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Equities
Canada’s main stock index opened higher on Tuesday, as precious metal miners were lifted by gold prices nearing 14-month highs ahead of the Federal Reserve’s two-day monetary policy meeting.
At 9:50 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 126.67 points, or 0.77 per cent, at 16,480.12.
Materials stocks rose 1 per cent as gold prices rose. Teck Resources was up 4.2 per cent, Lundin Mining gained 3.5 per cent and First Quantum Minerals was up 3.6 per cent.
Energy stocks rose 1.3 per cent as oil prices rebounded, gaining US$1 to US$53.09 a barrel after falling earlier. Baytex Energy and Crescent Point Energy both rose 3.5 per cent, and Encana gained 3.4 per cent.
Energy investors will be watching the federal government as it announces after the close of markets its decision on whether it will go ahead with the Trans Mountain pipeline expansion.
The industry is anticipating approval for the $7.4-billion project, which could mark an important step in alleviating the oil sands’ perennial transportation problem and could help renew interest in a sector investors have all but abandoned.
Health Care stocks rose 1.2 per cent. Bausch rose 2.8 per cent, Hexo gained 1.5 per cent and Extendicare rose 1.3 per cent.
U.S. stocks opened at their highest level in six-weeks on Tuesday, with Nasdaq leading the charge, as dovish calls from the European Central Bank raised expectations of a similar accommodative stance from the Federal Reserve.
Markets added to their gains after the open after U.S. President Donald Trump said he’ll meet with his Chinese counterpart, Xi Jinping at the upcoming G20 summit.
The Dow Jones Industrial Average rose 337.34 points, or 1.49 per cent, shortly after the open to 26,449.87. The S&P 500 was higher by 33.85 points, or 1.17 per cent, at 2,923.52. The Nasdaq Composite gained 127.75 points, or 1.63 per cent, to 7,972.77.
The news about a meeting with China buoyed stocks with the hopes that a high-level meeting could calm U.S.-China trade tensions and lead to a deal.
The U.S. central bank is expected to leave interest rates unchanged at its two-day policy meeting starting Tuesday, but is widely seen as laying the foundation for a cut later this year.
The Fed’s statement at 2 p.m. EDT on Wednesday will likely provide insights into the impact of the U.S.-China trade war, President Trump’s calls for a rate cut and weaker economic data on monetary policy.
“A rate cut this week is off the table. But all eyes and ears will be tuned into what the Fed Chairman says about the outlook and how he hints about what is next,” said Steven Skancke, chief economic adviser at wealth management and investment advisory firm Keel Point in Washington.
“The big belief is for a rate cut in September but everyone is looking for a hint that it might come at the next meeting at the end of July.”
Sentiment was buoyed by ECB President Mario Draghi’s comments indicating a possibility of new rate cuts or asset purchases.
Large-cap volatile favourites such as Facebook Inc, Apple Inc, Amazon.com Inc, Microsoft Corp and Netflix Inc were on pace to extend Monday’s gains.
Facebook climbed 1.3 per cent after it revealed plans to launch a cryptocurrency called Libra, the latest development in its effort to expand beyond social networking and move into e-commerce and global payments.
Boeing Co rose 1 per cent after the planemaker bagged its first orders for its 787 Dreamliner passenger jets, shrugging off a slow start at the Paris Airshow.
General Electric Co. rose 3.4 per cent as the industrial conglomerate’s joint venture CFM International received an order for jet engines worth US$2-billion at list prices, a day after Indian airline IndiGo placed a US$20-billion order for CFM’s engines.
Global stocks rose Tuesday after European Central Bank President Mario Draghi said the ECB will need to ease policy again, if inflation doesn’t head back to its targets, and that there was still “considerable headroom” to do it.
“In just a few months, the market has turned from being guided by the Fed to actively guiding the Fed,” wrote interest rate strategists at Bank of America Merrill Lynch.
The Fed meeting will also provide the most direct insight yet into how deeply policymakers have been influenced by the U.S.-China trade war.
The impact of U.S. restrictions on exports to China is already reflecting in Europe with German silicon wafer maker Siltronic warning that the spat would hit its sales and profitability.
The warning knocked European technology stocks, but a sharp reversal in the euro and rate cut signals drove the pan-European STOXX index 1.5 per cent higher.
Overseas, Britain’s FTSE rose 1.4 per cent, Germany’s DAX was up 1.9 per cent and France’s CAC gained 2.1 per cent.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.6 per cent, while Japan’s Nikkei dipped 0.7 per cent. China’s Shanghai index was up 0.09 per cent and Hong Kong’s Hang Seng rose 1 per cent. MSCI’s gauge of stocks across the globe rose 0.17 per cent, boosted by Europe.
Commodities
Oil prices reverse course as trading progressed Tuesday after U.S. President Donald Trump said he would meet with China’s Xi Jinping at the upcoming G20 summit.
U.S. crude futures rose by more than US$1 to a session high of US$53.09 a barrel.
Earlier, oil fell for a second day on signs that global economic growth is being hit by the U.S.-China trade war, though losses were capped by Middle East tensions after last week’s tanker attacks.
Earlier, Brent crude futures were trading 42 cents down at US$60.52 a barrel. U.S. West Texas Intermediate crude futures lost 26 cents to US$51.67.
Oil prices have fallen by about 20 per cent from April’s 2019 highs, partly because of concerns over the U.S.-China trade war and disappointing economic data.
Gold prices rose on Tuesday, having eased in the two previous sessions, supported by expectations of dovish statements from the U.S. Federal Reserve, which begins its two-day monetary policy meeting later in the day.
Spot gold was up 0.5 per cent at US$1,345.74 per ounce. U.S. gold futures rose 0.4 per cent to US$1,348.1 an ounce.
“There is some positioning ahead of the FOMC (Federal Open Market Committee) meeting ... Everyone is waiting to see how dovish Fed’s going to be and if there is any sort of signaling of cuts on the way to the interest rates,” ING analyst Warren Patterson said.
The U.S. central bank is expected to leave borrowing costs unchanged this time but possibly lay the groundwork for a rate cut later this year.
Expectations of an interest cut have been gradually increasing amid the drawn out U.S.-China trade war, signs of the U.S. economy losing steam and pressure by President Donald Trump to ease policy.
These factors have boosted bullion’s appeal, with the metal gaining more than 6 per cent since touching a 2019 low of US$1,265.85 in early May.
“Gold is testing again the key resistance placed at US$1,350-$1,360,” ActivTrades analyst Carlo Alberto De Casa said in a note.
“The recovery seen after the fall to US$1,330/$1,335 of yesterday is witnessing the strength of the bullish movement, as investors continue to bet on a dovish Federal Reserve in the next few months.”
Among other precious metals, silver was up 0.4 per cent at US$14.89 per ounce. Palladium climbed about 2 per cent to US$1,478.30 per ounce, having hit a high since March 27 at US$1,485.55 earlier in the session.
Platinum rose 0.9 per cent to US$799.23 an ounce after falling to its lowest since May 31 at US$786 earlier in the session.
Currencies and bonds
The Canadian dollar was little changed on Tuesday, paring earlier losses after slipping to a two-week low against the greenback, as a rally in oil prices offset domestic data showing an unexpected drop in April manufacturing sales.
Canadian factory sales fell by 0.6 per cent in April from March as motor vehicle sales were held back by temporary assembly plant shutdowns, Statistics Canada said. Analysts had forecast a 0.4 per cent increase.
The price of oil, one of Canada’s major exports, rose as Middle East tensions offset signs that global economic growth is being hurt by the trade dispute between the United States and China. U.S. crude oil futures were up 1.8 per cent at $52.85 a barrel.
Canada and China have also had trade frictions, including the blocking by China of Canadian canola seed imports. On Tuesday, China’s customs agency said it would block pork imports from a Canadian company after a batch of the firm’s pork was found to contain the banned feed additive ractopamine.
At 9:40 a.m., the Canadian dollar was trading nearly unchanged at $1.3406 to the greenback, or 74.59 U.S. cents.
The currency traded in a narrow range of $1.3402 to 1.3433. Still, $1.3433 was its weakest intraday level since June 4.
Canadian government bond prices were higher across the yield curve, with the two-year up 4 Canadian cents to yield 1.379 per cent and the 10-year rising 43 Canadian cents to yield 1.409 per cent.
The 10-year yield hit its lowest intraday since June 2017 at 1.383 per cent, while the gap between the 2- and 10-year yields narrowed by 2.3 basis points to a spread of 3 basis points.
The dollar weakened against its rivals on Tuesday, heading back towards a recent three-month low before a U.S. central bank meeting gets underway with expectations growing the Fed will signal its first rate cut in a decade.
Against a basket of its rivals, the dollar edged 0.1 per cent lower at 97.437 and not far away from a three-month low of 96.46 hit earlier this month.
A CME Fedwatch tool puts the probability of a quarter-point interest rate cut by the Fed at 20 per cent, with a 70 per cent probability of a rate cut at its next meeting in July.
But with so much dovishness already priced into the markets and the dollar having weakened 1 per cent over the past three weeks, some market analysts say the greenback may strengthen if the Fed signals a more neutral stance.
“The majority view among the Fed comments does not suggest any particular appetite for an immediate rate cut, say in June or July,” HSBC strategists said in a note. “The balance of risks favours being long the dollar, not least because positioning is likely a little lighter after the recent sell-off.”
The U.S. 10-year Treasury was down slightly to yield 2.063 per cent.
Other corporate news
China’s Alibaba Group Holding Ltd. on Tuesday unveiled its most significant business reshuffle since co-founder Jack Ma announced his pending retirement, as the e-commerce firm looks to bolster its investment focus in the face of slowing growth. Chief Financial Officer Maggie Wu will oversee Alibaba’s strategic investments unit, taking over that responsibility from Executive Vice-Chairman Joe Tsai who will support Wu in her expanded role, the firm said on its official WeChat account. Its stock was up 1.8 per cent in premarket trading.
Activist investor Land & Buildings Investment Management LLC said on Tuesday that a $1.74-billion go-private proposal for Hudson’s Bay Co from the company’s chairman and other shareholders was “woefully inadequate.”
Airbus and Boeing bagged a combined US$15-billion of plane deals on day two of the Paris Airshow, as their sales teams scrapped for orders after a downturn in business at many airlines and the grounding of Boeing’s top-selling jet. Boeing’s shares were up 1.1 per cent in premarket trading.
China will block pork imports from Frigo Royal after a batch of the Canadian firm’s pork was found to contain the banned feed additive ractopamine, the customs agency said in a statement on its Wechat account.
A $1.25-billion Canadian program to help young people buy their first homes in a hot housing market will start up on Sept. 2, most likely just before an election is called, officials indicated late Monday.
Amazon Canada says it, Toronto-Dominion Bank and Mastercard have launched an amazon.ca rewards Mastercard.
MoneyGram shares have more than doubled in premarket trading after it announced a partnership with the cryptocurrency company Ripple. The companies said late Monday that the two-year deal will allow MoneyGram to use Ripple’s blockchain service for cheaper cross-border payments. San Francisco-based Ripple invested US$30-million in MoneyGram as part of the deal, with an option to purchase up to US$20-million more worth of shares at US$4.10 per share. Shares in the Dallas-based MoneyGram rose 134 per cent.
Beyond Meat’s shares continue to rise and are up nearly 17 per cent in premarket trading to US$198.79, far higher than its IPO price of US$25.
Earnings include: Adobe Systems Inc.
Economic news
Statistics Canada says manufacturing sales fell 0.6 per cent to $57.8-billion in April as sales in the in the transportation equipment and primary metal industries declined.
The drop followed a 2.6 per cent increase in March.
Economists had expected an increase of 0.4 per cent for April, according to Thomson Reuters Eikon.
Sales were down in eight of 21 industries, representing 36.1 per cent of total Canadian manufacturing.
Excluding transportation equipment, which fell 6.7 per cent, overall manufacturing sales rose 0.8 per cent.
In volume terms, manufacturing sales were down 0.8 per cent.
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U.S. homebuilding unexpectedly fell in May, but data for the prior two months was revised higher and building permits increased, suggesting that the housing market was drawing some support from a sharp decline in mortgage rates.
Housing starts dropped 0.9 per cent to a seasonally adjusted annual rate of 1.269 million units last month amid a drop in the construction of single-family housing units, the Commerce Department said on Tuesday.
Data for April was revised up to show homebuilding rising to a pace of 1.281 million units, instead of increasing to a rate of 1.235 million units as previously reported. Housing starts in March were also stronger than initially estimated.
Economists polled by Reuters had forecast housing starts edging up to a pace of 1.239 million units in May. Single-family housing starts fell in the Northeast, the Midwest and West, but rose in the South, where the bulk of homebuilding occurs.
Also: U.S. Fed meeting begins
With files from Reuters