Equities
Stock futures were higher on both sides of the border early Monday as oil prices jumped on the impact of economic concerns in Venezuela and the prospect of renewed sanctions against Iran by the United States. Overnight, European markets started in positive territory, although trading was thinner than normal because of a public holiday in Britain.
In early trading, U.S. crude cracked US$70 a barrel for the first time since 2014. Brent crude was trading above US$75 a barrel and touched its best level since November 2014 earlier in the session. The rise in crude prices could mean a stronger start for energy shares on Bay Street at the start of trading.
“Concerns over the possibility President Donald Trump won’t renew the waivers, which expire Saturday, have pushed crude prices higher — including by nearly 2 per cent on Friday — even as the U.S. dollar has rebounded,” BMO economist Michael Gregory said in an early note. “A stronger dollar often pressures prices of oil and other dollar-denominated commodities.”
Elsewhere, trade remains at the forefront as NAFTA talks enter a crucial week in Washington. Reuters reports that discussions will focus on origin rules governing the auto sector, the dispute-resolution mechanism and a sunset clause that could automatically end the deal after five years. .
In corporate news, Nestlé said it would pay US$7.15-billion in cash for the rights to sell Starbucks products around the world. The business boasts about US$2-billion in sales. Starbucks says it will use the proceeds for a a share buyback program. The cash will also add to earning per share by 2021, the company said. Starbucks shares were up nearly 3 per cent in premarket trading.
Outside the corporate sphere, Bank of Canada deputy governor Timothy Lane told a conference in Portugal on Monday that the world’s growing economies will have to find ways to deal with the end of stimulus from central banks.
“We are now seeing a very synchronized expansion,” he said, adding that growth is still “very much dependent on stimulus.”
“Sooner or later we will face the challenge of changing that stimulus without causing disruption,” he said, referring to the quantitative easing still carried out by many central banks.
Overseas, the pan-European STOXX 600 was up by 0.18 per cent. Markets outside the U.K. were mostly higher with Germany’s DAX advancing 0.32 per cent while France’s CAC 40 edged up a modest 0.01 per cent in morning trading. Shares of Air France KLM SA were down more than 14 per cent after France’s finance minister ruled out a bailout for the carrier.
In Asia, markets finished mixed. Japan’s Nikkei ended down 0.03 per cent. The broader Topix closed up 0.09 per cent helped by gains in the steel and oil subsectors. Hong Kong’s Hang Seng finished up 0.23 per cent. The Shanghai Composite Index rose 1.48 per cent.
Commodities
Crude prices held near their best levels since 2014 early on bolstered on ongoing concerns over the possibility of renewed sanctions against Iran by the United States and concerns over the Venezuelan economy. Brent crude was trading in a day range of US$74.83 to US$75.89. The top end of that scale markets Brent’s best level since November 2014. West Texas Intermediate had a day range of US$69.71 to US$70.69. WTI hasn’t been above US$70 a barrel since late 2014.
Monday’s gains came even as rising U.S. production continued to cast a shadow over the markets. On Friday, energy services firm Baker Hughes reported that nine more U.S. rigs came online bringing the total to 834.
“Baker Hughes provided a relatively bearish weekly drilling update in our view, with another nine oil rigs returning to the field this week, led by the Permian which added six,” Desjardins Capital Markets said in a morning note. “That said, at least in the near term, we see the market increasingly focusing on geopolitical developments over fundamentals — and with good reason ahead of what is expected to be a roller coaster May.”
Traders said Monday that the ongoing economic crisis in exporter Venezuela continues to bolsters crude prices.
“The growth in production in the U.S. is being counterbalanced by the simultaneous decline in Venezuela,” Commerzbank analyst Carsten Fritsch said.
Reuters reports that U.S. oil firm ConocoPhillips has moved to take key Caribbean assets of Venezuela’s state-run PDVSA to enforce a US$2-billion arbitration award, actions that could further impair PDVSA’s declining oil production and exports. Venezuela’s output has halved since the early 2000s to 1.5 million barrels per day.
The spectre of renewed sanctions against Iran by the United States also continues to factor into higher crude prices. The U.S. has until May 12 to decide whether to withdraw from the Iran nuclear agreement. France’s foreign minister said Monday that France, Britain and Germany will stick to the 2015 nuclear deal regardless of the U.S. decision.
“We are determined to save this deal because this accord safeguards against nuclear proliferation and is the right way to stop Iran getting a nuclear weapon,” Jean-Yves Le Drian told reporters.
In other commodities, gold prices were lower after three days of gains as the U.S. dollar advanced back toward its best levels of the year. Spot gold and U.S. gold futures for June delivery were both lower at last check. Spot silver was also lower.
Currencies and bonds
The Canadian dollar was lower as its U.S. counterpart rallied on continued expectations that interest rates south of the border will continue to rise this year despite a slightly weaker-than-expected reading on U.S. hiring last week. The loonie was trading in a narrow range for the day so far of 77.67 US cents to 77.89 US cents.
The U.S. dollar index, which weighs the greenback against a basket of world currencies, was higher at 92.82 in at last check. That’s not far off the 2018 high set Friday of 92.9. The U.S. dollar has been rising in recent weeks as investors bet that interest rates in the United States will rise faster that other parts of the world, bolstering the American currency.
For Canada, the week’s big economic event doesn’t arrive until Friday, with the release by Statistics Canada of the April employment figures. The April labour force survey is expected to show an increase of about 19,600 new jobs for the month, with the unemployment rate remaining around 5.8 per cent.
Derek Holt, head of capital markets economics, for Scotiabank, says he’s expecting a slightly better reading of about 25,000 new jobs in Friday’s report.
“Consensus routinely underestimates job growth, so there is merit to having a forecast bias that averages to above the usual median estimate,” he said. “Firms reported in the BoC’s business outlook survey that they were more upbeat toward future employment levels.”
In bonds, U.S. yields were higher ahead of remarks from a number of Federal Reserve officials later in the day. The yield on the 10-year note was higher at 2.955 per cent. The yield on the 30-year note was also higher at 3.123 per cent.
Stocks set to see action
IT services firm Cognizant Technology Solutions Corp’s revenue rose about 10 per cent in the first quarter, benefiting from higher spending by clients in the healthcare and financial industries. The company said on Monday its net income fell to US$520-million or 88 US cents per share in the three months ended March 31, from US$557-million or 92 US cents per share, a year earlier. Revenue rose to US$3.91-billion from US$3.55-billion.
Tyson Foods said quarterly profit fell 7.4 per cent, partly because of higher freight costs. Net income attributable to the company fell to US$315-million, or 85 US cents per share, in quarter ended March 31, from US$340-million, or 92 US cents per share, a year earlier. The Springdale, Arkansas-based company said its sales rose to US$9.77-billion from US$9.08-billion last year. Tyson shares were down in premarket trading.
Bank of America Corp is preparing to provide critical financing to Remington Outdoor Co, which makes assault-type rifles, just weeks after the U.S. bank said it would stop financing “military-style” firearms for civilians, according to a Reuters report. The bank is contributing US$43.2-million to a US$193-million lending package funded by seven banks, according to court documents, which will help put Remington back on stable footing as it emerges from bankruptcy later this month into an uncertain environment for gun makers. The package replaces a similar credit facility the banks committed to providing Remington. Both were agreed in late March, before Bank of America, the second-largest U.S. bank by assets, changed its policy to stop financing companies that make military-style guns for civilian use, Reuters said.
Air France-KLM shares saw their steepest one-day decline in a decade after its chief executive said he would resign following the rejection of a pay deal by the airline’s staff. CEO Jean-Marc Janaillac’s attempt to cut costs at the carrier to keep up with competition from budget airlines and Gulf rivals ran into strong union resistance, as had his predecessor’s efforts, raising questions over its ability to reform. Air France-KLM’s board will decide on a management transition plan on May 15. The government over the weekend said the French state, the largest shareholder with a 14-per-cent stake, would not bail the airline out. The companies shares fell more than 14 per cent on Monday.
Berkshire Hathaway Inc on Saturday reported an unusual quarterly net loss, the result of an accounting change that Warren Buffett had warned would produce “wild” but in his view meaningless swings in results. Berkshire posted a first-quarter net loss of US$1.14-billion, or US$692 per Class A share, compared with net income of US$4.06-billion, or US$2,469 per share, a year earlier. The accounting change required Berkshire to report $6.2-billion of unrealized losses in its marketable stock portfolio, which totaled US$170.5-billion at year end, regardless of whether it planned to sell those.
More reading:
Monday’s small-cap stocks to watch
Monday’s Insider Report: Companies insiders are buying and selling
Economic news
No key North American releases.
Bank of Canada Deputy Governor Timothy Lane joins a panel on the world economic outlook at the Horasis Global Meeting in Cascais, Portugal
With Reuters and The Canadian Press
Terry Weber