Equities
Wall Street futures bounced and world stocks steadied as a tentative calm spread through the markets Wednesday following the previous session’s sell-off. On Bay Street, futures were higher as crude prices rose alongside falling U.S. inventories. Overnight, Chinese markets rallied after previous session’s sharp losses on hopes that a simmering trade row with the U.S. could lead to future policy stimulus.
MSCI’s all-country index, which weighs stocks in 47 countries, was up 0.3 per cent at last check, snapping a five-day losing streak.
“Buyers have stepped in this morning to lift markets further off yesterday’s lows, and a lack of fighting talk from either of the two combatants has helped soothe nerves, too,” Chris Beauchamp, chief market analyst at IG, said.
On the trade front Wednesday, the European Union said it would start charging import duties of 25 per cent on a number of U.S. goods starting Friday. The move is in response to the decision by the U.S. to impose stiff tariffs on steel and aluminum imports.
In Asia, sentiment got a boost after China’s central bank said in a working paper that Beijing should cut banks’ reserve requirement ratios in the face of an escalating trade war with the United States. Such a move is seen increasing liquidity and ease monetary conditions. The People’s Bank of Chan cut reserve ratios unexpectedly in April by 100 basis points.
On Bay Street, cannabis stocks will be in the spotlight after an historic vote that saw Parliament lift the 145-year-old prohibition on marijuana, freeing millions of adults to openly smoke and grow the drug without fear of prosecution. The adoption in the Senate of Bill C-45, the Cannabis Act, means that a legal, multibillion-dollar industry is set to appear in Canada. Cannabis for recreational use is expected to go on sale in early or mid-September.
On Wall Street, Starbucks shares were down more than 4 per cent in premarket trading after the company said it would close 150 cafes in some U.S. markets and warned same-store sales this quarter would fall short of analysts’ forecasts. Faced with increasing competition, Starbucks has already fallen short on same-store sales in the Americas region in five of the past six quarters.
FedEx shares were also down slightly in premarket trading even after the delivery company topped Wall Street forecasts in its latest quarter. On a non-GAAP basis, the company earned US$5.91 per share. Revenue rose 10.2 per cent to US$17.3-billion. Analysts expected earnings per share of US$5.71 and revenue of US$17.3 billion, according to Thomson Reuters I/B/E/S. The results were released after the close of trading Tuesday. Both FedEx and rival UPS saw their shares drop more than 2 per cent during the previous session on investor concerns over the impact of the escalating trade dispute between the United States and China.
Overseas, European markets rallied even as global trade concerns linger. The pan-European STOXX 600 was up 0.84 per cent in morning trading with most sectors in positive territory. Britain’s FTSE gained 1.28 per cent. Germany’s DAX rose 0.47 per cent. France’s CAC 40 advanced 0.33 per cent.
In Asia, Japan’s Nikkei rose 1.24 per cent with consumer and technology stocks moving higher but banks falling. Markets in China also recovered some of Tuesday’s sharp losses with Hong Kong’s Hang Seng rising 0.77 per cent and the Shanghai Composite Index gaining 0.31 per cent.
Commodities
Crude prices were higher early Wednesday, helped by a drop in U.S. inventories and a loss of storage capacity in Libya resulting from the collapse of a tank.
Brent crude was positive ahead of the North American open and had a range for the day of US$75.08 to US$75.86. The range on West Texas Intermediate, meanwhile, was US$65.09 to US$65.69.
Prices got a lift from a report from the American Petroleum Institute showing that weekly crude inventories fell by 3 million barrels to 430.6 million. Later Wedneday, the U.S. Energy Information Administration releases its weekly figures. Traders are expecting a draw in the neighbourhood of 2 million barrels in that report.
Traders also said prices got a lift Wednesday from news that supplies from Libya would likely drop as a result of the collapse of an estimated 400,000 barrel storage tank.
The latest developments, however, are playing out against the expectation that OPEC, at a meeting Friday, will decide to begin increasing production after more than a year of capping output. Saudi Arabia is in favour of the move, supported by Russia, although other members like Iran have opposed an increase.
“The Saudis have already indicated they are open to some form of increase while Russia wants a production hike of up to 1.5 million barrels a day,” CMC chief market analyst Michael Hewson said.
“Iranian oil minister Zanganeh has said he will leave Vienna on Friday before the meeting even starts which almost suggests that Iran’s wishes will be ignored, and some form of compromise will be arrived at which bypasses them.”
In other commodities, gold prices steadied after hitting a six-month low during Tuesday’s session. Spot gold was little changed at last check. Gold futures for September delivery were modestly lower.
Currencies and bonds
The Canadian dollar continued its march lower toward the 75-US-cent mark as its U.S. counterpart managed its best level against world currencies in 11 months. The loonie was underwater at last check and had a day range of 75.13 US cents to 75.36 US cents after a choppy night.
“CAD remains on the back foot, with rising trade jitters and a risk off tone to markets pushing USD/CAD toward $1.3300 [75.19 US cents],” Elsa Lignos, RBC’s global head of FX strategy, said in a note.
The move came as the U.S. dollar edged higher against a basket of currencies with the U.S. dollar index touching 95.30, its best level since the mid-July 2017.
“Market volatility remains very low and the headline risks from trade concerns should push that higher,” Hans Redeker, global head of currency strategy at Morgan Stanley in London, told Reuters.
In bonds, U.S. Treasury yields shifted higher as debt prices slide ahead of the participation of U.S. Federal Reserve chair Jerome Powell in a panel discussion alongside other central bankers in Portugal. The yield on the 10-year note was higher at 2.902 per cent. The yield on the 30-year note was also higher at 3.029 per cent.
Stocks set to see action
Bombardier said Wednesday that Delta Air Lines has signed a firm purchase agreement for 20 CRJ900 aircraft. The deal makes Delta the launch operator of Bombardier’s Atmospère cabin. The order is valued at US$961-million.
Twenty-First Century Fox Inc said on Wednesday Walt Disney Co raised its offer for Fox assets to US$38 per share. The new offer, which is in the form of cash or stock, subject to 50/50 proration, is about US$10 higher than Disney’s first offer in December 2017. Fox shares rose more than 5 per cent in premarket trading on the news.
Aurora Cannabis Inc. is planning to spin off its Australis Capital subsidiary as a separate entity that would focus primarily on investing in the U.S. cannabis and real estate sectors. The spin-off will be achieved by distributing shares and warrants of the new company — to be listed on the Canadian Security Exchange. Aurora shareholders resident in Canada will receive the shares at no cost to them while non-resident shareholders of Aurora will receive cash, net of withholding taxes, instead of equity in Australis.
Oracle Corp’s forecast for current-quarter profit missed analysts’ expectations on Tuesday, hurt by a strengthening U.S. dollar, dampening its fourth-quarter earnings beat that was powered by growth in its cloud business. Oracle sees first-quarter adjusted earnings per share to be between 68 US cents and 70 US cents, below analysts’ average estimate of 72 US cents. In the most recent quarter Oracle earned 99 US cents per share, excluding one-time items. Analysts were expecting a profit of 94 US cents per share and a revenue of US$11.19-billion, according to Thomson Reuters I/B/E/S. Oracle shares were down more than 3 per cent in premarket trading.
General Electric will be dropped from the Dow Jones industrial average next week, ending the industrial conglomerate’s more than 100-year run in the 30-company blue chip index. S&P Dow Jones Indices said Tuesday that GE will be removed from index before the open of trading next Tuesday. Its slot will go to drugstore chain Walgreens Boots Alliance. Boston-based GE was an original member of the Dow Jones industrials dating back to 1896. It had been a continuous member of the Dow since 1907.
Mullen Group Ltd. says it’s buying Canadian Hydrovac Ltd., a private company based in Sherwood Park, Alta. In a release, the Mullen Group said it will operate CHL as a standalone business unit within its oilfield services segment. The acquisition is expected to add approximately $25-million in annual revenue to Mullen Group, the company said.
More reading:
Wednesday’s small-cap stocks to watch
Wednesday’s upgrades and downgrades
Economic news
The U.S. Commerce Department says the current account deficit widened by US$8-billion to US$124.1-billion, or 2.5 per cent of national economic output, in the first three months of the year. Analysts polled by Reuters had expected the current account deficit to widen to $129-billion.
(9:30 a.m. ET) U.S. Fed chair Jerome Powell participates in a policy panel in Portugal.
(10 a.m. ET) U.S. existing home sales for May. Consensus is an annualized rate rise of 1.5 per cent.
(10:30 a.m. ET) EIA Petroleum Status Report
With Reuters and The Canadian Press
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Terry Weber