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Equity Markets

Canada's main stock index rallied on Friday, led by energy and mining shares, as prices of oil and gold rose.

The Toronto Stock Exchange's S&P/TSX composite index was up 54.09 points, or 0.34 percent, at 15,796.29, shortly after the open. Nine of the index's 10 main groups advanced.

The Canadian dollar was little changed against its U.S. counterpart on Friday, clawing back earlier losses as oil prices rose and as data showing weaker-than-expected U.S. underlying inflation weighed on the greenback.

The U.S. dollar retreated against a basket of major currencies after a modest reading in the core CPI, which is likely to worry Federal Reserve officials who have been engaged in a vigorous debate on the inflation path.

In contrast, the Bank of Canada pulled the trigger with two rate increases since July, trusting its projections and betting that stronger growth will help push inflation to its target by the middle of next year.

Prices of oil, one of Canada's major exports, were boosted by strong Chinese oil imports and turmoil in the Middle East.

U.S. crude prices were up 1.60 percent at $51.41 a barrel.

At 9:25 a.m. ET , the Canadian dollar was little changed at $1.2470 to the greenback, or 80.19 U.S. cents.

The currency traded in a range of $1.2450 to $1.2512.

The S&P and Nasdaq hit record highs at the open on Friday after data showed retail sales surged the most in 2-1/2 years in September, easing doubts over an economy that has been sluggish this year.

The Dow Jones Industrial Average rose 39.46 points, or 0.17 per cent, to 22,880.47. The S&P 500 gained 4.32 points, or 0.16 per cent, to 2,555.25. The Nasdaq Composite added 20.57 points, or 0.31 per cent, to 6,612.08.

All of Wall Street's main indexes had ended lower on Thursday as investors worried about credit card lending losses in the third quarter at JPMorgan and Citigroup and what that suggested about underlying consumer demand.

Data on Friday also showed consumer prices recorded their biggest increase in eight months in September as gasoline prices soared in the wake of hurricane-related production disruptions.

But year-on-year core inflation was unmoved for the fifth month, putting no new pressure on the Federal Reserve to tighten borrowing costs and hamper demand any further.

"The core figure was, however, softer than expected registering a gain of only 0.1 per cent on the month," CIBC economist Royce Mendes said. "That leaves the annual rate tracking only 1.7 per cent, remaining at the low end of the range seen this year. Overall, the soft core CPI numbers will weigh on U.S. yields, and provide a headwind for the U.S. dollar today."

"The expectations (for earnings) were fairly strong coming into the quarter, and the markets have been very strong," said Thomas Martin, senior portfolio manager at GlobAlt Investments in Atlanta, Georgia.

"The market hasn't had a correction in a long time and valuations are undeniably high, that's got people on edge. People are just waiting to see what other people are going to do, and they just don't want to be the last person out of the door if there is a correction."

On the corporate side, earnings season kicks into gear with results from Bank of America Corp. and Wells Fargo and Co. A day earlier, JPMorgan and Cititgroup both beat analysts' forecasts on profit but saw their stock end the day down. JPMorgan was punished for posting weaker trading revenue while Citi saw investors express concern over rising credit costs. Ahead of the open, Bank of America reported earnings per share for the latest quarter of 48 cents, ahead of analysts' forecasts which called for earnings closer to 45 cents. Profit in the quarter was up about 15 per cent on lower costs and higher interest rates. Quarterly revenue rose about 1 per cent. Bank of America shares were up slightly in premarket trading.

Wells Fargo, however, became the first of the big U.S. banks in the current earnings season to fall short of profit forecasts. Early Friday, Wells Fargo reported earnings of 84 cents a share versus estimates of $1.03. Wells Fargo, which has been at the centre of a controversy over the creation of fake accounts, said the quarter included a charge of $1-billion or 20 cents a share for "discrete litigation accrual." Quarterly revenue fell 2 per cent. The shares took an immediate hit in premarket trading, falling nearly 4 per cent.

On Bay Street,  analysts may have an eye on mining shares after stocks rose overseas in overnight trading on the back of strong Chinese trade data which showed Chinese imports jumped by 18.7 per cent last month. CMC Markets U.K. analyst David Madden notes that China is an enormous importer of minerals, so stocks like Rio Tinto, Anglo American and Glencore were all higher on the day in early trading in Europe.

Overseas, world stocks rose for a fourth day. MSCI's world equity index, which tracks shares in 47 countries, was higher, building on Thursday's record high. MSCI's broad index of Asia-Pacific shares outside Japan also managed its best level in 10 years early Friday.

In Europe, Britain's FTSE 100 was off 0.31 per cent. France's CAC 40 was off 0.27 per cent and Germany's DAX declined 0.08 per cent.

In Asia, shares rose, helped by the positive Chinese trade data. Japan's Nikkie finished up 200.46 points to close at 21,155.18. Earlier in the session, it it its highest level in over two decades.

Hong Kong's Hang Seng edged up 0.06 per cent. The Shanghai composite index finished the week up 0.16 per cent.

Commodities

Oil prices rose early Friday fuelled by strong import figures from China and concern over the possibility of renewed sanctions by the U.S. against Iraq. Brent and West Texas Intermediate were both sharply higher early on. The day range on WTI was $50.70 (U.S.) a barrel to $51.64. At last check it was near the top end of that range after having posted fairly steady gains through the overnight hours.

"Brent and WTI crude (are) both up around 2 per cent on the day," OANDA senior market analyst Craig Erlam said in an early note. "While Donald Trump's speech later on Iran and the possibility of renewed sanctions may be supporting prices, the move is likely more down to the trade data from China and the inventory numbers on Thursday, both of which are bullish for oil."

He said a bigger-than-expected drop in crude stocks reported by the U.S. Energy Information Administration after the American Petroleum Institute reported a 3-million-barrel build a day earlier pointed toward further rebalancing in the oil markets.

"This was followed overnight by China reporting the second highest ever monthly crude imports in September," he said. "Higher than expected demand and rising forecasts for demand growth next year are helping to reduce the global oversupply and aid producers in their bid to return stocks to their five year average."

Reuters also notes that unrest in Iraq, and possible U.S. action on the Iran nuclear deal, also underpinned prices.  On Friday, the agency reported, local television reported that tens of thousands of Kurdish fighters had deployed in the Kirkuk oil region to confront possible "threats" from Iraqi forces. Tensions between the two, which traders fear could cut off oil exports from the region, have been building since Iraq's Kurds overwhelmingly backed independence in a Sept. 25 vote, according to the report.

Later Friday, U.S. President Donald Trump is expected to announce he won't certify the 2015 Iran nuclear deal. The deal needs to be re-certified every 90 days and comes up for renewal on Sunday.

In other commodities, gold was flat although remained on track for its first weekly rise in five. Spot gold was largely unchanged in early going but looked set to posted a weekly increase of about 1.5 per cent. U.S. gold futures for December delivery were also mostly flat on the day.

Silver prices were higher after hitting their best level in three weeks. London copper prices were at one-month highs after the strong Chinese trade data.

Currencies and bonds

The Canadian dollar shifted higher ahead of the opening bell as its U.S. counterpart slipped on a soft reading on core inflation. The loonie shrugged off early losses to trade at the upper end of the day's range of 79.93 cents (U.S.) to 80.29 cents as the greenback lost altitude. The U.S. Commerce Department reported that the consumer price index rose 0.5 per cent month-over-month in September. However, the key core measure advanced a weaker 0.1 per cent.

The U.S. dollar index, which weighs the greenback against a basket of world currencies, fell immediately after the release of the figures.

"While NAFTA uncertainty has put (the Mexican peso) under pressure during the last few days, CAD has remained resilient (President Trump indicated that he would be open to bilateral trade talks with Canada)," Elsa Lignos, RBC's global head of FX strategy, said. "There are no data releases scheduled, leaving USD/CAD to track broader moves in the USD and headlines on NAFTA for direction."

The U.S. dollar, meanwhile, was headed for its biggest weekly drop in a month before the release of the September inflation data.

"Dovish Federal Reserve comments weighed on the greenback," LCG senior market analyst Ipek Ozkardeskaya said. " St Louis Fed's James Bullard said that the Fed should defend the inflation target or it will risk losing its credibility, as Lael Brainard cited she sees merits to allowing higher inflation after future recessions."

"Although a December Fed rate hike is seen as highly probable, frictions at the heart of the FOMC are uncomfortable for the (U.S. dollar) bulls. The US 10-year yield retreated to 2.32 per cent."

In other currencies, she noted that the pound went on a wild ride early Friday, tanking to $1.3120 (U.S.) as the European Union's Chief Negotiator for Brexit Michel Barnier said the EU will start 'internal preparatory discussions' amid the 'Brexit impasse' on the divorce bill. However, sterling rebounded shortly after to $1.3290 on news that Mr. Barnier could eventually offer the U.K. a 'two-year transition period to stay in the union', of course, without being given the right to vote on decisions over this period, Ms. Ozkardeskaya said.

In bonds, the yield on the U.S. 10-year note was lower at 2.289 per cent after the release of the U.S. figures. The yield on the U.S. 30-year note was also lower at 2.827 per cent.

Stocks set to see action

BASF has agreed to buy seed and herbicide businesses from Bayer for €5.9-billion ($7-billion U.S.) in cash, as Bayer tries to convince competition authorities to approve its planned acquisition of Monsanto. BASF, the world's third-largest maker of crop chemicals, has so far avoided seed assets and instead pursued research into plant characteristics such as drought tolerance, which it sells or licenses out to seed developers. But Bayer's $66-billion deal to buy U.S. seeds group Monsanto, announced in September 2016, has created opportunities for rivals to snatch up assets that need to be sold to satisfy competition authorities.

Kobe Steel Ltd plans to pay customers' costs related to the fabrication of data for its products, Chief Executive Hiroya Kawasaki told a news conference on Friday, but said the firm has not yet received any compensation requests. Kobe Steel's quality certification scandal widened on Friday as the company announced "inappropriate actions" related to data for nine additional products, including falsifying data or not carrying out required tests.

Shares of WestJet Airlines hit a more than two-year high after the Calgary-based airline reported the highest quarterly load factor in its 21-year history, The Canadian Press reports. The shares peaked at $27.77, the highest level since June, 2015. They closed at $27.64, up 1.1 per cent in Thursday trading on the Toronto Stock Exchange. WestJet said its planes were 85.7 per cent full in the July to September months. For September, the load factor was 80.4 per cent as traffic increased 5.9 per cent from a year ago on a 5.3 per cent growth in available seats.

Airbus Chief Executive Tom Enders reiterated on Friday the group could face significant fines as the result of UK and French corruption investigations into the use of middlemen in plane sales. "I cannot predict the outcome of this investigation but it is not impossible that the fine will be significant," Enders told Le Monde in an interview. "We know that all this is weighing on the company but we have no alternative." Britain and France have pledged to co-operate in their investigations, which were launched after Airbus disclosed anomalies last year in past filings on the use of agents.

Nvidia gained nearly 1 per cent in premarket trading after brokerage Needham raised its price target by $50 to $250.

Wells Fargo shares fell 2.7 per cent after it reported an 18-per-cent decline in third-quarter profits, caused by a significant increase in the bank's legal expenses. The San Francisco-based bank earned $4.6 billion in the third quarter, or 84 cents a share, down from $5.64 billion, or $1.03 a share, in the same period a year earlier. Wells' results missed the forecasts of analysts, who were looking for the bank to post a profit of $1.02 a share, according to FactSet. The bank says the $1 billion for legal costs are for investigations into Wells' mortgage practices before the financial crisis. Quarterly revenue was $21.9 billion, which also missed analysts' forecasts of $22.38 billion.

Bank of America's third-quarter profits jumped 13 per cent, the bank said Friday, helped by higher interest rates and an increase in lending. The Charlotte-based bank said it earned $5.59 billion in the third quarter, or 48 cents per share, compared with $4.96 billion, or 41 cents per share, in the same period year ago. The results beat Wall Street analysts' expectations, which were looking for a profit of 46 cents per share, according to FactSet. Its shares rose 0.4 per cent in premarket trading.

More reading: Seven year-end tax tips for investors
More reading: How a rallying Canadian market hurts your portfolio

Economic News

U.S. retail sales rose 1.6 per cent in September, more than making up for August's 0.1 per cent decline. The September increase was the biggest in more than two years. Auto sales posted their biggest gain since early 2015.

The U.S. Commerce Department said the consumer price index rose 0.5 per cent in September following August's increase of 0.4 per cent. Economists had been forecasting a month-over-month increase of about 0.6 per cent in September. The September increase was the biggest in eight months and was fuelled partly by spiking gasoline prices in the wake of hurricane-related production shutdowns. The annual rate of inflation, meanwhile, came in at 2.2 per cent, up from 1.9 per cent a month earlier.


(10 a.m. ET) U.S. University of Michigan Consumer Sentiment survey for October is released.

With files from Reuters

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