Equity Markets
The Toronto Stock market is set for a positive open Monday but trading is expected to be muted as the U.S. markets are closed for Martin Luther King Day.
Linamar Corp. shares could see some action after the auto-parts maker said it would create 1,500 jobs and open a new innovation and research centre in an investment backed by about $100-million in funding from the federal and Ontario governments.
The main story coming out of Europe is the collapse of U.K. construction and support services firm Carillion PLC, which has extensive operations in Canada, as the company has been put in liquidation. That move is throwing the future of 43,000 workers worldwide into doubt and raising troubling questions for Prime Minister Theresa May. It employs about 6,000 people in Canada.
Meanwhile, aside from Carillion, the view in Europe has been positive. The euro hit a fresh three-year high on Monday as optimism around growth buoys expectations of tighter policy from central banks.
With the world in general and Europe in particular showing signs of sustained economic growth, global stocks benchmarks jumped to fresh highs, even though investors are now pricing in the withdrawal of central banks' extraordinary stimulus.
MSCI's all-country index of world stocks soared to new records overnight and MSCI's Asia ex-Japan index breached its 2007 high for the first time to set a new all-time record.
That view was given further fuel last week by an account of European Central Bank discussions which suggested policymakers could soon start preparing the ground for a reduction in support.
The single currency rose to $1.2227 at one stage on Monday, a price last seen in Decembe, 2014, just before the ECB first announced its massive government bond purchase programme.
Nor is the ECB the only game in town: Bank of Japan Governor Haruhiko Kuroda offered a positive view on his nation's economy and inflation on Monday, sending the yen to a four-month high against the dollar.
"The latest leg up in the euro has clearly come from optimism that the German government is moving towards a agreement for a coalition government," said Investec economist Victoria Clarke.
German Chancellor Angela Merkel's CDU party and the Social Democrats (SPD) are moving towards formal coalition talks, soothing concerns around Europe's largest economy.
The SPD's pro-European stance -- leader Martin Schulz recently argued for a "United States of Europe" -- also strengthens the case for investment in the euro.
The strength in the euro pushed European stocks a touch lower, as exporters were hit by the currency strength. An index of pan-European stocks was down 0.2 per cent on the day, but still not far from multiyear high hit last week.
Britain's FTSE was off 0.07 per cent, Germany's DAX edged down 0.23 per cent, and France's CAC dipped 0.05 per cent.
Asian stock markets edged higher on Monday after Wall Street's strong finish last week, but Chinese stocks stumbled.
Shanghai stocks fell on Monday to snap an 11-session winning streak, with gains in banking and real estate firms offset by resources and industrial shares, as investors took profits after recent bull run. It fell 0.55 per cent.
Hong Kong's benchmark stock index fell on Monday, snapping a 14-day winning streak, dragged down by a retreat in property shares and index heavyweight Tencent Holdings. It was off 0.23 per cent.
Japan's Nikkei share average tracked a rise in global equities and advanced on Monday, although the dollar's weakening against the yen capped gains.
The Nikkei ended 0.26 per cent higher at 23,714.88 for its first session of gains in four days.
Index heavyweight SoftBank Group Corp. rose as much as 5.8 per cent after the Nikkei business daily reported that the telecoms conglomerate plans to list its mobile-phone business this year in an initial public offering.
Commodities
Oil hovered below a three-year high near $70 (U.S.) a barrel on Monday on signs that production cuts by OPEC and Russia are tightening supplies, but analysts warned of "red flags" due to surging U.S. production.
Trading was relatively slow due to a national holiday in the United States.
A production-cutting pact between the Organization of the Petroleum Exporting Countries, Russia and other producers has given strong tailwind to oil prices, with both benchmarks last week hitting levels not seen since December 2014.
Growing signs of a tightening market after a three-year rout have bolstered confidence among traders and analysts that prices can be sustained near current levels.
Bank of America Merrill Lynch on Monday raised its 2018 Brent price forecast to $64 a barrel from $56, forecasting a deficit of 430,000 barrels per day (bpd) in oil production compared to demand this year.
Gold prices hit a four-month peak on Monday as the U.S. dollar index slumped to its lowest in three years but analysts warned the greenback's decline could be short-lived as it was not driven by fundamentals.
Spot gold was up 0.3 per cent at $1,342.11 an ounce after touching its strongest since Sept. 8 at $1,344.44. The precious metal rose for a fifth straight week last week, gaining 1.4 per cent.
U.S. gold futures were up 0.6 per cent at $1,343.20 an ounce.
Adding a touch of bullishness to gold was data from the U.S. Commodity Futures Trading Commission on Friday, which showed that hedge funds and money managers raised their net long positions in COMEX gold and silver in the week to Jan. 9.
Palladium rose 1 per cent to $1,135 on Monday, after hitting a record high of $1,138. The metal has seen a sustained rally from high demand in the auto industry amid a supply deficit, analysts said.
Spot silver rose 0.6 per cent to $17.35 an ounce, after touching a near three-month high at $17.42. Platinum was up 0.3 per cent at $996.95, after touching its highest since Sept. 11 at $1,001.40.
Currencies and bonds
The Canadian dollar was slightly higher in muted trading Monday, but it stayed above the 80-cent (U.S.) mark as a rise in gold prices offset a dip in oil prices.
In other currencies, the euro held at three-year highs against the dollar on Monday after last week's surge, its rise fuelled by growing expectations that the European Central Bank will tighten monetary policy, while the dollar weakened further.
The dollar has dropped as markets grow increasingly confident that central banks will wind down their monetary stimulus. Measured against a basket of currencies, the dollar was down 0.2 percent on Monday, its lowest since early 2015.
"The weakness in the dollar is not justified by fundamentals. It's a little bit weird considering the divergence in monetary policy should play in favour of a stronger dollar," Capital Economics analyst Simona Gambarini said.
She said the U.S. Federal Reserve is widely expected to raise interest rates, which would favour a stronger dollar, while the European Central Bank should keep rates on hold.
The dollar index was down 0.2 per cent at 90.474, having reached its weakest since January, 2015 at 90.421.
Euro zone borrowing costs pulled back from multi-month highs on Monday after a hefty selloff last week on expectations that the European Central Bank could end its massive stimulus sooner than anticipated.
German Bundesbank President Jens Weidmann, normally one of the staunchest critics of the ECB's ultra-easy policy, said late on Friday the risk of an imminent hike in interest rates was low.
Those comments bought some respite to battered bond prices, but overall trade was subdued with U.S. markets closed for a holiday on Monday.
Canada's 10-year bond was up slightly at 2.17 per cent.
Stocks set to see action
There could be an impact on Canadian marijuana stocks as executives in the cannabis industry said they are worried about the fallout from a move announced Friday by Canadian securities regulators to reconsider rules that allow marijuana firms with U.S. operations to go public and raise money in Canada, as long as they disclose the legal risks they face south of the border. Eight days after U.S. Attorney General Jeff Sessions revoked an Obama-era policy, referred to as the Cole Memorandum, that limited how federal prosecutors could investigate state-licensed marijuana companies, the Canadian Securities Administrators (CSA) says it is rethinking the approach it instituted last October.
Linamar Corp. could see a boost in its stock ahead of an announcement that it will create 1,500 jobs and open an new innovation and research centre in an investment backed by about $100-million in funding from the federal and Ontario governments.
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Economic News
Resales of Canadian homes rose 4.5 per cent in December from November, the fifth straight monthly rise, likely because activity was pulled forward to avoid mortgage rule changes that hit in January, the Canadian Real Estate Association said on Monday.
The industry group said actual sales, not seasonally adjusted, rose 4.1 per cent from December, 2016, while home prices were up 9.1 per cent from a year earlier, according to the group's home price index. The estimate was for increases of 3.0 per cent for existing home sales and 4.5 per cent for average prices, respectively, year over year.
(8:30 a.m. ET) Canadian new motor vehicle sales for November are announced. The analyst estimate is a decline of 1.0 per cent year over year.
(9 a.m. ET) Canadian MLS Home Price Index for December is revealed. Estimate is a rise of 9.0 per cent year over year.
With files from Reuters and Bloomberg