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The close: TSX ends advance as oil prices drop

by August 10, 2016 General

Oil prices fell on Wednesday on a surprise build in U.S. crude inventories, dragging on energy shares, and North American stocks receded from record highs.

European stock indexes generally slipped after some disappointing corporate results and the dollar weakened as investors sought direction on the timing of a potential U.S. interest rate hike.

With bond yields low in developed economies as central banks maintain accommodative monetary policies, investors have sought out equities for yield.

Canada’s main stock index erasing morning gains on Wednesday, falling from its strongest level since June last year, as gold miners rose while Valeant Pharmaceutical International Inc. slipped back after a surge.

The materials group, which includes precious and base metals miners and fertilizer companies, added 0.9 per cent, as prices for a string of metals rose as a weaker U.S. dollar supported. It was the only one of the index’s 10 main groups to finish in positive territory

The most influential movers on the Canadian index included two of the world’s biggest gold miners, with Goldcorp Inc. up 3.2 per cent to $24.51 and Barrick Gold Corp. adding 0.8 per cent to $28.42.

The Toronto Stock Exchange’s S&P/TSX composite index finished down 26.19 points, or 0.18 per cent, to 14,775.04.

The index had risen in the five previous trading session and hit its highest point since June 26, 2015 earlier Wednesday.

Valeant stock slipped back 3.1 per cent to $35.75. It had surged 25 per cent on Tuesday after the drug maker unveiled a plan to sell assets to pay down debt.

Six weeks earlier, top Valeant investor and board member William Ackman attended a private shareholder dinner where similar plans were discussed, a source who participated said.

After more than a year without setting fresh records, the U.S. benchmark S&P 500 stock index consistently has been reaching new peaks after breaking to an all-time high a month ago.

“The markets were extended, not only price-wise but psychologically have been extended,” said Steve Massocca, chief investment officer with Wedbush Equity Management in San Francisco. “It’s only natural to see a pullback here and I think this pullback is something that could continue for a little while.”

The Dow Jones industrial average unofficially fell 36.64 points, or 0.2 per cent, to 18,496..41, the S&P 500 lost 6.25 points, or 0.3 per cent, to 2,175.49 and the Nasdaq Composite dropped 20.90 points, or 0.4 per cent, to 5,204.58.

The energy sector was the worst-performing of the 10 major S&P groups, falling 1.4 per cent.

MSCI’s all-world index was little changed, hovering around a one-year high. MSCI’s emerging markets index gained 0.4 per cent, up for a fifth straight session and hitting its highest in a year.

“For the most part international markets are continuing to outperform the U.S. in recent days … particularly the emerging markets,” said Jim Paulsen, chief investment strategist at Wells Capital Management in Minneapolis.

The pan-European FTSEurofirst 300 index slipped 0.3 per cent following five days of gains, after weak reports from German utility E.ON and Danish biotechnology company Novozymes.

Oil prices fell around 2 per cent on Wednesday after the second-biggest weekly draw in U.S. gasoline this summer was countered by an unseasonal build in crude stockpiles.

Adding to renewed worries about a global crude glut, top crude exporter Saudi Arabia told the Organization of the Petroleum Exporting Countries (OPEC) that the kingdom’s output reached a record high of 10.7 million barrels per day in July.

U.S. crude inventories rose 1.1 million barrels in the week ended Aug. 5, the U.S. Energy Information Administration (EIA) reported, in a third consecutive weekly build that surprised the market. Analysts polled by Reuters had expected a 1.0 million-barrel crude draw instead.

“At this time of year, we should be drawing down in crude inventories, and we are still building,” said Tariq Zahir, trader in crude oil spreads at Tyche Capital Advisors in New York.

U.S. West Texas Intermediate (WTI) crude futures settled down $1.06, or 2.5 per cent, at $41.71 per barrel. Last week, WTI broke below $40 support for the first time since April, entering bear market territory after falling 20 per cent from June peaks.

Brent crude futures settled down 93 cents, or 2 per cent, at $44.05.

The EIA said gasoline stocks fell 2.8 million barrels last week in the second-biggest weekly draw for the fuel since mid-April. The draw, amid U.S. East Coast refinery runs hitting 2011 lows, exceeded expectations for a gasoline drawdown of 1.1 million barrels.

Even so, U.S. gasoline futures settled down more than 3 per cent, for its biggest loss in a month.

“I’m surprised gasoline fell as much as it did today despite the good draw numbers,” said Pete Donovan, broker at Liquidity Energy in New York. “But it’s nearing the end of summer and the driving season, and focus is turning back to crude stockpiles.”

WTI had its sharpest monthly fall in a year in July, dropping 14 per cent, after runaway gasoline demand for the summer fell short of refiner production. Storage tanks worldwide are also nearly full with oil products while refiner profits in Singapore have hit two-year lows.

Some see oil prices rebounding, citing Venezuela’s renewed efforts to get OPEC to cooperate with other oil producers on reducing output after a failed effort in April.

“The mere suggestion of OPEC working in the background on a price support initiative should be enough to hold the market in the $43-$45 levels in the near term,” said Salvatore Recco, who helps oversee about $2-billion of client money, including in oil, at Gravity Investments in Denver.

The U.S. dollar was 0.5 per cent weaker against a basket of currencies. The greenback has retreated from gains in the wake of Friday’s strong U.S. jobs report.

“It’s been a fairly broad trend of dollar selling this week,” said Vassili Serebriakov, FX strategist at Credit Agricole in New York.

More clarity about the U.S. economy’s health and the next move on rates from the Federal Reserve could come with Friday’s release of July retail sales and a speech by Fed Chair Janet Yellen later this month.

U.S. Treasury prices edged up in line with global bonds as limited economic data and concern about the continued effectiveness of central banks’ policies gave safe-haven U.S. government debt a bump.

The benchmark 10-year Treasury note was last up 12/32 in price to yield 1.5040 per cent.

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