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Briefing highlights

  • Where U.S. stocks may head
  • Stocks, loonie, oil at a glance
  • Nissan projects profit slump
  • Required Reading

Stocks outlook

John Higgins believes U.S. stocks may have seen their best days even if the United States and China settle their bitter trade war.

Monday’s slump on the S&P 500 was clearly sparked by Beijing’s retaliation in the escalating trade battle, said Mr. Higgins, chief markets economist at Capital Economics.

But “an accompanying ‘reinversion’ of the Treasury yield curve suggests that the best days for U.S. equities may be over even if the two economies eventually resolve their dispute.”

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To recap, the most recent round of talks between the U.S. and China in Washington went nowhere, leaving markets to ponder the impact on global economic growth of a protracted fight.

President Donald Trump raised tariff levels Friday, and threatened more, prompting China to fire back Monday.

Mr. Higgins cited the previous inversion last month, when the three-month Treasury yield topped that of the 10-year, spooking markets.

“Such an inversion of the curve has often been accompanied, or followed, by a downturn in the U.S. economy and stock market,” Mr. Higgins said.

Many market players “downplayed” the significance of the March inversion, he added, believing the Federal Reserve would sit on its hands so as not to derail the economic expansion.

They also believe that the Fed’s asset purchases, a stimulus measure, had skewed the curve.

“Admittedly, much off the pullback in equity prices this month can be pinned on worries about trade, which could quickly ease if the U.S. and China hammer out some sort of deal,” Mr. Higgins said.

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'But their differences run deep, so concerns would probably linger," he added.

“More importantly, our view remains the U.S. economy will slow sharply regardless, as the Fed’s prior tightening of policy takes more of a toll.”

Thus, Mr. Higgins said, Capital Economics projects U.S. stock prices will sink further, with the S&P 500 ending the year at 2,300.

“We don’t think that the curve will have to invert significantly for this to happen,” Mr. Higgins said.

“Indeed, it probably won’t invert much more at all, if we are right that the Fed has already delivered its final rate hike in this cycle. After all, the curve has tended to steepen again not long after this point has been reached.”

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Markets at a glance

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Ticker

WhatsApp urges users to upgrade

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From Reuters: Facebook’s WhatsApp urged users to upgrade to the latest version of its popular messaging app following a report that users could be vulnerable to having malicious spyware installed on phones without their knowledge.

Aimia profit climbs

From The Canadian Press: Aimia Inc. reported a first-quarter profit of $1.05-billion as it completed the sale of its Aeroplan business. Profit of $6.85 a share, diluted, compared with a profit of $21.4-million or 11 cents a year earlier.

Nissan projects profit slump

From Reuters: Nissan Motor Co. forecast a 28-per-cent plunge in its annual operating profit, putting it on course for the weakest earnings in 11 years and underscoring its struggle to turn the page after former chairman Carlos Ghosn was ousted.

Required Reading

Behind the WestJet deal

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With Onex on board, WestJet is getting much-needed breathing room to compete with Air Canada, Tim Kiladze and Jeffrey Jones write.

What you should know about Onex

From investment reporter David Berman: What you need to know about Onex, and why investors bid up its stock after the WestJet deal.

Kenney to cut corporate taxes

Premier Jason Kenney is preparing to cut corporate taxes in a bid to boost Alberta’s economy with a policy that will cost the province billions of dollars in forgone revenue over the next four years. James Keller reports.

Canada in tough spot

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The U.S.-China trade war is hitting other countries hard enough that most of the globe will be hoping for a quick deal to end it. But, Campbell Clark warns, even if there is such a deal, the superpower trade tensions will continue to cause trouble for countries like Canada.

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