Equity Markets
Canada's main stock index rose on Tuesday as energy stocks, buoyed by oil prices near five-month highs, led the index to its highest since Aug. 9.
The Toronto Stock Exchange's S&P/TSX composite index rose 33.96 points, or 0.22 per cent, to 15,270.63.
The technology group was the lone decliner among the index's 10 key sectors
U.S. stocks opened slightly higher on Tuesday, with the Dow hitting another record, ahead of the two-day Federal Reserve meeting that is expected to roll out a plan to pare the central bank's bond holdings.
The Dow Jones Industrial Average rose 31.18 points, or 0.14 per cent, to 22,362.53. The S&P 500 gained 3.04 points, or 0.12 per cent, to 2,506.91. The Nasdaq Composite added 10.62 points, or 0.16 per cent, to 6,465.26.
Investors do not expect the central bank to increase interest rate in the meeting but will closely watch Fed Chair Janet Yellen's views on inflation, which remains stuck below the Fed's 2-per-cent target rate.
"If I'd be watching anything, it would be primarily with regard to their plans to raise rates in December, which now the market has a 50-50 odds on," said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.
However, the biggest determinant (a Dec. rate hike) will be how the equity and bond markets react to the reduction of Fed's bond portfolio, said Frederick.
Any reduction in the balance sheet could make it harder for banks and investors to borrow certain Treasuries in the repurchase agreement market, making it more difficult and expensive to bet on or protect against interest rate increases.
U.S. stocks have been breaching record levels, with the Dow clocking a closing record for the fifth day in a row on Monday and the S&P closing at a record for the second consecutive session.
Investors will also watch U.S. President Donald Trump's speech at the United Nations General Assembly where he is expected to urge U.N. member states to increase pressure on North Korea to give up its nuclear weapon ambitions. The speech is scheduled at 10:30 a.m. ET.
"Despite recent poor U.S. economic data there still seems to be a belief amongst some in the markets that we could see one more rate hike this year, something that may well be borne out by tomorrow's rate dot plot projections," CMC chief markets analyst Michael Hewson said in a note. "Whether the projections survive their exposure to the real world of the hurricane clear up of Harvey and Irma is another matter, not to mention the prospect of further hurricanes with the latest in the form of Maria as it moves towards Puerto Rico."
Markets are evenly divided on whether the Fed will come through with another rate hike by the end of the year. However, many analysts expect to see signals Wednesday that the central bank is moving to begin pulling back on its massive stimulus program. JP Morgan Asset Management portfolio manager Iain Stealey told Reuters markets were now fully set for the Fed to officially announce it will cut, or taper, the amount it reinvests from the profits of its $4.2-trillion bond portfolio.
"They have already announced the amounts they are going to start with, $10-billion on a monthly basis and probably starting over the next month or so," Mr. Stealey said.
In Canada, markets got a reading on July factory activity. Statistics Canada said in a release before the open that sales for the month were down 2.6 per cent after a drop of 1.9 per cent the month before. July's decrease was concentrated in the motor vehicle and parts sector. Excluding autos, sales were up 0.2 per cent, the agency said.
"The year-to-date gains in the factory sector have now been reversed, giving reason for pause to those who would bid up the Canadian dollar much further, or price-in a too aggressive path of tightening from the Bank of Canada from here," CIBC economist Nick Exarhos said.
In corporate news, Air Canada holds its investor day Tuesday morning. Ahead of the session, Air Canada raised the higher end of a key profit metric and set new loyalty program targets for 2018 to 2020, Reuters reports. The company said it expected earnings before interest, taxes, depreciation, amortization, impairment and aircraft rent margin to range from 17 percent to 20 percent, up from its earlier forecast of 17 percent to 19 percent. The airline also said net present value from its loyalty business is expected to range between $2-billion and $2.5-billion over a fifteen year period, excluding tax. CEO Calin Rovinescu said in a statement that the carrier has 'made significant progress in executing our business plan over the last several years' and noted that Air Canada's share prices has appreciated about 3,000 per cent since 2009.
South of the border, Adobe and FedEx release results after the close. Analysts polled by Zacks Investment Research expect Adobe to report earnings of 82 cents a share. FedEx is forecast to report earnings per share of $3.17.
U.S. President Donald Trump is also scheduled to make his first address to the United Nations on Tuesday and is expected to address ongoing tensions with North Korea.
Overseas, markets were mixed. Japan's Nikkei - which was closed Monday for a public holiday - jumped 2 per cent and MSCI's 47-country All World index hit record levels. Elsewhere, however, markets were less enthusiastic. Britain's FTSE 100 edged up 0.32 per cent and France's CAC 40 advanced 0.09 per cent. Germany's DAX was off 0.13 per cent.
Elsewhere in Asia, the Shanghai composite index finished in the red, closing down 0.18 per cent and Hong Kong's Hang Seng finished 0.38 per cent lower.
Commodities
Crude prices rose Tuesday after the release of new figures showied lower exports from top OPEC producer Saudi Arabia and a drop in output by Iraq. Benchmark Brent crude rose in early trading and was close to its five-month high of $55.99. West Texas Intermediate also posted fairly steady gains in the predawn hours and was trading higher at last check.
The gains came after Saudi Arabia's exports fell to a three-year low this summer. Sentiment was further bolstered by report that Iraq, OPEC's second largest producer, had cut output by 260,000 barrels a day.
As the day unfolds, traders will also be keeping an eye on the course of Hurricane Maria in the Caribbean. The storm remains far from key oil regions in the Gulf of Mexico but could pose further threat to shipping routes.
Also factoring into crude's movement on Tuesday will be figures released Monday by the U.S. Energy Information Administration which showed an expected increase in shale output in October. That would mark the tenth straight monthly increase. The agency said shale output is expected to increase by about 79,000 barrels a day to 6.1 million barrels next month.
In other commodities, gold prices edged higher after falling to a two-week low on Monday as the U.S. dollar weakened ahead of the Fed meeting.
Spot gold was modestly higher. U.S. gold futures for December delivery were also up. The Fed is expected to announce plans to trim is asset portfolio in Wednesday's policy statement. Analysts say the fact that the central bank has clearly signalled its intentions has resulted in gold holding its gains despite the expected move.
In other metals, silver was also lower. London copper was trading higher on signals that economic growth was holding up in China despite signs of a cooling property market.
Currencies and bonds
The Canadian dollar was trading off early morning lows Tuesday as concern from the Bank of Canada over the currency's impact on the economy continued to weigh. In early going, the loonie was trading down from Monday's Bank of Canada closing price of 81.71 cents (U.S.). The day's range so far is 81.25 cents to 81.55 cents. At last check, the loonie was trading near the middle of that range. A day earlier, comments from Bank of Canada deputy governor Timothy Lane sideswiped the dollar, sending it down nearly a full cent in the wake of the remarks. Taking questions after a speech in Saskatchewan, Mr. Lane said the central bank would be "be taking that (stronger Canadian dollar) into account pretty strongly in making our decisions." The central bank has raised rates twice already this summer.
In its Global FX Strategy note, Scotiabank said there is "clearly an agenda of some sort and it may be to simply nudge market expectations away from an additional rate increase coming in October and more towards December." However, the bank also said the remarks should not been seen as a push back against broader expectations that additional rate increases are likely.
"We expect another rate tightening in December and Lane noted today that interest rates remain low relative to 'neutral,'" Scotiabank said. "It strains belief somewhat that policy makers can be too surprised by the CAD's performance in the past few weeks."
"Central banks may be In motion after a long hiatus but there are very few who have appeared as committed to tightening as the BoC at the moment."
Elsewhere, the U.S. dollar managed an eight-week high against the yen as the Fed meeting gets underway. The U.S. dollar index, which weighs the currency against a basket of world counterparts, was slightly lower as markets awaited Mr. Trump's appearance before the UN.
In bonds, the yield on the U.S. 10-year note was lower at 2.218 per cent. The yield on the 30 year note was also lower at 2.791 per cent.
Stocks set to see action
A private company led by a onetime senior executive at Cenovus Energy Inc. is leading a bid to acquire a major Alberta natural gas property from his former employer, a deal that could be worth up to $600-million, sources say. The Globe reports that Torxen Resources Ltd., led by former Cenovus chief operating officer John Brannan, is said to be the front-runner to acquire the Suffield property according to industry and finance sources familiar with the talks. The transaction would be the second for Calgary-based Cenovus as part of a slate of assets sales that could garner up to $5-billion, with proceeds earmarked for debt reduction following the company's takeover of ConocoPhillips Co.'s oil sands and Albertan deep-basin natural gas assets.
Gluskin Sheff + Associates Inc. announced that Tom MacMillan has decided to step down as president and chief executive officer effective immediately. Mr. MacMillan also stepped down as director of the company.
The activist investor fighting Clariant's planned $20-billion merger with Huntsman Corp has built a 15.1 per cent stake in the Swiss chemicals maker, making it the company's biggest shareholder. In a letter to Clariant's board of directors, White Tale Holdings, a vehicle created by investor Keith Meister's Corvex hedge fund and New York's 40 North, underscored its opposition to the Huntsman deal "Unfortunately, we remain convinced, and increasingly so, that the proposed merger is detrimental to Clariant shareholders," it said in the letter published on Tuesday. "It both significantly destroys existing Clariant shareholder value and prevents Clariant from pursuing multiple alternative and immediate opportunities to unlock value for its shareholders." The investor, which said it was open to joining Clariant's board, said alternatives included selling its plastics and coatings unit, which accounts for 43 per cent of the company's 5.8 billion Swiss francs ($6-billion) in annual revenue.
British online grocer Ocado warned that additional investment in developing its distribution centres would increase short term costs, sending its shares lower. Founded by three former Goldman Sachs bankers in 2000, Ocado has divided analysts like few other stocks and the latest comments are only likely to fuel the debate. Advocates regard its home deliveries from giant distribution centres as the future of grocery shopping, but critics see a costly and complex venture that will not make sustained profits. Ocado said it was raising capacity at its third high-tech Customer Fulfilment Centre (CFC) in Andover, southern England, while also preparing its fourth, and largest centre in Erith, on the edge of London, that is set to open in 2018.
Tesla was down 1.35 per cent in premarket trading after Jefferies started coverage of the electric car maker's stock with "underperform."
Nike fell more than 1 percent after a slew of price target cuts by brokerages.
Michael Kors rose about 2.56 per cent after Oppenheimer upgraded the stock to "outperform" from "perform."
Packaged foods company Post Holdings Inc. said it would buy frozen meals maker Bob Evans Farms Inc. for about $1.5-billion. The offer of $77 per share represents a premium of 5.6 per cent to Bob Evans' Monday close.
Privately held Toys "R" Us has filed for bankruptcy protection in the United States and says it intends to follow suit in Canada. The company filed Chapter 11 documents late Monday in U.S. Bankruptcy Court in Richmond, Virginia and says its Canadian subsidiary plans to seek protection in parallel proceedings under the Companies' Creditors Arrangement Act in the Ontario Superior Court of Justice.
More reading: Tuesday's small-cap stocks to watch
More reading: Tuesday's insiders report
Economic News
Manufacturing sales fell 2.6 per cent to $52.5-billion in July, Statistics Canada said Tuesday. The decrease came after a 1.9-per-cent decline in June. Motor vehicle and parts sales were responsible for the drop. Excluding that sector, sales rose 0.2 per cent.
U.S. home building fell for a second straight month in August . Housing starts slipped 0.8 per cent to a seasonally adjusted annual rate of 1.18 million units. July's sales pace was revised higher to 1.19 million units from the previously reported 1.16 million units.
Also: U.S. Federal Open Market Committee meeting begins (through Wednesday)
With files from Reuters and Bloomberg