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Equity Markets

Canada’s main stock index opened barely higher on Monday, as gold miners and other materials stocks gained with higher prices for gold, copper and other metals.

The Toronto Stock Exchange’s S&P/TSX composite index was up 16.76 points, or 0.11 per cent, at 15,191.57 shortly after the open. Only four of the index’s six sectors were higher. Materials stocks rose 1.05 per cent and health care gained 0.35 per cent.

The Canadian dollar is at 79.06 cents (U.S.), down minorly.

Valeant Pharmaceuticals stock rose 0.6 per cent after it sold its Obagi Medical Products business for $190-million in cash, as part of the Canadian drugmaker’s efforts to cut down its debt. Valeant, which bought the Irvine, California-based Obagi for about $344-million in 2013, will sell the business to Haitong International Zhonghua Finance Acquisition Fund I LP.

Canada’s Dominion Diamond Corp., the world’s third-largest diamond producer by market value, has agreed to a sweetened takeover offer of $1.2-billion from The Washington Companies. Its stock rose 5 per cent.

U.S. stocks opened little changed and held steady at record levels on Monday as investors turned their focus to a busy earnings week from big U.S. companies.

The Dow Jones Industrial Average was down 1.62 points, or 0.01 per cent, at 21,636.12, the S&P 500 was up 1.23 points, or 0.05 per cent, at 2,460.50. The Nasdaq Composite was up 14.14 points, or 0.22 per cent, at 6,326.61.

Microsoft, IBM and Johnson and Johnson are scheduled to report results this week.

Netflix, which will report results after the market close on Monday, rose 0.8 per cent in early trading.

Analysts estimate second-quarter earnings for the S&P 500 companies rose 8.1 per cent from a year earlier. First-quarter earnings posted their best performance since 2011, according to Thomson Reuters data.

Earnings will be closely watched to see if high valuations are justified in the face of tepid inflation and a recent patch of mixed economic data.

On Monday, Wall Street will see the latest results from both Netflix Inc., which reports after the close of trading, and BlackRock Inc. BlackRock, the world’s biggest asset manager, said quarterly profit rose more than 8 per cent on higher fees. Net income attributable to the company rose to $857-million in the second quarter ended June 30 from $789-million a year earlier. Netflix is expected to post earnings of 16 cents a share.

On Friday, the Dow and S&P 500 hit touched record closing highs on after weak inflation and retail sales figures dimmed prospects of more interest rate hikes this year.

The Dow Jones Industrial Average rose 84.65 points, or 0.39 per cent, to 21,637.74, the S&P 500 gained 11.44 points, or 0.47 per cent, to 2,459.27 and the Nasdaq Composite added 38.03 points, or 0.61 per cent, to 6,312.47. In Canada, S&P/TSX composite index ended broadly higher at 15,174.81 with higher commodity prices and gains by telecoms underpinning the rise.

"While last week saw new records for U.S. markets, and a positive week for European stocks the U.S. dollar finally gave up all of its post Trump gains, as investors weighed up the prospect that the Fed could well be done hiking for this year," Michael Hewson, chief market analyst for CMC Markets U.K., said in a morning note.

"An unexpectedly cautious testimony from Fed chief Janet Yellen to U.S. lawmakers, as well as some disappointing economic data on the part of the U.S. consumer and some more weak inflation data appears to raising doubts about the pace of future U.S. rate rises, even though there does appear to be more consensus about reducing the size the Feds balance sheet."

In stocks, shares of Procter and Gamble Co. shares could get some attention after activist investor Nelson Peltz’s Trian Fund Management LP said it is seeking a board seat at Procter & Gamble Co. for Mr. Peltz, according to a regulatory filing on Monday. The fund urged shareholders to vote for Mr. Peltz at the company’s shareholder meeting, citing his expertise and long track record of working successfully with management teams to turn around consumer companies, according to Reuters.

Overseas, stronger-than-expected second-quarter GDP figures from China helped bolster world shares overnight. In Europe, traders are waiting for the European Central Bank's next policy announcement, due Thursday.

In Asia, Japanese markets were closed for a public holiday. The Shanghai composite index fell 1.42 per cent. Hong Kong's Hang Seng rose 0.31 per cent. In Europe, London's benchmark FTSE 100 rose 0.43 per cent. Germany's DAX was off 0.28 per cent and France's CAC 40 edged up 0.03 per cent.

"Recent Chinese data has shown that the Chinese economy has managed to hold up fairly well in (the second quarter), after a solid start to the year in (the first quarter), which saw an improvement to 6.9," Mr. Hewson said. " Q2 managed to match this performance, helped in no small part by improvements in consumer spending, as well as industrial production in June."


Commodities

Oil prices were choppy early Monday with stronger-than-expected second-quarter GDP figures from China and a slowdown in growth in drilling activity in the United States helped offset concerns about the persistent market overhang. Early on, West Texas Intermediate moved back and forth across the break-even line, trading modestly lower ahead of the North American open. Brent crude followed a similar pattern and was holding near break even at last check.

New U.S. figures released Friday showed drillers in the United States added two oil rigs last week, bringing the total to 765. Over the past four weeks, the average is five new rigs. Meanwhile, the latest U.S. crude inventory figures fell to their lowest level in 10 months.

"WTI and Bent Crude oil are broadly unchanged on the day after the Baker Hughes report showed that the number of active rigs in the US increased by 2 to 765," CMC market analyst David Madden said in a morning note. "The number of active rigs in the US has more than doubled in the past year, and that is contributing to the over-supply worries." 

Reuters also reports that Kuwait said on Friday the market was on a recovery track due to rising demand and that it was premature to cap Nigerian and Libyan output. An OPEC and non-OPEC committee meets in Russia on July 24 to discuss the impact of the deal. OPEC members have agreed to keep production caps in place through to next year but both Libya and Nigeria are exempt.

In other commodities, gold prices edged higher as the U.S. dollar slipped on lower expectations of future interest rate increases in the United States following weaker-than-expected readings on inflation and retail sales last week.

Spot gold and U.S. gold futures were both higher early on. Silver was also trading higher.

Copper prices were at their highest in more than four months on strong Chinese growth figures and a weaker greenback. Benchmark copper in London was up 1 per cent early Monday.


Currencies and bonds

The Canadian dollar hovered near the 79 cent (U.S.) mark as the U.S. dollar weakened on lower expectations for future interest rate increases. The day's rate for the loonie so far is 78.84 cents (U.S.) to 79.11 cents. The high end of that range was hit Sunday evening. Since then, the loonie has wavered around 79 cents. Choppy oil prices overnight offered little clear direction for the currency.

LCG senior market analyst Ipek Ozkardeskaya noted the U.S. dollar has been weaker since Friday's economic data showed softer-than-expected inflation and and retail sales readings for June. Retail sales have decline for two consecutive months now, dampening the mood among Federal Reserve hawks and pushing the greenback to its lowest level since September, she noted. As of Monday, she said, the probability of a December rate hike by the Fed is now 43.4 per cent, down from 50 per cent last week.

In early Monday going, the U.S. dollar touched its lowest level against a basket of world currencies. The U.S. dollar was mostly flat against the yen. Reuters notes that the latest positioning data suggest markets are turning bearish on the U.S. dollar with the first U.S. dollar shorts evident since May 2016. However, the wire service also said that carry trades are flourishing with Japanese yen shorts at its highest level since June 2015.

Other strong performers among world currencies included the Australian dollar, which hit a two-year high against its U.S. counterpart on a combination of U.S. dollar weakness and stronger-than-expected growth numbers out of China.

In bonds, euro-zone bond markets were steady as traders await Thursday's policy decision from the European Central Bank. In the U.S., Treasurys were slightly higher. The yield on the 10-year note was down 0.005 per cent. The yield on the 30-year note was down 0.006 per cent.


Stocks set to see action

Activist investor Nelson Peltz’s Trian Fund Management LP is seeking a board seat at Procter & Gamble Co. for Peltz, according to a regulatory filing on Monday. The fund urged shareholders to vote for Peltz at the company’s shareholder meeting, citing Peltz’s significant expertise and long track record of working successfully with management teams to turn around consumer companies. Trian said it was not seeking a break-up of the maker of Tide detergent and Gillette razors or the replacement of its chief executive.

Dominion Diamond Corp. says it’s accepting a $1.2-billion (U.S.) friendly cash takeover offer from The Washington Companies. The privately held Montana-based company is offering $14.25 per share for all shares of Dominion Diamond, which is one of the world’s largest diamond producers.

BlackRock Inc., the world’s biggest asset manager, reported an 8.6-per-cent rise in quarterly profit, helped by higher fees. Net income attributable to the company rose to $857-million in the second quarter ended June 30 from $789-million a year earlier. On a per share basis, BlackRock earned $5.22, up from $4.73 last year. Excluding items, the company earned $5.24 per share.

Europe’s top banking regulator, the European Central Bank, is considering carrying out a review of Deutsche Bank’s two largest shareholders, a regulatory source told Reuters on Monday. The ECB may launch so-called ownership-control procedures to scrutinise both Qatar’s royal family and China’s HNA, which each owns just under 10 per cent of the shares of Germany’s flagship lender. “That the ECB is investigating or considering to investigate the shareholdings is indeed accurate,” said the person, speaking on condition of anonymity because the person was not authorised to speak publicly about a review that is ongoing.

British broadcaster ITV said on Monday it had appointed Carolyn McCall, the boss of airline easyJet, as its next chief executive, replacing Adam Crozier who has already stepped down. McCall, who was chief executive at newspaper publisher Guardian Media Group before taking the helm at easyJet in 2010, will start at ITV on Jan. 8, 2018, the company said.

Bombardier Inc. has started building its new Global 7000 luxury jet for initial customers, capitalizing on new factory systems to speed up manufacturing as it tries to get the plane certified and into service by the end of 2018. The Canadian plane maker, which received $372.5-million in federal aid earlier this year – earmarked largely for the new Global jet – said it is running four Global 7000 planes through final assembly in Toronto. At the same time, three Global 7000 jets are in flight testing, with two others expected to join them shortly.

More reading: Echelon Wealth's top stock picks for the third quarter
More reading: A breakthrough strategy: How to make TFSAs a retirement-income tool


Economic News

China’s gross domestic product rose 6.9 per cent in the second quarter from a year earlier, the same rate as the first quarter, the National Bureau of Statistics said on Monday. That was higher than analysts expectations for the economy to expand 6.8 per cent.

Statistics Canada says foreign investment in Canadian securities amounted to $29.5-billion in May, mainly purchases of government debt instruments. At the same time, Canadian investors increased their holdings of foreign securities by $4.4-billion, led by investments in U.S. debt instruments, the agency said.

The Canadian Real Estate Association says home sales last month dropped 6.7 per cent compared to May, the biggest monthly decline since June 2010. Sales in June were down 11.4 per cent compared with a year ago.


With files from Reuters and The Canadian Press

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