U.S. stock futures were mixed early Thursday as the trade row between the United States and China escalated with new tariffs kicking in even as talks resumed between the two economic powers. On Bay Street, futures were modestly lower with oil prices off slightly in the early hours and bank earnings continuing with results from Canadian Imperial Bank of Commerce.
World markets were under pressure overnight. The MSCI’s world equity index, which measures share prices in 47 countries, was down 0.1 per cent early on. Markets in Europe were relatively subdued in early trading while Asia ended mixed.
“As expected the beginning of another US$16-billion of US tariffs on Chinese goods prompted China to enact similar measures on a range of U.S. goods, as the trade stand-off between the two countries entered its next stage.,” David Madden, chief market analyst with CMC Markets U.K., said.
“The preliminary trade talks that began in Washington yesterday with a view to restarting the negotiations look unlikely to yield too much in the way of progress as they enter a second day, with the U.S. President, given his current political difficulties, unlikely to want to concede any further ground.”
The U.S. and China implemented punitive 25-per-cent tariffs on US$16-billion of each others goods early Thursday. The two countries have now slapped tariffs on a combined US$100-billion worth of products since July.
On Wednesday, factors including legal woes for two former advisers to U.S. President Donald Trump helped temper markets, with Wall Street finishing mixed. However, the S&P still managed to touch a fresh intraday high, although it ultimately closed below that level. Still, the S&P’s bull-market run stretched for 3,453 days, the longest streak on record by some measures.
In this country, CIBC topped market forecasts with its third-quarter results. The bank posted earnings, excluding one-time items, of $3.08 a share, up from $2.77 a year earlier. Analysts had been looking for earnings by that measure in the latest quarter of $2.93, according to Thomson Reuters I/B/E/S. CIBC also hiked its dividend by three cents to $1.36. A day earlier, Royal Bank of Canada kicked off bank earnings reporting higher profit and revenue. RBC’s results also topped analysts' forecasts and raised its payout to investors.
On Wall Street, results from Gap Inc. and HP Inc. are due after the bell.
Overseas, European markets were little changed in morning trading. The pan-European STOXX 600 was up 0.07 per cent in early going. Tech stocks were higher, basic resources and auto shares - both of which tend to react to trade news - were weaker. In individual stocks, Ryanair was up about 5 per cent after the airline reached an agreement with the union representing Irish pilots. Britain’s FTSE 100 was up 0.09 per cent. Germany’s DAX was off 0.14 per cent and France’s CAC 40 added 0.11 per cent.
In Asia, markets ended mixed as fresh U.S. tariffs on Chinese goods kicked in. The Shanghai Composite Index saw early losses but managed to rally later in the session to close up 0.37 per cent. Hong Kong’s Hang Seng finished down 0.49 per cent. In Japan, the Nikkei was up 0.22 per cent.
Crude prices were off in early going as the continuing trade dispute between China and the United States offset a decline in U.S. inventories. Brent crude saw steady declines overnight with a day range so far of US$74.28 to US$74.87. West Texas Intermediate followed a similar course in the predawn period. The range on WTI is US$67.62 to US$68.12.
On Wednesday, crude prices got a boost after the U.S. Energy Information Administration reported a 5.8-million-barrel decline in inventories for the week ended Aug. 17. That decline was slightly higher than a report earlier in the week from the American Petroleum Association, which put the draw at 5.2 million barrels.
“The EIA provided a bullish weekly update in relation to crude,” Desjardins Securities analysts said in an early note. The ynoted that the draw down came largely on the back of a 1.5 million barrel pullback in imports as well as elevated refinery utilization. “In comparison, the product side was more bearish and included a surprise motor gasoline build,” Desjardins said.
However, analysts say continuing trade tensions are tempering sentiment, with oil demand closely aligned with global economic activity.
“These (overall) measures are expected to shave up to 0.3-0.5 percentage points from China’s real GDP growth in 2019,” rating agency Moody’s Investor Service said of the latest tariffs. “For the U.S. ... trade restrictions will trim off about one quarter of a percentage point from real GDP growth to 2.3 per cent in 2019.”
In other commodities, gold prices were down on similar economic concerns and a higher U.S. dollar following indications from the U.S. Federal Reserve that two more interest rate hikes are likely this year.
Spot gold was weaker ahead of the North American open. Prices hit their highest since Aug. 13 at $1,201.51 on Wednesday, but failed to hold the psychological $1,200 level after recovering from 1-1/2-year lows touched last week, according to Reuters.
U.S. gold futures were also weaker.
In other metals both silver and platinum prices were lower. Trade concerns also hit copper prices in London, sending the metal close to its lowest level in 14 months.
Currencies and bonds
The Canadian dollar was weaker in early morning trading after hitting a two-week high against its U.S. counterpart during the previous session on signs of progress in NAFTA talks. The U.S. dollar, meanwhile, gained against a basket of world currencies, drawing support from indications in the minutes of the latest Federal Reserve meeting that two more rate hikes were likely this year.
The day range on the loonie so far is 76.64 US cents to 76.96 US cents. The dollar was near the midpoint of that range at last check. The loonie got a lift on Wednesday on hopes that Mexico and the United States could soon wrap up their two-way talks, opening the door for Canada to return. Elsa Lignos, RBC’s global head of FX strategy, said NAFTA headline risk will remain front and centre Thursday with no other major economic releases on the docket.
She also noted the panel involving Bank of Canada Governor Stephen Poloz at the weekend summit of central bankers in Jackson Hole, Wy., will be on the topic of “The fourth industrial revolution and central banking.” Although that panel may not have significant implications for the Bank of Canada policy direction in coming months, she noted Mr. Poloz will also appear on CNBC on Friday afternoon, offering a possible glimpse into his take on economic developments since the July monetary policy report.
In other currencies, the U.S. dollar index rose 0.3 per cent to 95.415 after touching an almost three week low of 94.934 overnight. The euro was down about 0.3 per cent at US$1.1559, easing from a two-week high of US$1.1623.
In bonds, the yield on the 10-year U.S. note was higher at 2.828 per cent. The yield on the 30-year note was also higher at 2.987 per cent.
Stocks set to see action
Alibaba Group Holding Ltd , the world’s biggest online retailer, said first-quarter revenue rose 61 per cent, beating analysts’ estimates, driven by growth in its core e-commerce business. Net income attributable to shareholders, however, fell 41 per cent to 8.7 billion yuan (US$1.27-billion), or 3.3 yuan per share, due to one-off costs related to share-based compensation for Ant Financials’ recent fundraising. Revenue reached 80.9 billion yuan in April-June, versus the 80.7 billion yuan average of 28 analyst estimates compiled by Thomson Reuters I/B/E/S. The company’s U.S. listed shares were up 3.5 per cent in premarket trading.
Facebook says it has banned a quiz app from its platform for refusing an inspection and concerns that data on as many as 4 million users was misused. The social media giant said that it banned the myPersonality app after it found that user information was shared with researchers and companies “with only limited protections in place.” Facebook said it would notify the app’s users that their data was misused. The announcement comes after the recent privacy scandal surrounding political data mining firm Cambridge Analytica. The company said myPersonality was “mainly active” prior to 2012, and it wasn’t clear why Facebook was taking action now.
Australia has banned Chinese telecoms firm Huawei Technologies Co Ltd from supplying equipment for a 5G mobile network, citing risks of foreign interference and hacking which Beijing dismissed as an “excuse” to tilt the playing field against a Chinese firm. The move, following advice from security agencies, signals a hardening of Australia’s stance toward its biggest trading partner as relations have soured over Canberra’s allegations of Chinese meddling in Australian politics. It also brings Australia in line with the United States, which has restricted Huawei and compatriot ZTE Corp from its lucrative market for similar reasons.
Ontario’s Progressive Conservative government has asked the province’s Superior Court to throw out a petition from the Canadian arm of Tesla Inc. that claims the U.S. company has been treated unfairly in the government’s cancellation of an electric vehicle rebate program. The provincial government’s ministry of transportation said in a response filed Tuesday that there is no merit to the electric car maker’s application for judicial review, arguing the decision is government policy that does not fall within the court’s jurisdiction.
Kroger Co., the largest grocery chain in the United States, will phase out the use of plastic bags in its stores by 2025. Kroger orders about 6 billion bags each year. The company, based in Cincinnati, operates 2,779 stores in 35 states and the District of Columbia, serving almost 9 million people daily through two dozen different grocery chains. Kroger said Thursday that will start at its Seattle chain QFC, where it expects to be plastic-bag free by next year.
Initial claims for U.S. state unemployment benefits slipped 2,000 to a seasonally adjusted 210,000 for the week ended Aug. 18, the U.S. Labor Department says.
(9 a.m. ET) U.S. FHFA House Price Index for June. Consensus is a rise of 0.3 per cent from May and 6.4 per cent year over year.
(10 a.m. ET) U.S. new home sales for July. The Street expects an annualized rate increase of 3 per cent.
With Reuters, The Associated Press and The Canadian Press