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Equities
Canada’s main stock index edged higher at the open Thursday on continued optimism over economic improvements as countries ease lockdown restrictions. South of the border, the Dow and S&P 500 were both up in early trading although simmering tensions between the U.S. and China capped the advance.
At 9:32 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 20.28 points, or 0.13%, at 15,292.31.
In the U.S., the Dow Jones Industrial Average rose 149.09 points, or 0.58 per cent, at the open to 25,697.36, and the S&P 500 opened higher by 10.48 points, or 0.35 per cent, at 3,046.61. But the Nasdaq Composite dropped 19.36 points, or 0.21 per cent, to 9,392.99 at the opening bell.
Early Thursday, China’s parliament overwhelmingly approved directly imposing national security legislation on Hong Kong, a move that has brought threats of strong action from the United States and triggered renewed protests in the region. U.S. Secretary of State Mike Pompeo has already said Washington will no longer treat Hong Kong as autonomous from Beijing.
The National People’s Congress voted 2,878 to 1 in favour of the decision to empower its standing committee to draft the legislation, with six abstentions. The legislators gathered in the Great Hall of the People burst into sustained applause when the vote tally was projected onto screens, Reuters reports
“It looks like China has made the strategic decision that it no longer needs Hong Kong as its gateway to the world,” Jasper Lawler, head of research with London Capital Group, said.
“Rather it will open up the mainland to levels it is comfortable with. The bill is bad for Hong Kong either way you cut it; short term there are more protests and longer term less capital flowing in from overseas. Quite how quickly that capital dries up may rest with the announcement President Trump will make this week on the US ‘response’.”
In this country, bank earnings season comes to a close with results from Toronto-Dominion and Canadian Imperial Bank of Commerce. Through the week, Canada’s other big banks have reported results with heavy loan-loss provisions as they brace for the fallout from the COVID-19 pandemic. On Wednesday, Royal Bank said it set aside $2.83-billion in provisions for credit losses, an increase of 558 per cent from $426-million a year ago. Bank of Montreal earmarked $1.1-billion to cover potential losses on loans.
TD said net income fell to $1.52-billion, or 80 cents per share, in the second quarter ended April 30, from $3.17-billion, or $1.70 per share, a year earlier. Total provisions for loan losses jumped to $3.22-billion compared with $633-million a year earlier. CIBC said net income attributable to equity holders fell to $400-million, or 83 cents per share, in the second quarter ended April 30, from $1.34-billion, or $2.95 per share, a year earlier. CIBC set aside $1.41-billion in the quarter for future loan losses, compared with $255-million a year earlier.
Shares of both banks were lower in early trading in Toronto.
South of the border, economics will be in focus after the U.S. Labor Department reported that 2.12 million Americans filed for state initial jobless claims last week. It was the 10th week that the number came in above 2 million. Separately, a fresh reading on U.S. GDP showed that economy contracted at an annual rate of 5 per cent in the first quarter. Economists had expected the number to remain unrevised from an earlier estimate at 4.8 per cent.
In Europe, the pan-European STOXX 600 was up 1.16 per cent by afternoon. Britain’s FTSE 100 rose 1.04 per cent. Germany’s DAX advanced 0.57 per cent. France’s CAC 40 gained 0.98 per cent.
In Asia, markets finished mixed. Hong Kong’s Hang Seng fell 0.72 per cent. Japan’s Nikkei jumped 2.32 per cent. The Shanghai Composite Index ended up 0.33 per cent.
Commodities
Crude prices steadied following early declines after new figures showed a surprise increase in U.S. inventories, raising concerns about how quickly demand will bounce back after the COVID-19 lockdowns.
The day range on Brent so far is US$33.62 to US$34.42. The range on West Texas Intermediate is US$31.14 to US$32.39.
The American Petroleum Institute reported late Wednesday that U.S. crude stocks rose by 8.7 million barrels for the week ended May 22. Analysts had been expecting a draw of 1.9 million barrels.
“No surprise as oil markets are struggling today as the bullish rebalancing narrative has given way to lingering supply concerns after the colossally bigger API inventory build, which is getting compounded by reports, Russia may ease up on supply cuts,” AxiCorp chief market strategist Stephen Innes said.
“All the while, the oil markets trade war sensitivities remain in focus as consensus is pivoting to the U.S. imposing tariffs on China.”
More official inventory figures will be released later Thursday morning by the U.S. Energy Information Administration.
In other commodities, gold prices rallied from the two-week low seen during the previous session as U.S.-China tensions simmer.
Spot gold was up 0.6 per cent at US$1,718.67 per ounce, after falling to US$1,693.22 on Wednesday before paring losses. U.S. gold futures rose 0.4 per cent to US$1,717.70.
“Increasing trade taxes as the world is trying to recover from the COVID-19 economic beat down adds another level of economic uncertainty to the nascent recovery,” Mr. Innes said.
“Indeed, increased economic uncertainly has an uncanny way of lighting up gold any day of the week, especially as it pertains to trade war risk.”
Currencies
The Canadian dollar was a touch weaker as crude prices fell and rising international tensions injected a degree of uncertainty into markets.
The day range on the loonie so far is 72.53 US cents to 72.81 US cents.
Investors are now looking ahead to the release of Friday’s report on first-quarter GDP. An early estimate from Statistics Canada has already indicated that the economy contracted at an annual rate of 9 per cent as the country went into lockdown to stem the spread of the novel coronavirus.
On global markets, the euro edged higher after the European Union unveiled a US$826-billion plan to support economies hit by the pandemic.
The euro was last up 0.1 per cent at US$1.1016, having risen earlier to a two-month high of US$1.1035. The euro was steady versus the Swiss franc at 1.0664, though the day prior it rose to nearly a three-month high, according to Reuters.
The U.S. dollar index, which weighs the greenback against a basket of world currencies, was steady at 98.93.
China’s yuan was neutral at 7.1725 in the offshore market but still near lows seen a day earlier.
More company news
BRP Inc. reported a first-quarter loss of $226.1-million and warned it expected revenue in its second quarter to drop sharply compared with a year ago due to the pandemic. The Ski-Doo and Sea-Doo maker says it expects revenue in the second quarter to be down about 40 per cent compared with last year. BRP lost $2.58 per diluted share for the quarter ended April 30 as it took a $171.4-million impairment charge related to its marine business compared with a profit of $23.8-million or 25 cents per diluted share a year ago.
Nissan Motor Co unveiled a plan to become a smaller, more cost-efficient automaker on Thursday as it looks to recover from four years of tumbling profits that culminated in its first annual loss in 11 years. Under a new four-year plan, the Japanese carmaker will slash its production capacity and model range by about a fifth to help cut 300 billion yen (US$2.8-billion) from fixed costs as it fights for survival in a market hit badly by the coronavirus pandemic.
BRP Inc. says it will cut 650 jobs or about five per cent of its global workforce as the recreational product maker stops producing outboard motors that have been “hard hit” by the COVID-19 pandemic. The manufacturer of Ski-Doo, Sea-Doo and Can-Ams made the announcement on Wednesday after markets closed and on the eve of its first-quarter results and annual meeting. Chief executive Jose Boisjoli said in a news release that it will immediately stop production of the Evinrude E-TEC and E-TEC G2 outboard motors that will primarily affect its U.S. workforce.
Billionaire investor Carl Icahn, who was the largest shareholder in Hertz Global Holdings Inc, unloaded his entire stake in the rental car company at a “significant loss” days after it filed for bankruptcy protection. According to a regulatory filing made on Wednesday, Icahn, who held a nearly 39% stake in Hertz and had three representatives on the board, sold 55.34 million shares on Tuesday at 72 cents per share.
Dollar General Corp said on Thursday it expects to exceed its annual sales and profit forecasts after the retailer saw a surge in demand from customers stocking up on groceries and household essentials amid the COVID-19 pandemic. The company’s net sales rose to $8.45-billion from $6.62-billion in the first quarter ended May 1. Same-store sales jumped 21.7%.
Economic news
(8:30 a.m. ET) Canada's current account deficit for Q1.
(8:30 a.m. ET) Canada's Survey of Employment, Payrolls and Hours for March.
(8:30 a.m. ET) U.S. Real GDP for Q1 (preliminary).
(8:30 a.m. ET) U.S. initial jobless claims for week of May 23.
(8:30 a.m. ET) U.S. corporate profits for Q1.
(8:30 a.m. ET) U.S. durable goods orders for April.
(10 a.m. ET) U.S. pending home sales for April.
With Reuters and The Canadian Press
Terry Weber