Canada’s main stock index slipped in early trade on Monday as bank shares fell and energy companies were weighed down by lower oil prices, offsetting gains for materials stocks including acquisition target Dominion Diamond Corp.
The Toronto Stock Exchange’s S&P/TSX composite index was down 1.46 points, or 0.01 per cent, at 15,489.03 shortly after the open. Six of its 10 main groups gained..
The Canadian dollar weakened on Monday against its U.S. counterpart as lower oil prices offset strong domestic wholesale trade data, while investors weighed the G20’s decision to drop a pledge to resist trade protectionism.
Financial leaders of the world’s biggest economies dropped a pledge to keep global trade free and open, acquiescing to an increasingly protectionist United States.
About 75 per cent of Canadian exports go to the United States. Its economy could be hurt by renegotiation of the North American free-trade agreement (NAFTA) or the implementation of a proposed U.S. border adjustment tax.
Prices of oil, one of Canada’s major exports, fell on concerns that growing U.S. crude output could hamper an Organization of the Petroleum Exporting Countries-led production cut deal.
At 9:21 a.m. ET, the Canadian dollar was trading at $1.3349 to the greenback, or 74.91 U.S. cents, slightly weaker than Friday’s close of $1.3337, or 74.98 U.S. cents. The currency traded in a range of $1.3304 to $1.3371.
U.S. stocks opened little changed on Monday as investors digested the G20’s decision to drop a pledge to keep global trade free and as oil prices fell.
The Dow Jones Industrial Average fell 9.48 points, or 0.05 per cent, to 20,905.14.
The S&P 500 lost 2.34 points, or 0.09 per cent, to 2,375.91.
The Nasdaq Composite dropped 1.45 points, or 0.02 per cent, to 5,899.55.
World markets balked on Monday at the G20’s decision to drop a decade-old pledge to resist trade protectionism, with stocks, the dollar, oil and the price of many major sovereign bonds all sliding into the red.
Investor skepticism over how much the U.S. Federal Reserve will be able to raise rates weighed on the dollar too, although with the exception of gold, the greenback’s weakness failed to give a fillip to commodities, as is often the case.
European stocks fell as much as 0.3 per cent.
Banks were among the biggest decliners in Europe, dragged down by a 3-per-cent fall in Deutsche Bank shares one day before the start of Germany’s biggest lender’s 8 billion-euro cash call.
“European equity markets have started the week with a heavy risk-off sentiment after the G20 communique explicitly reflected U.S. intentions to establish trade protectionist measures,” said Ipek Ozkardeskaya, senior market analyst at London Capital Group.
“As the world’s number one economy is preparing to set significant barriers against the world, investors are increasingly worried,” she said.
Financial leaders of the world’s biggest economies dropped a pledge to keep global trade free and open, acquiescing to an increasingly protectionist United States after a two-day meeting failed to yield a compromise.
Breaking a decade-long tradition of endorsing open trade, G20 finance ministers and central bankers made only a token reference to trade in their communiques on Saturday.
The FTSEuroFirst index of leading 300 European shares fell 0.2 per cent to 1,489 points, Britain’s FTSE 100 fell 0.2 per cent and Germany’s DAX fell 0.3 per cent.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose almost 0.4 per cent to hit its highest level in more than two years on Monday. As a result, MSCI’s global benchmark equity index was little changed.
On Friday, Wall Street was flat to negative, dragged lower by bank shares that slid along with Treasury yields.
The 10-year U.S. Treasury yield has fallen since the Fed raised rates last week for only the third time in over a decade. It edged up a basis point on Monday 20 2.51 per cent.
The gap between two- and 10-year yields has shrunk recently, meaning the yield curve has flattened. This suggests investors are skeptical that growth and inflation will be strong enough to warrant a sustained cycle of rate hikes, and this has subsequently weighed on the dollar.
After raising rates last week, the Fed reiterated plans for a total of three rate hikes this year, fewer than the four markets were expecting.
G20 financial officials reiterated their warnings against competitive devaluations and disorderly currency markets. The dollar didn’t show much reaction, taking its cue instead from the moves in U.S. yields.
Currency markets are also focused on a raft of speeches by Fed officials this week, including Chicago’s Charles Evans on Tuesday and Friday, Chair Janet Yellen on Thursday, Dallas’s Robert Kaplan and Minneapolis’s Neel Kashkari on Friday and New York’s William Dudley on Saturday.
“Sentiment towards the dollar has deteriorated significantly,” Societe Generale FX analysts said in a note to clients on Monday.
The dollar index of its value against a basket of six currencies hit a six-week low of 100.02 on Monday before recovering most of its losses. A fourth straight lower close on Monday would mark its longest losing streak since November.
The U.S. dollar inched up 0.1 per cent against the yen to 112.85 yen, while the euro rose 0.2 per cent to $1.0760.
Citi became the latest major bank to abandon its headline forecast for a fall in the euro to below parity with the dollar, upping its prediction for the single currency over the next six to 12 months to $1.04 from $0.98 previously.
Attention now turns to the French election, with the first presidential debate set to take place on Monday. Opinion polls show independent centrist Emmanuel Macron would lead far-right leader Marine Le Pen by a hair in first-round voting, before beating her handily in the run-off.
Oil fell around 1 per cent on Monday as investors continued to unwind bets on higher prices after record cuts last week because of concerns that growing U.S. oil output could hamper an OPEC-led production cut deal.
Benchmark Brent crude futures were down 55 cents at $51.21 a barrel. U.S. West Texas Intermediate (WTI) crude futures were trading 73 cents lower at $48.05 a barrel.
“Speculative investors have thrown in the towel it seems. We’ve got record selling in the week ending March 14 and the bleeding has not stopped yet,” said Carsten Fritsch, senior commodities analyst at Commerzbank in Frankfurt.
Oil futures have retreated in the past two weeks as a supply overhang driven by rising production from the United States overshadows a deal by OPEC and other producers to reduce output.
The persistent glut prompted hedge funds and other money managers to cut their net long U.S. crude futures and options positions by a record amount in the week to March 14.
On Monday, ICE data showed speculators reduced long positions on Brent by 66,683 contracts, the highest since November 2016.
This means that speculators last week cut more than 150,000 contracts betting on firmer oil prices, a record high.
Latest U.S. drilling data supported estimates for higher production, with 14 oil rigs added in the week to March 17 to 631, the most since September 2015, energy services firm Baker Hughes Inc said on Friday.
Growing U.S. production is playing into concerns about the effectiveness of the deal to cut production by the Organization of the Petroleum Exporting Countries and non-OPEC members.
The prospect of higher output from Libya, which is exempt from the deal, is adding further bearish sentiment.
Libya’s National Oil Corporation (NOC) said it was confident of regaining control of two key oil ports, Es Sider and Ras Lanuf, which have a combined capacity to export 600,000 bpd.
“Hedge selling from producers and long-liquidation from funds is a bearish cocktail,” said Ole Hansen, Saxo Bank’s head of commodity strategy.
An upgrade in supply estimates also led analysts at J.P. Morgan to cut their 2017 and 2018 price forecasts.
“The risks that OPEC has painted itself into a corner cannot be ignored and it may need to extend or even increase cuts, if the response from shale producers is more vigorous than we currently model,” they said in a report.Report Typo/Error
- Crude Oil Front Month Futures$49.87+0.97(+1.98%)
- Gold Front Month Futures$1,266.70+10.30(+0.82%)
- S&P/TSX Composite15,416.93+6.20(+0.04%)
- Dow Jones Industrials21,080.28-2.67(-0.01%)
- NASDAQ NMS COMPOSITE INDEX6,210.19+4.94(+0.08%)
- S&P 500 INDEX2,415.82+0.75(+0.03%)
- Updated May 26 4:37 PM EDT. Delayed by at least 15 minutes.