Equities
U.S. stock futures were higher early Monday on signals that trade tensions between the United States and China are easing. In Canada, futures on Bay Street were positive with the cannabis sector in focus after Aurora Cannabis announced it would buy MedReleaf Corp. for $3.2-billion. Overnight, markets in Asia finished higher while European markets started the day in the red.
Over the weekend, U.S. President Donald Trump tweeted that he would help get China’s ZTE Corp. “back in business.” The move came after ZTE suspended operations after the U.S. Commerce Department banned American companies from selling to the Chinese firm for seven years. The ban was the result of ZTE breaking an agreement reached after it was discovered to be shipping goods to Iran.
Mr. Trump’s weekend tweet was seen as a sign of thawing relations between the two economic powers.
“Worries over the risk of a breakdown in negotiations between the U.S. and Chinese are clearly fading after Trump showed a willingness to help out Chinese tech firm ZTE after they suspended operations off the back of US sanctions last month,” Joshua Mahony, market analyst with IG, said in an early not. “With Trump clearly holding the cards amid potential concessions over steel and aluminium imports alongside ZTE, there is a strong grounds for further talks to result in a positive outcome for global trade.”
The news gave a boost to U.S. equipment makers who supply ZTE. Acacia Communications saw its stock jump 18 per cent on the news in premarket trading. Oclaro Inc.’s stock was up about 8 per cent. Acacia got 30 per cent of its 2017 revenue from ZTE while Oclaro earned 18 per cent of its revenue for that fiscal year from the Chinese company, according to Reuters.
On Bay Street, cannabis stocks will be in the spotlight on news of Aurora’s deal to acquire MedReleaf, signalling consolidation in the sector. The agreement would make Aurora Canada’s biggest legal cannabis company by market capitalization. Monday’s all-stock offer amounts to $29.44 a share, representing an 18.2-per-cent premium on MedReleaf’s closing price Friday.
Elsewhere, DHX Media shares could get some attention after the company announced a deal to sell 49 per cent of DHX’s 80-per-cent interest in Peanuts to Sony Music Entertainment for $237-million. DHX says it will use the cash to pay down debt and reduce leverage. After the deal, DHX will own 41 per cent of Peanuts, Sony will own 39 per cent and the family of creator Charles M. Schulz will hold 20 per cent. DHX also reported earnings ahead of Monday’s open, posting a loss of 6 cents a share.
On Wall Street, Xerox said it was abandoning its US$6.1-billion deal with Fujifilm Holdings Corp. in the face of opposition from activist investors Carl Icahn and Darwin Deason. In January, the two companies agreed to a complex deal that would have merged Xerox with their Asian joint venture Fuji Xerox. The move would have given control to Fujifilm. Activist investors countered that the plan undervalued Xerox. Xerox shares were down more than 4 per cent in premarket trading.
Overseas, European markets started the week slightly lower as oil prices pulled back from multiyear highs seen last week. Britain’s FTSE was off 0.09 per cent. France’s CAC 40 and Germany’s DAX were both down 0.18 per cent at last check. The pan-European STOXX 600 was off 0.17 per cent, with oil and gas stocks trading down.
In Asia, thawing trade relations between China and the United States helped bolster markets. Japan’s Nikkei finished up 0.47 per cent while the broader Topix edged up 0.61 per cent. Hong Kong’s Hang Seng rose 1.04 per cent. The Shanghai Composite Index added 0.34 per cent.
Commodities
Crude prices were steady after touching their best levels since 2014 last week as rising U.S. drilling activity continues to raise concerns over increased production. Brent crude had a range for the day so far of US$76.55 to US$77.15. West Texas Intermediate was little changed ahead of the North American open with a day range of US$70.26 to US$70.74. Last week, Brent touched US$78 a barrel, its best level since November 2014. WTI hit US$71.89, also its highest since late 2014.
Monday’s movement came after energy services firm Baker Hughes said U.S. drillers added 10 oil rigs last week, bringing the total to 844. That’s the highest level in operation since March 2015.
As well, the market is weighing resistance in Europe and Asia to the U.S. plan to renew sanctions against Iran, a major OPEC producer.
“Around a million barrels of oil a day is likely to disappear from global oil markets if the U.S. sanctions on Iran bite,” Greg McKenna, chief market strategist at futures brokerage AxiTrader, told Reuters.
“But it is still far from certain that they will bite in the way intended... Germany has said it will protect its companies from U.S. sanctions, Iran has said French oil giant Total has yet to pull out of its fields and all the while it seems the Chinese are ready to fill the void created by the U.S.,” he said
In other commodities, gold prices were higher as the U.S. dollar wavered after recent gains on uncertainty over the number of interest rate hikes likely this year. Spot gold was higher after hitting its best level since April 26. U.S. gold futures were little changed at last check. Silver prices were higher heading into the trading day.
Currencies and bonds
The Canadian dollar was higher early on as its U.S. counterpart flagged after hitting its best levels of the year last week. The loonie was close to the top end of the day range of 78.15 US cents to 78.36 US cents.
There were no key economic reports on either side of the border Monday to offer direction for the loonie. The next significant reports come Friday with the release of inflation and retail sales figures. April’s annual rate of inflation is seen coming in around 2.3 per cent. Headline retail sales for March are expected to rise by 0.6 per cent on stronger auto sales.
The U.S. dollar index, which weighs the greenback against a selection of world currencies, was lower at 92.355. The index touched its highest levels of 2018 last week as investors bet on widening spreads between interest rates in the United States and other regions.
“The USD and U.S. yields have remained limp since last week’s CPI report,” Sue Trinh, RBC’s head of Asia FX strategy, said. “[Yields on 10-year bonds]. are as yet unable to penetrate 3 per cent sustainably and the curve continues to flatten. Overnight, few currencies underperformed USD.”
The yield on the U.S. 10-year note was higher at 2.98 per cent at last check. The yield on the 30-year note was also higher at 3.115 per cent.
Stocks set to see action
Canopy Growth announced plans to list on the New York Stock Exchange. The cannabis company expects shares to begin trading before the end of May 2018 under the symbol CGC. Shares will also continue to trade in Toronto under the symbol WEED.
Facebook Inc has so far suspended around 200 apps in the first stage of its review into apps that had access to large quantities of user data, a response to a scandal around political consultancy Cambridge Analytica. The apps were suspended pending a thorough investigation into whether they did in fact misuse any data, said Ime Archibong, Facebook’s vice president of product partnerships.
Executives at Barrick Gold Corp. and Glencore PLC expect to receive a new licence for their joint venture Kabanga nickel project in Tanzania, having held “productive” talks with the government during the past several months, Barrick said Sunday. Under changes to Tanzania’s mining licence structure put into place in January, Barrick and Glencore have applied for a prospecting licence to replace the retention licence they previously held on the undeveloped project. The retention licence was due to expire in 2019, and the new licence would be good for four years, Barrick spokesman Andy Lloyd said by e-mail to Reuters.
Tesla Inc has registered a new electric car firm in Shanghai, as China prepares to scrap rules on capping foreign ownership of new-energy vehicle (NEV) ventures. The new company, Tesla (Shanghai) Co Ltd, was registered on May 10, according to a filing with the National Enterprise Credit Information Publicity System seen by Reuters. The new company will focus on electric cars, spare parts and batteries, according to the filing.
Australian hospital operator Healthscope Ltd on Monday said it received a A$4.35-billion (US$3.3-billion) proposal from Canada’s Brookfield Asset Management Inc , $180-million more than a private equity firm offered it in April. The A$2.50 per share offer is at a 1.2-per-cent premium to Healthscope’s last close on Friday, and a 23.2-per-cent premium to its closing price before it received the US$3.1-billion offer from BGH Capital and its consortium partners last month.
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Monday’s small-cap stocks to watch
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Economic news
The Federal Reserve should continue its gradual approach to raising interest rates given that inflation has not yet reached the U.S. central bank’s 2-per-cent goal in a sustained way, Cleveland Fed President Loretta Mester said on Monday.
“In my view, the medium-run outlook supports the continued gradual removal of policy accommodation; it seems the best strategy for balancing the risks to both of our policy goals and avoiding a build-up of financial stability risks,” Mester said in prepared remarks for a speech in Paris.
Mester said she does not expect inflation to pick up sharply, adding that while it is close to the Fed’s symmetric 2 per cent target, it will only reach that level on a sustainable basis over the next one to two years.
With Reuters and The Canadian Press
Terry Weber