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Inside the Market Before the Bell: Wall Street, TSX futures weaker as NAFTA worries, interest rates pull focus

Equities

U.S. stock futures signalled a negative start early Wednesday as Canada and the U.S. head back to the table for further NAFTA talks and investors brace for the next move in the trade row between the United States and China. On this side of the border, TSX futures were also lower as oil prices slumped and investors await the Bank of Canada's next rate decision due after the start of trading.

Overnight world stocks moved lower and emerging markets continued to suffer as trade worries continued to weigh on global sentiment. In addition to resumed NAFTA negotiations, a public comment period on another US$200-billion in U.S. tariffs on Chinese imports ends Thursday with expectations that fresh penalties will be imposed by U.S. President Donald Trump. MSCI’s emerging equity benchmark fell for the sixth day in a row.

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"The trade conflict between the two largest economies has been a primary reason behind the markets struggling to make major gains this year, despite companies reporting more than 20 per cent earnings growth," OANDA analyst Craig Erlam said. "Investors are clearly concerned about the economic downfall from engaging in a long-term trade war with China and others which has stalled the rally this year."

Just after the North American open, investors in Canada will get the Bank of Canada's next monetary policy announcement, with markets expecting to see no rate hike this time around. This will be a statement-only announcement with no press conference or monetary policy report, so markets will be paying closer attention to the text of the announcement for signals about a possible October move. The markets have priced in a 5 per cent chance of a rate hike today but that jumps to about 80 per cent for next month's policy announcement.

On the corporate side, Canadian gold and copper miner Nevsun Resources Ltd. has agreed to be acquired by China's Zijin Mining Group Co. for $1.86-billion. The Chinese company is offering $6 a share cash for the Canadian miner. Nevsun had rejected a number of previous offers from rival Lundin Mining Group, most recently in July.

Loblaw Co. Ltd. shares could also get some attention after the grocer moved toward a pure grocery play with a deal to sell its real estate portfolio to parent company George Weston. The Globe's Tim Kiladze and Rachelle Younglai report that, as part of a corporate reorganization, Loblaw will send its 62-per-cent stake in Choice Properties Real Estate Investment Trust to its parent company and largest shareholder in return for shares of George Weston. Because George Weston already owns 3 per cent of the REIT, its total stake in Choice will jump to 65 per cent.

As well, Quebec-based retailer Alimentation Couche-Tard reports its latest results after the close.

In the U.S., top Twitter and Facebook executives appear before U.S. lawmaker to defend themselves against charges that their platforms were open to election interference and political influence. Facebook Chief Operating Officer Sheryl Sandberg and Twitter Chief Executive Jack Dorsey are scheduled to appear on Capitol Hill. In written testimony released Tuesday, Ms. Sandberg said Facebook has improved efforts to combat foreign interference on that platform since the 2016 election.

“The actions we’ve taken in response ... show our determination to do everything we can to stop this kind of interference from happening,” she said.

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In Europe, markets were weaker in early going with the pan-European STOXX 600 trading down 0.8 per cent with most sectors in the red. Britain's FTSE 100 was down 0.45 per cent. Germany's DAX was down 0.87 per cent. France's CAC 40 was off 1.24 per cent.

In Asia, Japan's Nikkei ended down 0.51 per cent. Hong Kong's Hang Seng dropped 2.61 per cent. The Shanghai Composite Index fell 1.68 per cent.

Commodities

Crude prices fell in early giving some of the previous session's gains as storm-related worries in the United States eased. Brent crude was down more than 1 per cent in the predawn period and had a range for the day of US$77.05 to US$78.09. West Texas Intermediate was also nearer the lower end of the day range of US$68.86 to US$69.57.

Crude prices jumped as some companies shuttered operations in the Gulf of Mexico, anticipating tropical storm Gordon would strengthen as it approached landfall. However, a weakening of the storm has eased some of those concerns.

“Tropical storm Gordon made ... landfall after dashing expectations that it would strengthen to a hurricane,” Stephen Brennock of oil broker PVM told Reuters.

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“Instead, it weakened considerably and deviated away from oil-producing areas, which, as a result, has taken the wind out of bulls’ sails.”

Later in the day, markets will also get fresh figures on crude inventories in the United States with the release of the American Petroleum Institute's weekly report. The report is being released a day later than usual because of the Labour Day holiday on Monday. The U.S. Energy Information Administration releases its weekly report on Thursday.

Currencies and bonds

The Canadian dollar was little changed, trading below 76 US cents ahead of the Bank of Canada's rate announcement. The bank is expected to hold rates steady but could indicate whether it will raise rates again in next month's policy statement. The day range on the loonie so far is 75.72 US cents to 75.96 US cents.

"The BoC is universally expected to leave rates on hold and there will be no press conference," Elsa Lignos, RBC's global head of FX strategy, said. "We think the statement is also unlikely to contain surprises. Growth and core inflation are still largely where the Bank expected them to be and an October hike is still largely priced in."

She said markets will likely be focused on trade comments but the message is likely to be largely the same as in the latest monetary policy report. She notes that trade tensions were already the biggest issue on the table at the July meeting but also that Bank of Canada Governor Stephen Poloz has indicated in the past that a NAFTA deal alone would not be sufficient to justify tighter policy but that the bank would have to weigh movements in the Canadian dollar and any response by Canadian business.

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Ahead of the policy announcement, markets also got the latest trade figures. Statistics Canada said Canada's trade gap with the rest of the world narrowed to $114-million, the smallest since late 2016. The dollar remained relatively steady immediately after the figures were released.

In other currencies, the U.S. dollar rose broadly against its world counterparts as trade concerns escalate. The dollar index, which measures the greenback against a basket of six world currencies, was up 0.2 per cent at 95.662 overnight. That's close to the two-week high of 95.737 seen on Tuesday.

In bonds, the yield on the U.S. 10-year note was lower at 2.899 per cent. The yield on the 30-year note was also lower at 3.066 per cent.

Stocks set to see action

Crescent Point Energy Corp named Craig Bryksa its new chief executive officer and set a target of reducing 17 per cent of its work force as it looks to turn around its business. The company is trying to cut expenses and reduce debt by more than $1-billion by year-end 2019. It is also divesting some assets.

Bayer cut its earnings forecast due to delays to its US$63-billion takeover of Monsanto, and said sales of its consumer care products fell, hitting its shares, already reeling from a legal battle over the weed killer Roundup. The weaker earnings forecast adds to a number of challenges facing the German drug maker as it braces for years of legal wrangling over the alleged cancer risks of glyphosate-based weedkillers. Bayer said the number of plaintiffs seeking damages over Monsanto’s Roundup and Ranger Pro herbicides had risen to 8,700 from 8,000 from last month, and said that it expected more to sue. It has vowed to defend itself in court, citing regulators and studies as saying the products are safe. The company lowered its forecast for adjusted core earnings per share for the year to 5.70 - 5.90 euros, down from 6.64 in 2017, short of analyst expectations, dragging the stock down as much as 3.7 per cent in morning trade.

Toyota Motor Corp said on Wednesday it planned to recall around 1.03 million vehicles, including its gasoline-hybrid Prius model, in Japan, North America, Europe and other regions due to an issue with the engine wire harness which can pose a fire risk. Following a domestic recall announcement by Japan’s transport ministry, Toyota said that in affected vehicles, the wire harness which connects to the hybrid power control unit can come into contact with the covering at the connection point. If dust accumulates on the wire harness or the cover, the insulation on the wires could wear down over time due to vehicle vibrations. This could cause an electrical short circuit, which could generate heat and lead to a risk of fire, Toyota said.

Denison Mines' U.S. listed shares rose about 4 per cent after the company said it would raise its interest in the the Wheeler River uranium project.

More reading:

Wednesday's small-cap stocks to watch

Economic news

Statistics Canada says this country's trade deficit narrowed to $114-million in July from $743-million a month earlier. It was the smallest trade deficit since December 2016. The agency says exports rose 0.8 per cent, while imports declined 0.4 per cent.

The U.S. Commerce Department says the trade gap jumped 9.5 per cent to US$50.1-billion, widening for a second straight month. Data for June was revised to show the trade deficit rising to US$45.70billion, instead of the previously reported $46.3 billion.

(10 a.m. ET) Bank of Canada rate announcement.

With Reuters and The Canadian Press

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