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U.S. and Canadian stocks are set to head lower at the opening as the potential for of another U.S. government shutdown was raised and the U.S. and China head into trade talks later this week.

U.S. President Donald Trump said another government shutdown was “certainly an option” in an interview with The Wall Street Journal days after the longest shutdown in history ended on Friday, 35 days after it began.

Investors are also cautious ahead of the U.S. Federal Reserve policy meeting later this week. The central bank is expected to signal a pause in its tightening cycle and to acknowledge growing risks to the world’s biggest economy.

Though the Fed has forecast two more interest rate hikes for 2019, a darkening global economic outlook and highly volatile stock markets have clouded the policy picture.

Chinese Vice-Premier Liu He will visit the United States on Jan. 30-31, for the next round of trade negotiations with Washington.

Earnings at China’s industrial firms shrank for the second straight month, suggesting trouble ahead for manufacturers struggling with falling orders, job layoffs and factory closures amid a protracted trade war with the United States.

In Canada, Chinese-Canadian relations are also in focus after Prime Minister Justin Trudeau fired Canada’s ambassador to China, John McCallum, after his comments about the case surrounding Huawei chief financial officer Meng Wanzhou, who was detained in Vancouver on an extradition request from the U.S. government.

Overseas, world shares fell into the red on Monday, with equities markets from Asia to Europe buffeted as Chinese industrial profits fell.

Major European bourses fell in early trade, mirroring a retreat for Asian stocks as concerns over Chinese growth outweighed any boost from the tentative end to the U.S. government shutdown late last week.

Investors also braced for another major twist in Britain’s exit from the European Union, with crucial votes due on Tuesday in the British parliament designed to break the Brexit deadlock.

The MSCI world equity index, which tracks shares in 47 countries, fell 0.1 per cent, while MSCI’s main European Index dropped 0.5 per cent. The broader Euro STOXX 600 also fell 0.4 per cent.

Britain’s FTSE was down 0.4 per cent, Germany’s DAX was off 0.3 per cent and France’s CAC was down 0.5 per cent.

“A slowdown in the Chinese economy could be sometimes taken as an idiosyncratic event which would be dealt with by Beijing,” said Philip Shaw, chief economist at Investec.

“It’s pretty clear that the current situation is more global, in terms of the tariff tension between the U.S. and China and the threat of that dispute spilling over more widely.”

Commodities

Oil fell 1 per cent on Monday after U.S. companies added rigs for the first time this year, a signal that crude output may rise further, but the price is still on course for its strongest gain in the month of January for 14 years.

Brent crude oil futures were down $1.14 at US$60.50 a barrel, while U.S. futures were down $1.05 at US$52.64 a barrel.

U.S. crude production, which hit a record 11.9 million barrels per day (bpd) late last year, has undermined sentiment in the oil market, traders said.

U.S. energy firms last week increased the number of rigs looking for new oil for the first time since late December to 862, Baker Hughes energy services firm said in its weekly report on Friday.

“The increase in drilling activity in the U.S. as reported by the oil service provider Baker Hughes on Friday evening is generating headwind,” Commerzbank said in a note.

“Clearly the significantly lower prices in the fourth quarter are prompting shale oil producers to exercise restraint. Because prices have risen considerably since the start of the year and there is a high number of drilled but uncompleted wells, drilling activity is likely to recover soon.”

Even with all the uncertainty over the outlook for demand and evidence of growing supply, the oil market has benefited this month from the start of another round of production cuts by OPEC and its partners, as well as robust trade in physical barrels of crude led by China.

Gold edged lower on Monday as the dollar steadied, but the metal held above US$1,300 as investors adopted a cautious approach while awaiting developments on the U.S.-China trade front and Federal Reserve policy.

Spot gold eased 0.2 per cent to US$1,300.92 per ounce, having risen earlier in the session to US$1,304.42, its highest since June 14, 2018. The metal broke above US$1,300 in the last session after failing to do so multiple times before.

U.S. gold futures climbed 0.2 per cent to US$1,300.10 per ounce.

Gold is hovering around the much-discussed US$1,300 psychological resistance, tracking back from which may kindle some jitters among investors, Capital Economics analyst Ross Strachan said.

“A number of investors will find this an opportune time to get in before the next move higher, likely, given the state of the global economy ... we continue to expect prices to rise towards $1,350,” Capital Economics’ Strachan said.

Currencies and bonds

The Canadian dollar was trading slightly lower near the 75.5 cents US mark as oil and gold prices declined.

The U.S. dollar edged down against most major currencies. Traders are awaiting news from U.S.-China talks on Tuesday and Wednesday to see if the world’s largest economies can reach a compromise on trade.

“Unless there is a breakdown in negotiations, we suspect the cautiously risk-positive environment can continue - which should favor higher-yielding, under-valued emerging-market currencies against the dollar,” said Chris Turner, head of foreign exchange strategy at ING in London.

The dollar index, a gauge of its value versus six major currencies was lower at 95.798, after falling 0.8 per cent on Friday.

A deal last week to reopen the U.S. government for now after a prolonged shutdown reduced investor demand for the safety of the dollar.

“The general direction for the dollar is still down and markets will be taking cues from the FOMC this week,” said Sim Moh Siong, currency strategist at Bank of Singapore. “The Fed will most likely keep rates steady this year, given the state of economic growth outside the U.S.”

In bonds, the U.S. 10-year Treasury rose slightly to yield 2.764 per cent. Canada’s 10-year bond was up slightly to yield 1.991 per cent.

Stocks to watch

Nissan Motor Co Ltd said on Monday it was the target of a U.S. Securities and Exchange Commission (SEC) inquiry, widening a scandal involving the Japanese firm and its ousted Chairman Carlos Ghosn over his alleged financial misconduct. Ghosn, first arrested on Nov. 19 in Japan, has been charged with failing to disclose more than $80-million in additional Nissan compensation for 2010-2018 that he had arranged to be paid later. Ghosn, swiftly dismissed as Nissan chairman after the arrest, has denied wrongdoing. Nissan was also charged by Japanese prosecutors for under-reporting his pay, and has since pledged to overhaul its governance.

Facebook Inc. is planning to set up two new regional operations centers focused on monitoring election-related content in its Dublin and Singapore offices, the company said on Monday. The world’s largest social network has been under pressure from regulators around the globe to fight spread of misinformation on its platform.

BlackBerry Ltd. has named Bryan Palma as president and chief operating officer. Palma was most recently Cisco’s senior vice-president and general manager of customer experience for the Americas. Before joining Cisco, he was the vice-president of cyber and security solutions at Boeing.

Electric and gas utility Fortis Inc. said on Monday it would sell its 51-per-cent stake in its hydroelectric project in British Columbia to state-owned Columbia Power Corp. (CPC) and Columbia Basin Trust (CBT) for about $1-billion.

Caterpillar Inc. forecast full-year profit below analysts’ estimates on Monday, indicating a slide in global demand stemming from China would worsen after it reported revenue in line with expectations for the last three months of 2018. The company forecast 2019 adjusted profit of US$11.75 to US$12.75 per share, compared with analysts’ average estimate of US$12.73, according to IBES data from Refinitiv. Its shares were down 4.3 per cent in premarket trading. The construction equipment company earned US$1.05-billion in the fourth quarter, or $1.78 per share. Stripping out restructuring costs and other items, earnings were US$2.55 per share, 43 cents short of analyst expectations.

GrubHub Inc. rose 2.6 per cent after brokerage Credit Suisse upgraded shares of the online food delivery platform, saying its recent investments will soon pay off.

Earnings include: Caterpillar Inc.; People Corp.

Economic news

Euro zone M3 money supply

With files from Reuters

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