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Canada’s main stock index opened higher on Tuesday, lifted by energy stocks which were supported by oil prices recovering from their biggest tumble of the year.
At 9:32 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 20.94 points, or 0.13 per cent, at 16,077.97.
Health care stocks led the index higher, up 1.6 per cent, with Aphria up 4 per cent and Aurora Cannabis up 3.6 per cent after it said it is acquiring a 51-per-cent stake in Gaia Pharm LDA, which will be renamed Aurora Portugal LDA.
Energy stocks rose 0.6 per cent with Baytex up 3.5 per cent, Crescent Point Energy up 3.3 per cent and Enerplus Corp. up 2.8 per cent.
Financial stocks weighed, down 0.2 per cent after Scotiabank reported lower first-quarter profits even as it raised its dividend and Bank of Montreal reported higher profits, boosted by its personal and commercial banking business in the U.S, and also announced a buyback plan for 15 million shares. Scotiabank fell 3.1 per cent while BMO rose 1.5 per cent.
Troubles continued for SNC-Lavalin as its investors launched a class-action lawsuit against the company questioning why the Canadian engineering giant waited several weeks to disclose publicly that it would not be invited to strike a deal to settle criminal corruption charges related to its business dealings in Libya. Its shares edged up 0.1 per cent.
U.S. stocks edged lower at open on Tuesday, weighed down by losses in Home Depot and Caterpillar while investors awaited Federal Reserve Chair Jerome Powell’s testimony on monetary policy.
The Dow Jones Industrial Average fell 40.34 points, or 0.15 per cent, at the open to 26,051.61.
The S&P 500 opened lower by 3.75 points, or 0.13 per cent, at 2,792.36. The Nasdaq Composite dropped 19.17 points, or 0.25 per cent, to 7,535.29 at the opening bell.
Shares of the largest U.S. home improvement retailer fell 3.5 per cent after the company issued a disappointing full-year earnings forecast amid slowing momentum in the U.S. housing market. Smaller rival Lowe’s Co Inc also fell 1.1 per cent.
A report from the Commerce Department further underscored weakness in homebuilding, which tumbled to a more than two-year low in December and added to losses in futures.
Caterpillar Inc shares took a hit, falling 3.5 per cent, after brokerage UBS double downgraded the company’s shares to “sell” as it expects downward earnings revisions.
“Caterpillar and Home Depot certainly give some concern to investors that maybe the recovery in stock prices came in too quickly,” said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey.
“But now the markets are considerably higher than it was at the start of the year and the focus is more on whether it has risen too far too fast.”
U.S. stocks have been bolstered in recent weeks by trade optimism and dovish signals from the Fed, with the benchmark S&P 500 index about 4.8 per cent away from its record closing high in September.
Investors will keep a close watch on Powell’s testimony on Tuesday, especially after the central bank last month shifted to a more cautious stance on further interest rate hikes.
“A cautious mood develops ahead of Powell’s testimony on monetary policy to the U.S. Senate Committee, as he will be drilled during the Q&A session,” said Peter Cardillo, chief market economist at Spartan Capital Securities in a client note.
Healthcare stocks could face some turbulence later in the day, as top executives from some of the largest drug companies are expected to get grilled in the U.S. Senate on the high cost of prescription drugs.
Wall Street ended higher on Monday after President Donald Trump said he would delay a planned hike in tariffs on Chinese imports.
Among gainers, AutoZone Inc jumped 6.8 per cent after the auto parts retailer posted better-than-expected quarterly same-store sales.
J.M. Smucker Co rose about 6.6 per cent after the packaged food maker reported quarterly sales above Wall Street estimates.
Shares of Tesla were off nearly 1.1 per cent after the U.S. Securities and Exchange Commission asked a federal court judge Monday to hold CEO Elon Musk in contempt of court for violating a settlement that he and the company reached with the commission last year. The SEC said Musk issued an updated production outlook in a Twitter post Feb. 19 without first seeking approval from the company’s lawyers as required under the agreement.
Investors are also keeping an eye on a two-day U.S.-North Korea summit this week where leaders of the two countries will try to reach an agreement on Pyongyang’s pledge to give up its nuclear weapon program.
Overseas, world shares slid after touching a five-month high on Monday. Asia’s rally on hopes of a U.S.-China trade deal had run into profit taking overnight and it was a bumpy start for Europe as the pound’s leap to US$1.3150 and some poor company news shoved London’s FTSE down as much as 0.4 per cent. Germany’s DAX rose 0.14 per cent and France’s CAC was off 0.09 per cent.
MSCI’s broadest index of Asia-Pacific shares dip 0.5 per cent. Japan’s Nikkei was off 0.4 per cent, China’s Shanghai index fell 0.7 per cent and Hong Kong’s Hang Seng dipped 0.7 per cent.
Commodities
Brent oil edged up to US$65 a barrel on Tuesday as Saudi Arabia and the rest of OPEC were expected to stick to their production cuts, despite renewed pressure from U.S. President Donald Trump.
Prices slid on Monday, when many traders were out of the office attending IP Week, a series of industry events in London, after Trump called on OPEC to ease its efforts to boost the oil market. Prices were “getting too high,” the president said.
“Yesterday was a typical price action you see during IP Week when you have a headline,” said Olivier Jakob, oil analyst at Petromatrix. “But I don’t think it will change anything in current OPEC supply policy.”
Brent crude, the global benchmark, rose 24 cents to US$65, after losing 3.5 per cent on Monday. U.S. West Texas Intermediate crude eased 7 cents to US$55.41.
Expectations that U.S. crude inventories had risen for a sixth straight week limited the rally.
Palladium retreated on Tuesday as investors took profits after the autocatalyst metal breached US$1,550 for the first time due to a worsening supply scenario, while gold held a tight range ahead of U.S. Federal Reserve chairman Jerome Powell’s testimony.
Spot palladium, which traded as high as US$1,554.50 per ounce earlier in the day, was down 0.5 per cent at US$1,534.
At least 15 mining firms in South Africa, a major producer of the metal, have received notices of strikes to be held later this week, providing further impetus to its gains.
The metal has risen more than 21 per cent so far this year on a sustained supply deficit.
“There are increased talks that palladium is entering into the bubble territory because of the relentless rally that we have seen. Those who are long are tempted to take profits while we potentially may see a few attempts to sell some shorts in the market,” Saxo Bank analyst Ole Hansen said.
Elsewhere, spot gold was barely changed at US$1,326 per ounce and U.S. gold futures were steady at US$1,328.10 as the dollar remained subdued.
“The market is increasingly getting fed up, listening to the trade developments,” Hansen said, adding that bullion was now looking for further direction from the stock markets and concrete developments in U.S.-China trade relations.
Impetus can now be expected from Fed chairman Jerome Powell’s testimony on U.S. monetary policy and the economy before the Senate Banking Committee, due later in the day.
“Powell could use the opportunity to move perceptions a little bit more towards the hawkish side. In such a case, we could see modest dollar strengthening set in over the course of his remarks, likely exerting more downward pressure on gold,” said ANZ analyst Daniel Hynes.
Currencies and bonds
The Canadian dollar slid Tuesday, falling below the 76-cent-US mark to 75.6 cents.
“USD/CAD rejected key long-term trendline support at $1.3107 (76.29 cents US) on Monday. For the day ahead, key trendline support is located at $1.3110 (76.27 cents US), with resistance at $1.3253 (75.45 cents US),” said RBC Europe’s chief currency strategist Adam Cole.
The U.S. dollar held near a one-week low against its rivals on Tuesday as currency markets waited for testimony from Powell that might give a further boost to risk appetite.
“Powell’s comments should bolster an already improving market for risk appetite and we remain constructive on risk,” said Manuel Oliveri, a currency strategist at Credit Agricole in London.
Against a basket of other currencies, the dollar was broadly steady at 96.43 after hitting its lowest level in a week at 96.31 in Asian trading.
Powell and other Fed policymakers have indicated they favour patience before raising key lending rates again due to recent signs of slowing economic growth. The futures market implies traders are betting the central bank will not raise interest rates at all in 2019.
The U.S. 10-year Treasury yield was down slightly at 2.659 per cent. The Canadian 10-year bond yield was also lower at 1.890 per cent.
Stocks to watch
Canadian oil and gas producer Husky Energy Inc reported a 68-per-cent drop in quarterly profit on Tuesday from a year-ago when it recorded a $436-million deferred tax benefit. Net income fell to $216 million ($163.43 million), in the fourth quarter ended Dec. 31, from $672 million, a year earlier. The Calgary-based company’s average quarterly production fell to 304,300 barrels of oil equivalents a day (boe/d) from 320,400 boe/d. Analysts, on average, had expected the company to report 304,365 boe/d.
Shares of Caterpillar Inc. fell nearly 4 per cent after UBS cut its rating on the stock to “sell” from “buy.”
Shares of the largest U.S. home improvement retailer Home Depot fell 2.6 per cent in premarket trading after the company issued a disappointing full-year earnings forecast and missed quarterly estimates for same-store sales. Smaller rival Lowe’s Co Inc also fell 1.1 per cent.
Thomson Reuters reported a 9-per-cent rise in quarterly revenue, stripping out the impact of currency, helped by higher sales at its Legal and Tax & Accounting businesses. The news and information provider reported fourth-quarter revenue of US$1.52 billion, compared with $1.41 billion a year ago. That was just short of the average analysts forecast of $1.54 billion, according to IBES data from Refinitiv.
Nutrien Ltd. says it is in talks with Australian company Ruralco Holdings Ltd. regarding a possible deal. Trading in Ruralco securities were halted on the Australian Stock Exchange. Nutrien says its Landmark subsidiary in Australia is engaged in discussions with Ruralco regarding a potential transaction. Ruralco provides a wide range of services for Australian farmers. The Canadian company says no decision has been made and would not comment further with respect to any potential transaction. It says any potential deal would be subject to the negotiation of a definitive agreement. Its U.S.-listed shares rose nearly 2 per cent in premarket trading.
Macy’s Inc on Tuesday announced a restructuring plan that would cut the complexity of its top management structure to speed up decision-making and reduce costs. The retailer said it expects the move to yield annual expense savings of $100 million, starting fiscal 2019. Macy’s also reported a smaller-than-expected rise in holiday quarter same-store sales on Tuesday. Shares of the company rose 3.5 per cent in premarket trading.
Aurora Cannabis said it is acquiring a 51-per-cent stake in Gaia Pharm LDA, which will be renamed Aurora Portugal LDA. The value of the deal wasn’t disclosed. Gaia Pharm just received approval to construct an EU GMP compliant cannabis cultivation facility.
Goldman Sachs Group Inc said it expects losses related to ongoing lawsuits to be about up to US$1.9 billion more than the money it set aside for legal matters. In September, the investment bank had expected losses to be $1.8 billion in excess of its reserve. The bank did not give specific details on why it raised its loss estimate. Its shares were down 0.5 per cent in premarket trading.
Packaged food maker J.M. Smucker Co on Tuesday reported quarterly sales that beat Wall Street estimates, benefiting from higher demand for its Dunkin’ Donuts-branded coffees and premium pet foods such as Nutrish. The company’s net income fell to US$121.4 million, or $1.07 per share, in the third quarter ended Jan. 31, from $831.3 million, or $7.32 per share, a year earlier, as it recorded a impairment charge related to its pet foods segment. Net sales rose to $2.01 billion from $1.90 billion, beating the average analyst estimate of $1.99 billion, according to IBES data from Refinitiv. Its shares jumped nearly 10 per cent in premarket trading.
Earnings include: Bank of Montreal; Bank of Nova Scotia; Canadian Apartment Properties REIT; Dream Unlimited Corp.; George Weston Ltd.; Home Depot Inc.; Husky Energy Inc.; Imax Corp.; Macy’s Inc.; Palo Alto Networks Inc.; Pason Systems Inc.; Secure Energy Services Inc.; Sleep Country Canada Holdings Inc.; Thomson Reuters Corp.
Economic news
(8:30 a.m. ET) U.S. reports housing starts for December. Consensus is an annualized rate decline of 0.4 per cent.
(8:30 a.m. ET) U.S. reports building permits for December. Consensus is an annualized rate decline of 2.8 per cent.
(9 a.m. ET) U.S. S&P Case-Shiller Home Price Index (20 city) for December is released. The Street expects an increase of 0.4 per cent from November.
(9 a.m. ET) U.S. FHFA house price index for December is released. Consensus is a rise of 0.5 per cent from the previous month.
(10 a.m. ET) U.S. Conference Board Consumer Confidence Index for February is released. Consensus is 124.2, up from 120.2 in January.
(10 a.m. ET) U.S. Federal Reserve chair Jerome Powell testifies to the Senate banking committee.
With files from Reuters