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At midday: TSX falls on dismal manufacturing PMI, Trump’s China tariff threat – The Globe and Mail

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Canada’s main stock index fell on Friday on U.S. President Donald Trump’s threat to slap new tariffs on China over the coronavirus crisis, and as data showed Canadian manufacturing activity slumped to a record low in April.

Trump said late on Thursday his trade deal with China was now of secondary importance to the pandemic, as his administration crafted retaliatory measures over the outbreak.

The move set a dour tone for future negotiations, given that Washington and Beijing were yet to fully de-escalate their nearly two year-long trade war, with a phase-one deal in 2019 serving only as a placeholder.

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At 11:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 196.73 points, or 1.33%, at 14,584.01.

Data on Friday showed the coronavirus outbreak moved some Canadian factories to halt production and new orders crumbled, leading to manufacturing activity in the last month tumbling to its weakest on record.

Canada’s top medical officer said the country’s coronavirus curve is flat but worrying trends are emerging, particularly outbreaks in vulnerable indigenous communities.

Meanwhile, Finance Minister Bill Morneau announced the appointment of Tiff Macklem, a former senior deputy at the Bank of Canada, as its next governor.

The energy sector dropped 4.3% with Imperial Oil down 2.4% as it swung to a loss. Vermilion Energy lost 8.3%, while Crescent Point Energy slid 7.2%.

The financials sector slipped 2.5%, while the industrials sector fell 1.6%.

The materials sector, which includes precious and base metals miners and fertilizer companies, added 2.5%.

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Wall Street’s main indexes fell on Friday after President Donald Trump threatened to slap new tariffs on China over the coronavirus crisis, while a profit warning from Amazon added to the gloom.

Trump said late on Thursday his trade deal with China was now of secondary importance to the pandemic, as his administration crafted retaliatory measures over the outbreak.

The threat pulled attention back to the trade war between the world’s two largest economies that has kept global financial markets on tenterhooks for nearly two years.

“It will not be easy to repair corporate carnage after this perfect storm,” said Peter Cecchini, chief market strategist at Cantor Fitzgerald in New York.

“The trade war mattered because the stress was not with the consumer this time; it was within companies’ balance sheets.”

The S&P 500 technology sector shed 1.5% in early trading, while the trade-sensitive Philadelphia Semiconductor index fell 4%.

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The consumer discretionary subindex also came under pressure after Amazon.com Inc said it could post its first quarterly loss in five years as it was spending at least $4 billion in response to the coronavirus pandemic. The e-commerce giant’s shares tumbled 6.3%.

Apple Inc’s Chief Executive Officer Tim Cook said it was impossible to forecast overall results for the current quarter because of uncertainty created by the virus after the company reported sales and profits above expectations.

Shares of the iPhone maker reversed earlier losses to trade 0.5% higher.

The energy sector fell 4.7% as big oil firms Exxon Mobil and Chevron Corp reported weak quarterly results, feeling the pain inflicted by crashing oil prices.

With nearly half of the S&P 500 companies having reported results so far, analysts expect a 14.4% fall in profits for the first quarter and foresee an even sharper decline of nearly 37% for the current quarter.

However, aggressive stimulus measures and hopes of reopening the economy from virus-induced curbs helped the S&P 500 index post its best month in 33 years in April. The benchmark index is now 18% away from reclaiming a record high hit in February.

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The Dow Jones Industrial Average was down 449.62 points, or 1.85%, at 23,896.10, the S&P 500 was down 59.05 points, or 2.03%, at 2,853.38 and the Nasdaq Composite was down 179.27 points, or 2.02%, at 8,710.28.

U.S. manufacturing activity plunged to an 11-year low in April, supporting analysts’ views the economy was sinking deeper into recession. However, the Institute for Supply Management’s (ISM) index reading of 41.5 last month was a smaller than the expected drop to 36.9.

“Markets have already moved beyond analysing the anticipated immediate collapse in economic activity to focusing on the duration of it,” said Binay Chandgothia, portfolio manager at Principal Global Investors in Hong Kong.

“While there are some initial signs of stabilization in indicators that have already dropped precipitously, markets would like to see continued progress – moving from a stabilization phase to a recovery phase.”

United Airlines Holdings Inc slipped 8% after posting a first-quarter loss of $1.7 billion.

Reuters

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Canada postpones critical 5G spectrum auction by six months – Yahoo Canada Finance

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Canada's Minister of Innovation, Science and Industry Navdeep Bains speaks during a meeting of the special committee on the COVID-19 outbreak, as efforts continue to help slow the spread of the coronavirus disease (COVID-19), in the House of Commons on Parliament Hill in Ottawa, Ontario, Canada May 20, 2020. REUTERS/Blair Gable
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Due to COVID-19, Innovation, Science, and Economic Development Minister Navdeep Bains has postponed the critical 3500MHz spectrum auction for 5G by six months to June 2021.” data-reactid=”23″>Due to COVID-19, Innovation, Science, and Economic Development Minister Navdeep Bains has postponed the critical 3500MHz spectrum auction for 5G by six months to June 2021.

A press release from his department indicated that postponing the auction will allow telecom carriers focus on “providing essential services to Canadians” during the pandemic. 

The new date is set for June 15, 2021. 

In general, 5G operates over traditional and new cell radio frequency bands that include the low- (sub-1GHz such as 700MHz), mid- (1.6GHz, around 3.5-3.8GHz), and millimetre-wave (mmWave, such as 28GHz) ranges. 

The 3,500MHz band is critical specifically in cities where thousands of small cells will be deployed in order to be used for applications like self-driving cars and many consumer applications.

The sum of opening bid prices for the auction is $558 million. Last year’s 600MHz spectrum auction raised $3.57 billion. 

“Canada’s telecommunications service providers are doing their part in this difficult time, providing essential services to keep Canadians connected as we face the realities of the COVID-19 pandemic together,” Bains said in the release. 

“A number of providers have raised concerns, and the government is implementing measures to address them. The government will continue to reach out to telecommunications service providers—and to the private sector more broadly—to understand their challenges and support them to ensure that Canadians have access to high-quality networks and broad coverage at low prices.”

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Recently, Telus and Bell announced plans to partner with Nokia and Ericsson as a 5G supplier. Rogers is partnered with Ericsson to provide 5G services.” data-reactid=”31″>Recently, Telus and Bell announced plans to partner with Nokia and Ericsson as a 5G supplier. Rogers is partnered with Ericsson to provide 5G services.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Additionally, Bains indicated that the first tracking report on the 25 per cent reduction in wireless service prices over the next two years will be available online in July 2020.” data-reactid=”32″>Additionally, Bains indicated that the first tracking report on the 25 per cent reduction in wireless service prices over the next two years will be available online in July 2020.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Download the Yahoo Finance app, available for&nbsp;Apple&nbsp;and&nbsp;Android&nbsp;and sign up for the&nbsp;Yahoo Finance Canada Weekly Brief.&nbsp;&nbsp;” data-reactid=”33″>Download the Yahoo Finance app, available for Apple and Android and sign up for the Yahoo Finance Canada Weekly Brief.  

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At midday: North American markets jump on better-than-expected jobs data – The Globe and Mail

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An unexpected jump in U.S. employment sent world equities and oil surging on hopes that the global economy has started to recover from the coronavirus pandemic, pulling investors out of perceived safe havens like government bonds and gold. Canada’s TSX gained 2.1%, with investors also cheering much better than expected jobs numbers on this side of the border.

U.S. nonfarm payrolls rose by 2.509 million jobs last month after a record plunge of 20.687 million in April. Economists polled by Reuters had forecast the unemployment rate jumping to 19.8% in May and payrolls falling by 8 million jobs.

“The numbers are a huge surprise to the upside,” said Michael Arone, chief investment strategist at State Street Global Advisors. “It has confirmed what many folks were suggesting: that the effects on the labor market from the pandemic were temporary and that when the economy reopened and the infection rates started to diminish, that these jobs would come back.”

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MSCI’s gauge of stocks across the globe gained 2.04%. The index is now down 4.5% for the year to date and trading at its highest level since early March, before the U.S. economy went into lockdown in an effort to slow the spread of the novel coronavirus.

On Wall Street, the Dow Jones Industrial Average rose 829.16 points, or 3.15%, to 27,110.98, the S&P 500 gained 81.58 points, or 2.62%, to 3,193.93 and the Nasdaq Composite added 198.27 points, or 2.06%, to 9,814.08. The Nasdaq breached its all-time closing high reached in February but pared its gains to end the session a hair’s breadth below it. The broad S&P 500 is now down about 1% for the year to date.

The S&P/TSX Composite Index rose 326.20 points to 15,854.07. Gold stocks were lower, but otherwise gains were widespread across sectors, with energy rallying 7.9%. Financials rose just over 3%.

Canada added 290,000 jobs in May after two months of brutal layoffs, a surprise turn for the job market as provinces have only recently begun to ease lockdown restrictions. Analysts had been expecting half a million job losses during the month. Despite the gain, the unemployment rate rose to 13.7 per cent, the highest since comparable data became available in 1976, as more people started seeking jobs.

Equity gains were widespread before the surprise jobs reports. MSCI’s broadest index of Asia-Pacific shares outside of Japan rose 0.9%, reversing early losses to stay near a 12-week high.

The index is up about 7.6% this week, on track for its best weekly showing since December 2011.

Emerging market stocks were up 0.7% and also on course for their best week since December 2011.

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Hopes for a swift economic recovery sank U.S. government bonds, which had reached historic highs on fears that the pandemic would erode consumer demand. Benchmark 10-year notes last fell 20/32 in price to yield 0.8851%, from 0.82% late on Thursday.

“The sell-off in the bond market in the last few weeks seems to be justified,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale. “This is a tremendously positive step in the right direction, and probably points to a faster recovery, at least in the jobs market, than people had expected.”

Bond investors will get further insight into the likely direction of the economy when the U.S. Federal Reserve holds its regular two-day policy meeting next week.

Europe has now clawed back two-thirds of the losses incurred amid the coronavirus pandemic and Bank of America analysts said on Friday they expect European stocks to rise another 10% by the end of September on expectations of a pickup in business activity.

Set for a third straight week of gains, the euro rose to $1.1380, its highest level since March 10 and was on course for a weekly jump of 2.5%.

The dollar index made a tepid recovery, rising 0.08% to 96.84, but remained on track for its third consecutive week of losses and close to its lowest in nearly three months.

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Hopes for an economic recovery sent oil prices surging. U.S. crude recently rose 4.97% to $39.27 per barrel and Brent was at $42.14, up 5.38% on the day.

Read more: Stocks that saw action Friday – and why

Reuters

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Pattie Lovett-Reid: Why CMHC is tightening lending standards – CTV News

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TORONTO —
Concern has been expressed by CMHC that we could see a correction in home prices between 9% and 18% over the next 12 months. This concern has led to the tightening of the rules for offering mortgage insurance effective July 1.

These rules are intended for riskier borrowers who have less than 20% down payment to access CMHC’s default mortgage insurance.

But that’s not all — and yet another reason to keep your credit score in good standing — the minimum credit score of 680 is required instead of the current 600 to qualify for CMHC backing. This shift in the credit score says a lot about your ability and willingness to manage the debt you currently are using and have access to. To keep your credit score at the required limit, make your minimum payments on outstanding debt on time and limit the number of credit facilities you have.

Now to the numbers:

The gross debt servicing ratio will now be 35% of annual income – this includes – mortgage payments, taxes, heating costs and 50% of condo fees. Simply add them up and divide the total by your annual income. This number can’t exceed 35% and it was 39% before.

Your gross debt servicing number has gone down, meaning that your mortgages costs will need to be lower and that results in less home being purchased.

I’ll give you an example:

According to Ratehub.ca, using the current mortgage qualifying rate of 4.94% and GDS limit of 39, a family with an annual income of $100,000 and a 10% down payment would have qualified for a home valued at $524,980.

Under the new GDS limit of 35, the same household can now only afford a home of $462,860.

This represents a decrease in buying power of almost 12%, due to the change in the GDS limit.

With lower mortgages combine with other outstanding debt you may owe, your total debt service is also reduced to 42% from 44%. That includes your housing expenses plus credit card interest, car payments and loan expenses divided by your annual income.

Both measurements are key barometers for your financial institution when deciding your qualification for a mortgage.

Why the changes now?

The fear is many homeowners may have gotten into the real estate market prematurely with financial vulnerabilities that are now being exposed due to the pandemic.

The dream of owning a home is a goal for many; however, these rules are intended to protect two parties here – the potential homeowner who doesn’t have the financial maturity to protect themselves in a period of economic hardship and the taxpayer who is on the hook if they can no longer keep their mortgage in good standing. CMHC is a government-backed program.

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