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Stocks Fall, Bonds Rise as Tariffs Dent Optimism

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U.S. stocks careened toward the worst week of 2019 as investors fretted over Donald Trump’s escalation of his trade war with China. Treasuries rose, while the yen strengthened.

The S&P 500 fell for a fifth straight day, putting the measure on track for its steepest weekly loss since December’s sell-off. Trade angst recaptured center stage after Trump said Thursday he’d slap more tariffs on Chinese goods, adding to worries that the spat could derail the global economy. China vowed it would counter the threat. Stocks were already under pressure after investors groused that the first Federal Reserve rate cut in a decade didn’t come with assurances of further easing.

Ten-year Treasury yields held near the lowest level since 2016 after the July U.S. jobs report did little little to alter views on the economy and path for future rate policy. The dollar was lower against most major currencies. West Texas crude clawed back some of its 8% slide on Thursday.

“The Fed is largely easing policy because of the possibility that trade tensions will impact the global economy and the feedback into the U.S. economy would be negative and that calculus appears to be correct,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “Yesterday’s announcement of an escalation of trade tensions is the key risk to markets now that the Fed is easing monetary policy and it bears watching how far the administration will push tariffs that ultimately impact the consumer, which up to this point has been very resilient.”

The jobs report Friday added another piece to an already large puzzle that includes the Fed, earnings and trade. While China has yet to offer details on what measures it would take, the sudden escalation of the spat has put markets in a spin in an already action-packed week of corporate earnings and central-bank meetings. The developments come after the Federal Reserve chief cast doubt about a long cycle of interest-rate cuts, provoking the president’s ire and disappointing many investors.

Elsewhere, most European government bonds rose alongside the common currency. The pound drifted after a by-election loss reduced U.K. Prime Minister Boris Johnson’s House of Commons majority to a single seat.

Here are the main moves in markets (all sizes and scopes are on a closing basis):

Stocks

The S&P 500 Index dipped 1.1% as of 1:31 p.m. New York time, hitting the lowest in five weeks.The Dow Jones Industrial Average decreased 1% to the lowest in more than six weeks.The Nasdaq Composite Index declined 1.8%, hitting the lowest in five weeks.The Stoxx Europe 600 Index decreased 2.5%, the lowest in more than six weeks.

Currencies

The Bloomberg Dollar Spot Index fell 0.1%.The Japanese yen gained 0.7% to 106.47 per dollar, the strongest in 16 months.The euro rose 0.2% to 1.1112 per dollar.

Bonds

The yield on 10-year Treasuries fell four basis points to 1.86%.The yield on two-year Treasuries decreased one basis point to 1.72%.Germany’s 10-year yield dipped five basis points to -0.495%, hitting the lowest on record with its sixth straight decline.

Commodities

Gold was steady at $1,445.57 an ounce.West Texas Intermediate crude gained 3.2% to $55.69 a barrel.

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Telus email still down heading to the fifth day

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For the fifth day in a row, customers with Telus.net emails are still facing disruptions as the company works to fix ongoing issues.

“Telus technicians continue to work to restore access. This is a fluid situation, and we are doing everything we can to stabilize all servers to bring our final clients online,” said a spokesperson in a statement. “This is taking longer than we would like as remaining issues are very complex. We are incredibly sorry.”

Customers began noticing an issue with their emails on Aug. 15, and while the majority of users had service restored by the next day, plenty have still been left without the service.

The issues are said to affect customers in the Lower Mainland, Kelowna, Vernon, Edmonton, Calgary and more. The majority of customers that have reported an issue with Downdetector say only their email has been affected, but some say there is also a problem with internet usage.

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Ontario Cannabis Store returns $2.9M in CannTrust products

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CannTrust

VAUGHAN, Ont. – CannTrust Holdings Inc. says the Ontario government‘s cannabis retailer is returning all of the company’s products it has because they do not conform with the terms of its master cannabis supply agreement.

The company says the total value of the products is about $2.9 million.

The move by the provincial retailer comes as CannTrust faces problems with Health Canada.

The federal regulator found problems at the company’s greenhouse in Pelham, Ont., earlier this year and later raised issues regarding a manufacturing facility in Vaughan, Ont.

Health Canada has placed a hold on CannTrust’s inventory including approximately 5,200 kg of dried cannabis and the company has also instituted a voluntary hold of approximately 7,500 kg of dried cannabis equivalent.

CannTrust noted that the Ontario retailer operates independently of Health Canada, which has not ordered a recall on any of the company’s products.

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OPEC downgrad its forecast for global oil

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In its latest report, OPEC only slightly downgraded its forecast for global oil demand, lowering it to 1.10 million barrels per day (mb/d) for 2019, down only a minor 0.04 mb/d from a month earlier. That estimate could end up being too optimistic, and OPEC itself said the forecast is “subject to downside risks stemming from uncertainties with regard to global economic development.”

Notably, OPEC said that global supply could grow by 1.97 mb/d this year, significantly outpacing demand growth. Still, that figure is down by 72,000 bpd from a previous estimate, due to lower-than-expected production growth in the U.S., Brazil, Thailand and Norway.

In another worrying sign of a brewing supply surplus, OPEC said that oil inventories in OECD countries rose by 31.8 million barrels in June from a month earlier, rising to 67 million barrels above the five-year average. In other words, just as OPEC+ was meeting to extend the production cuts for another 9 months, inventories were rising, an indication of an oversupplied market.

On a slightly positive note (for OPEC), the group revised up demand for its crude by 0.1 mb/d for both 2019 and for 2020. Still, it said that demand for its oil, often referred to as the “call on OPEC,” would drop to 29.4 mb/d in 2020, down from 30.7 mb/d this year.

Based on those numbers, OPEC+ is staring down a serious supply glut next year absent further action. The group can either stick with current production levels and risk another market downturn, or it can swallow further production cuts.

What happens next is largely outside of OPEC’s hands. Recent price movements are almost entirely the result of shifting sentiments regarding the global economy. “The yo-yoing on the oil market continues and the oil price remains highly prone to fluctuations. After sliding massively on Wednesday, Brent was hit hard once again [Thursday], shedding over 3% in a matter of hours,” Commerzbank said in a note on Friday. “The oil price currently remains at the mercy of expectations for the global economy, and is thus caught between economic concerns and hopes that the trade dispute might end soon.”

U.S. retail sales eased some concerns on Friday, but the global backdrop remains worrying, and a steady release of data from around the world continues to point in a negative direction. Just in the last week, there was the inverted yield curve for U.S. treasuries, a stock market and currency meltdown in Argentina, volatile oil prices, and widespread fears of a global economic recession.

Even the U.S. is not immune, despite mostly healthy data up until recently. For instance, Wall Street analysts have slashed their outlooks for corporate earnings for the third quarter in recent weeks. “Everyone in April and through the beginning of May thought that the economy was going to get better in the back half of the year, trade war was going to sort of settle, certainly not escalate,” Eastman Chemical Chief Executive Mark Costa said on an earnings call last month, as the WSJ reported. “And now we’re just in a very different world where I don’t think that’s true…There’s not a lot of signs of economic recovery coming in the second half.”

Ultimately, the U.S. will struggle to outrun a global slowdown. The World Trade Organization (WTO)  painted a bleak picture for the third quarter, saying that trade volumes are “likely to remain weak.” The global auto sector has been hit hard this year, with a sharp contraction in China, India and Germany. The U.S. auto industry is starting to show some signs of strain as well.

The problem for oil prices is that the outlook for 2020 is already pretty bearish, with supply growth outpacing demand. That’s the base case right now. But the odds of economic recession continue to grow, which threatens to make the supply overhang that much worse.

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