Canadian and U.S. stock futures pointed to a positive open Wednesday but traders were also looking ahead to the Group of Seven political summit in Quebec and keeping an eye on simmering trade issues.
The threat of rising trade protectionism has already taken a toll on global trade and could increase risks to growth, ANZ analysts Daniel Been and Giulia Lavinia Specchia said in a note.
“Against this backdrop, we believe financial markets will become even more sensitive to bad news,” they wrote, while recommending a defensive stance on risk-taking.
Late Tuesday the United States raised the possibility of turning negotiations over the North American Free Trade Agreement into bilateral talks instead.
U.S. President Donald Trump’s economic adviser Larry Kudlow also revived the possibility that the president will seek to replace NAFTA with bilateral deals with Canada and Mexico. Canada has rejected the idea.
Investors will also be watching a slew of economic reports from both Canada and the U.S. set to be released Wednesday, including international trade balances and productivity.
On Tuesday, the TSX ended the day higher, led by Enbridge, while the Nasdaq hit a record and the S&P gained on strong data from the U.S. services sector. The Dow edged lower.
Overseas, the euro rose to a 10-day high after hawkish comments from the European Central Bank, adding upward pressure to bond yields and sinking some stocks as worries over Italy also weighed.
Robust growth is making the central bank increasingly confident that inflation is on its way back to target, ECB chief economist Peter Praet said on Wednesday, increasing the likelihood it may use a meeting next week to reveal more about the end of its bond-buying program.
In Europe, Britain’s FTSE rose 0.55 per cent, Germany’s DAX gained 0.45 per cent and France’s CAC added 0.05 per cent.
In Asia, Japan’s Nikkei share index touched a two-week high as technology stocks edged up. China’s Shanghai rose 0.05 per cent and Hong Kong’s Hang Seng added 0.53 per cent.
Commodities
Oil prices climbed on Wednesday after Venezuela raised the prospect of a halt to some crude exports, but gains were capped by reports that the U.S. government had asked Saudi Arabia and some other producers to increase output.
Falling Venezuelan oil output helped push crude benchmark Brent to more than $80 a barrel last month, but prices have eased since then on talk of higher supply by other members of the Organization of the Petroleum Exporting Countries.
Venezuela has the world’s biggest oil reserves and is a key supplier to American fuel markets but its output has been hampered by inadequate investment, mismanagement and a confrontation with the United States that has led to sanctions.
Three sources have told Reuters that Venezuelan state firm PDVSA is considering declaring force majeure on some exports, amid plummeting output and tanker bottlenecks at ports.
“It’s a tug of war between the loss of supply from Venezuela and Iran and the potential output increase from OPEC and U.S. shale,” said Tony Nunan, risk manager at Mitsubishi Corp. “$80 is a temporary ceiling for oil until we hear from OPEC.”
Gold edged higher on Wednesday, propped up by a weaker dollar, but it was unlikely to make a significant move before an expected U.S. rate hike next week and amid trade tensions.
“Investors are sitting on the fence, they only want to be involved when we break out of the range,” said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.
In other precious metals, silver gained 0.3 per cent to US$16.51 an ounce.
Platinum edged up 0.1 per cent to US$900.90 an ounce and palladium added 0.2 per cent to US$995.90 per ounce.
Platinum prices are set to begin a gradual recovery as the market deficit hits a four-year peak this year, a report by Thomson Reuters GFMS said on Wednesday, with industrial and autocatalyst demand inching higher while mine supply contracts.
Currencies
The Canadian dollar was up in trading Wednesday, near the 77.5 cent US mark but earlier it and the Mexican peso came under renewed pressure after White House economic adviser Larry Kudlow said that President Donald Trump was considering holding separate talks with Canada and Mexico.
That added fuel to speculation the United States could scrap the North American Free Trade Agreement (NAFTA).
The Canadian dollar had fallen to a 2-1/2-month low of C$1.3068 per U.S. dollar on Tuesday, though it edged up in Asia on Wednesday after a media report that Treasury Secretary Steven Mnuchin is said to have urged Trump to exempt Canada from tariffs.
The euro rose to a 10-day high on Wednesday after European Central Bank officials said an end to the bank’s bond-buying program by end-2018 was plausible and that inflation was rising back to its target.
That put pressure on the U.S. dollar index, that measures performance against six major currencies, with the main weighting given to the euro. The index fell 0.27 per cent.
The dollar traded at 109.85 yen, having risen to 110.01 yen the previous day. It has extended a recovery from a five-week low of 108.115 yen on May 29 on easing concerns about political instability in Europe. But the U.S. currency has been unable to extend its rally beyond 110 yen.
“Recent U.S. economic data such as payrolls and ISM surveys were impeccable. But despite that, the dollar has so far failed to rise much further. That seems to suggest strong selling interest,” said a senior trader at a major Japanese bank.
The U.S. 10-year Treasury yields edged 2 basis points higher at 2.94 per cent, not far away from the psychologically significant 3 per cent levels where it traded recently as markets geared up for a rate hike next week.
Canada’s 10-year bond yield edged up to 2.293 per cent.
Stocks to watch
Air Canada says it is a coincidence that it completed a major joint venture with Air China weeks after it acceded to demands from the Chinese government to label Taipei part of China, rather than Taiwan. The joint venture marks the first between a Chinese and a North American airline, and will involve the two carriers sharing more than $1-billion in revenue on flight itineraries between Canada and China. It was completed Wednesday after roughly four years of negotiation.
Enbridge Inc. has scrapped changes aimed at curbing overbooking of capacity on its mainline pipeline after shippers balked at the proposed new rules. The interim measures were designed to ease chronic congestion on the Calgary-based pipeline giant’s mainline transportation system that has played a role in the deep discounting of Canadian crude prices. The mainline carries the bulk of Canadian oil exports to the United States.
Tesla Inc. shares rose 3.7 per cent in premarket trading after Chief Executive Elon Musk said on Tuesday that building 5,000 Model 3s per week by the end of June was “quite likely” as the company’s production lines were now demonstrating the ability to make 3,500 vehicles per week. Musk’s comments came after shareholders re-elected three directors and voted against a proposal to wrest the chairman role from Musk during Tesla’s annual meeting of stockholders in Mountain View, California . That had represented the strongest challenge yet to Musk’s grip on the Silicon Valley electric vehicle maker, which also faces production setbacks and expectations by many analysts that it will need to raise new cash.
HP Inc. now expects 4,500 to 5,000 employees to leave the company by the end of fiscal 2019 as part of an ongoing restructuring plan, the PC maker said on Tuesday. In October 2016, HP’s board had approved a restructuring plan to be implemented through fiscal year 2019, under which it had expected around 4,000 job cuts. In May, the company said it expected that number to increase by 1 to 2 per cent.
Facebook Inc. said Tuesday it has data sharing partnerships with at least four Chinese companies including Huawei, the world’s third largest smartphone maker, which has come under scrutiny from U.S. intelligence agencies on security concerns. The social media company said Huawei, computer maker Lenovo Group, and smartphone makers OPPO and TCL Corp were among about 60 companies worldwide that received access to some user data after they signed contracts to re-create Facebook-like experiences for their users. Its shares slid nearly 1 per cent in premarket trading.
U.S. defense contractor Northrop Grumman won U.S. antitrust approval to buy solid rocket motor supplier Orbital ATK Inc with conditions, the Federal Trade Commission said on Tuesday. The $7.8-billion deal was approved on condition that Northrop supply the solid rocket motors to competitors for missile contracts and to separate the two companies’ operations with a firewall, the FTC said in a statement. Its shares rose nearly 1 per cent in premarket trading.
Shares of Twitter Inc. fell nearly 1 per cent in premarket trading Wednesday after the company announced the sale of US$1-billion worth of convertible notes. The notes, which will be offered to “qualified institutional buyers,” mature in 2024 and will be convertible into cash, stock, or a combination of the two at Twitter’s discre tion, the company said in a press release.
Earnings include: Andrew Peller Ltd.; Brown Forman; Canaccord Genuity Group Inc.
Economic news
(8:30 a.m. ET) Canada’s international trade balance for April. Analyst estimate is a $2.5-billion deficit, shrinking from a $4.14-billion shortfall in March.
(8:30 a.m. ET) Canadian building permits for April. Estimate is a decline of 1.0 per cent from March.
(8:30 a.m. ET) U.S. international trade for April. The Street expects a deficit of US$50-billion, rising from US$49-billion in March.
(8:30 a.m. ET) U.S. productivity for Q2. Consensus is a rise of 0.7 per cent from the previous quartet,
(10:30 a.m. ET) EIA Petroleum Status Report is released
With Reuters