U.S. stock futures were sharply lower early Tuesday as political uncertainty roiled world markets, hammering stocks in Europe and sideswiping the euro. On Bay Street, futures were weaker as oil prices continued to fall and investors weighed news that Ottawa will buy Kinder Morgan’s Trans Mountain pipeline expansion project.
“European bourses and the euro are at risk of further losses, as political instability in two of the euro zone’s largest economies sends jitters through the markets,” Jasper Lawler, head of research for London Capital Group, said.
“Italy’s President frustrating the two populist euroskeptic parties forming a coalition, plus a potential vote of no confidence in Spain as soon as Friday has sent the euro to an almost 7-month low versus the (U.S.) dollar.”
Italy is facing the prospect of a snap election after the 5-Star Movement and League parties dropped plans to form a coalition government on the weekend after President Sergio Mattarella vetoed their pick for economic minister. Mr. Mattarella on Monday tapped former IMF official Carlo Cottarelli as Prim minister designate to lead a stop-gap government ahead of possible early elections.
Elsewhere, markets were also closely watching events in a potential summit between U.S. President Donald Trump and North Korean lead Kim Jong Un. Last week, Mr. Trump cancelled the meeting but has since revived hopes that the summit could still take place. Reuters reports that an aid to the North Korean leader arrived in Singapore on Monday. The report also said a “pre-advance” U.S. team was also heading to Singapore.
On Bay Street, energy shares will be in focus after Finance Minister Bill Morneau announced Ottawa would pay $4.5-billion for the controversial Trans Mountain expansion. The project has faced fierce opposition from the B.C. government and environmental groups. Kinder Morgan had put a May 31 deadline on deciding the pipeline’s fate. The deal is expected to close in August. The federal government doesn’t expect to be a long-term owner of the project and Kinder Morgan says it will work with Ottawa to find a third-party buyer.
Kinder Morgan’s U.S. listed shares were up more than 3 per cent on the news in premarket trading.
As well, Scotiabank was the latest big Canadian bank to top forecasts with its second-quarter results. Scotiabank reported earnings per share for the quarter of $1.70, up from $1.62 a year earlier. Analysts had been looking for earnings closer to $1.67 in the most recent quarter.
On Wall Street, Apple shares were down slightly after South Korea’s Electronic Times reported that Apple has declided to use OLED (organic light-emitting diode) screens for all new iPhone models for next year. Shares of Japan Display, one of Apple’s main suppliers of iPhone LCD screens, saw its shares drop 20 per cent on the news. Japan Display doesn’t plan to start production on OLED panels until next year.
Overseas, markets in Europe were slammed by concerns over Italy’s political future with the pan-European STOXX 600 dropping 1.29 per cent. Italian bonds, meanwhile, saw their worst day in 25 years with short-term bond yields set for their biggest one-day increase since 1992.
Britain’s FTSE 100 was down 1.31 per cent. Germany’s DAX fell 1.39 per cent and France’s CAC 40 was off 1.30 per cent.
In Asia, markets finished mostly lower as global sentiment sagged. Japan’s Nikkei ended down 0.55 per cent on broad losses. Hong Kong’s Hang Seng fell 1 per cent. The Shanghai Composite Index slid 0.47 per cent.
Commodities
Oil prices prices continued to struggle early on as markets increasingly expect production increases by Saudi Arabia and Russia. At last check, Brent crude had managed some modest gains and was trading in a day range of US$65.80 to US$67.55. Brent is down about 7 per cent since hitting a 2014 high of US$80 last week. West Texas Intermediate, meanwhile, was lower and had a range for the day of US$65.80 to US$67.55. The spread between Brent and WTI has hit its widest since 2015.
“The oil market took a dive at the end of last week after it was reported that Russia and Saudi Arabia are considering easing up on the production freezes,” CMC market analyst David Madden said.
“OPEC will hold a meeting next month, and dealers are preparing themselves for the possibility of production being increased.”
Saudi Arabia and Russia have discussed hiking OPEC and non-OPEC production by about 1 million barrels a day to cover potential shortfalls from producers Venezuela and Iran. OPEC countries have been capping production through the past year to curb the market overhang.
In other commodities, gold prices were lower as the U.S. dollar rose on renewed hopes for a U.S.-North Korea summit. Spot gold and U.S. gold futures for June delivery were both weaker at last check.
“There seems to be a lack of conviction in the market, particularly after the North Korean summit... and that’s come at a time when we are looking at another rate hike in the U.S.,” ANZ analyst Daniel Hynes told Reuters.
In other metals, silver prices were also lower.
Currencies and bonds
The Canadian dollar continued to fall alongside crude prices. At last check, the loonie was nearer the low end of the day range of 76.67 US cents to 77.09 US cents.
“Crude has turned into the key short-term driver of CAD,” Elsa Lignos, global head of FX strategy for RBC, said.
“The five-day decline of nearly 10 per cent in crude has pushed USD/CAD from $1.2743 (78.47 US cents) to $1.3022 (76.79 US cents). Crude prices stabilized overnight but our technical analyst argues they remain vulnerable,.”
Looking ahead, the markets will get the latest policy decision from the Bank of Canada on Wednesday. However, Ms. Lignos notes that it’s a statement-only meeting. “We look for no change to rates and little in the way of explicit forward guidance,” she said.
The markets have priced in little chance of a rate hike tomorrow but a 79-per-cent chance at the central bank’s July meeting.
In other currencies, the U.S. dollar index was higher at 94.863. The index has been near its best levels in more than six months on renewed optimism over a possible U.S.-North Korea summit.
The euro, meanwhile, fell below US$1.16 for the first time in 6-1/2 months on Tuesday, down 0.3 per cent for the day.
In bonds, the yield on the U.S. 10-year note was lower at 2.846 per cent. The yield on the 30-year note was also lower at 3.023 per cent.
Stocks set to see action
Crescent Point Energy says Craig Bryksa has taken over as interim president and chief executive officer, replacing Scott Saxberg. Mr. Saxberg held the position for 15 years.
Nestlé plans to eliminate up to 500 information technology jobs at its Swiss headquarters as its shifts work to countries including Spain, Portugal and Italy, the food and beverage giant said on Tuesday. None of the group’s Swiss production sites are affected by the plan, which is being presented to staff for consultation, it said in a statement.
Japanese drug maker Takeda Pharmaceutical Co Ltd faces demands from disgruntled shareholders to put to a vote its US$62-billion acquisition of London-listed Shire and do more to assuage concerns over the record-breaking deal. The deal “carries overly high risks to the company”, 12 shareholders said in a proposal to be voted on at next month’s annual meeting of shareholders, adding that new shares to be issued to fund the deal threaten “a danger of causing a great disadvantage to existing shareholders”.
Lufthansa will not be investigated for market abuse over rising ticket prices following the collapse of local rival Air Berlin, the German cartel office said on Tuesday. The watchdog had received complaints over high ticket prices and had been looking into the matter with a view to decide whether to instigate a full investigation.
Four weeks after highlighting a groundbreaking software sale to a major U.S. bank, Real Matters Inc. announced on Monday that the contract was cancelled, news that knocked back the technology company’s share price, The Globe’s Andrew Willis reports. In early May, Real Matters announced that, over the next six months, it expected to roll out mortgage-refinancing software at an unnamed U.S. bank that ranks among the country’s largest real-estate lenders. While this was Real Matters’s first sale to a Tier 1 U.S. bank, the company already sells the system to a number of smaller U.S. lenders.
More reading:
Monday’s small-cap stocks to watch
Economic news
(9 a.m. ET) U.S. S&P Corelogic Case-Shiller Home Price Index for March.
(10 a.m. ET) U.S. consumer confidence for May. The Street expects a reading of 128.0, down from 128.70 in the previous month.
Reuters and The Canadian Press
Terry Weber