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Equities
Markets in Canada and the United States started lower Friday with concern over contentious trade talks and the imposition of higher tariffs on Chinese goods again sapping investor confidence. The Canadian dollar, however, got a lift from a far-better-than-expected reading on employment growth in this country.
At 10:01 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 116.6 points, or 0.71 per cent, at 16,205.15. The index was on track to post its biggest weekly decline since mid-December, according to Reuters. All of the index’s 11 main sectors were underwater, led by a 1.1-per-cent fall in consumer discretionary stocks. The energy and materials sectors were both down about 0.9 per cent.
South of the border, the Dow Jones Industrial Average fell 64.64 points, or 0.25 per cent, at the open to 25,763.72. The S&P 500 opened lower by 7.62 points, or 0.27 per cent, at 2,863.10. The Nasdaq Composite dropped 29.27 points, or 0.37 per cent, to 7,881.31 at the opening bell.
Globally, markets bucked the trend with MSCI’s all-country index rising 0.2 per cent after the European open. Germany’s trade-sensistive DAX gained roughly 1 per cent in morning trading
At midnight, the United States raised tariffs on S$200-billion in Chinese goods to 25 per cent from 10 per cent. Beijing vowed Friday to retaliate. The move came as high-level trade talks continue in Washington between the two countries.
“The market’s reaction has not been all doom and gloom,” Jasper Lawler, head of research for London Capital Group, said. "We are not seeing see the same risk off reaction that we have seen in previous sessions. The fact that the two sides have agreed to continue negotiations on Friday is offering a glimmer of hope that the relationship between the two powers hasn’t deteriorated beyond repair."
He said markets are also clinging to Trump’s comments over a “beautiful letter” from Chinese President Jingping Xi and an expected phone conversation between the two leaders. However, suggestions from U.S. President Donald Trump that he is in “no rush” added to market uncertainty over the timing of an agreement.
Friday's analyst upgrades and downgrades
Meanwhile, Bloomberg reported that Chinese state-backed funds were active in buying domestic equities on Friday after they slumped following the Trump administration’s imposition of higher tariffs, helping prop up the markets. Despite Friday’s gains, MSCI’s all-country index is still heading toward its worst week since December.
On Bay Street, markets got some surprisingly good news about the Canadian economy. Statistics Canada said hiring spiked by 106,500 new positions in April. Economists had been expecting a much more modest gain of about 11,000 new jobs. It was the biggest one-month jobs gain since 1976. The unemployment rate edged down to 5.7 per cent.
“The Bank of Canada already knew that labour markets were looking solid when they moved sharply to the sidelines in terms of future interest rate hikes over the last few months,” RBC senior economist Nathan Jenzen said, noting factors including continued concerns over global growth and trade tensions still give the Bank of Canada some flexibility to hold off on rate hikes any time soon.
"The data also, though, continues to argue that a cut is at least as unwarranted at the moment, " he said.
The Canadian dollar rallied on the report, adding about half a cent.
In earnings, Enbridge Inc. reported a 19.3-per-cent increase in adjusted profit in the latest quarter. Adjusted earnings rose to $1.64-billion in the first quarter ended March 31, from $1.38-billion in the year-ago quarter. On an adjusted per share basis, the company earned 81 cents. Analysts’ on average had expected 72 cents, according to IBES data from Refinitiv. Enbridge shares were down in early trading in Toronto.
Earnings are also due from Onex Corp. and Lundin Gold.
On Wall Street, shares of Uber Technologies Inc. are scheduled to start trading Friday on the New York Stock Exchange. Uber priced its shares Thursday at US$45 each, raising US$8.1-billion. That makes it the biggest U.S. initial public offering since 2014. Michael Hewson, analyst with CMC Markets UK, notes that is “a far cry from some of the speculation that put its valuation north of US$100-billion a few weeks ago.” Uber’s debut follows that of ride-sharing rival Lyft, which priced strongly and then saw its shares fall once trading began.
“Reality can be a tough companion and further declines in risk assets could see further weakness especially if investors start to ask tough questions about the likelihood of future profitability,” he said.
Overseas, European stocks rallied in morning trading despite the hike in U.S. tariffs on China. The pan-European STOXX 600 rose 0.76 per cent. Britain’s FTSE 100 rose 0.44 per cent. Germany’s DAX jumped 1.1 per cent. France’s CAC 40 advanced 0.79 per cent.
In Asia, the Shanghai Composite Index jumped 3.10 per cent. Hong Kong’s Hang Seng gained 0.84 per cent. In Japan, the Nikkei slid 0.27 per cent.
Commodities
Crude prices were higher early Friday supported by supply factors despite the imposition of higher tariffs by the U.S. on US$200-billion in Chinese imports.
Brent crude was moving in a range of US$70.18 to US$71.23. West Texas Intermediate had a range for the day US$61.53 to US$62.49.
Prices Friday drew support from tighter supply on continuing production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and U.S. sanctions on Iran and Venezuela.
“The fact we are still hanging around the US$70 level on prompt Brent with multiple headlines flagging the tenuous situation around US-China trade discussions, oil prices are still resilient,” SPI analyst Stephen Innes said in a recent note.
“Barring a worst-case scenario where the U.S. levies 25 per cent tariffs across all China exports which could send the global economy into a full-blown recession. The risk to global supplies should keep markets tight providing a stable backstop for prices around current levels."
In other commodities, gold prices edged higher and looked set for a weekly gain, supported by trade concerns.
Spot gold was up 0.1 per cent at US$1,285.03 per ounce and is up about 0.5 per cent so far this week. U.S. gold futures were steady at US$1,285.60 an ounce.
“Tensions in the Middle East and also the trade disputes between the United States and China are supporting gold at the moment,” Afshin Nabavi, senior vice president at MKS SA, told Reuters.
“But the market continues to be range-bound around $1,275 on the downside and around $1,292 on the upside. We have been having quite a bit of resistance around the $1,290 level,” he added.
Currencies and bonds
The Canadian dollar jumped after Statscan’s April jobs report handily blew past expectations. The government agency said hiring rose by 106,500 jobs last month, much better than the 11,000 markets had been expecting.
Immediately after the report, the loonie spiked to near the top end of the day range of 74.18 US cents to 74.60 US cents.
The Statscan report also showed the country’s unemployment rate edged down to 5.7 per cent in April from March’s 5.8 per cent.
“The positive jobs surprise backs some of the statements of the Bank of Canada (BoC) but one report will not make for a sudden 180 degree turn from the central bank,” Alfonso Esparza, senior market analyst with OANDA, said in a note. "A soft first quarter and increasing macro headwinds will keep the BoC from hiking interest rates. "
In world currencies, the euro edged 0.1-per-cent higher to US$1.1220 on Friday and was on track for a second consecutive week of gains. The US dollar index measuring the U.S. currency against a basket of six major currencies, of which the euro is a main component, was slightly firmer at 97.43.
In bonds, the yield on the U.S. 10-year note was lower at 2.455 while the yield on the 30-year note was down at 2.877. The yield on the 10-year note dropped below three-month yields for the first inversion of the yield curve since March.
More corporate news
Quebec billionaire Pierre Karl Péladeau is weighing a bid for Transat A.T. Inc., joining several other local buyers expressing interest in the struggling holiday travel company. The media magnate, chief executive and controlling shareholder of Quebecor Inc., confirmed on Thursday that he has hired an investment banker to advise him on a potential offer for Montreal-based Transat. He suggested part of his motivation for getting involved in the process was to prevent the company from falling into the hands of non-Quebec interests. Transat shares were up about 3 per cent in Toronto on Friday morning.
MTV and Comedy Central owner Viacom Inc missed Wall Street estimates for quarterly revenue on Friday, weighed down by declines in domestic advertising sales. Net income attributable to Viacom rose to US$376-million, or 93 US cents per share, in the second quarter ended March 31 from US$266-million, or 66 US cents per share, a year earlier. Total revenue fell to US$2.96-billion from US$3.15-billion, missing the analyst average estimate of $3.06-billion, according to IBES data from Refinitiv.
Marriott International Inc reported a better-than-expected quarterly profit on Friday, as the world’s biggest hotel chain benefited from a lower effective tax rate and higher room rates. Marriott reaffirmed its full-year worldwide revenue per available room (revPAR) forecast between 1 per cent and 3 per cent. RevPAR, a key measure of hotel health, is calculated by multiplying a hotel’s average daily room rate by its occupancy rate. On an adjusted basis, the company earned US$1.41 per share in the latest quarter, beating the average analyst estimate of US$1.34 per share, according to IBES data from Refinitiv.
Pipeline company Kinder Morgan Canada Ltd said it would continue as a stand-alone entity, following a strategic review that considered options including a sale. The company said its decision was consistent with the recommendation of a special committee of independent directors not affiliated with Kinder Morgan Inc, which holds about 70 percent majority voting interest in the Canadian entity. Kinder Morgan Inc said in October that it was exploring all options for Kinder Morgan Canada, as it saw a sellers’ market for the Canadian company’s assets.
The Second Cup Ltd. says chief executive Garry Macdonald plans to retire at the end of the month. The coffee chain says Steve Pelton, who co-founded the Landing Restaurants which were sold to Recipe Unlimited in 2014, has been appointed to succeed him.
More reading:
Friday’s analyst upgrades and downgrades
Economic news
The Canadian economy added 106,500 new jobs last month. The jobless rate fell to 5.7 per cent, from 5.8 per cent in March.
Canadian building permits issued $8.1-billion worth of building permits in March, up 2.1 per cent from the previous month, Statscan said. The gain was driven by higher construction plans in western Canada.
The U.S. Labor Department said its Consumer Price Index increased 0.3 per cent last month, lifted by rising gasoline, rents and healthcare costs. The CPI gained 0.4 per cent in March. In the 12 months through April, the CPI increased 2.0 per cent after advancing 1.9 per cent in March.
With Reuters and The Canadian Press
Terry Weber