Wall Street futures slipped into the red and world markets drifted Thursday as a lull in the trade spat between the U.S. and China helped divert investors’ attention. On Bay Street, futures were weaker a day after the TSX closed at a record high as oil prices slid ahead of Friday’s OPEC meeting. European indexes were mixed while shares in China cast a pall over Asian markets.
“The modest rebound seen in equity markets yesterday shouldn’t be taken as a sign that investors are getting used to the idea of a trade war,” Michael Hewson, chief markets analyst with CMC Markets U.K., said in a note.
“They are probably just an indication that escalation risks still remain some way away despite the recent rhetoric between the US and China.”
He noted the EU announced its retaliation measures against U.S. tariffs earlier in the week. The EU measures take effect Friday and “and could well prompt a counter response from the U.S. in the coming days or weeks,” Mr. Hewson said.
On Bay Street, Australia’s Gateway Lifestyle Group said it had received a non-binding US$514.7-million offer from Canada’s Brookfield Property Group, a unied of Brookfield Asset Management. The bid represents a 7.5-per-cent premium to Gateway’s closing price on Wednesday.
On Wall Street, Darden Restaurants’ shares jumped more than 8 per cent after the company’s fourth-quarter earnings topped market forecasts. The Olive Garden owner posted net income of US$1.39 a share, up from 98 US cents a year earlier. Adjusted earnings per share came in at US$1.39, ahead of the $1.35 analysts had been expecting.
Overseas, European markets held in the red after the Bank of England left interest rates unchanged but opened the door to a possible move later in the summer. The bank’s panel voted six-to-three to keep rates steady in what CMC’s Mr. Hewson called a “hawkish hold.” After the decision, Britain’s FTSE was down 0.77 per cent. Germany’s DAX fell 0.90 per cent and France’s CAC 40 slid 0.49 per cent.
In Asia, markets finished mixed. Japan’s Nikkei rose 0.61 per cent with machinery stocks among the top gainers. Hong Kong’s Hang Seng slid 1.35 per cent with most sectors in the red just ahead of the close of trading. The Shanghai Composite Index finished down 1.38 per cent.
Brent and West Texas Intermediate prices were down by more than 1 per cent in early going Thursday as OPEC members appeared close to an agreement to raise production after more than a year of capping output. Brent crude saw prices slide overnight and had a range for the day of US$72.98 to US$74.69. West Texas Intermediate saw a similar pattern overnight and has a range for the day so far of US$64.34 to US$65.80.
OPEC holds its annual meeting in Vienna on Friday and members are widely seen agreeing to increase output, possibly with the support of allies including Russia. Saudi Arabia has been supporting an increase in output, although members such as Iran have been more reluctant to endorse such a move. In recent days, however, Iran has signaled that it could support a modest increase.
“The next few days should be action-packed for the market with emerging updates from the sidelines of Friday’s OPEC meeting, which is expected to be one of the most contentious in years,” Desjardins Securities said in a note.
However, Desjardins also noted that that it’s unlikely the markets will have clarity on the ultimate decision right away because a meeting of non-OPEC producers - led by Russia - is scheduled for Saturday.
“This could drive additional volatility as fast-money traders potentially trim risk going into the weekend,” Desjardins said. “Ultimately, we expect a production hike from the group moving into [second half of 2018.], which is certainly warranted given the growing supply outages from Venezuela and Iran (and now potentially Libya) although there is still a wide range of potential magnitudes.”
Russia, it said, has been advocating for a 1.5 million barrel-a-day hike but something closer to 300,000 to 600,000 barrels a day is now reportedly being floated in a bid to bring Iran on board.
In other commodities, gold prices hit their lowest in six months alongside a strengthening U.S. dollar. Spot gold touched its lowest level since Dec. 20 and has lost more than 7 per cent since its April high above US$1,365 an ounce.
Currencies and bonds
The Canadian dollar was lower early on - sitting just above 75 US cents - as its U.S. counterpart rose to its best levels since last summer. The day range on the loonie so far us 75.02 US cents to 75.22 US cents. At last check, the Canadian dollar was closer to the low end of that spread.
Early Thursday, the U.S. dollar index, which weighs the greenback against a basket of world currencies, rose to 95.406, its best level since mid-July 2017.
″[The U.S. dollar] is moderately firmer against all G10 and most EM currencies overnight as U.S. yields drifted back up toward the highs of the last week,” RBC chief currency strategist Adam Cole said. “U.S. commerce secretary [Wilbur] Ross said neither the U.S. nor China wants a trade war. Beyond USD direction, markets have a risk-on tone.”
For the loonie, the day’s sole economic report is Statistics Canada’s reading on wholesale trade in April. The report said wholesale sales edged up 0.1 per cent, short of the 0.3-per-cent increase the market had been expecting. Statscan said sales were higher in three of seven subsectors. The loonie was lower but still above 75 US cents immediately after the release of the latest figures.
In bonds, the yield on the U.S. 10-year note was lower at 2.911 per cent. The yield on the 30-year note was also lower at 3.047 per cent.
Stocks set to see action
Intel Corp on Thursday said Chief Executive Officer Brian Krzanich has resigned, effective immediately, after a probe revealed that a past consensual relationship with an Intel employee violated company policy. “An ongoing investigation by internal and external counsel has confirmed a violation of Intel’s non-fraternization policy, which applies to all managers,” the company said in a statement. The board named Chief Financial Officer Robert Swan as interim chief executive officer.
German luxury car maker Daimler cut its 2018 profit forecast, blaming a trade war between China and the United States and stricter pollution targets, sparking fears of a wave of earnings downgrades across the industry. The company said late on Wednesday that import tariffs on cars exported from the United States to China would hurt sales of its Mercedes-Benz cars, resulting in slightly lower earnings before interest and taxes (EBIT) this year.
Nexen Energy says it will spend about $400-million to build a 26,000-barrel-per-day expansion of its Long Lake oilsands project in northern Alberta. The company, which was purchased by Chinese state-owned China National Offshore Oil Co. Ltd. (CNOOC) in 2013, says its Long Lake Southwest expansion will add three steam-driven well-pads that will send bitumen to its existing facilities.
AT&T is launching a new streaming service incorporating television networks from the Time Warner company it just bought. The WatchTV service, a cable-like package of more than 30 TV channels delivered over the internet, is an example of new “skinny bundles” coming from telecom and broadband providers as more people watch TV online. Competitors include Sling TV, PlayStation Vue and AT&T’s own DirecTV Now.
Equitable Group Inc. says its Equitable Bank subsidiary has reduced the size of its secured liquidity backstop facility to $850-million from $2-billion, “as a result of successful measures taken to enhance its liquidity position and favourable funding market conditions.” Equitable says the move will save it about $1.4-million of pre-tax standby fees each quarter through to the maturity of the backstop in June 2019.
Kroger shares were up almost 10 per cent in premarket trading after the company raised the lower end of its adjusted profit forecast to a range of US$2 to US$2.15 per share from US$1.95 to US$2.15 per share estimated previously.
Statistics Canada says wholesale sales rose 0.1 per cent in April to $63.1-billion. The market had been expecting an increase of 0.3 per cent. Statscan says sales were up in three of seven subsectors.
Initial claims for U.S. state unemployment benefits fell 3,000 to a seasonally adjusted 218,000 last week, the U.S. Labor Department said. Economists polled by Reuters had forecast claims rising to 220,000. Jobless claims have now declined for four straight weeks.
Economists polled by Reuters had forecast claims rising to 220,000 in the latest week. Claims have now declined for four straight weeks.
With Reuters, The Canadian Press and The Associated Press