CANADA STOCKS-TSX gains on oil price surge, strong jobs report

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Canada’s main stock index opened higher on Friday, after oil prices surged 4 per cent, while a robust domestic November jobs report eased concerns over a recent economic slowdown.

At 9:30 a.m. ET,, the Toronto Stock Exchange’s S&P/TSX composite index was up 50.63 points, or 0.34 per cent, at 14,987.63.

Canada added a record number of jobs in November and the unemployment rate dipped to a new all-time low, a performance that analysts said should help ease the Bank of Canada’s worries about a recent economic slowdown.

Statistics Canada on Friday reported a gain of 94,100 jobs on stronger full-time hiring and said the jobless rate had fallen to 5.6 percent. Analysts in a Reuters poll had forecast 11,000 new positions.

The report will provide some relief for Bank of Canada Governor Stephen Poloz, who said on Thursday that economic data since October had been disappointing.

The central bank – which has hiked interest rates five times since July 2017 – left them unchanged on Wednesday and said the pace of further hikes would be heavily data-dependent.

Sal Guatieri, a senior economist with BMO Capital Markets, said the numbers were “just off the charts” but predicted jobs growth would cool in the coming months.

The data “makes the Bank of Canada rate decision a little more interesting, but we still don’t think they will move as early as January,” he said in an interview.

U.S. stocks pulled back from steeper losses in futures trading to open slightly lower on Friday after a U.S. jobs report that was tepid enough to lower bets for faster future interest rate hikes, but not enough to fan fears of an economic slowdown.

The Dow Jones Industrial Average fell 28.85 points, or 0.12 perc ent, at the open to 24,918.82.

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The S&P 500 opened lower by 4.69 points, or 0.17 per cent, at 2,691.26. The Nasdaq Composite dropped 24.77 points, or 0.34 per cent, to 7,163.49 at the opening bell.

The Labor Department’s report showed nonfarm payrolls increased by 155,000 jobs in November, lower than economists’ expectation of 200,000.

“The report is not soft enough to deter a December rate hike but it will contribute to a downward revision in central bankers’ policy guidance for rate hikes in 2019,” said Mohamed El-Erian, chief economic adviser at Allianz in Newport Beach, California.

“In terms of a snapshot for the economy, and while somewhat softer than consensus expectations, this is a solid November jobs report that goes counter to talk of recession.”

Wall Street has been weighed down this year by worries ranging from China-U.S. trade tensions to climbing U.S. bond yields and peaking corporate profits, all of which have fanned concerns about economic growth.

Federal Reserve Chairman Jerome Powell, however, said late Thursday that the U.S. economy continued to expand and emphasized the strength of the labor market.

The markets closed slightly lower on Thursday, pulling back from a tumble after the arrest of the finance chief of Chinese telecom equipment maker Huawei Technologies Ltd raised fears that the move could escalate a trade war between the United States and China.

The early selloff on Thursday saw more than 1,300 NYSE and Nasdaq stocks hitting new 52-week lows – the highest since January 2016.

The MSCI All-Country World Index, which tracks shares in 47 countries, was up 0.3 per cent on the day, on track to end the week down 2 per cent.

Chinese shares, which were up earlier in the day, slipped into negative territory with the blue chips off 0.1 per cent.

MSCI’s broadest index of Asia-Pacific shares outside Japan nudged up 0.1 per cent, though that followed a 1.8-per-cent drubbing on Thursday. Japan’s Nikkei added 0.8 per cent.

Treasuries extended their rally, driving 10-year yields down to a three-month trough at 2.8260 per cent, before last trading at 2.8827 per cent.

Yields on two-year notes fell a huge 10 basis points at one stage on Thursday and were last at 2.75 per cent.

Investors also steamrolled the yield curve to its flattest in over a decade, a trend that has historically presaged economic slowdowns and even recessions.

“The sort of flattening of the yield curve that we have seen recently usually indicates that investors think the Fed is nearing the end of a tightening cycle, and that rate cuts may even be on the horizon,” argued analysts at Capital Economics.

Yields on 10-year paper sank to the lowest in six months in Germany, almost 12 months in Canada and 16 months in Australia.

The sea change in expectations took a toll on the U.S. dollar as bulls had been counting heavily on a steady widening rate differential to propel the currency.

The greenback was flat against a basket of currencies at 96.801, and fell to 112.83 yen from a 113.85 high at the start of the week. The euro was down 0.1 per cent at $1.13735.

The cryptocurrency Bitcoin took a fresh spill, sinking almost 18 percent on the week to $3,396.19.

Oil prices jumped more than 5 per cent on Friday as big Middle East producers in OPEC agreed to reduce output to drain global fuel inventories and support the market.

Benchmark Brent crude oil rose $3.26 a barrel to a high of $63.32. In early trade, Brent had fallen below $60 when it looked as if oil exporters might not agree.

U.S. light crude rose $2.62 to a high of $54.11 a barrel before slipping to around $53.90.

Prices fell almost 3 per cent on Thursday after the Organization of the Petroleum Exporting Countries ended a meeting in Vienna with only a tentative deal to tackle weak prices. Talks with other producers were held on Friday.

Oil prices have plunged 30 per cent since October as supply has surged and global demand growth has weakened.

But Iran gave OPEC the green light on Friday to reduce oil output by around 0.8 million barrels per day from 2019 after finding a compromise with rival Saudi Arabia over a possible exemption from the cuts, an OPEC source said.

OPEC is seeking support from non-OPEC Russia for supply cuts. Russian Energy Minister Alexander Novak returned to Vienna on Friday after discussing the issue with President Vladimir Putin.

A Russian Energy Ministry source said Moscow was ready to contribute a cut of around 200,000 bpd and sources said other non-OPEC producers could contribute a further 200,000 bpd of output cuts, bringing an overall cut to 1.2 million bpd.

“(A cut of) 1.2 million bpd, if implemented promptly and fully, should be enough to largely attenuate, but not eliminate, expected implied global inventory builds in the first half of next year,” BNP Paribas strategist Harry Tchilinguirian told Reuters Global Oil Forum.

Reuters

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