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Equities
Canada’s main stock index hit a record high early Thursday as a relief rally buoyed world markets. On Wall Street, stocks started in record territory on easing tensions in the Middle East and news that China would sign a partial trade deal with the U.S. next week.
The Toronto Stock Exchange’s S&P/TSX composite index rose as much as 0.4 per cent to a record high of 17,243.680. Tech stocks gained 1.5 per cent. Energy shares fell about 1 per cent as crude prices gave back early gains.
At 10:03 a.m. ET, the Dow Jones Industrial Average was up 115.20 points, or 0.40 per cent, at 28,860.29, the S&P 500 was up 14.58 points, or 0.45 per cent, at 3,267.63 and the Nasdaq Composite was up 69.25 points, or 0.76 per cent, at 9,198.49.
On Wednesday, Mr. Trump vowed to impose “punishing economic sanctions” on Iran in the wake of the latest strikes although both sides also appeared unwilling to further escalate tensions in the wake of the killing last week of Iran’s top military general. Mr. Trump touted the United States’ military strength but also said "the fact that we have this great military and equipment, however, does not mean we have to use it.”
“A ceasefire between the U.S. and Iran has seen a relief rally take hold across global markets,” Jasper Lawler, head of research for London Capital Group, said. “All investors needed to hear was the U.S. President say it appears Iran is ‘standing down’. After that we were off to the races.”
Overseas, Asian markets posted a strong finish and Europe’s major markets remained firmly in the black by afternoon. Safe-haven currencies like the Japanese yen and the Swiss franc were lower. Gold prices, while still elevated, were also down.
Markets also drew support from news that China’s Vice Premier Liu He would be in Washington next week to sign a ‘phase-one’ trade deal with the U.S.
On Bay Street, investors will turn their attention to the economy with afternoon remarks due later in the session from Bank of Canada Governor Stephen Poloz.
The head of the Bank of Canada is set to deliver a fireside chat in Vancouver followed by a news conference. The central bank’s next policy announcement is due Jan. 22 and investors will be looking for clues about whether a rate cut is likely in coming months. A series of softer-than-expected economic reports recently have left some economists suggesting Mr. Poloz may strike a more dovish tone in Thursday’s remarks.
Shaun Osborne, chief FX strategist for Scotiabank, notes that the Vancouver chat comes less than a month after a similar event in Toronto. However, since then a number of economic reports have come in weaker-than-forecasts, leaving GDP in the fourth quarter tracking below the central bank’s most recent forecast.
“The bar to a rate cut still looks fairly high in the short term but as markets are barely pricing in any BoC risk in the next few months, a dovish lilt to Mr. Poloz’s remarks could undercut the (Canadian dollar) somewhat,” Mr. Osborne said. “We doubt BoC thinking has changed too much in the past few weeks and a steady-as-she-goes message from the governor should help steady the CAD.”
On the earnings front, retailer Aritzia Inc. said same-store sales rose 5.1 per cent in the most recent quarter. Adjusted earnings per share rose 3.2 per cent to 32 cents, topping analysts’ forecasts of 30 cents. Revenue in the quarter rose 10 per cent to $267.3-million. Aritzia shares rose more than 3 per cent in early trading.
Canadian investors will also get results from Postmedia.
On Wall Street, shares of Bed Bath & Beyond were down more than 18 per cent after the retailer pulled its annual financial guidance in the wake of a weak third-quarter profit and lower-than-expected sales. For the third quarter ended Nov. 30, Bed Bath & Beyond reported a loss of 38 US cents, on an adjusted basis, while analysts were expecting a profit of 2 US cents, according to IBES data from Refinitiv. Net sales during the quarter fell 9 per cent to US$2.76-billion, due to a shorted holiday season and a late U.S. Thanksgiving holiday in 2019, the company said. Analysts had been looking for sales of US$2.85-billion. The results were released after the close of trading on Wednesday.
Overseas, the pan-European STOXX 600 was up 0.33 per cent by afternoon, paring some of the morning’s gains. Britain’s FTSE 100 gained 0.49 per cent. France’s CAC 40 rose 0.24 per cent. Germany’s DAX jumped 1.24 per cent.
In Asia, Japan’s Nikkei surged 2.3 per cent on easing U.S.-Iran tensions. The broader Topix gained 1.63 per cent. The Shanghai Composite Index rose 0.91 per cent. Hong Kong’s Hang Seng ended up 1.68 per cent.
Commodities
Oil prices steadied after the previous session’s sharp declines on easing U.S.-Iran tensions and a surprise increase in U.S. crude inventories.
The day range on Brent so far is US$65.25 to US$66.10. The range on West Texas Intermediate is US$59.48 to US$60.31.
On Wednesday, Brent crude dropped more than 4 per cent while WTI shed nearly 5 per cent after U.S. President Donald Trump said Iran appeared to be “standing down” after last week’s killing of a top Iranian general and the subsequent missile attacks on sites in Iraq housing U.S. forces.
Crude prices Thursday were now back to where they were before last week’s U.S. strike.
“The one-day collapse in Brent crude oil by half a big handle was quite stunning,” London Capital Group’s Jasper Lawler said. “It is not without precedent but does greatly reduce the possibility of another run above US$70 in the near term.”
However, he also said, the apparent imminent signing of a U.S.-China trade agreement should be “oil-positive” and stave off a drop below US$63 a barrel for Brent crude.
Crude prices came under further pressure during the previous session from new figures showing an unexpected rise in U.S. crude stocks. The U.S. Energy Information Administration said inventories for the week ended Jan. 3 rose by 1.2 million barrels to 431.1 million barrels. Analysts had been expecting a drop of about 3.6 million barrels.
Gold prices, meanwhile, followed other safe-have holdings lower, dropping as much as 1 per cent in early going. Gold had touched its highest levels in roughly seven years in recent days on concern over the U.S.-Iran conflict.
Spot gold fell 0.7 per cent to US$1,545.47 per ounce, having earlier slipped to US$1,539.78 an ounce. U.S. gold futures dipped 0.9 per cent to US$1,546.50.
“Gold now finds herself back around US$1,550, roughly where it was this time last week and having to rely on a softer greenback to strengthen the case for another push higher,” OANDA senior analyst Craig Erlam said. “This may come but not with the same intensity that a potential war in the Middle East brings.”
Currencies
The Canadian dollar was weaker as investors await remarks from Bank of Canada Governor Stephen Poloz.
The day range on the loonie so far is 76.47 US cents to 76.77 US cents. The dollar was at the low end of that spread by midmorning.
“BoC Governor’s Poloz’s fireside chat is the main event risk today,” Elsa Lignos, global head of FX strategy for RBC, said in an early note. “There is some risk of a shift to a more dovish tone, after a string of softer Canadian data, including a 0.1-per-cent decline in October GDP.”
Fourth-quarter growth now looks to be tracking below a 1-per-cent annual rate following below-potential growth of 1.3 per cent in the third quarter, she said.
Ms. Lignos also said markets will be watching for hints about what to expect from the central bank’s business outlook survey, which is set to be released on Monday.
On global markets, safe-haven currencies like the Japanese yen and the Swiss franc retreated on the latest headlines on the U.S.-Iran conflict.
The yen was last down 0.2 per cent against the U.S. dollar at 109.36. That’s its lowest level in more than a week.
The U.S. dollar was down 0.1 per cent against the euro as euro/dollar traded at $1.1115 and by the same magnitude versus the pound, last trading at $1.3112, according to Reuters. The euro was also rising against the Swiss franc, another safe-haven, by 0.2 per cent to 1.0833.
Yields on U.S. bonds were a touch lower as tensions abated. The yield on the U.S. 10-year note was off slightly at 1.872 per cent. The yield on the 30-year note was also down marginally at 2.352 per cent.
More company news
Cenovus Energy unveiled plans to reduce per-barrel greenhouse gas emissions by 30% by the end of 2030 and spend an additional $1.5-billion on businesses run by the country’s indigenous communities. The company said it is adopting a climate and greenhouse gas emissions strategy with several options to help it reach targets. The strategy will also advance its methane emission reduction initiatives that are already underway at its Deep Basin operations and lead to additional operational efficiencies. Cenovus shares were down about 1 per cent in morning trading in Toronto.
HP Inc said on that Xerox Holdings Corp securing financing for its US$33.5-billion takeover offer for the personal computer maker is not a basis for a discussion and reiterated that the proposal still undervalues the company. The U.S.-based printer maker had said on Monday it secured US$24-billion in financing for the proposal, a deal that HP is opposing. “Your letter dated January 6, 2020 regarding financing does not address the key issue – that Xerox’s proposal significantly undervalues HP – and is not a basis for discussion,” the company said in a letter to Xerox on Wednesday.
Sales of Apple Inc’s iPhone in China in December jumped more than 18% year on year, government data showed on Thursday. China is gearing up for the Lunar New Year in late January, a major gift-giving holiday. Apple shipped roughly 3.2 million phones in China in December, data from the China Academy of Information and Communications Technology and Reuters calculations showed. That was up from 2.7 million a year earlier.
Facebook Inc said on Thursday it was making some changes to its approach to political ads, including allowing users to turn off certain ad-targeting tools, but the updates stop far short of critics’ demands and what rival companies have pledged to do. Facebook said that in addition to rolling out a tool enabling individual users to choose to see fewer political and social issue ads on Facebook and its photo-sharing app Instagram, it will also make more ad audience data publicly available.
Kohl’s Corp said it expects full-year earnings to come in at the bottom end of an already lowered forecast, blaming weak demand for women’s apparel during the crucial holiday shopping season. The department store operator’s shares fell nearly 6 per cent in premarket trading as it posted a 0.2-per-cent drop in comparable sales in November and December compared with a 1.2-per-cent rise a year earlier.
Economic news
Canada Mortgage and Housing Corp. said the seasonally adjusted annual rate of housing starts for all areas in Canada was 197,329 units in December, down 3% from 204,320 units in November.
Statistics Canada says the total value of building permits issued by Canadian municipalities fell 2.4 per cent in November to $8.1-billion. Declines were seen in six provinces, with the biggest reported in Ontario.
U.S. initial claims for state unemployment benefits dropped 9,000 to a seasonally adjusted 214,000 for the week ended Jan. 4, the U.S. Labor Department says. The figures mark the fourth consecutive weekly decline.
(2 p.m. ET) Bank of Canada governor Stephen Poloz speaks to the Greater Vancouver Board of Trade.
With Reuters and The Canadian Press
Terry Weber