Canadian and U.S. stock futures are set to open mixed Monday, as investors focus on the new sanctions on Iran and the upcoming U.S. midterm elections and worry about global trade conditions.
While Dow, S&P 500 and Nasdaq futures were down slightly, the TSX 60 pointed to a mildly positive open Monday. Markets fluctuated between slightly positive and negative as the morning progressed.
“Everyone’s on hold until the (end of November) G20 and also the Fed coming up,” said Arbuthnot Latham’s Perdon. “Our sense is absolutely that there’s a lot of cash on the sidelines right now.”
Chinese blue-chips fell overnight after White House economic adviser Larry Kudlow denied Washington has drafted a trade agreement with Beijing.
But investors looked to signs of support from Chinese stimulus to withstand higher trade tariffs. President Xi Jinping promised in a speech to lower import tariffs and continue to broaden market access.
“The market hasn’t been paying as close attention as they might normally because they’ve been a bit distracted by the specter of a trade war. But the policy response out of China has been massive,” said Gregory Perdon, co-chief investment officer at Arbuthnot Latham.
The United States reintroduced sanctions against Iranian oil on Monday while giving some of Washington’s closest allies exemptions that allow Tehran’s biggest customers, mostly in Asia, to keep buying crude for now.
Washington has restored measures lifted under a 2015 nuclear deal negotiated with Tehran by the administration of President Barack Obama.
U.S. President Donald Trump’s administration added 300 new designations including Iran’s oil, shipping, insurance and banking sectors, aiming to cripple Iran’s main export revenues from the petroleum industry.
Despite this, Iran will continue to sell some oil as Washington said on Friday it would temporarily allow eight importers to keep buying Iranian supplies.
In response, Iranian President Hassan Rouhani said in a speech broadcast on state TV that Iran would break the sanctions and continue to sell oil.
With the U.S. Federal Reserve meeting on Wednesday and Thursday, the prospect of even tighter U.S. monetary policy after strong economic data is also on investors’ minds.
Markets are now pricing in a higher probability of a December rate hike with further tightening to 2.75-3 per cent seen through 2019.
Tighter monetary policy, a stronger dollar, and trade tariffs have created what Citi strategists call “Trump’s triple tightening” this year.
“This ...has slowed growth and raised risks around the world,” they wrote.
Investors were also cautious ahead of the U.S. midterm elections.
Opinion polls show a strong chance the Democratic Party could win control of the House of Representatives after two years of wielding no practical political power in Washington, with Trump’s Republican Party likely to hold the Senate.
“What’s spooking the market is not Congress or Senate – what’s spooking the market is the volatility of Trump,” said Perdon. “I’m not convinced if there’s a change of control that would be able to temper that.”
Overseas, world stocks slipped on Monday, halting a four-day recovery rally as anxiety surrounding global trade conditions and rising U.S. interest rates dampened risk appetite.
European shares managed to reverse losses in choppy trade as investors readied for U.S. congressional midterm elections on Tuesday, while sterling briefly climbed on a newspaper report that a Brexit agreement was imminent.
MSCI’s all-country world index stayed down 0.2 per cent though as investors remained cautious.
In Asia, Japan’s Nikkei fell 1.55 per cent, China’s Shanghai fell 0.4 per cent and Hong Kong’s Hang Seng was down 2 per cent.
Commodities
Oil prices fell on Monday as U.S. sanctions against Iran’s fuel exports were softened by waivers allowing major buyers to import Iranian crude for a while, while Tehran said it would defy Washington and continue to sell.
Brent crude oil was down 25 cents a barrel at US$72.58. U.S. light crude was 35 cents lower at US$62.79 a barrel.
Both oil benchmarks have lost more than 15 per cent since hitting four-year highs in early October, as hedge funds have cut bullish bets on crude to a one-year low.
“U.S. sanctions against Iran ... created serious concerns with traders earlier in September. But they are turning into a damp squib,” said Fiona Cincotta, market analyst at City Index.
Oil markets have been anticipating the sanctions for months and the world’s biggest producers have been increasing output.
Gold held a narrow US$5 range on Monday as investors were cautious ahead of the U.S. midterm elections, which will determine whether the Republican or Democratic Party controls Congress.
Spot gold was little changed at US$1,232 per ounce, while U.S. gold futures were flat at US$1,233.2 per ounce.
“The market is adopting a wait and see approach,” said Saxo Bank analyst Ole Hansen.
“We are just a day away from the U.S. midterm election, the outcome of which could have an impact both on currencies and several asset classes, so we’re holding relatively stable.”
Opinion polls show strong chances that the Democratic Party may win control of the House of Representatives in the Nov. 6 elections after two years of wielding no practical political power in Washington, with Republicans likely to keep the Senate.
“Midterm elections may stimulate safe haven buying,” said Vandana Bharti, assistant vice president of commodity research at SMC Comtrade Ltd.
“If it stays above US$1,240, then the next target for the upside should be US$1,250-US$1,260.”
Currencies and bonds
The Canadian dollar was trading higher near the 76.3 cent US mark in advance of a speech Monday morning by Bank of Canada Governor Stephen Poloz.
“Mr. Poloz will be speaking today on “What we are hearing from various financial markets and the implications for monetary policy” in London, U.K. While the title is certainly market relevant, we do not think that he will stoke rate increase expectations any further based on last week’s Parliament testimony, where he noted that rising interest rates ‘won’t be a rapid process’ and that they didn’t want to slow the economy below its potential rate,” said a note by RBC.
The U.S. dollar paused after three consecutive weeks of gains as investors took profits before U.S. midterm elections this week that may fuel a bout of volatility for global markets, with the British pound leading gains on Brexit deal breakthrough hopes.
Notwithstanding a dollar selloff in the second half of last week, hedge funds added to their dollar holdings taking net long positions to their biggest levels since Dec. 2016 as latest data have encouraged more bullish bets.
But market analysts warn that an unexpected outcome at the midterm elections could trigger a massive unwind of long dollar positions and undermine the greenback which has rallied more than 7 per cent from April lows against its rivals.
Tuesday’s U.S. congressional election is widely expected to help the Democratic Party, which has a strong chance of winning control of the U.S. House of Representatives, with Republicans likely to keep the Senate.
“On the contrary, if the Republicans put up a strong showing, that could give President Trump a freer hand and he could step up his criticism of the Fed which may hurt the dollar,” said Ricardo Evangelista, a senior analyst at ActivTrades Plc in London.
The dollar index was down 0.1 per cent at 96.39. It hit a June 2017 high of 97.20 last week.
The U.S. 10-year Treasury note yield was down slightly at 3.205 per cent and the Canada 10-year bond yield was down slightly at 2.521 per cent.
Stocks to watch
Apple’s shares continued their decline on Monday, falling 1.1 per cent in premarket trading after the Nikkei reported the company has told two smartphone assemblers to halt plans for additional production lines dedicated to the low-cost iPhone XR. The company was also downgraded by Rosenblatt Securities on Monday to “neutral” from “buy.” Its shares fell 1.8 per cent in premarket trading.
Verizon Communications Inc. said on Monday it will reorganize its business segments into Consumer, Business and Verizon Media Group/Oath to focus on the types of customers it serves. The reorganization under Chief Executive Officer Hans Vestberg, who was named to the top job on Aug. 1, is a shift from the previous operating structure split between wireless and wireline and included the largest U.S. wireless carrier’s Fios internet and video products. Its shares rose 0.5 per cent in premarket trading.
Berkshire Hathaway rose 2.8 per cent after the conglomerate run by billionaire Warren Buffett said its quarterly operating profit doubled.
Home improvement retailer Lowe’s Cos Inc. said on Monday it would close 20 underperforming stores in the United States and 31 in Canada as part of a restructuring program. The company, which bought Canada’s Rona in 2016, said it would close the stores by the end of fiscal 2018. Its shares fell 0.06 per cent in premarket trading.
Eli Lilly and Co. said on Monday that its top-selling diabetes drug Trulicity significantly reduced the risk of heart attack, stroke and heart-related death in a broad range of people with type 2 diabetes, according to results of a large clinical trial. Its shares gained 1.4 per cent in premarket trading.
Second Cup Co. announced it was undertaking a strategic review of the company.
Barrick Gold Corp., which is being formed by Barrick’s $6.1-billion takeover of Randgold Resources, is in talks with Newmont Mining to combine their Nevada gold mining operations, sources told Reuters. Last month’s tie-up between Barrick and Africa-focused Randgold Resources revived speculation about a joint venture between Newmont and Barrick in Nevada, something the two mining firms had explored in 2014 without reaching a deal. Its shares fell 0.3 per cent in premarket trading.
Earnings include: Alaris Royalty Corp.; BlackPearl Resources Inc.; CT REIT; Crew Energy Inc.; Element Fleet Management Corp.; Ensign Energy Services Inc.; Finning International Inc.; Franco-Nevada Corp.; Gear Energy; Great Canadian Gaming Corp.; Hardwoods Distribution Inc.; High Arctic Energy Services Inc.; Invesque Inc.; Marriott International Inc.; Nutrien Ltd.; Painted Pony Energy Ltd.; Pattern Energy Group; Pinnacle Renewable Holdings Inc.; Pure Multi-Family REIT LP. Sysco Corp.; TORC Oil & Gas Ltd.; Toromont Industries Ltd.; Tourmaline Oil Corp.; Wajax Corp.
More reading: Monday’s small-cap stocks to watch
Economic news
Toronto home sales climbed in October as new listings fell, pushing prices higher and signalling the city's real estate market is tightening.
The Toronto Real Estate Board said 7,492 homes sold in the Greater Toronto Area last month, a 6 per cent increase over October last year. The average sale price for all types of homes climbed 3.5 per cent on a year-over-year basis to $807, 340, TREB said.
The price gains came as the number of homes newly listed for sale fell 2.7 per cent in October compared to a year ago, which means market conditions tightened somewhat last month.
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(8:10 a.m. ET) Bank of Canada Governor Stephen Poloz speaks in London to Canada-UK Chamber of Commerce with a press conference to follow at 9:30 a.m.
(9:45 a.m. ET) U.S. Markit services/composite PMI for October.
(10 a.m. ET) U.S. non-manufacturing ISM for October.
With files from Reuters