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Equities
Canadian and U.S. stock market futures fell Tuesday as renewed fears about a global trade war shook investors and worries were heightened by a crash in Argentina’s peso currency and its stock market and ongoing protests in Hong Kong.
That pushed up demand for U.S. bonds, gold and the Japanese yen.
“Where markets head next will largely hinge on whether the threatened tariffs are implemented, and how the Federal Reserve responds,” Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote in a note.
President Donald Trump’s latest tariff threat on Chinese goods has raised bets of at least three more rate cuts this year, with a reduction in rates at the Fed’s September meeting being fully priced in, according to CME Group’s FedWatch program.
The U.S. central bank lowered key borrowing rates for the first time in more than a decade in July and flagged risks from the ongoing trade war on economic growth.
Hong Kong’s airport, the world’s busiest cargo hub, reopened Tuesday but then faced further disruptions as check-ins were halted due to pro-democracy protesters.
Investors were also still assessing the wider damage caused by Monday’s peso crash in Argentina after its President Mauricio Macri became the latest pro-free market, pro-reform leader to be given a beating at the polls by a populist rival.
The response was brutal. The peso collapsed 15 per cent, equities crumbled 48 per cent in dollar terms – the second biggest one-day slump anywhere since 1950 – and the bond market crashed, with a 100-year bond that investors had recently gobbled up tumbling 20 per cent as fears of yet another government default spiked.
“Yes, Argentina is a small economy. However, the last thing global markets want to see is another market-friendly government fall to populism and/or geopolitics,” said Rabobank strategist Michael Every.
He added the “wall of worry” also now includes: the trade war, Brexit, China, Hong Kong, Iran, Italy, Kashmir, North Korea, South China Sea, Turkey, and Venezuela. “Did I miss anything with tired eyes?”
In Canadian corporate news, the private equity arm of Brookfield Asset Management has reached a $2.4-billion deal to acquire control of Genworth MI Canada Inc., the country’s second-largest mortgage insurer. Brookfield Business Partners LP, a publicly-traded subsidiary of the global asset manager, is buying a 57-per-cent stake in Genworth MI Canada from the mortgage insurer’s American parent company, Genworth Financial Inc.
Industrial bellwethers Caterpillar Inc and Boeing Co slipped 0.5 per cent and 0.3 per cent, respectively, in premarket trading.
Chip makers, which depend on China for a large portion of their revenue, were also under pressure. Micron Technology Inc , Nvidia Corp and Advanced Micro Devices Inc fell between 0.3 per cent and 1.25 per cent.
The FAANG group of stocks – Facebook Inc, Amazon.com Inc , Apple, Netflix Inc and Google-parent Alphabet Inc – fell between 0.6 per cent and 0.8 per cent.
A survey showed German business sentiment plunged far more than expected in August, hurt by trade disputes and higher chances of a no-deal Brexit, painting a dismal picture of Europe’s biggest economy.
Overseas, the negative global mood hit European and Asian stocks. Britain’s FTSE was down 0.36 per cent, Germany’s DAX was off 0.7 per cent and France’s CAC dropped 0.3 per cent.
The tensions in Hong Kong caused the Hang Seng to fall 2.1 per cent, while the Nikkei was off 1.1 per cent and China’s Shanghai fell 0.6 per cent.
Commodities
Oil prices edged higher on Tuesday as expectations for major producers to further curtail output offset lingering concerns over global demand and rising U.S. production.
Brent crude futures were up 8 cents, or 0.14 per cent, from the previous settlement at US$58.65 a barrel. The international benchmark has lost more than 20 per cent since hitting its 2019 high in April.
U.S. West Texas Intermediate (WTI) futures were at US$55.02 per barrel, up 9 cents, or 0.1 per cent.
Saudi Arabia, the de-facto leader of the Organization of the Petroleum Exporting Countries, said last week it planned to keep its crude exports below 7 million barrels a day in August and September to help drain global oil inventories.
The kingdom’s plan to float its national oil company Saudi Aramco in what could be the world’s largest initial public offering (IPO) gives it further impetus to boost prices.
“With Saudi Aramco reportedly eyeing an IPO once again, there is some support to the idea that Saudi Arabia has a heightened interest in strong crude prices and will cut its own output accordingly,” Vienna-based consultancy JBC Energy said.
OPEC and its allies, known as OPEC+, have agreed to cut 1.2 million barrels per day (bpd) of production since Jan. 1.
Gold hit a more than six-year high on Tuesday as unrest in Hong Kong and a rout in the Argentine peso drove investors already spooked by the U.S.-China trade war into havens like bullion at the expense of riskier assets such as stocks.
Spot gold was up 1 per cent at US$1,526.61 per ounce, having earlier touched its highest since April 2013. U.S. gold futures rose 1.4 per cent to US$1,538 an ounce.
“Bond yields and equities are down which are the main reason for gold to be higher. There is a bit of safe-haven (interest),” ABN Amro analyst Georgette Boele said. “People are nervous about Hong Kong again, and that’s why Asian markets were down.”
Currencies and bonds
The Canadian dollar fell slightly and was trading at the 75.4 US cents level despite gains in both oil and gold prices.
The Japanese yen remained near seven-month highs on Tuesday and the U.S. dollar supported, as investors unnerved by the China-U.S. trade war, protests in Hong Kong and a crash in Argentina’s peso currency sought safety.
The euro briefly extended an earlier decline after a survey showed German sentiment deteriorated more than expected.
Investors have flocked to the yen amid an escalating trade war between China and the United States and worries about a global economic slowdown. The Japanese currency, along with the dollar and Swiss franc, is a safe haven in times of uncertainty.
The yen got a fresh boost from growing unrest in Hong Kong and surprise election results in Argentina that led to a rout in the country’s currency, the peso, and stocks and bonds.
ING analysts said the yen was benefiting “from the best of both worlds”, pointing to general risk aversion and a rush to price in more interest rate cuts by the Federal Reserve. They think the yen will rally to 102 or 103 per dollar later this year.
The yen fell as much as 0.2 per cent to 105.1 per dollar. It reached 105.05 on Monday, a seven-month high and, excluding the January flash crash, its strongest since early 2018.
The U.S. dollar rose 0.2 per cent against a basket of other currencies, its index reaching 97.563 before giving up some of those gains.
The euro was last down 0.1 per cent at US$1.1204 against the dollar, having fallen as low as US$1.1182.
The offshore Chinese yuan was little changed at 7.104 after the People’s Bank of China set a midpoint rate at an 11-year low that was still stronger than expected.
A senior official at the People’s Bank of China told Reuters on Tuesday that the yuan was at an appropriate level .
Argentina’s peso lost more than 15 per cent to 52.15 per dollar on Monday after brushing a record low of 61.99.
Argentina’s president, Mauricio Macri, lost in presidential primaries by a wider margin than expected, triggering worries about a return to interventionist policies under a populist winner.
Commerzbank strategist Antje Praefcke said that the reaction elsewhere to the Argentine primary result was a “sign of just how jittery markets are.”
U.S. Treasury yields have declined steadily recently, and the spread between U.S. and Japanese benchmark 10-year yields has shrunk to its narrowest since November 2016.
The U.S. 10-year Treasury was lower at 1.6369 per cent. The two-year and 10-year Treasury spread appears set to invert at any time now, with the curve at its flattest level since 2007. The spread narrowed to less than 6 basis points on Tuesday. That inversion has been a reliable signal of a recession.
The Canadian 10-year bond was at 1.188 per cent.
Other corporate news
JD.com Inc. reported better-than-expected second-quarter revenue, boosted by stronger sales in its online retail business, sending its shares 5 per cent higher in pre-market trading.
Advance Auto Parts reported adjusted quarterly profit of US$2 per share, missing estimates of US$2.21. Revenue also fell short of expectations in a “challenging” quarter, the company said. Its shares fell 7.1 per cent in premarket trading.
Brinker International, the parents of restaurant chain Chili’s and others reported adjusted quarterly profit of US$1.36 per share, 2 cents higher than estimates. While revenue fell short, the company gave a better than expected forecast for the current fiscal year. Its shares slid 0.3 per cent in premarket trading.
Yum Brands Inc. named company veteran David Gibbs as its chief executive officer, succeeding Greg Creed, who will be retiring at the end of the year. Gibbs, 55, has been with the company since 1989, holding several senior roles including chief financial officer for three years before taking charge as chief operating officer earlier this year.
Tencent Music reported adjusted earnings of 67 cents for its latest quarter, higher than estimates by 6 cents but revenue fell short of forecasts. Its monthly average revenue per user also grew at its slowest ever rate. Its shares fell 4.9 per cent in premarket trading.
Constellation Brands is selling its Canadian whiskey portfolio to Heaven Hill Brands for US$266-million.
Earnings include: Absolute Software Corp.; Acreage Holdings Inc.; Alexco Resource Corp.; BTB REIT; Bird Construction Inc.; Canadian Apartment Properties REIT; Chorus Aviation Inc.; Dream Unlimited Corp.; Great Canadian Gaming Corp.; Guardian Capital Group Ltd.; H&R Real Estate Investment Trust; Innergex Renewable Energy Inc.; Intertain Group Ltd.; IPL Plastics Inc.; Jaguar Mining Inc.; Killam Properties Inc.; NFI Group Inc.; PRO Real Estate Investment Trust; Premium Brands Holdings Corp.; Roxgold Inc.; Stelco Holdings Inc.; Superior Plus Corp.; Sylogist Ltd.; Tidewater Midstream and Infrastructure Ltd.;
Economic news
(8:30 a.m. ET) U.S. consumer price index (CPI) for July. The Street expects a rise 0.3 per cent from June and a 1.7-per-cent increase year-over-year.
With files from Reuters