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North American markets are set for a lower opening Tuesday after the International Monetary Fund cut its global economic outlook and that bred pessimism over the prospects for global growth and stocks.

On Monday, the Toronto stock market rose as oil prices gained but the U.S. markets were closed for the Martin Luther King Jr. holiday.

In its World Economic Outlook report, the IMF predicted the global economy would grow at 3.5 per cent in 2019 and 3.6 per cent in 2020, down 0.2 and 0.1 percentage point respectively from last October’s forecasts. The IMF report came after China reported its slowest growth rate in nearly 30 years, which also weighed on the mood of the markets.

The downgrades heavily reflected weakness in Europe though, with Germany hurt by new car emission rules, Italy under market pressure due to Rome’s recent budget standoff with the European Union and Brexit worries aplenty too.

“We have seen a little bit of a pull back, but whether it’s the IMF growth downgrade or China related is neither here nor there,” said CMC Markets’ senior analyst Michael Hewson.

Overseas, European shares followed Asia into the red as disappointing earnings from Swiss bank UBS compounded what had been a catastrophic 2018 for Europe’s banking sector, which lost nearly 30 per cent of its value over the year.

Brexit continues to worry traders as they waited to see whether UK Prime Minister Theresa May can push her Brexit plans through the country’s bitterly divided parliament.

May had offered tweaks on Monday by seeking further concessions from the European Union on a backup plan to avoid a hard border between the British-administered province of Northern Ireland and the Irish Republic.

But she had also refused to rule out leaving the EU at the end of March without any deal.

In Asia, losses had been led by Chinese shares, with the blue-chip index off 1.2 per cent. Japan’s Nikkei skidded 0.5 per cent, Hong Kong’s Hang Seng index closed down 0.7 per cent.

Commodities

Oil prices fell more than 1 per cent on Tuesday on signs that an economic slowdown in China was spreading, stoking concerns about global growth and fuel demand.

International Brent oil futures were at US$61.94 per barrel, down 80 cents or 1.28 per cent. U.S. West Texas Intermediate (WTI) crude futures were at US$53.16 per barrel, down 1.19 per cent or 64 cents.

China reported the lowest annual economic growth in nearly 30 years on Monday. Its state planner warned on Tuesday that falling factory orders pointed to a further drop in activity in coming months and more job losses.

While China’s oil imports have so far defied the economic slowdown, hitting a record above 10 million barrels per day (bpd) in late 2018, many analysts believe the country has reached peak energy growth, with its thirst set to wane.

“Slowing manufacturing activity in China is likely weighing on demand,” said Singapore-based tanker brokerage Eastport, adding that industrial slowdowns tended to be leading indicators that fed gradually into lower demand for shipped oil products.

Gold bounced back on Tuesday from multiweek lows touched in the previous session as mounting concerns of an economic slowdown drove investors to the safety of bullion.

Spot gold was up 0.3 per cent to US$1,283.50 per ounce, recovering from a dip to its lowest since Dec. 28, at US$1,276.31, on Monday. U.S. gold futures were little changed at US$1,282.80.

“Gold and safe-haven demand are in a stable relationship ... There is a bit of risk-off sentiment” said ABN AMRO analyst Georgette Boele, adding weakness in European stock markets and lingering doubts surrounding the U.S.-China trade spat were supporting gold.

Currencies and bonds

The Canadian dollar was trading lower Tuesday just below the 75 US cent mark. RBC said in a note that its if forecasting a 0.5 per cent decline in November manufacturing sales “but a rebound in the aerospace component should provide a partial offset.” However, the loonie is trading “through resistance at 1.3323 (75.05 US cents), with 1.3248 (75.48 US cents) serving as support."

The dollar held at a near three-week high on Tuesday as investors sought the relative safety of the U.S. currency after the International Monetary Fund cut its forecasts for the world economy in 2019 and 2020.

The dollar has been considered a consensus short trade since the end of 2018 on concerns that the U.S. Federal Reserve will pause in its interest rate increases. But it has been boosted in recent days by lack of growth in other regions, notably Europe.

“We still think the dollar’s gains may be overdone and the European Central Bank might offer some guidance later this week on when it will start to tighten monetary policy,” said Manuel Oliveri, a currency strategist at Credit Agricole in London.

Market watchers say the dollar may also come under pressure as the U.S. government shutdown begins to weigh on domestic growth.

Morgan Stanley strategists believe that U.S. growth in the first quarter is likely to fall below their forecast of an annual 2.2 per cent, about half the 4.2 per cent growth in 2018.

The dollar index, which measures its strength against a group of six major currencies, was steady at 96.33, holding near a 2-week high of 96.43 hit on Monday.

Stocks to watch

Canada’s two major railways are rationing space on trains travelling to the country’s biggest port and recently prioritized some commodities over others to deal with congestion, the latest indication of their struggle to meet demand from new trade deals. That move prompted Canada’s transport regulator last week to start an investigation into rail services around Port Metro Vancouver, after shippers complained of “discriminatory treatment of certain commodities” by Canadian National Railway and Canadian Pacific Railway.

Barrick Gold Corp. is opening the door to a sale of its biggest copper mine as it faces higher taxes that threaten its profitability in Zambia. In a statement on Monday, Barrick said the Zambian government has proposed tax increases for its Lumwana property that would “imperil the mine’s ability to sustain returns to all stakeholders.” Barrick said reports that it had already sold Lumwana were untrue, but the Toronto-based company allowed that given the “challenging conditions,” it was considering “all options.” Its shares rose 1.7 per cent in premarket trading.

The French data-protection authority announced Monday that it had fined Google €50-million (approximately $75.6-million) for not properly disclosing to users how data is collected across its services – including its search engine, Google Maps and YouTube – to present personalized advertisements. Its shares fell 0.7 per cent in premarket trading.

Johnson & Johnson is reporting better than expected profit and revenue for the fourth quarter on strong sales of cancer treatments. The company on Tuesday reported net income of US$3.04-billion after a loss in the same period last year. Per-share earnings were US$1.12. Earnings, adjusted for one-time gains and costs, came to US$1.97 per share, which is 2 cents better than industry analysts expected, according to a survey by Zacks Investment Research. Revenue of US$20.39-billion also edged out expectations. Johnson & Johnson expects full-year earnings between US$8.50 and US$8.65 per share, with revenue between US$80.4-billion and US$81.2-billion. Its shares rose 1.3 per cent in premarket trading.

Earnings include: Advanced Micro Devices Inc.; Capital One Financial Corp.; Halliburton Co.; International Business Machines; Johnson & Johnson; Prologis Inc.;Stanley Black Decker Inc.; TD Ameritrade Holding Corp.

Economic news

Bank of Japan holds its monetary policy meeting and releases its outlook report.

(8:30 a.m. ET) Canada reports its November manufacturing sales. Consensus is for a decrease of 0.5 per cent.

(8:30 a.m. ET) Canada reports its November wholesale trade. Estimates are for a decrease of 0.5 per cent.

(10 a.m. ET) U.S. reports its December existing home sales. The consensus is for a decrease of 0.9 per cent for an annual rate of 5.23 million.

with files from Reuters

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