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Before the Bell: Dow set to fall on trade worries; TSX to open lower as oil hit

U.S. and Canadian stocks are set to drop sharply at the open as ongoing trade concerns rattle investors.

World stocks sank on Monday, hit by worries over a worsening trade dispute between the United States and other leading economies, while crude oil prices fell by over two percent as traders factored in an output rise agreed by major exporters.

The Wall Street Journal said U.S. President Donald Trump planned to bar many Chinese companies from investing in U.S. technology firms and block additional technology exports to China.

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Taking a particular hit on the trade tensions was the European autos sector, falling 1.9 per cent and set for its seventh straight day of losses after Trump said on Friday he aimed to hike tariffs on EU car imports by 20 per cent.

MSCI’s All-Country World index, which tracks shares in 47 countries, was down 0.3 per cent.

As the threat of a full-blown trade war has grown, the gauge has fallen in five of the last six weeks. Last week it fell one perc ent -- its biggest weekly drop in three months.

“We suspect the Trump team will push ahead with these policies (which will elicit reciprocal tariffs from China and the EU) until U.S. equities start to crumble and polls move against Trump,” ING strategists wrote in a research note.

A spread between approval and disapproval ratings of the U.S. President had reached its narrowest since March 2017, they noted.

Chinese shares were among the biggest losers, falling 1.27 per cent and tumbling 3.7 per cent last week, as Trump threatened to hit $200-billion of Chinese imports with 10 per cent tariffs.

In Europe, Britain’s FTSE was off 1.36 per cent, Germany’s DAX fell 1.33 per cent and France’s CAC was down 0.82 per cent.

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In Asia, the Nikkei was down 0.79 per cent, Shanghai was off 1.04 per cent and the Hang Seng declined 1.29 per cent.


Commodities

Brent crude oil fell by more than 1 per cent on Monday as investors prepared for an extra 1 million barrels per day (bpd) in output to hit the markets after OPEC and its partners agreed to raise production.

Despite the increase, which is intended to stop the gap between global supply and demand from becoming too wide, analysts said global oil markets would likely remain relatively tight this year.

Prices initially jumped after an OPEC deal to increase output was announced late last week, as it was not seen boosting supply by as much as some had expected.

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OPEC and non-OPEC partners including Russia have since 2017 cut output by 1.8 million bpd to tighten the market and prop up prices.

“OPEC are really going all-out to prevent oil prices from biting in the second half of the year,” SEB head of commodities Bjarne Schieldrop said.

“It was a very strong message - we are going to meet demand and we’re not going to disappoint consumers.”

Gold steadied off last week’s six-month low on Monday as concerns over a global trade war ratcheted higher after a report said the United States plans to bar Chinese companies from investing in its technology firms.

A stronger dollar kept the pressure on prices, however.

The U.S. Treasury Department is crafting rules that would block firms with at least 25 percent Chinese ownership from buying U.S. companies involved in “industrially significant technology,” the Wall Street Journal reported on Sunday.

This was the latest escalation in a global trade war that has seen China and the United States threaten billions of dollars worth of tariffs on each other’s imports.

The standoff between the world’s two largest economies threatens to limit global economic growth, analysts said, but could benefit gold which can shine in time of economic and political turmoil.


Currencies

Trade worries continued to weigh on the Canadian dollar and it was trading at the 75 US cent level, down slightly.

Worries about trade and tariffs have knocked the loonie down sharply over the last few weeks.

A rally in the euro faded on Monday as the dollar edged up with trade tensions between the United States and the European Union seen deciding the near-term direction for the currencies.

On Monday, the greenback rose 0.2 per cent against a basket of major currencies, moving towards an 11-month high.

But the dollar hit a two-week low versus the safe-haven Japanese yen, another sign that the latest flare-up in global trade concerns has dented investor risk appetite.

“U.S. plans to unveil limits on Chinese tech firms’ investments in U.S. companies have delivered another blow to risk sentiment this morning. The trade dispute drags on and the yen is the main beneficiary,” said Societe Generale macro strategist Kit Juckes.

The greenback fell half a per cent to 109.40 yen, its weakest since June 8.

In bonds, the yield on the Canadian 10-year government bond slipped to 2.106 per cent. In the U.S., the yield on the 10-year Treasury was lower at 2.882 per cent.


Stocks to watch

Adobe Systems Inc. is the latest foreign technology giant planning to open an artificial intelligence lab in Canada. The Silicon Valley software giant, best known for document-creation products Photoshop and Acrobat, says it is looking for a Toronto-based AI lab director to “establish a cutting-edge research lab in artificial intelligence, that will both push the state-of-the-art and have a profound impact on Adobe’s products,” according to a job posting on LinkedIn. An Adobe spokesperson declined to elaborate on the company’s plans, saying it does “not comment on rumours or speculation.” Its shares fell 1.8 per cent in premarket trading.

Harley-Davidson, up against spiraling costs from tariffs, will begin shifting the production of motorcycles headed for Europe from the U.S. to factories overseas. Harley-Davidson Inc. sold almost 40,000 motorcycles in the Europe Union last year, generating revenue second only to the United States, according to the company. Its shares were down 1.7 per cent in premarket trading.

General Electric Co. is close to a deal to sell its industrial gas engines business to private equity firm Advent International for $3 billion or more, The Wall Street Journal reported on Sunday, citing people familiar with the matter.

Earnings include: Carnival PLC.

Economic news

(10 a.m. ET) U.S. new home sales for May. The Street expects 670,000, up from 662,000 in the previous month.

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