Equities
Canada’s main stock index opened higher on Tuesday while Wall Street opened flat. Following a day that saw the S&P 500 hit a record high on positive U.S.-China trade news, the markets are back to brooding over the future of the global economy and grappling with threats of hefty U.S. tariffs on European goods.
At 9:54 a.m. ET, the Toronto Stock Exchange’s S&P/TSX Composite index was up 28.11 points, or 0.17 per cent, at 16,410.31. The financials sector edged up 0.8 per cent, with Manulife Financial Corp leading the charge with its 1.7 per cent rise. Six of the index’s 11 major sectors were higher. The energy sector dropped 0.7 per cent while the materials sector, which includes precious and base metals miners, reversed earlier gains and fell 1.8 per cent.
South of the border, the Dow Jones Industrial Average rose 2.10 points, or 0.01 per cent, to 26,719.53 at the open. The S&P 500 was up by 0.33 points, or 0.01 per cent, at 2,964.66 and the Nasdaq Composite dropped 4.51 points, or 0.06 per cent, to 8,086.65.
The U.S. is considering tariffs on an additional US$4-billion of goods from the European Union over what it considers to be illegal aircraft subsidies. Whether it does so depends on the results of a World Trade Organization assessment of EU subsidies on large civil aircraft, specifically to Airbus. The European plane maker’s stock fell almost 1 per cent in the latest salvo in the long-running dispute over the subsidies.
The U.S. Trade Representative’s Office disclosed yesterday that it could target a further 89 sub-categories following an earlier list in April. The new items include cheeses, olives and coffee. A U.S. tariff wish-list released in April reflected the Trump administration’s calculation of the harm the subsidies inflicted on the U.S., and specifically to Boeing.
These new trade worries come only days after major progress on the U.S.-China trade front. Following weeks of speculation over what President Donald Trump and President Xi Jinping’s meeting at the G20 summit in Japan would entail, the U.S. and China agreed over the weekend to restart trade talks in another attempt to strike a deal and end a bruising tariff war. However, analysts doubt the truce will lead to a sustained easing of tensions, and warn lingering uncertainty could dampen corporate spending and global growth. All this adds to broad and growing uncertainty over the future of the global economy.
In company news, Dollarama is acquiring a 50.1-per-cent stake in the Latin American value retailer Dollarcity, with he deal expected to close next month. The estimated purchase price to establish a second growth platform for the Montreal-based retailer is in the range of US$85-million to US$95-million. Dollarama stock was up around 4 per cent in early trading.
Tokyo’s NIKKEI was up over 0.1 per cent, with the Shanghai Composite Index was flat. Despite political worries in Hong Kong, where yesterday pro-democracy protesters occupied and vandalized the city’s legislature, the Hang Seng Index was up near a healthy 1.2 per cent to catch up to the strong gains across global markets yesterday.
In Europe, London’s FTSE was up near 0.6 per cent, with Frankfurt’s DAX down near 0.15 per cent and Paris’ CAC near flat.
Commodities
Oil prices slipped on Tuesday as concerns that the global economy could be slowing outweighed an agreement by the Organization of Petroleum Exporting Countries (OPEC) to extend supply cuts until next March.
The day range on Brent is US$64.60 to US$65.51 a barrel, with West Texas Intermediate holding a day range of US$58.55 to US$59.43.
OPEC and its allies led by Russia agreed to extend oil output cuts until March, 2020 today, seeking to prop up the price of crude as the global economy weakens and U.S. production soars. The alliance, known as OPEC+, has been reducing oil supply since 2017 to prevent prices from sliding amid increasing competition from the United States, which has overtaken Russia and Saudi Arabia to become the world’s top producer.
The approval of the pact extension follows a decision by OPEC producers the previous day.
“Oil traders will now turn their attention to the economic data, as the weakening global activity and waning demand could again weigh on the sentiment and call for a downside correction in oil prices following the June rebound,” Ipek Ozkardeskaya, a senior market analyst at London Capital Group, wrote in a note.
Gold prices rose after its biggest one-day percentage fall in 2.5 years the previous session. The yellow metal was boosted by risk appetite souring on worries over global growth and continued uncertainties over a U.S.-China trade deal.
Spot gold was up 0.57 per cent to US$1,392.03 per ounce, while U.S. gold futures were up 0.42 per cent to US$1,395.20
Currencies and bonds
The dollar is up slightly today against the greenback, with the loonie hovering above the 76-U.S.-cent mark with a day range of 76.11 U.S. cents to 76.28 U.S. cents.
The U.S. dollar and offshore Chinese yuan rallied yesterday on positive news that the two countries agreed to restart their troubled trade talks, while the Japanese yen and Swiss franc were the big casualties as investors sold safe-haven currencies.
Despite the gloom over tariffs lobbed by Trump, the euro was up slightly against the U.S. dollar to near US$1.13.
Sterling is suffering today, with the pound down over 0.1 per cent against the U.S. dollar following rock-bottom economic news. The construction Purchasing Managers’ Index (PMI) plunged to 43.1, the lowest reading since April 2009 when the country was gripped by the global financial crisis and way below any forecast. The yield on 10-year British government bonds sank to its lowest level in nearly three years as investors reacted to the scale of the fall. This is set to the backdrop of continuing uncertainties over the country’s future relationship with the European Union as the race for the leader of the Conservative Party, who will be the U.K.'s next prime minister, continues between Jeremy Hunt and Boris Johnson.
“It would appear that the recent stalling of house prices is seeing a slowdown in this particular sector. New orders also fell sharply as the Brexit limbo puts companies off any imminent plans to make long term investments," Michael Hewson, chief market analyst at CMC Markets UK, wrote in a note. "It also calls into question the Bank of England thinking that a rate rise is more likely than a rate cut.”
The Reserve Bank of Australia made the second rate cut in succession, bringing rates to a record low 1 per cent. The Australian dollar was up a strong 0.4 per cent against the U.S. dollar. “This was the second rate cut in succession by the Australian central bank and feeds into a global narrative of central banks looking set to embark on a new easing cycle, over concerns that the global economy is on the cusp of a sharp slowdown,” Mr. Hewson wrote.
The yield on the benchmark ten-year U.S. Treasury was down slightly to just above 2.01 per cent.
More company news:
Brewing giant Anheuser-Busch InBev NV (AB InBev) is seeking to raise up to $9.8-billion by listing its Asia-Pacific business in Hong Kong, marking what would be the world’s largest initial public offering this year. Budweiser Brewing Company APAC, whose portfolio of more than 50 beer brands includes Stella Artois and Corona, is selling 1.6 billion primary shares at between HK$40-$47 (£4-£5) apiece, according to term sheets seen by Reuters.
Genworth Financial Inc. is considering spinning out its large Canadian subsidiary after Ottawa raised national-security concerns about a sale of the entire company to a Chinese conglomerate. On Monday, Richmond, Va.-based mortgage insurer Genworth and its privately held suitor, China Oceanwide Holdings Group Co. Ltd., announced they have “decided to consider strategic alternatives” for Genworth MI Canada Inc. The Canadian division was partly spun out in an initial public offering in 2009, but remains controlled by the U.S. company. Genworth MI Canada is currently the country’s second-largest mortgage insurer behind the federal government’s Canada Mortgage and Housing Corp. Read the story by Tim Kiladze.
Railroad operator Genesee & Wyoming is being taken private by Brookfield Infrastructure and GIC in a deal valued at about $6.37-billion. Genesee & Wyoming Inc. owns 120 short line railroads, mostly in North America, with operations in Europe and Australia. Through its subsidiaries worldwide, it provides transportation infrastructure services over more than 26,000 kilometres of track. G&W shareholders will receive $112 in cash for each share held. The companies put the deal’s value at $8.4-billion, including debt.
Galapagos shares jumped 6 per cent after the drug maker announced it would submit its drug filgotinib as a treatment for rheumatoid arthritis to the FDA this year.
Jupiter Fund Management dropped 6.4 per cent after the company said it is considering naming Devon Equity as an adviser for its European Opportunities Trust.
With files from Reuters and the Associated Press.
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