Equities
Wall Street futures were higher as the U.S. decision to pull out of the Iran nuclear agreement jolted oil markets even as equity investors appeared to take the move in stride. On Bay Street, futures rose as Brent and West Texas Intermediate hit levels not seen since late 2014. World markets were little changed overnight with MSCI’s world equity index - which measures stocks in 47 countries, trading flat.
“Despite a big build up to the announcement the markets have pretty much shrugged off the news,” Jasper Lawler, head of research at London Capital Group, said.
Despite urging from allies to stay with the pact, U.S. President Donald Trump announced Tuesday afternoon that the United States would withdraw from the 2015 agreement and impose the “highest level” of sanctions against the OPEC nation.
In the wake of the announcement, crude prices jumped to three-and-a-half year highs, gold prices pulled back and the yield on the U.S. 10-year Treasury note breached 3 per cent.
In corporate news, Sun Life topped analysts’ profit forecasts with results released after the close of trading on Tuesday, helped by increased sales of managed funds and lower U.S. taxes. Sun Life’s underlying net income rose to $770-million or $1.26 in the latest quarter from $573-million or 93 cents last year. Analysts had been expecting earnings by that measure of $1.11 in the latest quarter. Sun Life’s total assets under management rose 5.6 per cent to $978.9-billion at the end of the quarter.
Ahead of Wednesday’s open, Torstar reported a narrower first-quarter loss of $14.5-million or 18 cents a share, compared with a loss of $24.3-million or 30 cents a year earlier. On an adjusted basis, the loss was 20 cents a share, an improvement of 2 cents relative to last year’s first quarter.
On Wall Street, Walt Disney Co. shares - which have fallen more than 5 per cent this year - were down slightly after the entertainment giant beat analysts’ estimates with its latest earnings as gains from its theme parks and movie business offset continued weakness on the television side. Disney reported adjusted earnings per share of US$1.84, compared with the US$1.70 per share that analysts expected, according to Thomson Reuters I/B/E/S.
Elsewhere, Walmart said it will pay US$16-billion for about a 77 per cent stake in Indian e-commerce company Flipkart. The deal marks Walmart’s biggest foreign investment on record. Walmart shares were higher in premarket trading.
Overseas, European markets were higher in morning trading with the pan-European STOXX 600 up 0.27 per cent. Oil and gas stocks were the top performers. Britain’s FTSE advanced 0.58 per cent. Burberry shares were down more than 5 per cent at last check on news that Groupe Bruxelles Lambert had sold its entire stake in the company. France’s CAC 40 rose 0.06 per cent. Germany’s DAX advanced 0.20 per cent.
In Asia, markets were mixed. Japan’s Nikkei fell 0.44 per cent with most sectors trading lower. Hong Kong’s Hang Seng rose 0.44 per cent. The Shanghai Composite Index was off 0.08 per cent.
Commodities
Crude prices jumped as news that the U.S. would withdraw from the Iran nuclear pact renewed supply concerns in the region. Brent crude breached US$77 a barrel early in the session and had a range for the day of US$76.08 to US$77.20. West Texas Intermediate was up 2.5 per cent at last check and had a range for the day of US$69.85 to US$71.17. Both are trading at levels not seen since late 2014.
“Oil has been rallying for days in response to rumours that Trump would announce the withdrawal, which clearly suggests that traders believe the sanctions will further tighten global supply at a time when some of the world’s largest producers have already significantly reduced inventories,” OANDA senior market analyst Craig Erlam said.
“There is clearly the potential for these countries to fill the void left by the sanctions but if it aids their cause then they’ll likely opt against it.”
Iran reasserted itself as a major player in the oil market after International sanctions against it were lifted in 2016 as part of the nuclear agreement. Reuters reports that Iran’s April exports totaled more than 2.6 million barrels a day, making it OPEC’s third biggest exporter of crude behind Saudi Arabia and Iraq.
Crude markets were also bolstered by new figures from the American Petroleum Institute showing crude stocks fell by 1.9 million barrels last week. That report will be followed later Wednesday morning with fresh numbers from the U.S. Energy Information administration. The EIA report is expected to show a decline of about 400,000 barrels in crude inventories.
“The EIA inventory data will be of particular interest today given the attention that the oil market is already getting as a result of the sanctions,” Mr. Erlam said. “The numbers have been quite volatile for much of the year, following seven months of constant declines which brought the inventories back towards their five year average, as per the intentions of the deal between OPEC and some non-OPEC nations. The question now is how much further they’ll go to lift prices.”
In other commodities, gold prices fell to their lowest levels in nearly a week as the U.S. dollar advanced on higher U.S. Treasury yields. Spot gold saw its weakest level since May 3 during the session. Gold futures for June delivery were also lower. Silver prices were also down.
Currencies and bonds
The Canadian dollar was a touch higher as global events pushed up the price of oil. The gains came even as the U.S. dollar advanced on world markets helped by rising Treasury yields. The day range on the loonie so far is 77.07 US cents to 77.34 US cents.
The U.S. dollar index rose about 0.3 per cent to 93.3777, it’s best level since December. The greenback has been enjoying a three-week run with traders suggesting the momentum shows few signs of slowing.
“It’s a continuation of what we have been witnessing for the past few weeks,” said Christin Tuxen, FX strategist at Danske Bank. “There might have been a bit of safe haven flows but over all it’s to do with the U.S. holding a favourable cyclical position.”
For the loonie, the day’s biggest release is March building permits, which is considered second-tier in terms of importance by the currency markets. The report showed the value of building permits issued by municipalities rose by 3.1 per cent in March. Economists had been expecting a 2-per-cent increase.
In terms of bonds, the yield on the U.S. 10-year note was higher at 3.006 per cent as U.S. debt prices fell in the wake of the Iran announcement. The yield on the 30-year note was also higher at 3.161 per cent.
Stocks set to see action
Enbridge Inc. says it has entered into agreements with the Canada Pension Plan Investment Board to sell a 49-per-cent interest in some North American onshore renewable power assets, as well as 49 per cent of Enbridge’s interests in two German offshore wind projects through a newly created joint venture with CPPIB, for approximately $1.75-billion.
Albert Frere is selling his entire stake in Burberry , the Belgian billionaire’s Groupe Bruxelles Lambert said on Tuesday, after a period of management upheaval at the British fashion house. Proceeds from the disposal would help GBL to pursue new investments and rebalance its portfolio, it said in the statement without elaborating. Burberry shares fell as much as 7 per cent in London on the news.
Home Capital Group Inc. reported a 40 per cent drop in its first-quarter income from the same period last year. The Toronto-based mortgage lender said income in the three months that ended March 31 was $34.6-million, or diluted earnings of 43 cents per share. That compares to a net income of $58-million and diluted earnings of 90 cents per share in the same quarter of last year. The company said in a statement that the numbers reflect “the impact of reduced loan balances and lower securitization income, partially offset by lower non-interest expenses.” The results were released after the close of markets on Tuesday.
Beauty products maker Coty Inc reported a 9.4-per-cent rise in quarterly revenue, driven by strong demand for Burberry Beauty, as well as for makeup brand Younique. Net loss attributable to Coty Inc narrowed to US$77-million or 10 US cents per share, in the third quarter ended March 31 from a loss of US$164.2-million or 22 US cents per share, a year earlier. Net revenue rose to US$2.22-billion from US$2.03-billion.
Vodafone has agreed to pay US$21.8-billion to buy Liberty Global’s assets in Germany and eastern Europe to take on rivals with a broader range of superfast cable TV, broadband and mobile services. The world’s second-largest mobile operator struck a deal with U.S. cable pioneer John Malone’s Liberty after years of on-off talks to become a pan-European leader able to challenge the dominance of former monopolies such as Deutsche Telekom .
Toyota Motor Corp is stepping up cost reductions to shore up its money chest, as it looks to ramp up investment in new technologies, but cautioned a stronger yen would chip away at its operating profit and higher annual sales. Toyota’s plans to spend a record 1.08 trillion yen, or about US$10-billion, on R&D this year comes at a time when car makers worldwide are sharpening their focus on electrification and automation to stay competitive amid rising demand for vehicles powered by cleaner technologies.
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Wednesday’s small-cap stocks to watch
Economic news
Statistics Canada says building permits rose 3.1 per cent in March to $8.4-billion. Economists had been expecting an increase closer to 2 per cent. The March increase was mainly the result of a rise in permits for multi-family units.
U.S. wholesale prices rose 0.1 per cent in April. It was the smallest gain in four months. The Labor Department says the April increase in its producer price index, which measures inflation pressures before they reach consumers, followed a 0.3-per-cent rise in March.
(10:30 a.m. ET) EIA Petroleum Status Report is released.
With Reuters and The Canadian Press
Terry Weber