U.S. stock futures were lower Tuesday with global trade tensions simmering ahead of the resumption of NAFTA talks tomorrow and the comment period for new U.S. tariffs on Chinese goods ending later in the week. On Bay Street, TSX futures turned slightly weaker with higher oil prices helping offset trade concerns.
On world markets, Asian stocks reversed early losses helped by gains in Shanghai but Europe turned lower with major bourses starting the day in the red. German auto makers including BMW and Daimler fell on trade concerns.
“European stock markets are mixed as traders remain nervous about the debt situation in Italy, the poor global trading relations, and the weakness in emerging markets,” David Madden, market analyst with CMC Markets U.K., said. “The U.S. markets will reopen today following the Labour Day holiday yesterday. When traders are in full swing we will get a better representation of global stock markets.”
For Bay Street, trade continues to be key this week with NAFTA negotiations set to resume Wednesday. The Chapter 19 dispute resolution system, which Canada has said is essential to a deal, remains a hurdle, according to a Globe report. Over the weekend, U.S. President Donald Trump continued his attack on the deal, calling it “one of the worst trade deals ever.”
In corporate news, earnings are due from Laurentian Bank and Hudson’s Bay Co. Ahead of the start of trading, Laurentian reported adjusted earnings per share of $1.34, compared with analysts’ forecasts of $1.45. Net earnings per share totaled $1.23, down from $1.48 a year earlier. In a release, CEO François Desjardins said the bank has now completed its mortgage loan portfolio review and has resolved the situation with Canada Mortgage and Housing Corp. and the third-party purchaser.
Shares of Restaurant Brands could also see some extra attention following a report by The Globe and Mail’s Marina Strauss that tensions between Tim Hortons and some of its franchisees are on the rise. The report says the company abruptly seized the restaurants of the leader of a group of rebellious franchisees three days after complaints were filed about coffee pots that shattered. David Hughes, a Tim Hortons franchisee in Lethbridge, Alta., said that parent Restaurant Brands changed the locks on all of his four restaurants on Sunday at 5 p.m. local time, calling him just five minutes before to alert him that he was being pushed out.
In Europe, the pan-European STOXX 600 was down 0.42 per cent in morning trading with key bourses lower. Britain’s FTSE 100 was off 0.12 per cent. Germany’s DAX fell 0.63 per cent and France’s CAC 40 lost 0.94 per cent. Gains in Europe’s banking sector had bolstered the STOXX initially but gains by Italian and Spanish banks faded as trading continued.
In Asia, a choppy trading day saw the day finish with gains in China but losses in Japan. Japan’s Nikkei ended down 0.05 per cent. However, Hong Kong’s Hang Seng added 0.94 per cent by the close. The Shanghai Composite Index gained 1.10 per cent.
Crude prices jumped following the evacuation of two oil platforms in the Gulf of Mexico ahead of the approach of tropical storm Gordon, which is expected to make landfall as a hurricane. Brent crude was up by more than a buck at US$79.16 with a range for the day of US$78 to US$79.34. West Texas Intermediate was also up by a similar amount and had a range of US$69.53 to US$71.22.
On Monday, Anadarko Petroleum Corp. said it had shut production at two oil platforms in the gulf ahead of Gordon’s approach.
“Oil prices have rallied aggressively overnight on news of the immediate evacuation of two Gulf of Mexico oil platforms in preparation for a hurricane,” OANDA analyst Dean Popplewell said in an early note.
As well, Reuters reported Tuesday that Barclays bank said in a report oil markets had changed since 2017, when worries about rising supply were more evident.
“U.S. producers are resisting temptation and exercising capital discipline, OPEC and Russia have convinced market participants they are managing the supply of over half of global production, the U.S. is using sanctions more actively, and several key OPEC producers are at risk of being failed states,” Barclays said.
“Prices could reach $80 and higher in the short term,” Barclays said. For 2020, it said it expected Brent to average $75 a barrel, up from its previous forecast of $55.
In other commodities, gold prices were lower with rising trade tensions hitting emerging market currencies and sending investors to the U.S. dollar.
Spot gold was down 0.4 per cent at US$1,195.26 an ounce in morning trading in Europe, while U.S. gold futures fell 0.5 per cent to US$1,201 an ounce.
Silver hit its lowest level in more than two years before recouping at least some of its early losses.
Currencies and bonds
The Canadian dollar was weaker, hovering around 76 US cents, ahead of of Wednesday’s Bank of Canada interest rate decision. The loonie was trading near the low end of the day range against its U.S. counterpart of 76 US cents to 76.39 US cents. The U.S. dollar was higher as concerns over global trade hit emerging market currencies. In addition to NAFTA talks resuming, the public comment period on a U.S. proposal for new tariffs on Chinese goods is set to end Thursday.
For the loonie, the Bank of Canada decision remains the week’s key event, although the markets have essentially ruled out the possibility of an interest rate increase.
“We have stuck to our view of an October hike and markets are now priced for close to zero chance of a hike tomorrowm” Elsa Lignos, RBC’s global head of FX strategy, said. "NAFTA uncertainty lingers, with talks also due to resume tomorrow. But the BoC has said they will respond to economic data rather than headlines."
She said last week’s reading of 2.9 per cent annual growth in the second quarter was largely in line with the central bank’s forecast “even if it disappointed market expectations.”
In other currencies, the U.S. dollar index, benefiting from trade concerns, rose nearly half a per cent at 95.55 against a basket of major currencies in early going.
In bonds, the yield on the U.S. 10-year note was higher at 2.873 per cent. The yield on the 30-year note was also higher at 3.037 per cent.
Stocks set to see action
Premium Brands Holdings Corp. said Tuesday it has signed a deal to buy U.S.-based Ready Seafood Co. The transaction is expected to close within four weeks. The purchase price wasn’t disclosed. The transaction is expected to be immediately accretive to both Premium Brands’ earnings per share and free cash flow per share for 2018, Premium said in a release.
WPP’s new boss Mark Read vowed to invest in creative talent in the United States to strengthen its position on Madison Avenue, as he seeks to rebuild the ad group by prioritizing sustainable growth over short-term profits. Presenting the group’s first-half results after being confirmed on Monday as CEO, Read said WPP had returned to top line growth for the first time in more than a year and nudged the 2018 net sales target higher, but margin concerns set the tone. Shares in WPP, the world’s largest advertising company, fell 8 per cent, the biggest loser on the FTSE 100 blue chip index, after it said the cost of returning to sustainable growth would lead to a cut in its 2018 margin outlook.
The Netherlands pilots’ union said on Tuesday it has reached agreement on a new deal with Air France-KLM over working hours, removing the threat of strike action later this year. The airline, which has been hard hit by strike actions by its French employees, appointed a new CEO on Aug. 17 to steer the group through a fraught stand-off with unions in France.
Nike Inc has chosen Colin Kaepernick, the first NFL player to kneel during the national anthem as a protest against racism, as one of the faces for advertisements commemorating the 30th anniversary of its “Just Do It” slogan, a move that could draw U.S. President Donald Trump’s ire. “Colin has been a Nike athlete since 2011,” Nike spokeswoman Sandra Carreon-John said on Monday. “Colin is one of a number of athletes being featured as part of our 30th anniversary of Just Do It.” She said Nike unveiled the campaign last week by releasing a film featuring Serena Williams entitled “Voice of Belief.” Nike shares were down about 2 per cent in premarket trading.
Chinese retailer JD.com Inc’s stock fell nearly 3 per cent in premarket trading on Tuesday after the firm’s CEO was arrested in the United States on suspicion of criminal sexual conduct and later released. Richard Liu, who founded the firm in 1998, was arrested by police in Minneapolis on Friday and released the next day before returning to China. U.S. markets were closed on Monday. Minneapolis police said on Sunday that “an active investigation” was under way. A Minnesota-based lawyer for Liu said on Monday that the Chinese magnate denied any wrongdoing and that he did not expect his client to be charged.
(9:30 a.m. ET) Canadian Markit manufacturing PMI for August.
(9:45 a.m. ET) U.S. Markit Manufacturing PMI for August. The Street expects a reading of 57.7, down from 58.1 from July.
(10:00 a.m. ET) U.S. ISM Index for August.
(10:00 a.m. ET): U.S. construction spending for July. Consensus is a rise of 0.5 per cent from June.
With Reuters and The Canadian Press