U.S. and Canadian markets are poised to decline at the open after Asian stocks slid to a 17-month low, bond markets were hit by a fresh bout of selling and the International Monetary Fund downgraded its global growth forecast on Monday for the first time since 2016.
The 10-year Treasury yield also rose to hit its highest level since 2011, the 30-year rose to its highest level since 2014 and rising interest rates dampened investor sentiment.
On Monday, the tech-heavy Nasdaq had fallen for the third straight day and growth stocks were pressured by worries rising bond yields might ultimately hobble the economy. Canadian markets were closed for the Thanksgiving holiday.
The International Monetary Fund on Tuesday cut its global economic growth forecasts for 2018 and 2019, saying that the U.S-China trade war was taking a toll and emerging markets were struggling with tighter liquidity and capital outflows.
The new forecasts, released on the Indonesian resort island of Bali where the IMF and World Bank annual meetings are getting underway, show that a burst of strong growth, fuelled partly by U.S. tax cuts and rising demand for imports, was starting to wane.
The IMF said in an update to its World Economic Outlook it was now predicting 3.7 per cent global growth in both 2018 and 2019, down from its July forecast of 3.9 per cent growth for both years.
Overseas, Europe battled to fend off a four-day losing streak for world stocks. Britain’s FTSE was down 0.32 per cent, Germany’s DAX was off 0.45 per cent and France’s CAC was off 0.24 per cent.
Strength in oil stocks on higher crude prices and a rise in banking stocks on increased global borrowing had initially lifted Europe’s STOXX 600 index, but it was back near a six-month low as the early momentum faded.
Asian shares had fallen to their lows after China briefly allowed its currency to slip past a psychological bulwark.
“It all feels like it’s quite nervous here over whether things going to break (out of ranges) or not,” said Saxo Bank’s head of FX Strategy John Hardy.
He pointed to the rising U.S. and Japanese government bond yields which tend to set the bar for borrowing costs globally as well as the latest pressure on China’s yuan.
Japan’s Nikkei was down 1.32 per cent, China’s Shanghai index was down 0.17 per cent and Hong Kong’s Hang Seng fell 0.11 per cent.
Commodities
Oil prices rose on Tuesday on growing evidence of falling crude exports from Iran, OPEC’s third-largest producer, before the imposition of new U.S. sanctions and a partial shutdown in the Gulf of Mexico due to Hurricane Michael.
Benchmark Brent crude jumped US$1.13 a barrel to a high of US$85.04 before easing back to trade at US$84.71, up 80 cents. Brent hit a four-year high of US$86.74 last week but slipped as low as US$82.66 on Monday. U.S. light crude was up 50 cents at US$74.79.
“The oil market mood is exceptionally bullish, with fears growing that the U.S. demands for an Iran oil embargo could cause a significant supply shortfall,” said Julius Baer commodities research analyst Carsten Menke.
Iran’s crude exports fell further in the first week of October, according to tanker data and an industry source, as buyers sought alternatives ahead of U.S. sanctions that take effect on Nov. 4.
In Canada, an explosion and fire at the Irving Oil Refinery sent black smoke high into the air on Monday in New Brunswick. Five people were injured at the facility, which had been shut down at the time for maintenance. It is Canada’s largest refinery, producing more than 320,000 barrels of “finished energy products” a day.
Gold prices eased for a second session on Tuesday as a stronger dollar and bullish U.S. interest rate outlook outweighed support from an earlier equity market selloff.
Spot gold was down 0.1 per cent at US$1,186.51 per ounce. On Monday, it fell 1.2 per cent in its biggest one-day percentage fall since Aug. 15, also touching a more than one-week low of US$1,183.19. U.S. gold futures edged 0.1 per cent higher to US$1,190.20.
“Some of the main themes in gold markets are the U.S. Federal Reserve rate hike, higher yields and dollar strength,” said Jens Pedersen, senior analyst at Danske Bank. “At the same time, fragile emerging markets and higher oil prices will mitigate those headwinds.”
Gold has held in a US$34 range for the last 1-1/2 months, which some analysts say suggests resilience, supported by concerns over economic growth in emerging markets and inflationary pressures from rising U.S. Treasury yields and soaring oil prices.
Traders said Monday’s drop in prices triggered some physical demand for gold in China, the world’s biggest consumer.
Currencies and bonds
The Canadian dollar slide below the 77 US cent mark even as oil prices edged higher.
The U.S. dollar strengthened across the board helped by U.S. Treasury yields resuming their steep climb to seven-year highs. Only Japan’s yen outperformed the dollar among the major currencies.
Against a basket of its rivals, the greenback rose 0.3 per cent to 96.081, not far off a seven-week top of 96.127 hit last week.
The euro fell to a seven-week low on Tuesday as the dollar rose broadly and concerns persisted about a row in the European Union over Italy’s budget.
Yields on 10-year Treasury paper notched a new seven-year top on Tuesday at 3.252 per cent. The 30-year note also reached its highest level since 2014.
Treasuries have had a sort of safety net up to now as rising yields tend to dampen stocks and threaten the economic outlook, thus putting pressure on the Federal Reserve to go slow on policy tightening.
Yet recently the Fed has sounded so bullish on the economy and so hawkish on rates that the net has become frayed.
“The size and speed of the bearish bond impulse would suggest a collective shift in market thinking about the US growth prospects and policy projections,” said Damien McColough, Westpac’s head of rates strategy.
“The Fed’s expected 2019 profile has moved from just below 2 hikes to 2.5 hikes being factored-in.”
That shift has underpinned the dollar against a basket of currencies where it stood up 0.15 percent at 95.88, from a low of 93.814 a couple of weeks ago.
The dollar had less luck on the safe-haven yen, pulling back to 113.16 from a 114.54 peak last week.
Stocks to watch
Canada’s second-largest pension fund Caisse de dépôt et placement du Québec (CDPQ) and Generation Investment Management LLP said on Tuesday they were buying a majority stake in UK-based fintech firm FNZ in a deal valuing FNZ at 1.6 billion pounds (US$2.09-billion).
Canada’s largest cryptocurrency exchange is blaming a legal action by a major bank for delays some customers are experiencing while cashing out funds. QuadrigaCX, which is based in Vancouver, says in court documents that it has been unable to access $28-million of its funds since January, when Canadian Imperial Bank of Commerce froze several accounts belonging to Quadriga’s payment processor, Costodian Inc., and its owner, Jose Reyes. CIBC declined to comment on the case, which is before the courts. In a factum filed with the Ontario Superior Court of Justice, the bank says it froze the accounts after it was unable to determine who owns the funds. As a result, CIBC is asking that the court take possession of the disputed funds and decide whether they belong to Quadriga, Costodian or the 388 people who deposited money into the accounts to buy cryptocurrencies.
Google is expected to introduce two new smartphones Tuesday, part of its continuing push to embed its digital services and Android software more deeply into peoples’ lives. The new Pixel-branded phones will anchor a product event Tuesday in New York.
Google also said on Monday that it would shut down Google Plus, the company’s long-struggling answer to Facebook’s giant social network, after it discovered a security vulnerability that exposed the private data of up to 500,000 users. Google did not tell its users about the security issue when it was found in March because it did not appear that anyone had gained access to user information, and the company’s “Privacy & Data Protection Office” decided it was not legally required to report it, the search giant said in a blog post.
Marijuana company Aurora Cannabis Inc. has applied to list its shares on the New York Stock Exchange. The shares are expected to trade in New York under the ticker symbol ACB, the same as its listing on the Toronto Stock Exchange.
U.S. homebuilder D.R. Horton Inc. on Tuesday forecast fiscal 2018 home sales and orders below Wall Street estimates, as mortgage rates tick up and higher construction costs are limiting supply of homes. D.R. Horton said it would sell 51,857 homes in fiscal 2018, an increase of 13 percent from a year earlier, but still fell short of average analysts’ estimate of 52,325 homes, according to Refinitiv data. Orders, a key indicator of future revenue for homebuilders, are expected to rise 13 percent to 52,740 homes, the company said. Analysts had expected orders of 52,878 homes. D.R. Horton’s shares fell 1.8 per cent to US$39.90 in premarket trading.
Johnson & Johnson said on Tuesday its blockbuster drug Stelara was found to be effective in treating a chronic bowel disease in a late-stage trial.
Perrigo fell 2.6 per cent after the drugmaker replaced Chief Executive Officer Uwe Roehrhoff, who took the helm less than a year ago, with the former head of Lorillard Tobacco, Murray Kessler.
Kroger fell 2.2 per cent after Deutsche Bank said the grocer would face higher costs in its e-commerce expansion and space optimization strategy.
Papa John’s rose 8.9 per cent after the Wall Street Journal reported Nelson Peltz’ Trian Fund Management was evaluating a takeover bid for the pizza chain.
Earnings include: Yum! Brands Inc.
In other reading: Tuesday’s small-cap stocks to watch
Economic news
(8:15 a.m. ET) Canadian housing starts for September. The Street expects an annualized rate increase of 3.0 per cent.