Equities
Canada’s main stock index opened higher Friday bolstered by a gain in energy stocks and a rise in CannTrust Holdings Inc. shares after the company fired its CEO and forced the resignation of its chairman amid a Health Canada probe into growing of cannabis plants in unlicensed rooms. U.S. markets also started the session on a positive note and were within striking distance of another record session as tech shares rallied on strong Alphabet Inc. and Intel Corp. results and a better-than-expected reading on U.S. economic growth underpinned investor sentiment.
At 9:40 a.m. ET, the Toronto Stock Exchange’s S&P/TSX Composite index was up 44.73 points, or 0.27 per cent, at 16,532.93. All of the index’s main sectors were in the black. Energy shares were up 0.3 per cent while materials shares gained 0.2 per cent.
The index is now on track to end the week 0.3 per cent higher.
On Wall Street, the Dow Jones Industrial Average rose 25.02 points, or 0.09 per cent, at the open to 27,166.00. The S&P 500 opened higher by 9.58 points, or 0.32 per cent, at 3,013.25. The Nasdaq Composite gained 55.76 points, or 0.68 per cent, to 8,294.30 at the opening bell. Both the S&P and Nasdaq were just short of touching record highs.
The U.S. Commerce Department said the U.S. economy grew at an annual rate of 2.1 per cent in the second quarter, better than the 1.8 per cent markets had been expecting but still below the 3.1 per cent seen in the first three months of the year. Consumer spending helped underpin the second-quarter figure although declining exports and declining inventories weighed. (The reading is the first for the second quarter and is subject to revisions.)
The report comes just days before the Fed’s next rate cut. Markets are expecting a quarter point cut and few see Friday’s stronger-than-expected number standing in the way of a cut. The questions for the markets now is whether the central bank continues to reduce borrowing costs through the rest of the year.
“Overall, the data lean towards our view that we are headed for only a couple of quarter point insurance cuts from the Fed, rather than a major easing cycle,” CIBC World Markets chief economist Avery Shenfeld said.
Friday’s analyst upgrades and downgrades
On Bay Street, CannTrust shares opened up 14 per cent after the company said it was firing CEO Peter Aceto after a Health Canada probe found the company was growing cannabis in unlicensed rooms. Chairman Eric Paul is also exiting. A report in The Globe and Mail this week detailed internal e-mails that showed both and other CannTrust officials were made aware of the breaches at a Southern Ontario growing facility in November, 2018. CannTrust shares had dropped as much as 60 per cent since news of a Health Canada investigation into the growing of plants in unlicensed rooms broke. CannTrust shares were among the most heavily traded by volume on the TSX on Friday morning.
On the earnings front, Loblaw-parent George Weston Ltd. reported earnings per share of $1.19 in the latest quarter. Adjusted earnings per share came in at $1.70, up from $1.63 a year earlier and ahead of market expectations, which had been looking for a number by that measure of $1.58. Loblaw sales in the latest quarter rose 2.9 per cent to $11.13-billion. Shares were up 0.56 per cent just after the start of trading.
On Wall Street, McDonald’s and Twitter both reported before the start of trading.
Twitter shares were up nearly 8 per cent after the social media company’s revenue topped market forecasts and the number of daily users who see ads on the site rose. Twitter reported second-quarter profit of US$1.1-billion, or US$1.43 per share, compared with US$100-million, or 13 US cents per share, a year earlier. Profit was boosted by an income tax benefit of over US$1-billion related to corporate restructuring. Twitter’s revenue rose 18 per cent from a year earlier to US$841-million, beating Wall Street expectations of US$829-million, based on Refinitiv data.
McDonald’s shares rose nearly 1.5 per cent after the company reported a stronger-than-expected rise in sales at established U.S. restaurants. Sales at U.S. restaurants open for at least 13 months rose 5.7 per cent in the second quarter ended June 30, above the 4.47-per-cent growth expected by analysts, according to IBES data from Refinitiv. Total revenue, including both U.S. and overseas operations, was mostly flat at US$5.34-billion. The chain is moving to franchised from owned restaurants, which replaces sales with royalties.
After the close of trading Thursday, investors got mixed results from Amazon with the push for one-day delivery hitting profit. Shares were down 1.5 per cent in early trading. However, more upbeat results from Intel, Starbucks and Alphabet took some of the edge off. Alphabet shares gained nearly 11 per cent early Friday on an earnings report that showed rebounding profit, helping ease investor concerns about the tech giant’s growth prospects. Revenue in the latest quarter rose 19 per cent, topping market forecasts of a 16.82-per-cent increase. Starbucks shares were up nearly 6 per cent on that company’s latest results.
Overseas, European shares were up modestly after the European Central Bank on Thursday held rates steady but flagged more stimulus down the road. Markets, however, were slightly disappointed by the bank’s stance, having a expected a more dovish position. The pan-European STOXX 600 was up 0.36 per cent. Britain’s FTSE 100 rose 0.69 per cent. Germany’s DAX added 0.26 per cent and France’s CAC 40 gained 0.53 per cent.
In Asia, markets finished the week mostly lower as investors braced for next week’s Fed announcement. The Shanghai Composite Index ended up 0.24 per cent. Hong Kong’s Hang Seng fell 0.69 per cent and Japan’s Nikkei shed 0.56 per cent.
Commodities
Crude prices were higher and looked headed for weekly gains supported by ongoing tensions in the Middle East. The day range on Brent is US$63.01 to US$63.93, with prices near the top end of that range at last check. The spread on West Texas Intermediate is US$55.85 to US$56.57.
Brent crude was set for a weekly gain of nearly 2 per cent. WTI looked set to post a gain closer to 1 per cent. The weekly gains come after declines of 6 per cent and 7.5 per cent last week.
Tensions remained high around the Strait of Hormuz, the world’s most important oil passageway, as Iran refused to release a British-flagged tanker it seized last week in the Gulf. Reuters reports that U.S. Secretary of State Mike Pompeo said Washington had asked Japan, France, Germany, South Korea, Australia and other nations to join a maritime security initiative in the Middle East so oil and other products can flow through the strait.
However, analysts say, while the Middle East situation is supporting prices, it’s surprising that markets haven’t seen more of a rally.
“Bewildering best describes my view on oil markets these days,” Stephen Innes, managing partner at Vanguard Markets, said. “Boots on the ground have been threatened, tankers attacked, drones shot down and the US5th fleet stationed on high alert, yet traders remain indifferent about packing on more Middle East risk premium.”
Part of the reason, he said, could be the impact of slowing global growth on near-term oil demand forecasts. Also weighing, he said, are reports that talks are progressing between Saudi Arabia and Kuwait about resuming production from the shared neutral zone where significant production has been shut for several years.
In other commodities, gold prices steadied after falling 1 per cent during the previous session in the wake of a positive reading on U.S. employment.
Spot gold rose 0.3 per cent to US$1,418.40 an ounce. U.S. gold futures gained 0.3 per cent to US$1,418.50. Still, prices looked set for the first weekly decline in three on a stronger U.S. dollar and lowered expectations that the ECB would take drastic actions to stimulate that economy.
Currencies
The Canadian dollar was trading below 76 US cents in early going as its U.S. counterpart held near its best levels in two months. The day range on the loonie so far is 75.84 US cents to 76 US cents.
The Canadian dollar sees another quiet day in terms of Canadian economic news. The next headline event will likely be Wednesday’s May GDP report.
“It’s looking like a fairly mixed month of soft growth with potentially severe and transitory distortions to the trade picture,” Derek Holt, head of capital market economics at Scotiabank, said in a recent report.
“Hours worked fell by 0.3 per cent m/m and, given that GDP is hours worked times labour productivity, this alone suggests some softness.”
He also noted that housing starts fell 15 per cent on a monthly basis while retail sales slid 0.5 per cent. Manufacturing shipments, however, rose a solid 1.7 per cent with export volumes up 4 per cent and import volumes up 1.2 per cent.
“But there are strong cautions that keep the door wide open for trade to disappoint again going forward and for the BoC to reflect upon renewed concerns into the Fall,” Mr. Hold said. “Idiosyncratic and temporary drivers were behind the export pick-up and are unlikely to prove to be durable.”
On world currency markets, the U.S. dollar was trading near its best level in two months against a basket of global counterparts. The greenback also appeared set for its second straight week of gains. The greenback held early gains after a reading on second-quarter GDP suggested a rate cut next week by the Fed wouldn’t necessarily signal the start of a major easing cycle.
The U.S. dollar’s gains were also helped by widening yield differentials between U.S. and German debt. Spread were also holding at two-month highs at 244 basis points, according to Reuters. The spread comes on the heels of investor disappointment over the ECB’s policy announcement.
Against a basket of its rivals, the U.S. dollar rose 0.1 per cent to 97.88, just short of a two-month high of 97.92 in Thursday’s session.
More company news
Intel Corp beat analysts’ estimates for quarterly profit and raised its full-year revenue forecast, raising hopes that a recent slump in chip demand aggravated by the U.S.-Sino trade war was easing. The company now expects full-year revenue of US$69.5-billion, up from US$69-billion it predicted earlier. Net income fell to US$4.2 billion, or 92 US cents per share, in the second quarter, from US$5-billion, or US$1.05 per share, a year earlier. Net revenue fell 3 per cent to US$16.5-billion.
Aecon Group Inc. says it had a strong second quarter, with higher revenue, profit and project backlogs compared with the same time last year. The Toronto-based construction company had a $20.4-million net profit, worth 31 cents per diluted share for quarter ended June 30. That’s up from a profit of $8.4-million, or 13 cents per diluted share, a year earlier and ahead of estimates. Revenue was $867.3-million, up from $754.8-million and also ahead of estimates.
U.S. refiner Phillips 66 beat estimates for quarterly profit on Friday, benefiting from shipping higher volumes of crude through its pipelines. Pipeline operators have benefited from a surge in output from U.S. shale basins, which led oil producers to scramble for takeaway capacities. Earnings from midstream segment for Phillips 66, which has both wholly owned and joint venture operations, rose nearly 78 per cent to US$423-million in the second quarter ended June 30.
Renault warned revenue may decline this year, scrapping a previous goal, after first-half profit was hit by weakening car demand and an earnings collapse at alliance partner Nissan in the wake of the Carlos Ghosn scandal. Net income slumped by more than half to 970 million euros (US$1.08-billion) in January-June as revenue fell 6.4 per cent to 28.05 billion, the French carmaker said on Friday. Operating profit also dropped 13.6 per cent to 1.65 billion euros.
Apple Inc. is paying Intel US$1-billion for the chip maker’s smartphone modem division in a deal driven by the upcoming transition to the next generation of wireless technology. The agreement announced Thursday comes three months after Apple ended a long-running dispute with one of Intel’s rivals, Qualcomm, to ensure it would have a pipeline of chips it needs for future iPhones to work on ultrafast wireless networks known as 5G.
Economic news
Second-quarter U.S. GDP grew at an annual rate of 2.1 per, better than the 1.8-per-cent increase markets had been expecting.
11 a.m. (ET) Canadian budget balance for May.
With Reuters and The Canadian Press
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