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Inside the Market Before the Bell: Trump’s Fed comments hit U.S. dollar; TSX futures edge higher as oil gains

Equities

U.S. stock futures edged higher early Tuesday as the prospect of renewed trade talks between the United States and China continued to dominate. U.S. President Donald Trump’s suggestion that he wasn’t “thrilled” with the Federal Reserve’s move to push interest rates higher hit the U.S. dollar and weighed on sentiment worldwide. On this side of the border, TSX futures were modestly higher as oil prices rose.

In an interview with Reuters, Mr. Trump said he was “not thrilled” with the U.S. central bank’s path to higher borrowing costs and suggested the Fed, which operates independently of the White House, should do more to fuel the U.S. economy. The comments, which come just ahead of a meeting of global central bankers in Jackson Hole, Wy., later in the week, appeared to dampen market sentiment somewhat with markets in Europe trading mixed.

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“Trump taking another swipe at Fed Chair Jerome Powell, pointing Powell out to not be the cheap money guy that he had had initially thought, is not about to change the current path of rate hikes, with the market pricing in a 93.6-per-cent probability of a hike in September and 65-per-cent chance of a further rate rise in December,” Jasper Lawler, head of research for London Capital Group, said.

"However, Trump could be sowing the seed for market perception problems later down the line."

For example, he said, if a stronger dollar results in weaker economic data heading toward December and the Fed opts not to raise rates, the markets could question whether the central bank had opted to appease Mr. Trump by holding stead. “So, whilst Trump will not influence the path of rate hikes, his comments could impact on market’s perception of what is happening, which is an equally dangerous game to be playing,” he said.

Markets are also continuing to look ahead to lower-level trade talks between China and the United States on Wednesday. However, in the Reuters interview, Mr. Trump also suggested that he held out little hope for a resolution to the trade spat, throwing some cold water on expectations for the coming meeting.

Also of note is the fact that the S&P 500 finished less than 1 per cent away from its record high on Monday. Investors will be keeping a close eye on the index to see if it can breach that level as trading continues.

On Bay Street, markets got a disappointing reading on June’s wholesale trade ahead of the opening bell. Statistics Canada said trade that month fell 0.8 per cent with declines seen in five of seven subsectors. Economists had expected to see an increase of 0.7 per cent for the month.

South of the border, financial results are due from companies including JM Smuckers, Kohl’s and Urban Outfitters.

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Overseas, European markets were mixed in morning trading with Britain’s FTSE in the red, trading down 0.17 per cent around 6:30 a.m. ET. Germany’s DAX was up 0.61 per cent and France’s CAC 40 rose 0.67 per cent. The pan-European STOXX 600 was up 0.29 per cent.

In Asia, markets in China led gains ahead of Wednesday’s trade talks. The Shanghai Composite Index rose 1.31 per cent. Hong Kong’s Hang Seng advanced 0.56 per cent. In Japan, the Nikkei edged higher to finish up 0.09 per cent. The broader Topix finished down 0.4 per cent.

Commodities

Oil prices were mostly steady early on with the prospect of weaker Iran output in the face of U.S. sanctions continuing to underpin sentiment. Brent crude was higher after a choppy night and had a day range so far of US$72.05 to US$72.50. West Texas Intermediate was also positive and had a range of US$66.52 to US$66.98. WTI was near the top end of that range at last check.

“Prices are being supported by the prospect of lower oil supply from Iran,” Commerzbank said in a note.

However, prices are also tempered by concerns over global economic growth - and the impact on oil consumption - as the United States and China continue to fight over trade issues.

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“Prices remain range-bound on the competing trends of demand fears and looming Iranian sanctions. On the former, Asian markets firmed a little on a slight easing in tensions between the U.S. and China with trade talks between the two nations taking place this week,” consultants JBC Energy said.

Later in the session, traders will also be paying close attention to the weekly inventory figures from the American Petroleum Institute. Those numbers will be followed Wednesday by the more official tally from the U.S. Energy Information Association. In recent weeks, crude stock figures have come in higher than expected, raising concerns about slowing demand. The EIA report is expected to show a reduction in inventories in the neighbourhood of 3 million barrels after a surprise build the previous week of 6.8 million barrels.

In other commodities, gold prices touched their best level in a week after Mr. Trump’s comments weighed on the U.S. dollar. Spot gold was up at last check and had hit US$1,196.27 earlier. That was its best level since August 14. U.S. gold futures were also higher. Silver and platinum prices were also positive ahead of the North American open.

Currencies and bonds

The Canadian dollar moved steadily higher overnight as its U.S. counterpart weakened on Mr. Trump’s criticism of the Fed’s move to raise U.S. interest rates. The day range for the loonie so far is 76.65 US cents to 76.84 US cents.

At the same time, the U.S. dollar index, which weighs the greenback against a group of world currencies, was down 0.3 per cent to 95.596 after touching 95.440, its lowest since Aug. 9.

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“It’s been a straight march lower for USD after Trump’s comments released yesterday afternoon were given further context,” Elsa Lignos, global head of FX strategy for RBC, said in an early note. In addition to saying he was “not thrilled” with higher rates, Mr. Trump also told Reuters he did no “have an accommodating Fed” and said he would let them know if four or seven years whether he was happy with his pick of Jerome Powell to head the central bank. Mr. Trump also said in the interview that he thinks China is manipulating its currency and that the euro is also being manipulated.

Today’s only Canadian release - June wholesale trade - offered a disappointing reading but the loonie still managed to hold most of its early gains. Sales in June fell 0.8 per cent. Economists had expected an increase of 0.7 per cent. Despite the weaker-than-expected report, the Canadian dollar continued to trade near the top end of the day range.

“Overall, while this won’t materially change tracking forecasts for a roughly 3 per cent annualized [GDP] gain in Q2, it is a sign that momentum might be tailing off to end the quarter,” CIBC economist Royce Mendes said.

In bonds, U.S. Treasury yields were higher ahead of the U.S.-China trade talks and the Jackson Hole summit. The yield on the 10-year note was higher at 2.844 per cent. The yield on the 30-year note was also higher at 3.009 per cent.

Stocks set to see action

Air Canada, TD Bank, CIBC and Visa Canada have struck a deal to buy Aimia’s Aeropaln loyalty business. The purchase price consists of $450-million in cash and the assumption of about $1.9-billion of Aeroplan Miles liability. Previously, the Air Canada-led consortium had bid $325-million for Aeroplan, but that offer was rejected as too low.

Bombardier has won a contract to provide as many as 50 TRAXX MS3 locomotives to CD Cargo, the freight subsidiary of Czech Railways.

The Russian authorities deny allegations from Microsoft that hackers linked to Russia’s government tried to target the websites of two right-wing U.S. think-tanks, the Interfax news agency reported on Tuesday. The software giant said it had thwarted the Russia-linked attempts last week, which it suggested showed Moscow was broadening its attacks in the build-up to November elections. Interfax cited an unnamed Russian diplomatic source on Tuesday as describing Microsoft’s allegations as part of a political game.

The Ontario Cannabis Store says it has partnered with 26 licensed producers for its online retail platform. The store, which will be Ontario’s only online retailer when recreational marijuana is legalized in the fall, said Monday that the supply agreements with Health Canada-authorized producers were competitive. The online retailer says it will sell a variety of products, including dried flower, cannabis oil and cannabis seeds, to customers 19 and older when pot becomes legal on Oct. 17. Aurora Cannabis, MedReleaf and Canopy Growth are among the producers.

Shareholder Kingsferry Capital Management Group has issued a letter to Home Capital Group Inc. calling on the lender to launch a share buyback to bolster Home Capital’s share price, which it says has been “irrationally discounted." Kingsferry is calling for Home Capital to allocate about 48 per cent of its past four quarters earnings or $60-million for the first share repurchase program.

Kohl’s Corp reported a bigger-than-expected rise in quarterly same-store sales, as the department store chain sold more products at full price, helping boost margins. Net income rose to US$292-million, or US$1.76 per share, in the second quarter ended Aug. 4 from US$208-million, or US$1.24 per share, a year earlier. Sales at stores open for at least a year increased 3.1 per cent, compared with a rise of 2.69 per cent estimated by analysts, according to Thomson Reuters I/B/E/S.

Bloomberg reports that Apple Inc. will release a new low-cost laptop and a professional-focused upgrade to the Mac mini desktop later this year, citing people familiar with the plans. The new laptop will look similar to the current MacBook Air, but will include thinner bezels around the screen. The display, which will remain about 13-inches, will be a higher-resolution ”Retina” version that Apple uses on other products, the people said. They asked not to be identified discussing products still in development.

U.S. retailer TJX Cos Inc topped quarterly comparable-store sales estimates, as deep discounts helped drive more customers to its T.J. Maxx and Marshalls stores. The company’s net income rose to US$739.6-million, or US$1.17 per share, in the second quarter ended Aug. 4, from US$553-million, or 85 US cents per share, a year earlier. TJX reported a 6-per-cent rise in same-store sales, blowing past the 2.2-per-cent increase analysts had expected, according to Thomson Reuters I/B/E/S.

Reuters reports that brokerage Morgan Stanley has halted equity coverage on Tesla Inc, potentially a sign the U.S. bank may be doing business directly with the electric car maker as it explores options to go private. Goldman Sachs dropped its coverage of Tesla last week shortly before confirming it was acting as a financial adviser on a matter related to the auto maker.

More reading:

Sick of a shrinking portfolio? Here are two dividend stocks that are bucking the trend

Economic news

Wholesale trade fell 0.8 per cent to $63.1-billion in June. That was the second monthly decline in three. Sales were down in five of seven subsectors, Statistics Canada said. The motor vehicle and parts and miscellaneous subsectors contributed the most to the decline, the agency said. Economists had been expecting sales to rise by about 0.7 per cent.

With Reuters and The Canadian Press

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