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Equities
Canada’s main stock index started higher Wednesday with rising oil prices pushing energy shares higher. South of the border, U.S. indexes took a cue from rallying world markets with easing political concerns in Britain and Italy and news that Hong Kong leader Carrie Lam withdrew of a contentious extradition bill after months of unrest bolstering sentiment.
At 9:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 93.03 points, or 0.57%, at 16,492.26.
On Wall Street, the Dow Jones Industrial Average rose 183.97 points, or 0.70 per cent, at the open to 26,301.99.
The S&P 500 opened higher by 18.40 points, or 0.63 per cent, at 2,924.67. The Nasdaq Composite gained 75.65 points, or 0.96 per cent, to 7,949.81 at the opening bell.
World stocks gained 0.4 per cent while Europe’s major markets added roughly 1 per cent after British lawmakers defeated Prime Minister Boris Johnson in a bid to keep him from taking Britain out of the European Union without a divorce agreement. Markets in Italy were also positive after 5 Star members voted by a majority to endorse a coalition with the rival Democrats. That move was seen improving ties with the European Union.
Asian markets finished higher on headlines out Hong Kong suggested an easing to the tense political situation there. Hong Kong’s Hang Seng ended up nearly 4 per cent on the day. Asia also got a life from new figures showing China’s services sector expanded by the fastest rate in three months in August, helping temper worries about the state of that country’s economy.
“The wider question is what this means for Ms. Lam, and her future as leader of the administration,” Michael Hewson, chief markets analyst with CMC Markets U.K., said. “It could be that this is Beijing’s way of shifting the blame and eventually sees her replaced in the not too distant future. It’s also not clear as to whether it will be enough to placate the protesters who have become increasingly emboldened in the past few months.”
Wednesday’s analyst upgrades and downgrades
In Canada, the Bank of Canada delivered its latest policy decision, keeping rates unchanged as widely expected. The Canadian dollar jumped in the wake of the decision after the central bank gave no clear indication that a rate cut is in the immediate future. Other central banks around the world have been easing monetary policy, but Canada has yet to follow suit amid a relatively steady domestic economy. In its statement on Wednesday, the bank did cite concern about the continuing trade conflict between the United States and China and its impact on the Canadian and global economies.
On the corporate front, American Eagle Outfitters reports before the start of trading. Slack reports after the close.
Shares of Starbucks Corp. fell about 3 per cent in early trading after the coffee chain said it expects 2020 profit growth to be lower than the current 10-per-cent rate. The warning comes two months after Starbucks raised its profit outlook for the current year.
On Bay Street, retailer Alimentation Couche-Tard releases first-quarter results after the trading day ends.
Overseas, the pan-European STOXX 600 gained 0.92 per cent in afternoon trading. Britain’s FTSE 100 rose 0.54 per cent. Germany’s DAX added 1.07 per cent and France’s CAC 40 gained 1.23 per cent.
In Asia, Hong Kong’s Hang Seng soard nearly 4 per cent. Japan’s Nikkei gained 0.12 per cent. The Shanghai Composite Index ended up 0.93 per cent.
Commodities
Crude prices jumped early Wednesday alongside a broad market rally but concern over global growth and demand continues to cast a long shadow.
The day range on Brent so far is US$58.13 to US$59.71 with the benchmark sitting near the top of that spread at last check. The range on West Texas Intermediate is US$53.84 to US$55.67. WTI was also near the top end of that range Wednesday morning.
U.S. purchasing managers figures released Tuesday showed the U.S. factory sector contracted in August for the first time since 2016, adding downward pressure to prices. However, that was offset somewhat by encouraging numbers out of China - the world’s second biggest oil consumer - showing gains in that country’s services sector.
“Market participants are becoming increasingly worried about recession risk,” Stephen Innes, managing Partner at VM Markets, said in an early note. " Moreover, given that tariffs present a significant threat to U.S. growth and in turn, the health of the global economy oil prices will remain under pressure especially if trade and tariff war shows no sign of abating."
Later Wednesday, markets will get the first of the week’s reports on U.S. crude inventories. The American Petroleum Institute’s weekly report is due Wednesday afternoon. It will be followed Thursday by more official figures from the U.S. Energy Information Administration.
A poll conducted by Reuters suggests markets are expected to see a third straight week of declining crude stocks.
Elsewhere, gold prices slipped but still held near their best levels in six years as recession fears linger.
Spot gold fell 0.6 per cent to UJS$1,537.20 per ounce, but hovered near last week’s US$1,554.56, its highest since April 2013.
U.S. gold futures were also down 0.6 per cent at US$1,546.6 an ounce.
“Market participants are becoming increasingly worried about recession risk,” Mr. Innes said. “Tariffs present a significant threat to U.S. growth and in turn, the health of the global economy. The thought of lower US interest rates is indeed music to gold investor’s ears.”
Currencies
The Canadian dollar jumped after the Bank of Canada kept rates unchanged and offered no clear indication that a rate cut is imminent. In the wake of the decision, the loonie trading near the upper end of the day range of 74.94 US cents to 75.35 US cents.
“The Bank of Canada left rates where they were, and drafted a statement designed to give them some time to think about what to do next, rather than dropping a clear hint of an October cut,” Avery Shenfeld, chief economist with CIBC World Markets, said.
Mr. Shenfeld says he still thinks the bank will ultimately have to ease rates but a move in “perhaps December” looks more likely than in October.
In its statement, the central bank did cite concern over the ongoing trade conflict between China and the United States and its impact on the Canadian and world economies.
Wednesday’s policy announcement will be followed by a speech on Thursday by Bank of Canada deputy governor Lawrence Schembri on Canada’s economic progress.
On world markets, Britain’s pound rallied and the U.S. dollar extended its decline in the wake of Tuesday’s disappointing factory figures.
The dollar was last down 0.2 per cent against a basket of major currencies, its index at 98.803, easing from a more than two-year high hit on Tuesday, according to Reuters. The British pound, which on Tuesday fell below US$1.20 and to its weakest in three-years, rose 0.5 per cent to the day’s high of US$1.2157.
More company news
Hong Kong’s Cathay Pacific Airways said on Wednesday its Chairman John Slosar has resigned, less than three weeks after mounting Chinese regulatory scrutiny led to the shock departure of its chief executive. The airline has become the biggest corporate casualty of anti-government protests after China demanded it suspend staff involved in, or who support, demonstrations that have plunged the former British colony into a political crisis.
Apparel retailer American Eagle Outfitters Inc forecast third-quarter profit below estimates on Wednesday after reporting disappointing quarterly same-store sales due to weak performance in certain seasonal clothing lines. Shares of the Pittsburgh-based company fell 6.5 per cent in premarket trading. The stock has lost about 15.8 per cent of its value so far this year. The weak forecast comes as the retailer faces intense competition from European brands like H&M and Zara as well as American apparel makers who are launching trendier styles to woo young shoppers. American Eagle said it expects to record an adjusted profit of about 47 US cents to 49 US cents per share in the third quarter. Analysts forecast the retailer to earn 52 US cents per share, according to IBES data from Refinitiv.
Coach handbag maker Tapestry Inc said on Wednesday Chief Executive Officer Victor Luis would leave the company after nearly 13 years at the helm. Tapestry Chairman Jide Zeitlin will take over the CEO role, the company said in a statement.
Tyson Foods Inc lowered its 2019 adjusted earnings forecast, citing a litany of causes including a recent fire at its Holcomb slaughterhouse and volatility in the commodity market. The fire resulted in an unforeseen shutdown at the slaughterhouse in Kansas last month, likely curtailing Tyson’s meat processing operations. The company also appears challenged by higher prices for animal feeds such as corn because of unprecedented planting delays this spring due to widespread flooding.
Economic news
Canada’s trade deficit rose to $1.1-billion in July from an essentially balance position in June, Statistics Canada said. Imports rose 1.2 per cent in July while exports fell 0.9 per cent.
The U.S. Commerce Department said the U.S. trade deficit dropped 2.7 per cent to US$54-billion. Data for June was revised down to show the trade gap shrinking to US$55.5-billion instead of the previously reported US$55.2-billion.
(10 a.m.) The Bank of Canada issues its interest rate decision. Forecasts are for no change from 1.75 per cent.
(2 p.m.) U.S. Beige Book.
With Reuters and The Canadian Press
Terry Weber