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Equity Markets

Canada’s main stock index rose on Monday, lifted by shares of financial firms, while energy companies rose as oil prices steadied after coming under pressure over the past month.

Shortly after the opening bell, the Toronto Stock Exchange’s S&P/TSX composite index was up 68.72 points, or 0.45 per cent, at 15,261.26.

U.S. stocks opened higher also, with the Dow Jones Industrial Average hitting a record high, as investors snapped up beaten down technology stocks.

The Dow Jones Industrial Average rose 72.3 points, or 0.34 per cent, to 21,456.58. The S&P 500 gained 11.55 points, or 0.47 per cent, to 2,444.70. The Nasdaq Composite added 59.39 points, or 0.97 per cent, to 6,211.14.

Monday will also see speeches from a pair of top Federal Reserve officials. Both will be closely watched for indications of the central bank's path on future interest rate hikes. Markets in Europe weathered news of another incident in London. Authorities are treating the event - which left one dead after a van was driven into a group of people near a London mosque -  as a potential terrorist incident. The start of Brexit talks in Europe also will be on the agenda

"Global stock markets have begun the new week in style, with European indices following their Asian counterparts higher despite a terrorist attack in North London," IG's Josh Mahony said in a morning note. "There is a feeling that for the most part, markets are immune to attacks nowadays, with only those that have an impact on international relations, government spending or business making any impact."

With little economic news on the U.S. calendar on Monday, traders will be watching speeches by New York Fed President William Dudlely, who speaks this morning, and Chicago Fed President Charles Evans, who is scheduled to give an evening address in New York this evening. Last week, the U.S. central bank raised interest rates by a quarter point. Further hikes are expected later in the year but the number and timing remain up for debate. Mr. Dudley said Monday morning said the central bank wanted to raise interest rates "very judiciously" to avoid threatening the current economic expansion.

In Europe, stocks were on target for their best showing in two months, helped by rising retail and tech stocks. In France, shares and bonds got a lift after newly elected President Emmanuel Macron secured a parliamentary majority. Broker upgrades for Credit Suisse also gave bank stocks a boost.

As well, U.K. Brexit Secretary David Davis starts negotiations in Brussels on Monday. Prime Minister Theresa May will also meet with European leaders later in the week.

Britain's blue-chip FTSE 100 was up 0.67 per cent. German's DAX rose 1.07 per cent and France's CAC 40 gained 1.02 per cent.

In Asia, markets started the week in a strong position with a two-week closing high for Japan's Nikkei, which finished up 0.62 per cent at 20,067.75. Hong Kong’s Hang Seng rose 1.2 per cent, and the Shanghai composite advanced 0.7 per cent.

Chinese and Hong Kong stocks jumped 1 and 1.2 per cent ahead of a decision by index provider MSCI on Tuesday, expected to see it add mainland-listed Chinese stocks to its top share benchmarks for the first time, according to Reuters. Chinese data had also helped, with tight liquidity conditions looking to have eased and home prices up 10.4 per cent in May from a year ago, although slowing from April’s 10.7-per-cent gain.


Commodities

Oil prices wavered early Monday, starting negative, then turning positive only to later slip close to break even. Worries over rising U.S. drilling and stubbornly higher global stocks have continued to weigh on crude prices despite OPEC's efforts to ease the supply glut by extending production cuts.

Both Brent and West Texas Intermediate had edged higher in early trading but fell back as the North American open approached. Prices for both are down about 14 per cent since OPEC's decision to extend production cuts into the first quarter of next year. Since then, traders have been keeping a close eye on U.S. production as more drilling rigs come online. New figures on Friday showed U.S. rig counts have now risen for a record 22 straight weeks. The total number in service now stands at 747, the most in more than two years.

“Anyone who is looking for the bottom of the current price fall must keep his or her eyes on the supply-side equation and only get optimistic if the factors that have been driving oil prices lower since the end of May change,” PVM analyst Tamas Varga told Reuters.

In other commodities, gold and silver were both starting the week lower, while copper prices managed modest gains.

Gold touched a four-week low early Monday as the U.S. dollar held steady and traders kept a close eye on coming remarks from Fed officials for clues about the future path of U.S. interest rates.

Early in the session, spot gold had touched its lowest level since May 24, although it managed to regain some lost ground.

"Gold extended weakness to $1,251. Traders are focused on $1,245 (major 61.8 per cent retracement on May–June rise) and $1,238 (200-day moving average) in the continuation of the June's downside correction," LCG sernior market analyst Ipek Ozkardeskaya said in a morning note.


Currencies and bonds

The Canadian dollar was trading in the mid-75 cent (U.S.) mark early Monday, off the session's high. So far, the day's range is 75.46 cents (U.S.) to 75.70. The loonie had been trading closer to 74 cents early last week, but got a sudden lift when Bank of Canada officials dropped broad hints that interest rates in this country could move higher earlier that the markets had been expecting. Those comments prompted a number of economists to bring forward their forecasts for the first rate increase, with some now saying they expect the central bank to begin tightening monetary policy as early as October.

This week, the markets will get readings on Canadian retail sales on Thursday followed by new inflation figures on Friday. Economists expect April retail sales to rise by 0.3 per cent. Excluding autos, sales are seen climbing by 0.6 per cent. May's annual inflation rate is expected to clock in at 1.5 per cent.

In other currencies, both the U.S. dollar and euro were higher against the yen. Last week, the U.S. Federal Reserve hiked rates and signalled further increases to come. Days later, the Bank of Japan indicated it was holding steady with no immediate plans to tighten monetary policy.

The greenback had been holding in positive territory against a basket of world currencies but turned negative as the start of trading approach, suggesting the markets aren't convinced that the U.S. central bank will be able to maintain its current course of rate increases.

U.S. market interest rates point to a less than 40-per-cent chance of the Fed hiking rates by December and data on Friday suggested that investors had further reduced net bets on the U.S. dollar gaining ahead of last week’s Fed meeting, Reuters said.

Britain's pound was little changed as the U.K. headed into the start of discussions to remove itself from the European Union.

In bonds, the gap between French and German bond yields held near its tightest level in seven months, after France's Macron won a majority in parliamentary elections, securing a strong mandate for pro-business reforms.

U.S. government debt prices were modestly higher ahead of remarks from the New York and Chicago Fed presidents. The yield on the 10-year note was down 2.148 per cent early on. The yield on the 30-year note was down 2.774 per cent.


Stocks set to see action


An activist investor wants a shakeup at Canada’s iconic Hudson’s Bay Co. Land and Buildings Investment Management of Stamford, Conn., said Monday it now holds a stake of almost 4.5 per cent in the retailer and wants the company to unlock its “substantial untapped real estate value.” In a letter to the board, released publicly, Land and Buildings called for either “monetization or repurposing” of HBC real estate assets or a management buyout of the company.

 

Valeant Pharmaceuticals said it appointed hedge fund manager and billionaire investor John Paulson to its board. Paulson, who heads hedge fund Paulson & Co, joined the board on June 14, the company said on Monday. Paulson & Co is Valeant’s largest shareholder with a 5.68 per cent stake as of March 31, according to Reuters data.

 

Lockheed Martin Corp. is in the final stages of negotiating a deal worth more than $37-billion (U.S.) to sell a record 440 F-35 fighter jets to a group of 11 countries including the United States, two people familiar with the talks said. This would be the biggest deal yet for the stealthy F-35 jet, set to make its Paris Airshow debut this week. The sale represents a major shift in sales practices from annual purchases to more economic multiyear deals that lower the cost of each jet.

 

Wal-Mart Stores Inc. said on Friday it would buy online men’s fashion retailer Bonobos Inc for $310-million, in its fourth e-commerce deal in under a year, as it seeks to bridge the gap with e-commerce leader Amazon.com Inc. However, Wal-Mart’s shares fell about 7 per cent to $73.65 in morning trading after Amazon unveiled a $13.7-billion deal to buy upmarket grocer Whole Foods Market Inc.

 

President Donald Trump will meet with the chief executives of technology companies including Apple Inc and Amazon.com Inc on Monday as the White House looks to the private sector for help in cutting government waste and improving services.  White House officials said on a conference call on Friday that the administration believed there was an “economic opportunity” to save up to $1-trillion over 10 years by significantly cutting government information technology costs, reducing government costs through improved IT, leveraging government buying power and cutting fraud across government agencies.

 

Alphabet Inc’s Google will implement more measures to identify and remove terrorist or violent extremist content on its video sharing platform YouTube, the company said in a blog post on Sunday. Google said it would take a tougher position on videos containing supremacist or inflammatory religious content by issuing a warning and not monetizing or recommending them for user endorsements, even if they do not clearly violate its policies.

 

Canadian auto supplier Magna International Inc will produce BMW’s new 5-series plug-in hybrid at its Austrian factory, the company said on Monday, part of a strategy to produce electric cars on a contract basis for global auto makers. The BMW 530 plug-in hybrid will be manufactured beginning this summer at Magna’s plant in Graz, Austria, where it already plans to produce Jaguar’s I-PACE SUV beginning in early 2018.

 

Shares of Altaba Inc., the holding company left behind after Yahoo Inc’s sale of its core internet business to Verizon Communications Inc, will begin trading on the Nasdaq on Monday. Altaba’s main assets include a 15.5 percent stake in Chinese e-commerce leader Alibaba Group Holding Ltd and a 35.5 percent holding in Yahoo Japan Corp. Verizon closed its $4.48 billion deal with Yahoo last week, marking the end of the tech pioneer as a stand-alone internet company, which was once valued at more than $100 billion. Yahoo was officially renamed Altaba on Friday. Its shares will trade under the symbol 'AABA.'

EQT Corp. is merging with Rice Energy Inc. in a deal that combines two of western Pennsylvania’s largest natural gas-drilling firms. The deal announce Monday will see EQT buy all outstanding shares of Rice common stock for about $6.7-billion and assume $1.5-billion in net debt and preferred equity. The companies say the deal should close in the fourth quarter this year. EQT shares fell 5.4 per cent in premarket trading, while Rice Energy shares soared 29 per cent.

More reading: Monday’s analyst upgrades and downgrades

More reading: Monday's small-cap stocks to watch

More reading: Are these preferreds a 5-per-cent solution?
More reading: Can grocery stocks stay fresh as Amazon enters the market?


Economic News

No major Canadian or U.S. releases scheduled for Monday.

 

Federal Reserve Bank of New York President William Dudley sounded a positive note on the U.S. economy, saying the central bank wanted to tighten monetary policy “very judiciously” to avoid derailing the expansion that began in mid-2009, according to Bloomberg.  “I’m actually very confident that even though the expansion is relatively long in the tooth, we still have quite a long way to go,” Dudley said Monday in Plattsburgh, New York. Yields on U.S. Treasuries rose and the dollar advanced after Dudley’s comments.

Chicago Fed president Charles Evans is at an event in New York on Monday evening.

 

Japan’s exports surged in May by the fastest in more than two years on higher shipments of cars and steel, an encouraging sign that robust global demand will help keep the country’s modest economic recovery on track. The 14.9 per cent annual increase in exports in May was the biggest rise since January 2015 and nearly twice the pace seen in April, though it was below analysts’ expectations of 16.1 per cent. Japan’s imports rose more than expected in May, partly due to increasing demand for intermediate goods companies need to manufacture their products.


With files from Reuters and Bloomberg

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