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At the open: TSX rises on COVID-19 vaccine hopes – The Globe and Mail

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Canada’s main stock index opened higher on Tuesday after a long holiday weekend, as positive results from an early stage trial of a COVID-19 vaccine and steady oil prices lifted investor sentiments.

At 9:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 295.48 points, or 2.02%, at 14,934.38.

U.S. stocks opened slightly lower on Tuesday, as investors booked profits following the S&P 500’s best day in six weeks in the previous session.

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The Dow Jones Industrial Average fell 19.89 points, or 0.08%, at the open to 24,577.48. The S&P 500 opened lower by 5.32 points, or 0.18%, at 2,948.59, while the Nasdaq Composite dropped 7.37 points, or 0.08%, to 9,227.46 at the opening bell.

The S&P 500 jumped more than 3% on Monday, boosted by promising early stage data for a potential COVID-19 vaccine and Federal Reserve Chair Jerome Powell’s pledge to support the economy as needed until the current crisis has passed.

Trillions of dollars in stimulus has already helped the benchmark index rebound more than 34% from its March lows. Although it is now just about 13% below its record high, the pace of the rally has slowed in May owing to uncertainty over the outbreak and rising U.S.-China tensions.

“The S&P 500 is testing a key battleground zone that halted the recovery since March and much will be decided by whether the bulls are rejected again or whether they overcome it,” said Marios Hadjikyriacos, investment analyst at online broker XM.

The euro and Italian government bonds continued on Tuesday to cheer German- and French-led plans for a 500 billion euro EU coronavirus recovery fund, though stock markets were suffering fatigue after their best day in months.

There was still a sense of optimism after Monday’s news that early-stage tests on a possible COVID-19 vaccine had also proved encouraging, but the momentum had shifted.

Europe’s STOXX 600 index gave up an early rise to slip 0.7% after surging 4% in the previous session, oil began to tread water and safe-haven U.S. government bonds were making ground again in the debt markets.

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“The Franco-German proposals are ambitious, targeted and, of course, welcome,” European Central Bank President Christine Lagarde said of Monday’s plan, which would move the EU in the direction of a so-called ‘transfer union’.

The euro was buying $1.0950, up more than 1% against the dollar since the plan was announced. It was also up near a two-month high against the Swiss franc, and options markets showed fewer traders were now betting against it.

After a sizeable drop in Italian borrowing costs, Spanish and Portuguese yields led the charge on Tuesday. Morgan Stanley’s economists called the Franco-German proposal a “powerful common response, helping to mitigate the risk of a southern slump.”

The Spanish 10-year yield fell 9 basis points to 0.715%, the lowest since early April, Portuguese yields hit their lowest since late March at 0.78% and Italy’s briefly dipped under 1.6% at one point.

“It was a meaningful breakthrough but it is not going to be plain sailing from here,” said Vasileios Gkionakis, Global Head of FX Strategy at Lombard Odier, cautioning that a number of northern EU countries had voiced resistance to the proposal.

Germany’s monthly ZEW survey showed investor sentiment rebounding more quickly than expected though there were separate warnings that the German economy will slump over 7% this year.

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Britain’s pound shrugged off the UK’s highest unemployment claims figures in nearly a quarter of a century, and a near 80% plunge in European new car sales in April contributed to 1.8% fall in auto sector shares.

Asia’s overnight moves had seen MSCI’s broadest index of Asia-Pacific shares outside Japan jump 1.8% to two-week highs and Japan’s Nikkei had added nearly 2% as the region followed Wall Street and Europe rallies.

Data from the first COVID-19 vaccine to be tested in the United States had shown it produced protective antibodies in a small group of healthy volunteers.

In the commodity markets, profit-taking saw Brent prune gains though the rally looked broadly intact amid signs that producers will stick to plans to cut output when global demand picks up.

Brent stood at $35.10 a barrel, more than double where it was in mid April, and U.S. crude was at $32.70 a month on from its collapse into negative territory.

“A powerful cocktail made of bullish ingredients have been supporting the oil market for a month … Demand is improving, supply is decreasing,” said oil broker PVM’s Tamas Varga.

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Reuters

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Scotiabank profit plunges 40% as bad loans more than double amid COVID-19 – CBC.ca

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Scotiabank posted a profit Tuesday morning of $1.32 billion in the three months up to the end of April, a fall of more than 40 per cent from last year’s level as the bank set aside twice as much money for bad loans.

The bank’s provisions for credit losses totalled nearly $1.85 billion for the quarter. That’s up 111 per cent from the $873 million worth of bad loans the bank revealed in the same three months last year, well before the COVID-19 pandemic crushed the economy.

Higher loan loss provisions don’t necessarily mean that all of those loans will end up defaulting. Rather, it just means that they aren’t being actively being paid back as planned.

The bank revealed on Tuesday that 300,000 of its Canadian customers have applied for some sort of financial relief on the $60 billion they collectively owe to the bank. That would include mortgagees who asked for interest rate deferrals.

Scotiabank has a huge presence in Latin America, and the bank says it has processed two million applications for loan relief from its international customers.

Economic bellwether

Not all of those loans will necessarily end up defaulting, but some may. So the uptick in loan loss provisions is troubling.

Scotia is the first of Canada’s big banks to reveal its financial performance through the current pandemic, numbers which will be closely scrutinized as they are considered to be a bellwether for the broader economy. That’s because pain at other businesses tends to show up on the books of the banks that lend to them.

Canada’s other big banks — Royal, Toronto-Dominion, Canadian Imperial Bank of Commerce and Bank of Montreal — will report earnings in the next few days.

On an adjusted basis, Scotiabank’s profit for the quarter came in at $1.04 per diluted share. That’s well down from $1.70 per diluted share a year ago, but ahead of the 98 cents that analysts who cover the bank were expecting.

Not all bad news

But not all parts of the bank’s business saw tough times. Indeed, some did even better than usual.

Scotia’s global wealth management business posted a profit of $314 million, an increase of four per cent over last year’s level. That uptick came about with investors around the world becoming much more active than usual as global stock markets plummeted.

“This quarter saw record results for both new client account openings and trading volumes in Scotia iTRADE,” the bank said.

Similarly, the global banking and markets business posted a profit of $523 million, up 25 per cent from a year earlier.

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Scotiabank's loan-loss provisions double on coronavirus risks – The Globe and Mail

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A Bank of Nova Scotia building stands in Toronto on Aug. 22, 2017.

Nathan Denette/The Canadian Press

Bank of Nova Scotia on Tuesday reported quarterly profit that beat analysts’ estimates due to a strong performance in the capital markets business, but the bank’s loan loss provisions jumped two-fold.

Provisions for loan losses at Scotia more than doubled to $1.85 billion from a year earlier as it set aside more money to meet future losses.

Canadian banks are expected to face loan defaults as the coronavirus pandemic drives the world into a recession, leaving small and medium-sized businesses scrambling to meet their debt payments.

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The bank said commercial and corporate performing loan provisions increased by $275 million, hurt by the poor macroeconomic outlook and a plunge in oil prices that impacted the energy sector globally.

Adjusted net income at its global wealth management segment rose 3 per cent to $314 million, while profit at the global banking and markets business jumped 25 per cent to $523 million.

Canada’s third-biggest lender said net income fell to $1.24 billion, or $1 per share, in the quarter ended April 30, from $2.13 billion, or $1.73 per share, a year earlier.

On an adjusted basis, the lender earned $1.04 per share, compared with analysts’ estimate for profit of $0.98 per share, according to IBES data from Refinitiv.

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Asian stocks rise, boosted by 're-opening optimism' – CNN

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Japan’s Nikkei 225 (N225) was among the biggest winners in Asia, climbing 2.6% after Prime Minister Shinzo Abe on Monday lifted the state of emergency for the entire nation and gave his support for a huge new stimulus package. Benchmark indexes in Shanghai (SHCOMP) and Taipei added 1%, while Australia’s ASX All Ordinaries added 2.8%
In Europe, Germany’s DAX (DAX) increased by 0.8% in early trading and France’s CAC 40 (CAC40) added 1.3%. The FTSE 100 (UKX) gained more than 2% in London. UK Prime Minister Boris Johnson on Monday announced plans to reopen all shops by the middle of June.
US stock futures also rose after Americans crowded onto packed beaches in Florida, Maryland, Georgia, Virginia and Indiana for the Memorial Day weekend. Many states have begun lifting restrictions on businesses and public spaces.
Dow futures were up 490 points, or around 2%. Futures for the S&P and Nasdaq added 1.9%.
There is a sense of “re-opening optimism” among investors, Stephen Innes, global market strategist at AxiCorp, wrote in a research note.
Oil prices, which have been slammed by the sharp drop in demand caused by the pandemic, jumped during Asian trading hours Tuesday. US crude futures were up 3.7% to trade at $34.46 per barrel. Brent crude, the international oil benchmark, rose 2.3% to $36.36 per barrel.

Hong Kong stocks

Hong Kong’s Hang Seng Index (HSI) advanced more than 2%, recovering some ground after investors were stunned by news last week that Beijing plans to implement a controversial national security law in the financial hub.
The Hang Seng had its worst day in nearly five years on Friday after Beijing said that it would effectively bypass Hong Kong’s legislature to enact the law.
China’s foreign ministry commissioner in Hong Kong, Xie Fang, moved to reassure rattled investors on Monday evening.
The legislation won’t affect freedoms of speech, press, publication and assembly, Xie said, according to state-run news agency Xinhua. Xie added that the controversial legislation will protect the operations of international businesses in Hong Kong.
The “clouds of dust in Hong Kong have settled quicker than anyone had expected. Local risk sentiment isn’t nearly as gnarly as everyone had feared,” said Innes.
Still, the move by Beijing is expected to fuel another round of clashes between pro-democracy protesters in Hong Kong and the city’s police force.
— CNN’s Laura He and Kaori Enjoji contributed to this report.

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