Equity Markets
Canada's main stock index slipped in early trade on Tuesday, weighed by falls among financial stocks, while Cenovus Energy Inc. and Canadian Natural Resources Ltd. both jumped after announcing a deal for Cenovus' Pelican Lake assets.
The Toronto Stock Exchange's S&P/TSX composite index was down 29.15 points, or 0.19 per cent, at 15,162.45 shortly after the open.
Cenovus was up 3.6 per cent to $10.31 in early trading, while Cannadian Natural Resources rose 0.9 per cent to $39.08.
Wall Street opened lower on Tuesday as investors remained cautious after North Korea conducted its most powerful nuclear test over the weekend.
The Dow Jones Industrial Average fell 73.02 points, or 0.33 per cent, to 21,914.54. The S&P 500 lost 6.69 points, or 0.27 per cent, to 2,469.86. The Nasdaq Composite dropped 19.79 points, or 0.31 per cent, to 6,415.54.
North Korea conducted its sixth nuclear test on Sunday, which it said was of an advanced hydrogen bomb for a long-range missile, marking a dramatic escalation of the regime's stand-off with the United States and its allies.
The United States blamed North Korea's trading partners on Monday of aiding its nuclear ambitions and the White House declared that "all options to address the North Korean threat are on the table."
"We see no panic in the market just as yet, it feels like it is the calm before the storm and investors are being somewhat cautious," said Peter Cardillo, chief market economist at First Standard Financial in New York.
Equity markets have shown resilience to geopolitical events surrounding North Korea of late, with initial losses erased relatively quickly.
Safe-haven gold pulled back from a one-year high in its first drop in four days.
"We have seen this scenario before where tensions rise and stocks fall, followed by no new developments, and then equities bounce back," David Madden, market analyst with CMC Markets U.K., said. "The situation is still ongoing."
He noted markets in Europe had turned higher despite North Korea's latest nuclear test, likely due to short covering and bargain hunting. "In tense times...not many investors would buy into the market for the long haul," he said.
On Monday, the G7 condemned North Korea's latest test, while the White House again said all options are on the table in dealing with the situation. However, on Tuesday, Russian President Vladimir Putin warned that threats of military action against North Korea could trigger a "global catastrophe."
In Canada, Hudson's Bay shares slipped after the retailer said Monday that its commitment to Europe is "rock solid" as it opened its first outlets in the Netherlands. That comes as activist investor Jonathan Litt asked HBC to look at a number of options to shore up operations, including going private and monetizing its real estate assets. HBC reports its latest results after the close of trading Tuesday.
On Wall Street, traders will hear remarks from three separate Federal Reserve officials. BMO chief economist Douglas Porter notes a total of seven Fed officials step up to the podium this week.
"Most will likely reveal which side of the policy tug-of-war they are pulling for, with the hawks fretting about continued above-potential growth and tight labour markets, while the doves coo about subdued wages and below-target inflation," he said.
In a speech early Tuesday, Fed Governor Lael Brainard said U.S. inflation is "well short" of the Fed's 2-per-cent target so the Fed should be cautious about raising interest rates more until price pressures firm.
On the earnings front, Hewlett Packard reports its latest results after the close of trading. Analysts are expecting earnings of about 26 cents a share.
Overseas, the positive sentiment in Europe was helped by a report showing robust business activity in August, however markets turned mixed as the day progressed. IHS Markit's final composite Purchasing Managers' Index for the euro zone came in at 55.7 for the month. That was slightly below an earlier estimate. The measure has now been above 50 - which signals expansion in the sector - since 2013.
In Europe, Britain's FTSE 100 fell 0.16 per cent. France's CAC 40 slipped 0.14 per cent and Germany's DAX was up 0.45 per cent.
In Asia, markets finished mixed on concern over the Korean Peninsula offsetting news that China's services sector grew at its fastest clip in three months.
Japan's Nikkei finished down 0.63 per cent. Hong Kong's Hang Seng index was essentially flat while the Shanghai composite index edged up 0.16 per cent.
Commodities
Crude prices were higher Tuesday as storm-shuttered refineries in the United States gradually restarted. Early on, West Texas Intermediate futures rose by more than 1 per cent, while Brent also continued a fairly steady march higher in the early morning period.
As of Monday, the U.S. Department of Energy said eight U.S. refineries with 2.1 million barrels per day of refining capacity - or about 11. 4 per cent of the country's total - were shut.
Reuters also notes that gasoline futures fell about 4 per cent from the latest close to $1.68 per gallon. That's down from $2.17 on August 31. Gasoline futures are now back to levels seen before Harvey slammed the U.S. Gulf Coast. In a report Tuesday, Goldman Sachs said more than half of the U.S. oil refining capacity that was knocked offline by Harvey should be back in service by Thursday.
Elsewhere, market sentiment was also helped by suggestions that OPEC could extend output caps beyond the first quarter of next year. Russian Energy Minister Alexander Novak was quoted Tuesday as saying that Russia and Saudi Arabia have talked about extending the agreement to cut output among OPEC and non-OPEC producers although no final decisions have been make. Iranian Oil Minister Bijan Zangeneh said unofficial talks were under way to extend the cuts, adding that global crude inventories remained at high levels, Reuters reports.
In other commodities, gold shifted higher as safe-haven assets remained in favour. Spot gold and U.S. gold futures for December delivery were both higher early on.
"Gold prices continued to point north this morning, suggesting that risk appetite remains underwater," OCBC analyst Barnabas Gan said. "Concerns over geopolitical tensions will likely dominate sentiments for the week ahead."
Silver prices, meanwhile, were down modestly. Copper prices were higher for the fourth straight session and touched their best levels since 2014 on the expectation that demand in China will remain strong.
Currencies and bonds
The Canadian dollar was moving higher early on, approaching 81 cents (U.S.) as markets await the latest rate announcement from the Bank of Canada. The day's range so far for the loonie is 80.54 cents to 80.76 cents. At last check, the dollar was near the upper end of that range. The Bank of Canada makes its next interest rate announcement Wednesday morning and economists have increasingly debated whether the central bank would again push rates higher. Last week, Statistics Canada surprised the markets with a report showing that GDP grew at an annual rate of 4.5 per cent in the second quarter, far stronger that most economists had expected. That resulted in a number of economists pushing their call for a rate hike forward.
"Staying on the highway with a second consecutive quarter point hike in September has the risk of sending the C$ soaring, should the market conclude Bank was in a hurry to raise rates ahead. But the BoC has words, as well as actions, to unveil (this) week," CIBC World Markets chief economist Avery Shenfeld said in a recent note. "If it ended its statement by asserting "monetary policy settings are now appropriate" after reversing the two earlier cuts, it would signal a pause after September."
Alternatively, he said, the central bank could take a slower route, leaving rates unchanged but tailoring the language in its statement to hint at an October move is likely. Either way, he said, the central bank is likely to get the message out that "a 1 per cent rate is here to stay for a while."
In other currencies, the euro extended gains against the U.S. dollar ahead of a meeting by the European Central Bank later this week. Analysts have suggested any attempt by the central bank to talk the euro lower could have limited impact.
The U.S. dollar index, which weighs the greenback against a basket of currencies, was slightly lower early on.
In bonds, U.S. Treasurys were higher as the markets awaited several key Fed speakers and possible clues about the course of borrowing costs in the United States. The yield on the 10-year note was lower at 2.134 per cent while the yield on the 30-year note was also lower at 2.755 per cent.
Stocks set to see action
Canadian Natural Resources Ltd.. has agreed to buy Cenovus Energy Inc..'s Pelican Lake heavy oil operations and other Northern Alberta assets for $975-million in cash. The assets produce about 19,600 barrel-of-oil equivalents per day. The companies announced the deal, which is expected to close by Sept. 30, in statements Tuesday morning. In recent months, Cenovus has been divesting oil and gas properties to pay down what it borrowed to fund the company's $17.7-billion acquisition of assets from ConocoPhillips Co. earlier this year.
Lego said it would lay off 8 per cent of its staff and revamp its business after reporting its first fall in sales in more than a decade on Tuesday. The report of a 5-per- cent decline in mid-year revenue came a month after Lego abruptly removed its chief executive, suggesting the company is facing its biggest test since flirting with bankruptcy in the early 2000s. The Danish toymaker said it could not promise a return to growth in the next two years, a jolting acknowledgement for a group widely admired for embracing the digital era and tying up lucrative franchises from Harry Potter to Minecraft.
Britain's Aveva Group said on Tuesday it had agreed to combine with Schneider Electric's software business to create a London-listed leader in industrial software worth more than 3 billion pounds ($3.88 billion). France's Schneider will take a 60-per-cent stake in the enlarged group under the terms of the deal, which is structured as a reverse takeover, the companies said. The tie-up comes after two abandoned attempts to agree a deal in 2015 and last year. Aveva shares surged in Britain.
The storied New York tabloid newspaper the Daily News has been acquired by Tronc, the publisher of the Los Angeles Times and The Chicago Tribune. Chicago-based Tronc Inc.. announced the deal Monday night, and the Daily News published a story on its website. The 98-year-old Daily News and ProPublica together won this year's Pulitzer Prize in public service journalism for a project about evictions. It was the 11th Pulitzer for the Daily News, known over the years for zesty headlines, gossip, city coverage, star columnists and, lately, criticism of President Donald Trump. Like Trump, Daily News owner Mort Zuckerman is a New York real estate magnate.
Aerospace supplier United Technologies Corp has struck a $30-billion agreement to buy avionics and interiors maker Rockwell Collins Inc., the companies said on Monday, in a deal that bulks up UTC's power with plane makers by creating one of the world's largest makers of civilian and defense aircraft components. Farmington, Connecticut-based United Technologies will pay $140 per share for Rockwell Collins, split between $93.33 per in cash and $46.67 in stock, according to the companies. The price represents a 17.6 percent premium to Rockwell's $119 share price before news of the talks emerged on Aug. 4. United's shares fell 2.3 per cent in premarket trading, while Rockwell's stock gained 0.3 per cent.
Boeing has rejected Ottawa's call to drop its trade complaint against Bombardier, warning the federal government that Canada's aerospace industry will be one of the main victims if the U.S.-based giant is frozen out of future military contracts. Boeing International president Marc Allen said the priority is fighting back against illegal subsidies and ensuring the global aerospace industry operates by a clear and common set of rules. Boeing shares were off 0.13 per cent in premarket trading.
Also, Boeing Co. won a round in a long-running U.S. trade dispute with the European Union over government backing for the planemaker and competitor Airbus SE. The World Trade Organization's appellate body overruled a lower-level finding that $8.7 billion in tax incentives awarded by Washington state to Chicago-based Boeing for the development of the 777X jetliner constituted the most serious transgression of subsidy restrictions. The appellate body isn't making a recommendation in the dispute, it said Monday in a statement.
Insmed Inc said its drug for the treatment of a rare lung disorder met the main goal in a key study, sending its shares soaring in premarket trading on Tuesday. The drug, Alis, was used for the treatment of resistant nontuberculous mycobacterial (NTM) lung infections in a late-stage study that involved 336 adult patients. The company said the addition of the drug to standard treatment showed statistical significance in reducing bacterial density, a measure of change in infection, by the sixth month in 29 percent of patients, compared with 9 percent in patients on standard treatment alone. Insmed's shares surged 105.7 percent to $25.30 before the bell.
Hudson's Bay Co.'s commitment to Europe is "rock solid," Chief Executive Gerald Storch told Reuters in an interview, ahead of the opening of the first of 10 planned name-sake department stores in the Netherlands on Tuesday, bucking a trend away from bricks and mortar. The European expansion comes in the face of pressure from activist investor Jonathan Litt, who has asked HBC to consider various options in the wake of flagging sales, including going private, monetizing its real estate holdings, valued at about $10-billion, and selling its European operations.
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Economic News
Business activity in the euro zone stayed robust in August as it outpaced Britain, where an economy increasingly bogged down by Brexit worries lost momentum, surveys showed on Tuesday. Growth in the euro zone slowed only marginally from the blistering pace set in the spring, according to a Purchasing Managers' Index. An equivalent reading for Britain was the lowest since last September, shortly after the referendum vote to leave the European Union.
U.S. inflation is falling "well short" of target so the Federal Reserve should be cautious about raising interest rates any further until it is confident that prices are headed higher, an influential Fed policymaker said on Tuesday. In a dovish speech in the face of months of weak inflation readings, Fed Governor Lael Brainard said the U.S. central bank should go so far as to make it clear it is comfortable pushing prices modestly above the Fed's 2-per-cent target. "We should be cautious about tightening policy further until we are confident inflation is on track to achieve our target," Brainard, a permanent voter on monetary policy, said in a speech in New York.
New orders for U.S.-made goods recorded their biggest drop in nearly three years in July, but orders for capital goods were stronger than previously reported, pointing to robust business spending at the start of the third quarter. Factory goods orders tumbled 3.3 per cent amid a slump in demand for transportation equipment, the Commerce Department said on Tuesday. That was the biggest drop since August 2014. June's data was revised to show orders rising 3.2 per cent instead of the previously reported 3.0 percent surge. Economists had forecast factory orders declining 3.3 per cent in July.
(10 a.m. ET) U.S. factory orders for July are released.
(10 a.m. ET) U.S. durable goods orders for July are announced.
With files from Reuters and Bloomberg