Canada's main stock index fails to match exuberance of U.S. markets

TORONTO — Canada's main stock index dipped as it failed to match the exuberance in the U.S. Friday despite a partial trade deal with China.

The S&P/TSX composite index lost half a per cent on the day compared with 1.2 to 1.4 per cent gains by the three New York stock markets.

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Some of the U.S. excitement from a partial trade deal between the world's two largest economies has been absorbed by a strong rise in the loonie in reaction to a healthy jobs report, along with a sizable dip in gold stocks that represent an important share of the Canadian stock market, said Patrick Blais, senior portfolio manager at Manulife Asset Management.

"Part of the underperformance is related to just our currency going up and therefore the equity markets not reacting as much because a rising currency is usually not a good thing for equities," he said in an interview.

The Canadian dollar traded for an average of 75.77 cents US, the highest level in a month and more than a half cent above the average of 75.22 cents US on Thursday.

The S&P/TSX composite index closed down 7.52 points at 16,415.16, lower than where it ended a week ago.

In New York, the Dow Jones industrial average was up 319.92 points at 26,816.59. The S&P 500 index was up 32.14 points at 2,970.27, while the Nasdaq composite was up 106.26 points at 8,057.04, after climbing nearly 2.1 per cent in earlier trading.

U.S. investors reacted to hopeful signs of progress in the 15-month trade war with China even though the areas of agreement are narrow and don't touch on major points of dispute.

The United States is suspending a tariff hike on US$250 billion in Chinese imports that was set to take effect Tuesday, and China agreed to buy US$40 billion to US$50 billion in U.S. farm products.

"There seems to be some hope that we can take our first steps towards some grand settlement," said Blais.

He said markets have previously responded positively to the slightest good news while investors moved heavily to defensive sectors such as utilities, real estate, consumer staples and gold when the outlook soured.

"Quality defensive names have just been pushed up to levels which really implied that we going into a recession [and] there was no way out of the trade issues. So seeing those valuations rectified slightly is encouraging," he added.

The materials sector was the biggest loser on the day, dropping 2.4 per cent on lower gold prices as shares of Barrick Gold Crop. and Yamana Gold Inc. lost 5.7 and 5.1 per cent respectively.

The December gold contract was down $12.20 at US$1,488.70 an ounce and the December copper contract was up 1.45 cents at US$2.63 a pound.

The energy sectors gained 1.9 per cent with Cenovus Energy Inc. rising 4.4 per cent on a rise in the price of crude oil.

The November crude contract was up US$1.15 at US$54.70 per barrel and the November natural gas contract was down 0.4 of a cent at US$2.21 per mmBTU.

Oil prices rose after two missiles struck an Iranian tanker travelling through the Red Sea off the coast of Saudi Arabia on Friday and Tourmaline Oil Corp. shares jumping 15 per cent after it announced it would create a hybrid royalty company to hold some of its energy assets.

Blais said he was surprised that crude prices didn't rise more and include a risk premium.

"It really seems as though the market believes there's a persistent oversupply given less-than-stellar demand growth and therefore there's no need to price in a safety or a risk premium in oil."

The heavyweight financials sector gained 0.7 per cent as bond yields rose in support to bank profitability.

The trade truce comes ahead of the start of quarterly earnings next week that are expected to be weak and reflect the economic slowdown and the negative impact from the trade battle and imposition of tariffs, said Blais.

"We should probably be ready for earnings which will disappoint."

This report by The Canadian Press was first published Oct. 11, 2019.

Index and currency in this story: (TSX:CVE, TSX:TOU, TSX:ABX, TSX:YRI, TSX:GSPTSE, TSX:CADUSD)

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