TSX moves lower to end weakest week of 2019

The Toronto market ended the week down 1.2%, the largest weekly loss since the third week of December.

The decrease resulted from conflicting signals coming out of trade negotiations between the U.S. and China.

Markets fell after the United States made good on its threat to raise tariffs on US$200 billion of Chinese goods to 25%. But they rallied in the afternoon after U.S. President Donald Trump said talks were “constructive” and his relationship with his Chinese counterpart remains very strong.

Despite the losing week, investors shouldn’t lose sight of the strong gains experienced so far in 2019, said Mike Archibald, associate portfolio manager with AGF Investments Inc.

“It’s probably a little bit of a give-back here and a recalibration of expectations to what’s going on around us, particularly with respect to trade,” he said in an interview.

Most investors anticipated a week ago that the two sides were close to a deal based on upbeat comments from U.S. administration officials. Like the earlier trading sessions of the week, markets started weak and rebounded later in the day on encouraging tweets and comments from Trump or other officials.

In New York, markets fully rebounded from deep losses earlier in the day. The Dow Jones industrial average was up 114.01 points at 25,942.37 after dipping as low as 562.58 points or 2.1%. The S&P 500 index was up 10.68 points at 2,881.40 after being down 2.2%, while the Nasdaq composite was up 6.35 points at 7,916.94 after falling by 3%.

Trump has threatened tariffs on another US$352 billion worth of Chinese imports.

The Chinese have threatened retaliation but have yet to announce what they will do.

With little room to apply tariffs on other U.S. goods, China is likely to stop buying agricultural products like soybeans, sell some of its large holdings of U.S. treasuries or devalue its currency, said Archibald.

“None of those are perfect solutions for China,” he said, adding that increasing its tariff rate on existing goods could accelerate the trade war.

“Any kind of tit-for-tat response to the tariffs here is certainly going to weaken global growth…and not benefit either side,” he added.

The Canadian dollar traded at an average of US74.53¢ compared with an average of US74.17¢ on Thursday after Statistics Canada reported the economy added 106,500 jobs in April, the biggest one-month gain since the government started keeping comparable data in 1976.

Investors responded to the trade spat by turning to defensive stocks in the real estate, telecommunications and utilities sectors.

Consumer discretionary, energy, materials and consumer staples dropped the most on the day. Consumer companies Aritzia Inc., Roots Corp. and Canadian Tire Corp. were down 2.6% to 4.7%.

The June crude contract was down US4¢ at US$61.66 per barrel and was off just US35¢ on the week. The June natural gas contract was up 2.4¢ at US$2.62 per mmBTU.

The June gold contract was up US$2.20 at US$1,287.40 an ounce and the July copper contract was up 0.3 of a cent at US$2.77 a pound.

Archibald anticipates high market volatility will continue for weeks until a deal is eventually reached.

“Once it gets settled there’s a good chance that we’re going to breakout to new highs again here.”