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Equities
Canada’s main stock index fell at the open on Monday, after U.S. President Donald Trump threatened to raise tariffs on China, triggering a global rout in risky assets.
At 9:32 a.m ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 151.21 points, or 0.92 per cent, at 16,343.22.
Energy stocks were the biggest decliner, down 1.6 per cent, as oil prices fell. Seven Generations fell 4 per cent, Crescent Point Energy was down 2.9 per cent and Encana was down 2.2 per cent.
Consumer discretionary stocks were down 1.4 per cent. Martinrea was down 4.7 per cent, Great Canadian Gaming was off 3.8 per cent and Canada Goose fell 3.3 per cent.
Financial and health care stocks both were off 1 per cent.
In Canada, investors are also closely watching corporate earnings reports as the earnings season gets into full swing. Notable companies expected to report earnings Monday include Air Canada, Clearwater Seafoods, Great Canadian Gaming, Hudbay Minerals, Ivanhoe Mines, and Wajax.
Air Canada posted a profit in its latest quarter compared with a loss a year ago as it saw its operating revenue rise 9 per cent. Adjusted earnings were 6 cents a share while analysts had expected a loss of 18 cents per share. Its stock was up 2.4 per cent.
Hudson’s Bay Co. says it’s pursuing strategic alternatives for its Lord and Taylor business, including a possible sale or merger.
Great Canadian Gaming reported a 35-per-cent increase in revenue to $312.1-million and earnings per share of 55 cents. Its shares were down 0.4 per cent.
U.S. stocks opened sharply lower on Monday after President Donald Trump, in a surprise move, threatened to hike tariffs on Chinese goods, reigniting fears of a global slowdown and upending a period of relative calm in markets.
The Dow Jones Industrial Average fell 344.33 points, or 1.30 per cent, at the open to 26,160.62. The S&P 500 opened lower by 36.75 points, or 1.25 per cent, at 2,908.89. The Nasdaq Composite dropped 182.15 points, or 2.23 per cent, to 7,981.85 at the opening bell.
Trump said Sunday that tariffs on US$200-billion worth of Chinese goods would increase to 25 per cent on Friday from 10 per cent, reversing a decision he made in February to keep them at the 10-per-cent rate thanks to progress between the two sides.
The Wall Street Journal reported that China was considering cancelling talks set for this week due to Trump’s remarks.
But on Monday, China said a trade delegation is preparing to go to the U.S. this week to continue the talks.
Boeing Co, the single largest U.S. exporter to China, fell 2.5 per cent, while Caterpillar Inc. also declined 2.8 per cent.
“The risk-off sentiment has been the response to this swerve from Trump,” said Han Tan, market analyst at FXTM.
“While it remains to be seen whether the Trump administration will press ahead with the added tariffs, it’s already evident that markets are taking some risk off the table, undermining the base case that investors had been pricing in: a formalized US-China trade deal in the near future.”
Investors fear that if a trade deal is not reached, it could lead to a reduction in trade and spark a global economic slowdown.
In corporate news, Tesla Inc fell 2 per cent after U.S. trade officials rejected the company’s bid for relief from Trump’s tariffs on the Chinese-made Autopilot “brain” of its Model 3 and other electric vehicles.
Kraft Heinz said it is restating its financial results for the years 2016, 2017, and for the first nine months of 2018 to correct misstatements with product costs. Its shares were down 0.3 per cent.
Overseas, European stocks tumbled to a one-month low and Chinese shares plunged more than 6 per cent after Trump’s comments. Global investors were caught off guard as they had been largely expecting the two sides to reach a trade agreement soon.
Britain’s FTSE was closed for a holiday, but Germany’s DAX fell 1.7 per cent and France’s CAC was off 1.7 per cent.
In Asia, Japan’s Nikkei was still closed for holidays and Hong Kong’s Hang Seng fell 2.9 per cent.
“The market was caught on the wrong foot as everyone expected talks were heading in the right direction and almost close to finishing,” said Daniel Lenz, a rates strategist at Commerzbank. “This was totally out of the blue and the reaction is that we have more risk aversion today.”
Commodities
Trump’s comments about raising tariffs on China hit oil prices as well.
U.S. West Texas Intermediate (WTI) crude futures were at US$60.83 per barrel, down US$1.11. WTI hit US$60.04 earlier in the session, its lowest since March 29.
Brent crude futures were at US$69.78 per barrel, down US$1.07. Brent earlier hit its lowest since April 2 at US$68.79.
“Trump’s sudden hard line on China tariffs has spooked investors, who are scrambling to reduce their risk levels in the markets,” said Jasper Lawler, head of research at futures brokerage London Capital Group.
“The prospect of months of trade talks being derailed by Trump has raised concerns over future demand for oil,” he added.
In a sign of rising tensions in the Middle East, the United States is deploying a carrier strike group and a bomber task force to the region.
The deployment sends a clear message to Iran that any attack on U.S. interests or its allies will be met with “unrelenting force”, U.S. national security adviser John Bolton said on Sunday.
“News of rising tariffs on US$200-billion of Chinese goods at the end of this week has outweighed the announcement that the U.S. is to send a strike group to the Persian Gulf,” Vienna-based consultancy JBC Energy said.
Currencies and bonds
The Canadian dollar weakened to a 10-day low against its U.S. counterpart on Monday as investors worried about a potential escalation of the trade dispute between the United States and China that could hurt the global economy.
Canada runs a current account deficit and exports many commodities, including oil, so its economy could suffer if the global flow of capital or trade slows.
The Canadian dollar was trading 0.5 per cent lower at $1.3482 to the greenback, or 74.17 U.S. cents. The currency, which last week gained 0.3 per cent as U.S. data showed muted wage inflation, touched its weakest intraday level since April 26 at $1.3494.
“The loonie is starting the week under pressure as Trump’s tariff tweet drove a flight to safety,” said Benjamin Reitzes from BMO Economics.
Trump’s tariff comments meant the safe-haven yen climbed and the yuan slid on Monday.
Investors responded by bidding up the yen, which is considered a safe harbour in times of stress given Japan’s status as the world’s largest creditor and its huge hoard of assets abroad.
The dollar eased to 110.720 yen, having earlier touched a five-week trough at 110.335. It had ended Friday around 111.12.
The market was again thin as Japan remains on holiday, though China was back from its break.
The euro hit its lowest since January around 123.33 yen before steadying to 123.93. The single currency was calm against the dollar at $1.1190, while the dollar index was barely changed at 97.567.
The dollar climbed 0.8 per cent on the Chinese yuan to 6.7825.
“Investors will be hoping that this step by the president is more of a negotiating tactic than a statement of intent,” said Nick Twidale, chief operating officer at broker Rakuten.
“Any signs that a deal will be pushed further down the track or not progress at all could send markets into a tailspin.”
The 10-year Treasury yield slid to 2.482 per cent while the Canada 10-year bond yield was down slightly at 1.728 per cent.
More corporate news
Hedge fund Marcato Capital Management said on Monday it opposed marijuana company Acreage Holdings Inc’s US$3.4-billion sale to rival Canopy Growth Corp, arguing Acreage was too hasty in agreeing to a deal at too low a price. Marcato, which owns 2.7 percent of Acreage, wrote to the company’s board of directors to argue that the proposed takeover, which was agreed to last month and will be voted on by shareholders next month, is “lopsided in Canopy’s favour.”
Boeing Co. did not tell U.S. regulators for more than a year that it inadvertently made an alarm alerting pilots to a mismatch of flight data optional on the 737 MAX, instead of standard as on earlier 737s, but insisted on Sunday the missing display represented no safety risk.
Tyson Foods Inc on Monday reported quarterly profit that beat Wall Street estimates, boosted by higher sales of its beef and prepared foods segment, which includes Hillshire Farm meat products. Excluding items, the company earned $1.20 per share, beating the average analysts’ estimate of $1.14 per share. Its shares were down 1.5 per cent in premarket trading.
Occidental Petroleum Corp. increased the cash component of its US$38-billion bid to acquire Anadarko Petroleum Corp. on Sunday, removing a requirement for any deal to receive the approval of Occidental’s shareholders. The move means Occidental shareholders who oppose the bid, including T Rowe Price, will not get an opportunity to vote it down. It adds more certainty to the offer for Anadarko, but also risks the ire of billionaire investor Carl Icahn, who sources have said has been amassing a stake in Occidental to challenge its Anadarko offer. Occidental’s shares were down 1.6 per cent in premarket trading and Anadarko’s shares were up 2.7 per cent.
Earnings include: Advantage Oil & Gas Ltd.; Air Canada; Alaris Royalty Corp.; Bausch Health Companies Inc.; Brookfield Property Partners LP; Brookfield Real Estate Services Inc.; CT Real Estate Investment Trust; Cargojet Inc.; Clearwater Seafoods Inc.; Cominar REIT; Ensign Energy Services Inc.; GDI Integrated; Gibson Energy Inc.; Great Canadian Gaming Corp.; High Arctic Energy Services Inc.; Hudbay Minerals Inc.; IAMGold Corp.; Ivanhoe Mines Ltd.; Knight Therapeutics Inc.; Mosaic Co.; Pengrowth Energy Corp.; Photon Control Inc.; ShawCor Inc.; Slate Office REIT; Sleep Country Canada Holdings Inc.; Surge Energy Inc.; Sysco Corp.; The Keg Royalties Income Fund; Timbercreek Financial Corp.; Viemed Healthcare Inc.; Wajax Corp.
Economic News
(1:45 p.m. ET) Bank of Canada governor Stephen Poloz speaks to the Canadian Credit Union Association and Winnipeg Chamber of Commerce
With files from Reuters