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What every Canadian investor needs to know today
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Equities
Canada’s main stock index fell at the open Friday as concerns about the impact of the spread of the coronavirus on crude demand hit energy shares. On Wall Street, the Dow and S&P 500 saw sharp declines on virus fears and and disappointing earnings while strength in Amazon.com Inc. shares helped ease losses the Nasdaq.
At 9:46 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 87.55 points, or 0.5 per cent, at 17,403.01.
Energy stocks fell 1.6 per cent while materials shares gained 0.4 per cent on advancing gold prices.
At 10:03 a.m. ET, the Dow Jones Industrial Average was down 0.93 per cent, at 28,591.30. The S&P 500 fell 0.65 per cent to 3,262.41 and the Nasdaq Composite dropped 0.38 per cent to 9,264.05.
The death toll from the virus has now topped 200 with more than 9,000 confirmed cases. Britain and Italy were the latest to report new cases of the virus. On Thursday, the WHO called the situation a global emergency, citing concern over the spread of the coronavirus to countries with weaker health-care systems. However, markets drew some solace from the WHO’s decision not to impose restrictions on travel.
“Virus fears, the first case in the U.K. and news of various countries suspending flights to China, and some soft European data are driving risk aversion this morning, with global equities in the red,” BMO senior economist Jennifer Lee said.
On the corporate side, shares of Amazon spiked 9 per cent in early trading, putting the company’s market capitalization back above US$1-trillion. The online retailer smashed earnings forecasts in its latest quarter, posting earnings per share of US$6.47 versus market expectations of per-share earnings of US$4.03. Revenue rose to US$87.44-billion, also topping expectations of US$86.02-billion. Amazon chief executive Jeff Bezos said in a statement that the company’s Prime service now has more than 150 million paid members, up 50 per cent from Amazon’s last disclosure in 2018.
Heavy equipment maker Caterpillar Inc. reported an 8 per cent decline in fourth-quarter revenue and forecast 2020 profit below analysts’ estimates. Caterpillar said it expects 2020 profit of US$8.50 per share to US$10 per share, compared with the average analyst estimate of US$10.63 per share. Shares were down nearly 2 per cent in New York.
Ahead of the open, Imperial Oil Ltd posted a 68-per-cent decline in quarterly profit, as a rise in Canadian crude prices reduced the company’s refining margins. The company, majority-owned by Exxon Mobil Corp, said net income fell to $271-million, or 36 cents per share, in the fourth quarter ended Dec. 31, from $853-million, or $1.08, a year earlier. Still, the latest per-share earnings were ahead of the 35 cents analysts had been expecting. Imperial was trading down more than 2 per cent in Toronto. Separately, Exxon reported a 5.2-per-cent drop in fourth-quarter profit on weaker margins in its refining and chemical business.
Canadian investors also got a reading on the health of the Canadian economy near the end of last year. Statistics Canada said gross domestic product edged up 0.1 per cent in November, offsetting most of the previous month’s decline. Economists had been looking for a flat reading for the month. Statscan 15 of 20 industrial sectors posted increases.
“Overall, the above-consensus reading was surprising given the temporary factors which were expected to restrain growth (pipeline outage, rail strike, weather) and should limit the downside risk to the Bank of Canada’s fourth-quarter forecast,” CIBC economist Royce Mendes said. “Still, the data will be positive for the Canadian dollar, and slightly negative for fixed income.”
Last week, the Bank of Canada again held interest rates steady but left the door open for a rate cut, noting weakness in the final quarter of 2019 had spilled over into early 2020. Markets are now looking for a spring rate cut and increasingly betting that a second cut will follow later in the year.
Overseas, European markets turned negative after a firmer start on confirmation of two cases of the coronavirus in the U.K. The pan-European STOXX 600 was trading down 0.28 per cent by afternoon. Britain’s FTSE 100 fell 0.66 per cent. Germany’s DAX fell 0.38 per cent. France’s CAC 40 lost 0.38 per cent.
European markets were also hit by weaker-than-expect GDP figures for the last quarter of 2019. The European Union’s statistics office Eurostat said GDP rose 0.1 per cent quarter-on-quarter for a 1 per cent year-on-year gain. Economists polled by Reuters had expected a 0.2 per cent quarterly and a 1.1 per cent annual increase.
In Asia, Japan’s Nikkei gained 0.99 per cent. Hong Kong’s Hang Seng fell 0.52 per cent.
Commodities
Crude prices turned lower and looked set for heavy weekly losses on concerns about the impact of the spread of the virus on demand.
The day range on Brent so far is US$58.34 to US$59.45. The range on West Texas Intermediate is US$52.26 to US$53.36.
Both Brent and WTI looked set for a fourth consecutive week of losses, with each benchmark down more than 3 per cent for the week so far.
Traders drew some solace after a volatile week from the WHO’s decision not to impose a travel ban even as it declared a global health emergency over the spread of the virus.
“While it’s virtually impossible to quantify the full extent of the demand destruction from the virus outbreak, if there was one asset class more oversold than others, it had to be oil given the bigger-than-life global supply overhang,” AxiTrader strategist Stephen Innes said in a note.
He said markets will now likely turn their attention to OPEC’s response to the crisis, noting that Saudi Arabia is reportedly open to talks about moving the group’s next meeting to early February from March.
“In the wake of the WHO’s softer decree, the market will likely now view OPEC compliance efforts in a more constructive light as the negative-sentiment snowballing effect from the coronavirus gets temporarily kicked to the curb,” he said.
In other commodities, gold prices edged higher and looked set for a monthly gain. Spot gold rose 0.2 per cent to US$1,576.28 per ounce. Gold has now gained nearly 4 per cent for the month and looks on track for its best monthly showing since last August.
U.S. gold futures declined 0.6 per cent to US$1,580.10.
“Critical support remains in the $1,545-$1,550 regions with resistance at $1,585 and $1,600 an ounce. Wuhan fears should ensure that a break below $1,560 is very unlikely ahead of the weekend,” Jeffrey Halley, senior market analyst at OANDA, said in a note.
London copper prices were higher on the day but appeared on track for their biggest monthly decline since November 2015 on fears of how the spread of the virus will affect demand from China, a leading consumer of metals. Three-month copper on the London Metal Exchange (LME) rose 0.3 per cent to US$5,601 a tonne after 12 straight sessions of losses. For the month, it is down 9.3 per cent, according to Reuters.
Currencies
The Canadian dollar was weaker as global currency markets drifted overnight in the wake of the WHO’s declaration of a global emergency, drawing some support from the organization’s confidence in how China has responded to the outbreak.
The day range on the loonie so far is 75.50 US cents to 75.78 US cents.
“FX markets are directionless overnight, the WHO’s declaration that the coronavirus is an international health emergency having little impact on risk appetite and our relative equity index that proxies market concern flat at yesterday’s high,” RBC chief currency strategist Adam Cole said.
The loonie held relatively stead after Statistics Canada reported that GDP grew by 0.1 per cent in November. Economists had been forecasting a mostly flat reading for the month.
At this point, he said, growth in the final quarter last year is tracking toward a barely positive 0.3-per-cent annual gain.
On global markets, the Australian and New Zealand dollars, both sensitive to sentiment in China, fell to new multi-month lows, according to Reuters.
The New Zealand dollar fell 0.4 per cent and touched a two-month low of 64.68 US cents. The Australian dollar lost 0.4 per cent to 66.99 IS cents, a four-month low.
The U.S. dollar index was unchanged at 97.896.
Britain’s pound rose 0.3 per cent to US$1.3136 as Britain prepares to leave the European Union on Friday.
More company news
Cott Corp. says it has struck a deal to sell its S&D Coffee and Tea to Westrock Coffee Company for $405-million. The sale is the latest in Cott’s efforts to become a pure-play water company. The transaction is expected to close in the first quarter of this year.
Delta Air Lines Inc said it will temporarily suspend all remaining U.S.-China flights after the U.S. State Department elevated a travel advisory over concerns about the coronavirus. The United States told citizens on Thursday not to travel to China due to an epidemic that has infected nearly 10,000 people and been declared a global emergency.
Canadian billionaire Lawrence Stroll has agreed to buy up to 20 per cent of Aston Martin and rename his Formula One team after the 107-year-old company famed for being fictional secret agent James Bond’s car of choice. Under the deal announced on Friday, Mr. Stroll will pay 182 million pounds for a 16.7-per-cent stake which could rise to 20 per cent upon completion of the company’s plan to raise a total of 500 million pounds, including a rights issue from exiting shareholders. Aston Martin shares surged as much as 30% after the announcement and were 18% higher by midmorning in London.
The Globe’s Josh O’Kane reports that Open Text Corp. will spend as much as US$34-million on restructuring as it integrates recently acquired U.S. security-software firm Carbonite Inc., but the Waterloo, Ont.-based company will not reveal how many employees will be affected. Open Text revealed the restructuring Thursday when it reported results from its fiscal 2020 second quarter ended Dec. 31. In an interview, chief executive Mark Barrenechea said that some employees would be affected, but that there would be a “net increase” of jobs to Canada as it moved certain operations into the country, including Carbonite’s outsourcing activities.
Honeywell International Inc forecast its 2020 sales below market expectations, saying Boeing Co’s 737 MAX production halt will hurt its full-year growth rate. The U.S. aero parts maker said its expects “significant production delays from the 737 MAX production halt” and it was trying to mitigate the impact, but did not provide details on its plans. The company forecast 2020 sales in the range of US$36.7-billion and US$37.8-billion, below average analysts’ estimate of US$38.11-billion, according to IBES data from Refinitiv. The company said it expects 2020 earnings per share between US$8.6 and US$9. The midpoint was slightly above the Wall Street estimate of US$8.79.
Economic news
Statscan say GDP grew by 0.1 per cent in November, offsetting most of the previous month’s decline. Economists had been forecasting a mostly flat reading.
The U.S. Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.3 per cent last month as households spent more on health care after an unrevised 0.4 per cent rise in November.
The U.S. Employment Cost Index, the broadest measure of labor costs, rose 0.7 per cent last quarter after increasing by the same margin in the third quarter. That lowered the year-on-year rate of gain in the ECI to 2.7%. Labor costs rose 2.8% on a year-on-year basis in the third quarter, Reuters reports.
(9:45 a.m. ET) U.S. Chicago PMI for January.
(10 a.m. ET) U.S. University of Michigan Consumer Sentiment Index for January.
With Reuters and The Canadian Press