Equity Markets
Canada's main stock index fell broadly in early trading on Tuesday, as financial and material heavyweights led declines.
The Toronto Stock Exchange's S&P/TSX composite index fell 25.51 points, or 0.17 per cent, to 15,139.85 shortly after the open.
Energy was the only group out of the index's 10 key sectors that advanced.
Shares of Home Capital Group Inc. rose 1.4 per cent as the troubled mortgage lender recovers from a crisis of confidence. Late Monday, the company provided its first liquidity update since the end of June, after it secured an investment worth up to $400-million from revered U.S. investor Warren Buffett, through his firm Berkshire Hathaway Inc. In the two weeks since, to July 14, Home Capital attracted $125-million in net new deposits, the vast majority of them to guaranteed investment certificates, or GICs, with a fixed term.
U.S. stocks opened lower on Tuesday, weighed down by earnings reports from some big names and concerns over President Donald Trump's ability to push through his pro-growth policies.
The Dow Jones Industrial Average fell 53.3 points, or 0.25 per cent, to 21,576.42. The S&P 500 lost 4.26 points, or 0.17 per cent, to 2,454.88. The Nasdaq Composite dropped 10.77 points, or 0.17 per cent, to 6,303.66.
Shares of Bank of America slipped 0.7 per cent, while Goldman Sachs was down 0.5 per cent after reporting quarterly results.
On Wall Street, bank earnings will likely be top of mind for traders, although events in Washington may also temper sentiment. Efforts to replace Obamacare went off the rails after two Republican senators - Utah's Mike Lee and Jerry Moran of Kansas - said they wouldn't support the replacement bill. Their decision means that at least four of 52 Republican senators were ready to oppose the bill, two more than Majority Leader Mitch McConnell could spare amid Democrat opposition.
"This makes (U.S. President Donald) Trump look weak because even Republicans won't support his policies, and it make traders wonder what else they won't support" CMC Markets U.K. market analyst David Madden said in a morning note. "President Trump hopes to introduce tax reform, infrastructure projects and reduce banking regulation, and now trader's fear his plans could be scuppered."
In corporate news, Goldman Sachs and Bank of America both reported before the start of trading. Ahead of the open, Goldman reported earnings per share of $3.95 compared with estimates of $3.39. However, Goldman also said bond trading revenue was down 40 per cent in the quarter, sending shares lower in premarket trading. Meanwhile, Bank of American posted earnings per share of 46 cents, compared with analysts' forecasts of 43 cents. Bank of America shares were up slightly ahead of the opening bell.
In other U.S. earnings, Johnson & Johnson said quarterly profit fell more than 4 per cent to $1.40 a share, from $1.43 in the same period a year earlier. Sales rose to $18.84-billion in the quarter, compared with $18.48-billion last year. The company also raised its full-year profit forecast.
Netflix Inc. shares rose after the streaming service blew past estimates by adding 5.2 million new streaming customers in the second quarter and forecast continued momentum in foreign markets. The shares were up 8.6 per cent in early trading.
On Bay Street, insolvent retailer Sears Canada is back in court asking to begin liquidation sales as early as Friday.
Overseas, European markets fell as political events in the U.S. tempered global sentiment. Britain's FTSE 100 was down 0.2 per cent while Germany's DAX was down 1.4 per cent and France's CAC 40 lost 1.08 per cent.
In Asia, markets were under pressure as the U.S. dollar fell. Japan's Nikkei was down 0.59 per cent. Hong Kong's Hang Seng added 0.21 per cent and the Shanghai composite index fell 0.33 per cent.
Commodities
Crude prices continued to hold in a narrow range as solid demand and market oversupply continued to play against each other. Both benchmark Brent crude and West Texas Intermediate were trading higher early on, with Brent holding above the $48 (U.S.) a barrel mark. WTI was solidly above $46 a barrel.
"We're stuck in a range that, I think, will be tough to break out of without some kind of political factor coming into play," Matt Stanley, fuel broker at Freight Investor Services, told Reuters.
OPEC has attempted to curb market oversupply by cutting supplies by about 1.8 million barrels a day between the start of this year and March 2018. The cuts have yet to have a dramatic impact of world crude stocks. OPEC members Libya and Nigeria are exempt from the cuts and have been allowed to increase output.
Reuters also reported Tuesday that Ecuador, a smaller OPEC producer, said it was not cutting its production by 26,000 barrels a day as agreed to by the country's fiscal deficit. The country's oil minister said it was only cutting by about 60 per cent of that figure.
As well, the U.S. Energy Department said in a report released on Monday that U.S. shale oil output will likely climb for the eighth straight month in August, rising 112,000 barrels to 5.585 million barrels.
In other commodities, a sliding U.S. dollar helped gold prices hit a two-week high. An increasingly muddy outlook for future U.S. interest rate hikes this year also helped buoy the precious metal.
Spot gold and U.S. gold futures were both higher in early trading as the U.S. dollar hit a 10-month low as new U.S. health-care legislation in Washington hit the wall.
"Gold is preparing to test the $1,240 on the back of lower U.S. yields," LCG senior market analyst Ipek Ozkardeskaya said in a morning note. "Surpassing this level should suggest a short-term bullish reversal and encourage a further rise toward $1,247 and $1,250."
Elsewhere, silver prices were higher. Copper prices were steady as demand in China is seen holding strong after stronger-than-expected growth figures reported earlier in the week.
Currencies and bonds
The Canadian dollar was higher early on, managing fairly steady gains through the overnight period. The day's range so far is 78 cents (U.S.) to 79.33 cents. Tuesday's gains come as oil trades modestly higher and the U.S. dollar slides after efforts to replace Obamacare in the United States faltered. In early going, the loonie was solidly above 79 cents.
Overnight, the U.S. dollar hit its lowest level in 10 months in the wake of the apparent collapse of a replacement U.S. health-care bill. That has left markets concerned that spending and tax cut efforts might also have trouble clearing. As well, traders are still trying to divine the course of U.S. interest rate cuts in the wake of weaker-than-expected readings on inflation and retail sales late last week. The markets now see a less than 50-per-cent chance of another U.S. rate increase by the end of the year.
Reuters notes that, since hitting a 14-year peak of 103.82 on Jan. 3, at 94.830 on Tuesday, the dollar index was down 8.8 per cent.
"Traders should be seeking dip buying opportunities as soon as the (U.S. dollar) sell-off loses momentum," LCG's Ms. Ozkardeskaya said in her morning note.
So far Tuesday, the biggest winner against the U.S. dollar is the Australian currency, which rose 1.5 per cent to its highest level in more than two years. The gains came after that country's Reserve Bank offered a positive view of the Australian economy.
Elsewhere, the euro was also higher against the U.S. dollar.
In bonds, Europe's benchmark bond yields slid along side their U.S. counterparts in the wake of events in Washington. Yields had risen after last fall's U.S. election but have since since narrowed on concerns that efforts to pass further U.S. legislation may be slow going.
The yield on the 10-year U.S. note was down 0.006 per cent. The yield on the 30-year note was down 0.003 per cent.
Stocks set to see action
Goldman Sachs Group Inc. posted a 17 percent decline in trading revenue in the second quarter, mirroring a broader weakness in bond trading activity that has plagued big U.S. banks. Revenue from trading fixed income, commodities and currencies fell 40 per cent to $1.16-billion. Net income applicable to common shareholders was nearly flat at $1.63 billion. Earnings per share, however, rose to $3.95 from $3.72 as number of shares outstanding decreased nearly 6 per cent. Analysts had expected earnings of $3.39 per share, according to Thomson Reuters I/B/E/S. It was not immediately clear if the figures were comparable. Total revenue, including net interest income, fell 0.6 per cent to $7.89-billion. Its shares fell 0.8 per cent in premarket trading.
Bank of America Corp, the second-largest U.S. lender by assets, reported an 11 percent rise in quarterly profit on Tuesday as net interest income increased. Net income attributable to shareholders rose to $4.91-billion in the second quarter ended June 30 from $4.42-billion a year earlier. Earnings per share rose to 46 cents from 41 cents. Analysts on average had expected earnings of 43 cents per share, according to Thomson Reuters I/B/E/S. It was not immediately clear if the figures were comparable. Total revenue, net of interest expense, rose 7.2 per cent to $22.83-billion. Its shares fell 0.9 per cent in premarket trading.
Johnson & Johnson reported a 4.3-per-cent fall in quarterly profit, as costs rose. The company's net earnings fell to $3.83-billion, or $1.40 per share, in the second quarter, from about $4-billion, or $1.43 per share, a year earlier. The Band-Aid maker generated sales of $18.84-billion in the quarter, compared with $18.48-billion a year earlier. its shares rose 1.3 per cent in premarket trading.
Netflix Inc. crushed Wall Street forecasts by adding 5.2 million new streaming customers in the second quarter and predicted continued momentum as foreign subscriptions topped those in the United States, lifting its stock 10.4 per cent on Monday. Shares of the streaming-television pioneer jumped 11 per cent premarket trading.
Lawyers for Sears Canada will be back in court today to ask a Toronto judge if the national retailer can begin liquidation sales as early as Friday. The department store owner has been under creditor protection since June 22 after announcing it was shuttering 59 stores and cutting approximately 2,900 jobs.
Toshiba Corp. shares jumped by nearly a fifth on Tuesday after a U.S. hedge fund said it had added a stake and the Japanese conglomerate avoided an immediate court injunction on a planned $18-billion sale of its chip business. Toshiba is scrambling to complete the sale of its chip unit to help cover billions in losses at its now-bankrupt Westinghouse nuclear unit.
Deposits are steadily returning to Home Capital Group Inc. as the troubled mortgage lender recovers from a crisis of confidence. Late Monday, the company provided its first liquidity update since the end of June. At that time, it was enjoying a renewed surge of faith from depositors after securing an investment worth up to $400-million from revered U.S. investor Warren Buffett, through his firm Berkshire Hathaway Inc.
Harley-Davidson fell 3.6 per cent after the motorcycle maker cut its 2017 shipments forecast.
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Economic News
U.S. import prices fell for a second straight month in June amid further declines in the cost of petroleum products, suggesting inflation pressures could remain benign for a while. The Labor Department said on Tuesday that import prices decreased 0.2 percent last month after an upwardly revised 0.1-per-cent decline in May. Economists polled by Reuters had forecast import prices slipping 0.2 percent in June after a previously reported 0.3-per-cent drop in May.
British inflation unexpectedly slowed last month for the first time since October, dousing expectations among investors that the Bank of England might soon raise interest rates for the first time in a decade. Consumer prices rose by 2.6 per cent compared with a year earlier, the Office for National Statistics said on Tuesday, down from a nearly four-year high of 2.9 per cent in May Economists had expected the rate to remain unchanged.
With files from Reuters