U.S and Canadian futures are pointing to a flat or slightly lower open Tuesday as markets try to shake off Monday’s sharp declines sparked by rising trade war concerns between the U.S. and China.
On Monday, the Dow fell more than 300 points and the TSX fell more than 250 points as oil prices declined.
Overseas, modest gains from Europe’s main bourses relieved nervy investors on Tuesday, after the latest escalation in an increasingly global trade storm pummelled Wall Street and sent China into ‘bear’ market territory.
A 0.3 per cent rise from the FTSE in London and 0.4 per cent gains from Frankfurt and Paris was a welcome sight after another bumpy Asian session had extended a sell-off that has now wiped $1.5-trillion off world stocks.
“The sell off in risk assets has eased, but it is certainly not the last storm we are likely to see coming from that direction,” said Societe Generale’s global macro strategist Kit Juckes.
China’s yuan had slumped to a near six-month low against the dollar, while 0.5-0.8 per cent fall on big share markets left them down 20 per cent from their January peaks, a threshold that defines a ‘bear’ market.
The tense atmosphere also kept metals on the defensive as financial markets worried about the wider global economic fallout of the U.S. administration’s “America First’ agenda.
U.S. Treasury Secretary Steven Mnuchin had ramped up the rhetoric again on Monday saying on Twitter that restrictions on investing in U.S. tech firms would apply “to all countries that are trying to steal our technology.”
In Europe, Britain’s FTSE was up 0.41 per cent, Germany’s DAX gained 0.01 per cent and France’s CAC added 0.29 per cent.
In Asia, Japan’s Nikkei was up 0.02 per cent, China’s Shanghai index was off 0.51 per cent and Hong Kong’s Hang Seng slipped 0.28 per cent.
Oil prices steadied on Tuesday, supported by Canadian production losses and uncertainty over Libyan exports, but under pressure from climbing OPEC supply and escalating trade conflicts between the United States and other major economies.
Production problems at one of Canada’s largest oil sands facilities drove front-month U.S. crude to its highest premium above second-month futures since 2014.
Brent, the global benchmark, was driven higher by uncertainty about oil exports by Libya, a member of the Organization of the Petroleum Exporting Countries.
Eastern Libyan commander Khalifa Haftar’s forces have given control of oil ports to a separate National Oil Corp. (NOC) based in the country’s east.
The official state-owned oil company from the capital Tripoli, also called NOC, will no longer be allowed to handle that oil, he said.
“The move increases the risk that Libyan oil output will be shut in as the NOC in Tripoli is the only legal entity with the right to sell oil,” said Sukrit Vijayakar, director of energy consultancy Trifecta.
Gold hit its lowest in more than six months on Tuesday as a sell off in global risk assets eased and the precious metal remained under pressure from the prospect that rising U.S. interest rates will further support the dollar.
The dollar strengthened on growing concerns about an intensifying conflict between the United States and its trade partners, particularly China. A stronger dollar makes dollar-priced gold costlier for non-U.S. investors.
“The dollar (has been) a lot stronger, that’s the main driver here. Also, gold hasn’t seemed to benefit from the (trade) turmoil, so I imagine that’s made some longs throw in the towel,” said Matthew Turner, commodities strategist at Macquarie.
“The question going forward is whether gold will show better reaction to these (trade) uncertainties. I feel it should, but you need to see a turn in the dollar, or some confidence the dollar is not going to keep going up.”
The Canadian dollar continued its slide toward the 75 US cent mark Tuesday.
The U.S. dollar hovered near a 12-day low against a six-strong group of other top world currencies having drifted down versus the euro, yen and pound despite a modest uptick in U.S. bond yields.
The Bloomberg Dollar Spot Index rose 0.2 per cent, the first advance in a week. The euro decreased 0.3 per cent to $1.1667, the largest decrease in more than a week.
The yield on 10-year Treasuries dipped one basis point to 2.87 per cent, the lowest in almost four weeks. Canada’s 10-year bond yield slipped to 2.076 per cent.
Germany’s 10-year yield fell one basis point to 0.32 per cent, the lowest in four weeks. Britain’s 10-year yield dipped one basis point to 1.294 per cent.
Stocks to watch
Marijuana stocks could see a reaction after the Canadian government said that large cannabis producers will be allowed to start growing outdoor crops, offering a new, cheaper source of competition to established indoor producers that have condemned the practice as unsafe for users and vulnerable to theft. Until now, licenced producers of medical cannabis have grown their crops in greenhouses and indoor facilities. When the recreational market opens on Oct. 17, the only legal supply of cannabis will come from these facilities, where security is tight, the environment is controlled and every interaction with a plant is recorded on video.
A shutdown at the Syncrude oil sands plant is reverberating through oil markets, sending North American crude prices higher early on Monday despite promises of greater production from Saudi Arabia and Russia. Syncrude usually produces 350,000 barrels per day of upgraded, synthetic bitumen, but was shut down on Friday after a transformer blew, causing a power outage. The company’s initial estimate is that the plant would be down until the end of July. The outage hit Syncrude’s two biggest owners, Suncor Energy Inc., which has 59 per cent, and Imperial Oil Ltd., with a 25-per-cent stake.
General Electric Co. on Tuesday said it plans to spin off its health care business and separate its oil services company Baker Hughes, as it looks to streamline operations and focus on aviation, power and renewable energy units. The news comes a day after GE agreed to sell its distributed power unit for $3.25-billion to U.S. buyout group Advent.
Earnings include: IHS Markit Ltd.; Lennar Corp.; Trilogy Meta
(9 a.m. ET) U.S. S&P Case-Shiller Home Price Index for April. Consensus is an increase of 0.5 per cent from March and 6.8 per cent year over year.
(10 a.m. ET) U.S. Conference Board Consumer Confidence Index for June. Consensus is a reading of 127.2, down from 128.0 in May.
Earnings include: IHS Markit Ltd.; Lennar Corp.; Trilogy Metals Inc.
With files from Reuters, Bloomberg