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Equities

Canada’s main stock index started higher Wednesday alongside broad market optimism over the positive impact of reopening of global economies. Wall Street’s main indexes also started in the black, with the S&P 500 back above the 3,000 level despite a degree of uncertainty over rising trade tensions between China and the U.S.

At 9:42 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 13.55 points, or 0.09 per cent, at 15,161.67.

Energy stocks were relatively steady even as crude prices gave back some of the recent gains. Financial stocks rose 2.3 per cent while industrials fell 0.3 per cent.

The Dow Jones Industrial Average rose 303.52 points, or 1.21 per cent, at the open to 25,298.63. The S&P 500 opened higher by 23.88 points, or 0.80 per cent, at 3,015.65, and the Nasdaq Composite gained 5.90 points, or 0.06 per cent, to 9,346.12 at the opening bell.

“The increasing prospect that a slowing infection rate and falling death count will see economies start to slowly reopen next month has seen equity markets across the globe get off to a flying start this week, building on the gains we saw last week,” Michael Hewson, market analyst with CMC Markets U.K., said.

“After weeks of lockdown, markets appear to be betting that consumers may well go off on a summer spending splurge, as pent up demand gets unlocked, as we head into the summer months.”

However, Mr. Hewson also noted that there are signs of fragility in Wall Street’s rally, specifically the S&P 500′s failure to close above the psychologically important 3,000 level during Tuesday’s session. The S&P 500 managed an intraday high of 3,021 on Tuesday but finished just south of that key level.

“This inability to hold onto the bulk of yesterday’s gains appears to have come about as a result of concerns that U.S. officials are mulling sanctions against senior Chinese officials and businesses over recent Chinese efforts to impose new security laws in Hong Kong in an attempt to crack down on dissent,” he said.

In Canada, bank earnings continue to roll in with results from Royal Bank and Bank of Montreal.

RBC said net income fell to $1.48-billion, or $1 per share, in the second quarter ended April 30, from $3.23-billion, or $2.20 per share, a year earlier. Bank of Montreal said net income fell to $689-million, or $1 per share, in the second quarter ended April 30 from $1.49-billion, or $2.26 per share, a year earlier.

RBC and BMO shares were both higher in early trading in Toronto.

On Tuesday, Bank of Nova Scotia kicked off bank earnings, reporting a 41-per-cent decline in profit as provisions for loan losses surged as the COVID-19 pandemic took hold. Still, Scotiabank stock finished Tuesday’s session up more than 7 per cent with investors taking solace in the fact that the loan-loss provisions were still below levels feared by analysts.

Elsewhere, The Globe’s Jeffrey Jones reports that the publisher of the Toronto Star has agreed to be taken private by two prominent businessmen for just over $51-million. NordStar Capital, owned by Jordan Bitove and Paul Rivett, is offering to buy the shares of Torstar Corp., which has struggled to cope with a dramatic drop in advertising revenue with a series of asset sales, newspaper closures and staff cuts.

Overseas, major European markets were higher by afternoon, with the pan-European STOXX 600 rising 0.76 per cent. Britain’s FTSE 100 gained 1.56 per cent. Germany’s DAX and France’s CAC 40 rose 1.99 per cent and 2.05 per cent, respectively. European markets got a lift from reports the European Commission was readying a recovery plan worth more than US$800-billion.

In Asia, markets had a mixed session. Japan’s Nikkei added 0.7 per cent. The Shanghai Composite Index slid 0.34 per cent. Hong Kong’s Hang Seng ended down 0.36 per cent.

Commodities

Crude prices were lower in early going as concerns over tensions between the U.S. and China tempered recent gains.

The day range on Brent so far is US$35.25 to US$36.16. The range on West Texas Intermediate is US$33.51 to US$34.32.

On Tuesday, U.S. President Donald Trump said the U.S. is working on a strong response to China’s planned national security legislation for Hong Kong. He said the response would be announced by the end of the week.

China’s parliament is expected to approve a proposed security law that would reduce Hong Kong’s separate legal status on Thursday.

“Oil prices remain overly sensitive to any bad news, particularly around U.S.-China tensions,” AxiCorp chief market strategist Stephen Innes said.

“Still, after the headline shock, the trade war impact on oil markets depends mostly on whether investors expect U.S. import tariffs on a broader range of goods or higher trade taxes on existing ones.”

Weak economic forecasts as countries ease lockdown restrictions are also weighing on sentiment. European Central Bank president Christine Lagarde says the euro zone economy is likely to contract by between 8 per cent and 12 per cent this year.

Gold prices, meanwhile, fell to a two-week low as equity markets rallied.

Spot gold fell 0.2 per cent to US$1,707.85 per ounce, after hitting its lowest level since May 13 at US$1,703 earlier in the session. U.S. gold futures slid 0.5 per cent to US$1,697.60.

“The gold market struggled overnight as reopening economic optimism boosted, triggering a surge into global equities as investors exited defensive bets as more risky and aggressive investment shifts took hold,” Mr. Innes said.

Currencies

The Canadian dollar was higher as risk sentiment improved on global markets.

The day range on the loonie is 72.44 US cents to 72.73 US cents. At last check, the loonie was near the top end of that spread.

There were no major Canadian economic releases on the calendar. Late Tuesday, Bank of Canada governor Stephen Poloz and deputy governor Carolyn Wilkins appeared by video conference before the Senate finance committee.

Mr. Poloz again suggested that the best case scenario from April’s monetary policy report is “still the one I think is most likely. He also said that interest rates are “at their effective lower bound,” Daria Parkhomenko, RBC FX strategy associate, said in an early note.

On global markets, the U.S. dollar index, which weighs the greenback against a basket of currencies, edged up 0.1 per cent to 99.146 following Tuesday’s sharp declines.

The euro, which jumped on Tuesday, fell 0.2 per cent to US$1.0961. The EU is proposing a US$825-billion recovery fund to help the bloc’s economy through the deep recession brought on by the pandemic, commissioner Paolo Gentiloni said Wednesday.

Heightened trade tensions took a toll on China’s yuan, which fell to its lowest level against the U.S. dollar since September. The U.S. dollar rose 0.4 per cent to 7.1766 yuan, not far from the offshore yuan’s record low of 7.1975 seen in early September.

More company news

Renault, Nissan Motor Co and Mitsubishi Motors Corp ruled out a merger on Wednesday and instead said they would cooperate more closely on vehicle development to slash costs and salvage their troubled alliance. The three carmakers are reeling from the coronavirus pandemic which engulfed them just as they were trying to rework their partnership following the arrest in 2018 and subsequent ousting of its chairman and chief architect, Carlos Ghosn.

Tilray Inc. says it will close a licensed cannabis greenhouse in Ontario, which will save the company millions of dollars a year. The Nanaimo, B.C.-based company says it will close its wholly-owned subsidiary High Park Gardens in Leamington, Ont., over the next six weeks. Tilray says it anticipates about $7.5 million in net annualized savings, as well as avoid significant ongoing capital expenditures as a result.

Ralph Lauren Corp reported a 15.4% fall in quarterly revenue on Wednesday after its outlets and department stores across the world were forced to close due to the COVID-19 pandemic. The company reported a net loss of US$249-million, or US$3.38 per share, in the fourth quarter ended March 28, compared with a profit of US$31.6-million, or 39 US cents per share, a year earlier. Net revenue fell to US$1.27-billion from US$1.51-billion.

Economic news

(2 p.m. ET) U.S. Fed Beige Book is released.

With Reuters and The Canadian Press