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Equities
Canada’s main stock index dipped at open on Tuesday, as losses in shares of Bank of Nova Scotia dragged down financials.
At 9:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX Composite index was down 19.73 points, or 0.12 per cent, at 16,326.93.
Financial stocks were the biggest decliners, down 0.6 per cent after Scotiabank reported higher second-quarter profit but its adjusted earnings per share declined to $1.70 from $1.71. The earnings fell short of the $1.74 expected by analysts, according to Thomson Reuters Eikon. Scotiabank shares fell 1.9 per cent.
Other banks were also down with Royal Bank and Bank of Montreal off 0.5 per cent, National Bank down 0.3 per cent and Toronto-Dominion Bank off 0.2 per cent.
Energy stocks were off 0.45 per cent even as oil prices edged higher. Enerflex was down 4.1 per cent after it said Monday its chief financial officer would resign as of June 7. Crescent Point was down 1.5 per cent and Cenovus was off 0.7 per cent.
U.S. stocks rose slightly at open on Tuesday, led by technology stocks, but gains were muted amid signs that United States and China were far from reaching a trade deal.
The Dow Jones Industrial Average rose 30.86 points, or 0.12 per cent, at the open to 25,616.55. The S&P 500 opened higher by 3.97 points, or 0.14 per cent, at 2,830.03. The Nasdaq Composite gained 18.65 points, or 0.24 per cent, to 7,655.66 at the opening bell.
U.S. President Donald Trump on Monday said he was “not yet ready” to make a deal with China but he expected one in the future. The back-and-forth between the two sides has sparked worries that the protracted trade war would lead to a global economic slowdown.
“The market is basically in a limbo. There happens to be a wall of worries that continues to grow,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
“It’s essentially the same worries that have been in the markets for a while now. People realize that this is not an easy trade war to win and there could be some real negative consequences from this.”
The uncertainty in markets has sent investors seeking for safe-haven assets, with yields on the U.S. 10-year notes hitting its lowest level since October 2017.
Investors are also concerned that China might opt to weaponize its holdings of more than US$1.1-trillion worth of U.S. Treasuries to retaliate against the tariffs imposed on Chinese imports.
The benchmark S&P 500 index as of Friday’s close was about 4 per cent off its record high hit on May 1, while the blue-chip Dow Jones Industrial index posted its fifth straight week of decline.
Among other stocks, Activision Blizzard Inc rose 5 per cent after Goldman Sachs upgraded its stock to “buy” and said the videogame publisher would benefit from its recent game releases.
FedEx Corp fell 0.8 per cent after Chinese telecoms equipment maker Huawei Technologies Co Ltd said it was reviewing its relationship with the U.S. package delivery company, after it diverted two parcels destined for Huawei addresses in Asia to the United States.
Global Payments Inc dropped 1.4 per cent after the payment technology company said it would buy peer Total System Services Inc for about US$21.5-billion in stock. Total System’s shares rose 6.3 per cent.
A report from the U.S. Conference Board due at 10 a.m. ET is expected to show the consumer confidence index rising to a reading of 130 in May from 129.2 in April.
Overseas, European stocks, bond yields and the euro fell on Tuesday as concern about Italy’s budget overshadowed talks of a Fiat-Chrysler and Renault merger and the muted showing of nationalists in European Union parliamentary elections.
Britain’s FTSE was up 0.1 per cent while Germany’s DAX fell 0.16 per cent and France’s CAC was off 0.06 per cent.
Markets had been cheered by limited gains for nationalists in the EU elections, though wins for euroskeptic parties in Italy, France, Poland and would-be ex-member Britain, as well as snap elections in Greece and political turmoil in Austria, curbed risk appetite.
However, Italy’s dispute with the European Commission emerged to dominate European trading as markets opened. The Commission could fine Italy 3 billion euros for accumulating debt and deficits that break EU rules, Italian Deputy Prime Minister Matteo Salvini said on Tuesday.
“It reopens the whole agenda of whether Salvini wants to be part of the euro or not,” said Colin Harte, a portfolio manager and strategist at BNP Paribas Asset Management.
“The danger is that the [dispute between Salvini and the EU] turns out to be more aggressive on both sides, then you will see people switch out of positions,” Harte said.
Asian shares rose, lifted by advances in China and gains by auto firms after Fiat Chrysler made a “transformative merger” proposal to French peer Renault on Monday.
Auto stocks rose globally rose after Fiat Chrysler confirmed it had made proposed a merger with Renault, a deal that would create the world’s third-biggest car maker. The rally spilled into Asia with Mitsubishi Motors Corp. in Japan adding 5.95 per cent and Nissan Motor Co. gaining 2.31 per cent.
A planned increase in the weighting of Chinese A-shares in MSCI indexes after the market closes on Tuesday also boosted shares.
Japan’s Nikkei rose 0.37 per cent, China’s Shanghai index gained 0.61 per cent and Hong Kong’s Hang Seng added 0.38 per cent.
Commodities
Oil prices rose on Tuesday, supported by tighter global supplies that have helped to offset persistent worries that demand will be hurt by the continuing U.S.-Chinese trade conflict.
Brent crude rose by 23 cents, or 0.3 per cent, to US$70.34 a barrel. U.S. West Texas Intermediate (WTI) was up 52 cents, or 0.9 per cent, at US$59.15.
U.S. crude futures were trading for the first time since Friday after a long holiday weekend.
Investors, however, remain concerned that the trade war between the United States and China could hit the global economy and dent fuel consumption.
Brent futures last week registered a decline of 4.5 per cent and WTI slid by 6.4 per cent for its biggest weekly loss since December.
“Oil prices lack direction because the oil market currently finds itself caught between supply risks and concerns about demand,” Commerzbank said in a note.
“A whole host of poor economic data from the major economic areas of the U.S., China and Europe, plus the entrenched situation in the trade talks, are not good news for the demand outlook.”
Gold edged away from the previous session’s one-week peak on Tuesday as the dollar regained momentum as the preferred safe-haven from uncertainty over U.S.-China trade tensions, while weakness in equity markets limited losses for the metal.
Spot gold was down 0.1 per cent at US$1,283.52 per ounce, having touched its highest since May 17 at US$1,287.32 in the previous session.
U.S. gold futures were also down 0.1 per cent at US$1,282.90 an ounce.
“The gold market is clearly lacking direction at the moment. There is uncertainty in financial markets, which is positive for gold. At the same time, the gold market continues to face headwinds from a stronger U.S. dollar,” Julius Baer analyst Carsten Menke said.
“Despite these trade tensions, gold is not attracting any safe-haven flows at the moment.”
Among other precious metals, silver slipped 0.7 per cent to US$14.49 per ounce, while platinum edged 0.4 per cent higher to US$808.98. Palladium was steady at US$1,335.85 per ounce, after hitting its highest since May 15 at US$1,346.
Currencies and bonds
The Canadian dollar weakened against its U.S. counterpart on Tuesday as the greenback broadly climbed, but the loonie stayed within its recent range ahead of a Bank of Canada interest rate decision on Wednesday.
The U.S. dollar rose against a basket of major currencies as trade tensions encouraged investors to buy safe-haven currencies and as political risks in Europe weighed on the euro.
Canada runs a current account deficit and exports many commodities, including oil, so its economy could be hurt by a slowdown in the global flow of trade.
At 8:43 a.m., the Canadian dollar was trading 0.2 per cent lower at $1.3467 to the greenback, or 74.26 cents US. The currency, which has spent much of the last month between $1.34 and $1.35, traded in a range of $1.3434 to $1.3479.
The Bank of Canada is widely expected to leave its benchmark interest rate unchanged on Wednesday at 1.75 per cent as it weighs developments in household spending, oil markets and global trade policy.
Canada took a first step toward ratifying the new North American trade agreement three days ahead of U.S. Vice President Mike Pence’s trip to Ottawa to discuss passage of the treaty. Canada sends about 75 per cent of its exports to the United States, including oil.
The U.S. dollar rose 0.2 per cent against a basket of leading currencies, its index touching 97.787, after touching its lowest since May 16 at 97.546 on Friday, emerging as the preferred hedge from the trade tensions, repeating a trend seen last year. It remains off a two-year high of 98.371 hit on Thursday.
The euro dipped on Tuesday as investors nervous about trade tensions bought into the safe-haven dollar and fretted that political risks in Europe remain high, even though pro-Europe parties won a majority of European parliamentary seats.
The euro slipped 0.1 per cent to US$1.1179, but remains above two-year lows of US$1.1105 hit last week.
U.S. yields were also lower. Benchmark 10-year Treasury notes yielded 2.27 per cent, down five basis points and a 19-month low. Canada’s 10-year bond yield was down 1.19 per cent at 1.579 per cent.
Other corporate news
Husky Energy Inc. on Tuesday cut its five-year budget and raised its free cash flow target, at a time when investors have been calling on oil and gas companies to shore up capital for buybacks and dividends. Husky now expects to spend an average of $3.15-billion annually from 2019 to 2023, compared with its previous 2018 to 2022 average of $3.5-billion. Total free cash flow before dividends is expected to reach $8.7-billion at a flat US$60 crude price.
Bombardier Inc’s rail business was named the preferred bidder for a €3 billion (US$3.36-billion) monorail project in Egypt, which would be the unit’s biggest in recent years if confirmed. The design and build contract has potential value of €1.2 billion for Bombardier Transportation, while a 30-year operations and maintenance deal has a potential value of about €1.1 billion, the company said.
Bus manufacturer NFI Group Inc. has acquired Alexander Dennis Ltd., a British maker of busses, for 320 million pounds or roughly US$546-million. Winnipeg-based NFI called the deal is a transformational acquisition. The company formerly known as New Flyer Industries says the deal complements its product offerings, diversifies its business and creates a platform for international growth.
FedEx Corp fell 0.7 per cent after Chinese telecoms equipment maker Huawei Technologies Co Ltd said it is reviewing its relationship with the U.S. package delivery company, after it diverted two parcels destined for Huawei addresses in Asia to the United States.
Gilead Sciences dropped 1.7 per cent after Goldman Sachs downgraded its shares to “sell” from “neutral,” saying the drug maker has very limited mid-to-late stage pipelines.
Activision Blizzard Inc. rose 2.7 per cent after Goldman Sachs upgraded the video game publisher’s stock to “buy” and said the company would benefit from its recent game releases.
Media company Meredith Corp said it has agreed to sell Sports Illustrated to U.S-based entertainment company Authentic Brands Group LLC for US$110-million, as it looks to scale its digital media business.
Alibaba is considering raising as much as US$20-billion through a listing in Hong Kong, people familiar with the matter told Reuters, lining up a second blockbuster deal following its 2014 record US$25-billion float in New York.
J.P. Morgan initiated coverage of Beyond Meat, the maker of plant-based burgers, with an “overweight” rating and a US$97 price target saying it thinks the market will expand by 100 times over the next 15 years. Its stock rose 4 per cent in premarket trading.
Earnings include: Acreage Holdings Inc.; Bank of Nova Scotia; EnWave Corp.; Eve & Co.; Indigo Books & Music Inc.
Economic news
(9 a.m. ET) U.S. S&P Case-Shiller Home Price Index for March. The Street expects an increase of 0.2 per cent from February and 2.5 per cent year-over-year.
(9 a.m. ET) U.S. FHFA House Price Index for March. Consensus is a rise of 0.2 per cent from the previous month and 4.9 per cent year-over-year.
(10 a.m. ET) U.S. Conference Board Consumer Confidence Index for May. The Street is projecting a reading of 130.0, up from 129.2 in April.
With files from Reuters