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Equities

Canada’s main stock index managed a record high Wednesday after the Bank of Canada held interest rates steady and struck a dovish tone that some economists say hints at a rate cut in coming months.

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South of the border, the S&P 500 and Nasdaq both started in record territory on solid results from IBM and easing concerns over the spread of the coronavirus in China.

At 10:20 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 82.36 points, or 0.47%, at 17,654.64.

In the U.S., the Dow Jones Industrial Average rose 67.59 points, or 0.23 per cent, at the open to 29,263.63. The S&P 500 opened higher by 9.23 points, or 0.28 per cent, at 3,330.02. The Nasdaq Composite gained 42.81 points, or 0.46 per cent, to 9,413.61 at the opening bell.

Wall Street futures were higher early Wednesday as positive results International Business Machines took some of the focus off the spread of the coronavirus in China. World stocks also advanced amid increased hopes that the outbreak would be contained. On Bay Street, futures gained ahead of the Bank of Canada’s latest decision on interest rates.

Chinese health officials said the death toll rose to nine on Wednesday with more than 400 confirmed cases. Authorities in Hong Kong confirmed that city’s first case, while people in 21 Chinese provinces have either been diagnosed or are suspected of carrying the virus. Health authorities in Thailand, Taiwan, South Korea, Japan and the U.S. have also confirmed cases.

“As it is for now, investors are cautious but not overly concerned, as can be seen from today’s session in Asia which initially saw equity markets come under further pressure, but which have since rebounded, despite new cases of the virus slowly increasing,” Michael Hewson, chief market analyst with CMC Markets U.K., said.

Solid corporate results also helped buoy sentiment.

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IBM shares jumped more than 3 per cent after the company forecast full-year profit ahead of market expectations. The company forecast an adjusted profit of at least US$13.35 per share for the year, compared with estimate of US$13.29. The company also posted a surprise increase in fourth-quarter revenue in its latest earnings report. Revenue in that quarter edged up 0.1 per cent to US$21.78-billion in the quarter. Analysts had been expecting a drop of about 1 per cent.

However, shares of Netflix slipped in early trading on the company’s disappointing outlook for the first quarter. The streaming service also forecast a tougher first quarter in the face of growing competition. The company said it expects to add 7 million subscribers globally in that three-month period, below analysts’ average of 8.82 million, according to IBES data from Refinitiv. Netflix reported its fourth-quarter results after Tuesday’s close, saying it added 8.76 million paid subscribers globally in that three-month period compared with analysts’ average estimate of 7.63 million, according to IBES data from Refinitiv. However,

On Bay Street, Rogers Communications said revenue rose to $3.95-billion in the fourth quarter from $3.94-billion a year earlier. Net income fell to $468-million, or 92 cents per share, from $502-million, or 97 cents per share, a year earlier. On an adjusted basis, Rogers earned $1 a share, missing analysts’ average estimate of $1.02, according to IBES data from Refinitiv. Rogers shares opened higher in Toronto.

The Bank of Canada, meanwhile, kept its key rate at 1.75 per cent but also suggested that weakness seen in the fourth quarter could carry over into early 2020. In its quarterly monetary policy report, the central bank also noted that "weaker data could also signal that global economic conditions have been affecting Canada’s economy to a greater extent than was predicted.

CIBC chief economist Avery Shenfeld described the bank’s position as “more dovish” and said it could signal a rate cut by the central bank this spring.

“We’ll hold to our view that a climb in unemployment in the coming months will test the bank’s confidence about consumption, leading to a quarter point cut in April,” he said in a note. ?

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Overseas, major European markets pared early gains with the pan-European STOXX up 0.5 per cent by afternoon. Britain’s FTSE 100 slipped 0.33 per cent. Germany’s DAX was little changed and France’s CAC 40 fell 0.11 per cent.

In Asia, markets pared the previous session’s losses. The Shanghai Composite Index closed up 0.28 per cent. Japan’s Nikkei rose 0.7 per cent. Hong Kong’s Hang Seng jumped 1.27 per cent.

Commodities

Crude prices were lower after the International Energy Agency forecast a market surplus in the first half of the year.

The day range on Brent crude is US$64.03 to US$64.58. The range on West Texas Intermediate is US$57.84 to US$58.38.

The head of the IEA, Fatih Birol, said he expects the market to be in surplus by one million barrels per day (bpd) in the first half of this year.

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“I see an abundance of energy supply in terms of oil and gas,” Mr. Birol told the Reuters Global Markets Forum on Tuesday, while attending the World Economic Forum meeting in Davos.

Later in the session, the American Petroleum Institute releases its weekly report on U.S. crude inventories. A Reuters poll indicates that traders are expecting crude stocks to have fallen for the second week in a row, although gasoline inventories are seen rising.

“Oil traders are struggling too put on a bullish face as the market remains overly focused on the excess supply dynamics, and some traders are paring risk fearing another inventory surprise,” AxiTrader strategist Stephen Innes said.

In other commodities, gold prices slid as concern over the spread of the virus in China eased somewhat with Chinese officials saying they have stepped up protective measures in hospitals.

Spot gold fell 0.2 per cent to US$1,554.54 an ounce. During the previous session, gold fell to its lowest level since Jan. 15 at US$1,545.96. U.S. gold futures were down 0.3 per cent at US$1,553.80.

“Gold is struggling to gain momentum as positive equity market sentiment builds,” Mr. Innes said.

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Currencies

The Canadian dollar was slightly firmer ahead of the Bank of Canada rate announcement.

At last check, the loonie was sitting closer to the upper end of the day range of 76.38 US cents to 76.70 US cents.

The Bank of Canada is widely expected to keep its key rate unchanged at 1.75 per cent. The central bank will also release its quarterly monetary policy report.

“Activity reports have been soft so far in Q4, prompting us to lower our Q4 GDP forecast to 0.7 per cent, below the BoC’s 1.3 per cent October projection,” Elsa Lignos, global head of FX strategy for RBC said. “Yet [Bank of Canada Governor Stephen] Poloz doesn’t appear overly concerned, suggesting there were some transitory factors at play in an appearance earlier this month.”

She said financial vulnerability remains at the fore of the policy debate with mortgage debt growth rising as housing demand outstrips supply and prices climb.

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Ahead of the rate decision, Statistics Canada reported that Canada’s annual rate of inflation held at 2.2 per cent in December. Wholesale sales fell 1.2 per cent in November, the agency said in a separate report.

On global currency markets, the euro held near a one-month low ahead of Thursday’s meeting by the European Central Bank. Against the U.S. dollar, the euro was down at US$1.1077, its lowest since Dec. 25.

China’s yuan had fallen about 0.55 per cent on Tuesday amid concerns over the spread of the coronavirus. That was its biggest drop in early five months in onshore trading. It last stood at 6.9063 per dollar, almost flat on the day.

Some safe-haven buying continued to help Japan’s yen which traded at 109.98 yen per U.S. dollar.

More company news

Canopy Growth said Judy Schmeling has been appointed as chair of the board of directors. Ms. Schmeling currently serves on the board of Canopy investor Constellation Brands.

Johnson & Johnson posted a 32-per-cent rise in fourth-quarter profit, boosted by demand for its cancer drugs Darzalex and Imbruvica. The company’s net earnings rose to US$4.01-billion, or US$1.50 per share, in the quarter, from US$3.04-billion, or US$1.12 per share, a year earlier. Total sales rose to 1.7 per cent to US$20.75-billion.

Airbus’ shares rose to record highs on Wednesday, after its U.S. rival Boeing warned of new issues with the Boeing 737 MAX plane, while customers and suppliers slumped after the latest blow from the U.S. aerospace company. Airbus was up by 1.5% in morning trading, the top performer on France’s benchmark CAC-40 index after scaling record highs in early deals. Late on Tuesday, Boeing said it did not expect to win approval for the return of the 737 MAX to service until mid-year due to further potential developments in the certification process and regulatory scrutiny on its flight control system.

Air Canada it has removed Boeing’s Max 737 from it schedule until June 30. It said it made the decision after Boeing’s announcement that it expects the aircraft to remain grounded until the middle of the year.

Renault Chairman Jean-Dominique Senard said Wednesday he hoped the decision on the French carmaker’s new CEO would be made in “the coming days.” In an interview with French radio BFM Business, Senard also reiterated there was “no stress” concerning the CEO issue.

German luxury car maker Daimler warned that its 2019 earnings before interest and tax slumped to 5.6 billion euros (US$6.2-billion) from 11.1 billion euros a year earlier. Daimler said that following its preliminary assessment, 2019 expenses for ongoing governmental and court proceedings relating to Mercedes-Benz diesel vehicles amount to 1.1-1.5 billion euros, impacting its core Mercedes-Benz Cars unit, which are not yet included in the preliminary figure.

The Globe’s Andrew Willis and James Bradshaw report that the technology race between Canada’s big banks is heating up, with Bank of Montreal in talks to acquire U.S. trading software company Clearpool Group Inc. for approximately $100-million, according to multiple sources familiar with the transaction. Clearpool builds algorithm-based trading programs for banks and investment dealers, and the capital markets arm at BMO struck a partnership with the privately owned New York-based company in 2018.

Economic news

Canada’s annual rate of inflation held at 2.2 per cent in December. Excluding gasoline, the consumer price index rose 2 per cent, the smallest gain since late 2018, Statistics Canada said. On a monthly basis, the CPI rose 0.4 per cent.

Canadian wholesale sales fell 1.2 per cent to $63.2-billion in November. Statscan says that was the third decline in five months.

(10 a.m. ET) Bank of Canada policy announcement

(10 a.m. ET) Bank of Canada Monetary Policy Report is released

(10 a.m. ET) U.S. existing home sales for December.

Reuters and The Canadian Press

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