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Canada’s main stock index fell at open on Monday, struggling to hold on to its seven-month highs, as financial shares declined.
At 9:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX Composite index was down 23.1 points, or 0.14 percent, at 16,373.05.
Financial stocks fell 0.4 per cent with CI Financial down 1 per cent, Brookfield Asset Management down 0.7 per cent and National Bank down 0.7 per cent.
Technology shares were down 1.1 per cent as BlackBerry fell 1.8 per cent, Kinaxis fell 1.8 per cent and Constellation Software declined 1.8 per cent.
Health Care stocks were down 0.8 per cent with Cronos fell 3 per cent, Aurora Cannabis declined 2.1 per cent and Canopy Growth dropped 1.7 per cent.
U.S. stocks opened lower on Monday, pausing after the S&P 500’s seven-day winning streak, as investors braced for what could be the first decline in corporate earnings since 2016 and a drop in Boeing Co.’s shares hit the Dow industrials.
The Dow Jones Industrial Average fell 112.32 points, or 0.43 per cent, at the open to 26,312.67. The S&P 500 opened lower by 4.28 points, or 0.15 per cent, at 2,888.46. The Nasdaq Composite dropped 13.81 points, or 0.17 per cent, to 7,924.89 at the opening bell.
Major banks are slated to kick off first-quarter earnings season later in the week and analysts expect a 2.2 percent fall in S&P 500 earnings, according to Refinitiv data.
After seven straight days of gains, the S&P 500 index is now 1.6 per cent away from its record closing high hit in September, lifted by the Federal Reserve’s decision to hold off on interest rate hikes in 2019 and hopes of a China trade deal.
“While we underestimated the impact of the Fed’s pivot on equity prices, we see the earnings recession as just the beginning,” Morgan Stanley analysts led by Michael Wilson wrote in a note.
“We think there will need to be some evidence of a real turn in earnings growth for U.S. stocks to advance much further.”
The S&P 500 is trading 16.6 times its next 12-month earnings estimate, up from 14.6 times during the peak of December sell-off but below the 17.3 times at its record high hit in late September.
Boeing slipped 4 per cent following the planemaker’s decision to cut production of its 737 aircraft by nearly 20 per cent.
“The biggest story today is Boeing, which is a key company in the U.S. and is giving markets a soft tone to start the day,” said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey.
“In general, there is a concern that stock prices don’t match equity earnings.”
Investors are also closely watching for developments in U.S.-China trade negotiations. The White House said on Friday after three days of trade talks with Chinese officials in Washington that the negotiations “made progress on numerous key issues” but “significant work remains.”
Among other stocks, General Electric Co. fell 6.2 per cent after J.P.Morgan downgraded the conglomerate’s shares to “underweight,” saying Wall Street is over projecting the bounce in cash flow in the coming years.
Micron Technology was down 1.3 per cent after Cowen and Co cut its rating on the chipmaker’s stock to “market perform” from “outperform.”
Procter & Gamble Co. climbed 0.6 per cent after Wells Fargo raised its rating on the company’s stock to “outperform” from “market perform.”
Overseas, world stocks paused on Monday after a strong recent run, as potential flashpoints including a crucial Brexit summit and central bank meetings loomed.
Signs of further stimulus from China helped Asian shares touch seven-month highs, but investors’ enthusiasm was fleeting.
MSCI’s world equity index was flat and European stocks slipped as weak data from Germany and investor caution ahead of a string of political and monetary policy events held the market back.
In a document published on the central government’s website late on Sunday, Beijing said it would step up a policy of targeted cuts to banks’ required reserve ratios to encourage financing for small and medium-sized businesses.
German exports and imports both fell more than expected in February, data showed on Monday, in the latest sign that Europe’s largest economy will likely have meagre growth in the first quarter amid increased headwinds from abroad.
Germany’s DAX fell 0.4 per cent, Britain’s FTSE was up 0.1 per cent and France’s CAC fell 0.07 per cent.
Globally, stock markets have had a stellar first quarter. The MSCI All-Country World index had its best quarter in more than eight years.
“Today’s very minor move down has to be seen in light of recent developments,” said Ms. Weidenbach.
“We’re back at the levels where the correction started last year. So now the question certainly is, what’s next?”
The European Central Bank will update the market on Wednesday, the same day as a crucial European Union Summit on Brexit, while China and the EU will hold a summit on trade on Tuesday.
“European institutions will be under the spotlight in the coming days as they attempt to display proactivity in trade negotiations, on Brexit and in monetary policy,” wrote economists at Swiss private bank Landolt & Cie in a note to clients.
In Asia, Japan’s Nikkei was down 0.2 per cent, China’s Shanghai was off 0.05 per cent and Hong Kong’s Hang Seng rose 0.5 per cent.
Commodities
Oil prices rose to their highest level since November, 2018, on Monday, driven by OPEC supply cuts, U.S. sanctions against Iran and Venezuela and fighting in Libya as well as strong U.S. jobs data.
International benchmark Brent futures were at US$70.66 per barrel on Monday, up 32 cents, or 0.5 per cent from their last close.
U.S. West Texas Intermediate (WTI) crude futures were up 30 cents, or 0.5 per cent, at US$63.38 per barrel.
Brent and WTI both hit their highest since November at US$70.83 and US$63.53 a barrel, respectively, early on Monday.
To prop up prices, the Organization of the Petroleum Exporting Countries (OPEC) and non-affiliated allies like Russia, known as OPEC+, pledged to withhold around 1.2 million barrels per day (bpd) of supply from the start of this year.
“OPEC’s ongoing supply cuts and U.S. sanctions on Iran and Venezuela have been the major driver of prices throughout this year,” said Hussein Sayed, chief market strategist at futures brokerage FXTM.
“However, the latest boost was received from an escalation of fighting in Libya which is threatening further supply disruption,” he added.
Gold prices rose to a more than a one-week peak on Monday as the dollar slipped on slow U.S. wage growth last month and a rally in equities stalled, boosting bullion’s appeal.
Spot gold gained 0.4 per cent to US$1,297.02 per ounce, having earlier touched its highest since March 29 at US$1,297.86.
U.S. gold futures were up 0.4 per cent at US$1,300.8 an ounce.
“The market is just getting a little bit of confidence back after once again failing to break lower last week,” said Saxo Bank analyst Ole Hansen.
“We’ve got a weaker dollar, China buying another chunk of gold last month continues to show that the physical underlying demand and renewed fighting in Libya is just raising the geopolitical temperature,” Hansen said, adding gold was once again potentially challenging the US$1,300 level.
A rally in stocks that has capped gold’s gains recently paused, while the dollar was down 0.2 per cent against key rivals, making bullion cheaper for holders of other currencies.
Currencies and bonds
The Canadian dollar was trading higher Monday, near the 74.75 US cents mark, as both oil and gold prices rose.
The U.S. dollar was also weighed down by softening bond yields. The greenback was 0.3 per cent lower at 111.385 yen after briefly popping up to a three-week high of 111.825 on Friday following the U.S. jobs report.
The euro edged higher from a one-month low hit last week as investors squared positions before a European Central Bank meeting this week where policy makers may strike a cautious note on the region’s growth outlook.
“The euro selling seems to have intensified last week but the currency still is trading in a narrow range probably because of support from other kinds of investors,” said Manuel Oliveri, a currency strategist at Credit Agricole in London.
While the single currency rose 0.2 per cent at US$1.1242 on Monday, it remained within striking distance of a one-month low of US$1.1183 hit last week. It has fallen more than two per cent in nearly three weeks.
“We are seeing more euro skepticism in the market as expectations of an ECB rate hike has changed from the foreseeable future, with no firm timeline in sight,” said Ulrich Leuchtmann, a currency strategist at Commerzbank in London.
Stocks to watch
Cannabis producer Canntrust said it has received Health Canada approval for the last 20 per cent of its phase 2 expansion, which it expects will be operating at full capacity by the end of the second quarter.
Image sharing website Pinterest Inc. said on Monday it would offer 75 million of its class A shares as part of its initial public offer and priced them in the range of US$15 to US$17 per share. It plans to raise about US$1.5-billion in its initial public offering of shares.The company, which plans to list under the symbol “PINS” on the New York Stock Exchange, was valued at US$12-billion in its last fundraising round in 2017. Pinterest claims more than 250 million active monthly users and more than 2 billion monthly searches. The San Francisco company had revenue of US$756-million last year, a 60 per cent bump from 2017.
Shares of General Electric fell 5.6 per cent in premarket trading Monday after JPMorgan downgraded its shares to “underweight” from “neutral” and cut its price target to US$5 from US$6.
Micron Technology was down 2.4 per cent after Cowen and Co cut its rating on the chipmaker’s stock to “market perform” from “outperform.”
Procter & Gamble Co. climbed 0.6 per cent after Wells Fargo raised its rating on the company’s stock to “outperform” from “market perform.”
Economic news
(8:15 a.m. ET) Canada's housing starts for March. The Street expects an annualized rate increase of 11.5 per cent.
(8:30 a.m. ET) Canada's building permits for February. Estimate is a rise of 2.0 per cent from January.
(10 a.m. ET) U.S. factory orders for February. Consensus is a decline of 0.5 per cent from January.
With files from Reuters