chance of a U.S. tax cut has benefitted both U.S. dollar and US stock futures alike overnight, as the prospects of repatriated earnings, coupled with higher business profitability helping boost market sentiment."
In bonds, the yield on the U.S. 10-year note was higher at 2.365 per cent. The yield on the 30-year note was also higher at 2.875 per cent.
Stocks set to see action
British Business Secretary Greg Clark will hold talks in Canada on Friday to discuss Airbus SE's plans to buy a majority stake in Bombardier's C-Series jetliner program aimed at helping it avoid high U.S. import tariffs. Clark will meet with Canadian government officials and executives from the two manufacturers, according to a spokeswoman for the ministry for Business, Energy and Industrial Strategy. A deal announced earlier this week gives Airbus a controlling stake in the Canadian manufacturer's troubled C-Series jets, which are partly made in Northern Ireland.
Schlumberger Ltd posted a bigger quarterly profit on Friday as its North American business continues to be helped by strong shale drilling, but the oilfield services giant said that investments in the region was moderating. The warning mirrors that of peer Baker Hughes, which also said it was expecting a challenging market for the rest of the year. "In the U.S. Gulf of Mexico, activity continued to weaken in the third quarter, and the outlook remains bleak for this region based on current customer plans," Schlumberger said in a statement. Net profit attributable to Houston-based Schlumberger company rose to $545 million, or 39 cents per share, in the quarter ended Sept. 30, from $176 million, or 13 cents per share, last year.
Baker Hughes' warned on Friday that the rest of the year would be challenging after it reported a quarterly profit that missed estimates by a wide margin as the oilfield services company negotiates volatile oil prices. Larger rival Schlumberger Ltd also warned on Friday that oil and gas companies' investments in North America were moderating. "Oil prices remain volatile and, as a result, our customers remain cautious," Lorenzo Simonelli, chief executive of Baker Hughes, the world's No. 2 oilfield services firm, said. A week back, Baker Hughes said U.S. oil rig count, an early indicator of future output, had been falling for the past two months amid a perception of lower-for-longer oil prices. Its shares were up 0.12 per cent in premarket trading.
Sharp growth in mobile payments led PayPal Holdings Inc. to report a better-than-expected third-quarter profit after the clsoe on Thursday and lift its guidance for earnings through the rest of the year. The company's adjusted profit rose 32 per cent during the third quarter to $560-million, or 46 cents per share, beating the average analyst estimate of 43 cents, according to Thomson Reuters I/B/E/S. Revenue rose 21.4 per cent to $3.24-billion.
Sweden's AB Volvo reported a bigger-than-expected rise in quarterly core earnings on Friday as stronger demand for heavy trucks more than offset costs stemming from strains on its supply chain, sending its shares to a record high. Sweden's biggest manufacturer by sales also raised its outlook for truck markets on both sides of the North Atlantic this year and forecast a further strong recovery in sales of commercial vehicles in North America in 2018. "These are blow-out numbers," said analyst Hampus Engellau at Handelsbanken Capital Markets, which rates the stock "buy".
Honeywell International Inc reported an 8.7-per-cent rise in third-quarter profit, driven by its aerospace business. Net income attributable to Honeywell rose to $1.35-billion, or $1.75 per share, in the quarter ended Sept. 30 from $1.24-billion, or $1.60 per share, a year earlier. Revenue rose 3.2 per cent to $10.12-billion. Shares were up a bit in premarket.
Skechers USA jumped more than 25 per cent after reporting better-than-expected profit, largely helped by international sales growth.
Celgene dipped more than 6 per cent after the company said it would abandon testing a drug to treat Crohn's disease.
Athenahealth Inc., which is under pressure from activist investor Elliott Management, said it would reduce about 9 per cent of its workforce as part of efforts to generate $100 million to $115 million in savings by the end of 2018. The company cut its 2017 revenue forecast to between $1.20 billion and $1.22 billion, blaming weak demand and the recent spate of hurricanes that swept across North America. Athenahealth had previously expected revenue of between $1.21 billion and $1.25 billion. Its shares fell nearly 3 per cent in premarket trading.
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Economic News
Statscan says the annual rate of inflation rose to 1.6 per cent in September from 1.4 per cent in August.
August retail sales fell 0.3 per cent to $48.9-billion. Sales were down in eight of 11 subsectors.
The National Association of Realtors said U.S. existing home sales rose 0.7 per cent to a seasonally adjusted annual rate of 5.39 million units last month. Economists polled by Reuters had forecast sales falling 1 per cent to a rate of 5.30 million units last month. Sales were down 1.5 percent from September 2016, the first year-over-year decline since July 2016, Reuters reported.
(7:30 p.m.) U.S. Fed Chair Janet Yellen speaks on "Monetary Policy Since the Financial Crisis" in Washington.
With files from Reuters