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Equities
Canada’s main stock index opened lower on Monday, dragged down by a slump in shares of pot producer CannTrust Holdings and as worries that a prolonged U.S.-China trade dispute will lead the global economy into recession kept investors on edge.
At 9:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 35.54 points, or 0.22 per cent, at 16,305.8.
Health care stocks were the biggest decliner, down 1.85 per cent.
CannTrust Holdings fell 24 per cent after the Canadian health regulator rated its Vaughan, Ont. facility non-compliant with some rules, the cannabis company said on Monday, just over a month after Health Canada found unlicensed pot cultivation at the firm. CannTrust said it was notified on Friday, and has accepted the Canadian health regulator’s findings. It also said remedial actions are underway.
Cronos Group was down 3.4 per cent and Aurora Cannabis was down 2 per cent.
Financials fell 0.6 per cent and Energy stocks were down 0.7 per cent.
In other corporate news, a company controlled by B.C. billionaire Jim Pattison plans to take forestry firm Canfor Corp. private with a $981.7-million cash offer that comes during an industry slump. Great Pacific Capital Corp. is offering $16 a share for Vancouver-based Canfor’s stock that it doesn’t already own, or 82 per cent higher than the close of $8.80 on Friday. The stock jumped 71 per cent Monday. This could boost other forestry stocks also.
Air Canada will spend more to buy Transat A.T. Inc., the airline announced Sunday, saying it has upped the total offer by $200-million to win the support of the tour company’s largest shareholder. The new bid sees Air Canada spending $18 per share, rather than $13. That brings the total offer to roughly $720-million, up from a previously announced bid worth $520-million. Its stock was down 1.1 per cent.
Barrick shares jumped 2.1 per cent after it posted strong earnings.
U.S. stocks opened lower on Monday, dragged down by financial stocks, as investors shunned risky bets on fears that a drawn-out trade war between the United States and China could force the global economy into recession.
The Dow Jones Industrial Average fell 117.53 points, or 0.45 per cent, at the open to 26,169.91.
The S&P 500 opened lower by 11.58 points, or 0.40 per cent, at 2,907.07. The Nasdaq Composite dropped 51.65 points, or 0.65 per cent, to 7,907.49 at the opening bell.
The three main indexes ended marginally lower last week, wrapping up five days of high volume trading marked by wild swings, as investors feared that a slide in China’s yuan would expand the scope of the trade war to include currencies.
President Donald Trump said on Friday he was not ready to make a deal with China, pouring cold water on any hopes that the dispute would end soon. Trump’s pledge to tax the remaining US$300-billion worth of Chinese imports goes into effect on Sept 1.
“It appears to me that the U.S. and China are pulling further apart on trying to reach an agreement,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin.
“If he (Trump) postpones that date (Sept. 1), we may get a short period of calm but as long as that issue of new tariffs is floating around out there, pending at some point, I think this volatility is going to remain.”
Over the weekend, Goldman Sachs Group Inc said fears of the U.S.-China trade war leading to a recession were growing and that it no longer expected a trade deal before the 2020 U.S. presidential election.
Highlighting the fallout of the trade dispute on global growth, a survey by Germany’s Ifo economic institute on Monday showed the economic outlook for third quarter has deteriorated worldwide.
Trade-related worries have been a major drag on the benchmark S&P 500, which has slipped 3.7 per cent from its all-time high hit in July.
Investors seeking safety in perceived safe havens bolstered the Japanese yen, gold prices and U.S. government bond prices.
Overseas, early gains for Europe’s main bourses quickly disappeared after Asia-Pacific had also finished lower overnight. That was despite a more than 1 per cent rally for Chinese stocks after the yuan had avoided further drama and financial regulators there had relaxed margin financing rules late on Friday.
One week ago, China allowed the yuan to break through the key 7-per-dollar level for the first time since 2008, prompting Washington to label Beijing a currency manipulator, sparking market volatility.
The International Monetary Fund said on Friday that it stood by its assessment that the value of China’s yuan was largely in line with economic fundamentals.
In Europe, Britain’s FTSE was down 0.3 per cent, Germany’s DAX was off 0.2 per cent and France’s CAC fell 0.3 per cent.
Japan’s market was closed for a holiday and China’s Shanghai rose 1.45 per cent but Hong Kong’s Hang Seng fell 0.44 per cent amid the ongoing turmoil.
Commodities
Oil prices fell on Monday amid worries about a global economic slowdown and the ongoing U.S.-China trade war, which has reduced demand for commodities such as oil.
International benchmark Brent crude futures were at US$58 a barrel, down 53 cents from their previous settlement.
U.S. West Texas Intermediate (WTI) futures were at US$53.69 per barrel, down 81 cents from their last close.
Both benchmarks fell last week, with Brent losing more than 5 per cent and WTI falling about 2 per cent.
Although the third quarter is fundamentally the strongest season for oil demand as drivers take to the roads for summer holidays, the trade dispute between the United States and China has weakened demand and reduced crude prices.
U.S. President Donald Trump said on Friday he was not ready to make a deal with China and even called a September round of trade talks into question.
“The market is facing a buyers’ strike,” said Michael Tran, commodity strategist at RBC Capital Markets, noting the low level of investors’ long positions betting on higher prices.
“Despite the laundry list of disruptions and additional barrels at risk, investor length is currently near a multi-year low.”
The International Energy Agency (IEA) said on Friday mounting signs of an economic slowdown had caused global oil demand to grow at its slowest pace since the financial crisis of 2008.
Gold edged up on Monday, to hold above the psychological US$1,500 level, as investors demand for safe-haven bullion increased on concerns over slowing global economic growth as the trade war between Washington and Beijing drags on.
Spot gold was up 0.5 per cent at US$1,503.66 per ounce, while U.S. gold futures were also up 0.5 per cent at US$1,515.70 an ounce.
“Gold is trying to rebound due to fears of slowdown in the global economy and the trade talks (between the United States and China) are not going in the best ways,” ActivTrades analyst Carlo Alberto De Casa said, adding the “there is still room for gold to go up.”
With no sign of trade tensions between the U.S. and China abating, MKS PAMP said in a note that gold could continue to build momentum, while global growth concerns and central bank easing were also helping the rally.
Analysts also said negative debt yields around the globe were further supporting bullion.
Gold prices rose as much as 4 per cent last week and are up about 17 per cent this year.
“To achieve higher (gold) prices we need more negative surprises in the economic, financial and geopolitical side. If we don’t see further escalation (in trade tensions), we are likely to see gold prices treading water or come under more pressure,” Commerzbank analyst Eugen Weinberg said.
Currencies and bonds
The Canadian dollar was down slightly trading at the 75.4 cents US level as oil prices fell but gold rose.
The yen rose to its highest level in more than 1-1/2 years versus the U.S. dollar on Monday as investors ramped up bets that the Japanese currency could gain more in the case of a prolonged China-U.S. trade conflict.
Apart from its status as a perceived safe-haven currency which gains during periods of economic stress, the yen was also benefiting from growing expectations that the U.S. dollar may be ending a period of extended weakness after recent comments.
“Ongoing strength in the yen is yet another signal of the shift in sentiment towards a US dollar that could start to weaken soon, especially if fears of ‘intervention’ become more justified,” said John Marley, a senior currency consultant at FX risk management specialist, SmartCurrencyBusiness.
Fears that U.S. officials might embark on trying to weaken the dollar have grown after Beijing weakened its currency below a psychological 7 per dollar level earlier this month, signaling an escalation in the ongoing trade war with Washington.
Against the dollar the yen climbed 0.5 per cent to 105.15 yen, its highest level against the U.S. currency since March 2018, barring a flash crash in January this year.
The rest of the foreign exchange market, meanwhile, saw major currencies such as the euro and the dollar pinned in tight ranges.
The euro was broadly steady against the dollar at US$1.1194 , bound between resistance at US$1.1249 and support at US$1.1175.
The yield on U.S. 10-year Treasuries fell to 1.695 per cent over concerns about economic growth. Canada’s 10-year bond yield fell to 1.216 per cent.
Other corporate news
Barrick Gold Corp’s quarterly adjusted profit nearly doubled as the world’s second-largest gold producer reported higher copper and gold production. The Toronto-based company reported an adjusted profit of $154 million, or 9 cents per share, in the second quarter ended June 30, compared to a profit of $81 million, or 7 cents per share, a year earlier. The company’s total gold production rose to 1.35 million ounces from 1.07 million ounces. Its shares rose 2.1 per cent.
BlackRock is taking a sizeable stake in the parent of Sports Illustrated and the retail chains Nine West and Aeropostale, becoming the company’s largest shareholder. Financial terms were not disclosed. The Wall Street Journal, which first reported the deal Sunday, cited anonymous sources who put the investment at US$875-million, valuing the entertainment and marketing company at US$4-billion, including debt. Authentic Brands Group has more than 50 brands and nearly US$10-billion in annual global revenue. Its stock was off 0.9 per cent.
Cloudera Inc said on Monday it would give two board seats to Carl Icahn as part of an agreement with the activist investor to limit his ownership in the data analytics company to 20 per cent. Icahn had disclosed a 12.6 per cent stake in Cloudera earlier this month and said he could seek seats on the company’s board. He raised his stake to 18.4 per cent as of Aug. 9. Cloudera’s shares, which have lost nearly 37 per cent of their value so far this year, fell 3.6 per cent in early trading.
Some 3,800 workers at a Tyson Foods Inc meat-processing plant in Kansas will be out of work after a Friday night fire that caused significant damage, but the company on Sunday said it will provide them “some guaranteed pay.” Tyson Foods spokesman Worth Sparkman said the plant would remain closed indefinitely and there were no details yet on the cause of the fire and or the extent of the damage. Its shares were down 1.4 per cent.
Rite Aid Corp on Monday named Heyward Donigan as chief executive officer, effective immediately, months after announcing its restructuring plan. The plan, announced in March, includes a change in leadership and a reduction of 400 corporate positions, and is expected to save about $55 million annually. Donigan, who most recently served as CEO at Sapphire Digital, a website that analyzes health-care plans, will succeed John Standley, who has led the company since 2010. Its shares gained 1.5 per cent.
Earnings include: Africa Energy Corp.; Americas Silver Corp.; Barrick Gold Corp.; Boston Pizza Royalties Income Fund; CannTrust Holdings Inc.; China Gold International Resources; Emera Inc.; Fission Uranium Corp.; Hardwoods Distribution Inc.; Hydrogenics Corp.; Ivanhoe Mines Inc.; MAG Silver Corp.; Medipharm Labs Corp.; Minto Apartment REIT; Neo Performance Materials Inc.; Park Lawn Corp.; Sysco Corp.; Trilogy International Partners Inc.; Valeura Energy Inc.; Village Farms International Inc.
Economic news
China foreign direct investment, aggregate yuan financing, new yuan loans and M2 money supply
Japan markets closed
(2 p.m. ET) U.S. budget balance for July. Estimate is a deficit of US$120-billion, rising from a US$76.9-million deficit a year ago.
With files from Reuters