Equities
U.S. stock futures signaled sharp declines as world markets fell after U.S. President Donald Trump threatened new tariffs on US$200-billion worth of Chinese imports. Ahead of the North American open, Dow futures were down more than 300 points, pointing to heavy losses at the start of trading. On this side of the border, futures on Bay Street were also in the red as crude prices fell ahead of the late-week OPEC meeting. In the wake of Mr. Trump’s threat, Chinese stocks fell nearly 4 per cent, Asian stocks touched their lowest level in four months and markets in Europe started the day down more than 1 per cent.
“As the U.S. and China head straight towards a full-on trade war flows out of riskier assets are on the rise,” Jasper Lawler, head of research with London Capital Group, said in a note. “U.S. futures have taken another step lower since the close as escalating trade concerns continue to dampen risk appetite. Weak sentiment spread to Asian market overnight,” he said.
Early Tuesday, China warned that it would retaliate agains the latest move by the United States, saying Beijing is ready to “defend the interests of the Chinese people and enterprises.” “If the U.S. side becomes irrational and issues the list, China will have to adopt comprehensive measures in quantity and quality in order to make strong countermeasures,” China’s Commerce Ministry said in a statement.
On the corporate side, Wall Street will get earnings from FedEx and Oracle, although both are due after the close of trading. FedEx shares were off about 1 per cent in premarket trading Tuesday. Last week, FedEx called U.S. tariffs on Chinese goods “counterproductive” and said they will raise prices for American consumers and businesses. The delivery company said it “supports lowering trade barriers for our customers.”
On Bay Street, marijuana company MedReleaf, which is being acquired by Aurora Cannabis, posted a fourth-quarter loss of 1 cent a share, compared with profit of 3 cents a year earlier. Sales, however, rose 16 per cent to $12.01-million from $10.36-million in the year-earlier quarter.
Overseas, European markets saw sharp losses in morning trading. The pan-European STOXX 600 was down 0.71 per cent at last check with resource stocks seeing the biggest losses. Britain’s FTSE 100 fell 0.52 per cent. Germany’s DAX and France’s CAC 40 were each down by more than 1 per cent.
In Asia, Chinese markets plunged on the latest trade news. the Shanghai Composite Index fell 3.82 per cent while Hong Kong’s Hang Seng lost 2.78 per cent. Japan’s Nikkei fell 1.77 per cent.
Commodities
Crude prices fell in early going as an escalating trade row between the United States and China continued to curb risk appetite. Market concern that a Friday OPEC meeting could result in increased production from the cartel and its allies also weighed on sentiment. Brent crude was lower but off the weakest levels of the overnight period and had a range for the day of US$74.54 to US$75.31. West Texas Intermediate was also in the red and had a range of US$64.87 to US$65.90.
CMC chief market analyst Michael Hewson notes that last June Brent prices were trading at US$45 a barrel and OPEC members were six months into an agreement to cap production. Since then, prices have surged to peak above US$80 a barrel and prompted speculation that US$100 could be seen in coming months.
“Last week U.S. President Trump broke with convention by saying that OPEC should stop manipulating prices higher and increase production in an effort to help prevent this income squeeze hurting US consumers, where prices of gasoline have pushed well above $3 a gallon in most of the country,” he said.
“Putting to one side the fact that it is some of President Trumps policies that have helped fuel this rise, in prices, pulling out of the Iran nuclear deal being one, this week we will see OPEC members and Russia sit down a discuss a proposal to increase production levels by 1m barrels a day, thus drawing to a close production caps that have lasted since late 2016.”
For producers, he said, there is a debree of self-preservation in looking to increase production. While most prefer higher prices, they also want to avoid a scenario where prices reach a level that sparks a shar drop off in demand, triggering a global slowdown.
“For now oil prices appear to have found a short term top at $80 a barrel, which means consumers as well as businesses will be hoping that this week’s OPEC meeting succeeds in keeping a lid on prices, and in so doing calling a halt to a period which has seen a steady rise in fuel costs,” he said.
The OPEC meeting is set for June 22 in Vienna.
In other commodities, gold prices pushed higher as investors sought safe-haven holdings in the face of rising global trade tenstions. Spot gold and U.S. gold futures were both higher in early going.
“There is a bit of panic as investors are looking for cover, especially from equity market, and as we know gold does offer that hedge,” Stephen Innes, APAC trading head at OANDA told Reuters.
In other metals, silver was mostly unchanged.
Currencies and bonds
The Canadian dollar continued to slide early Tuesday as its U.S. counterpart strengthened against most world currencies except the Japanese yen and the Swiss franc.
Through the overnight period the loonie saw a fairly steady weakening, moving to the middle of the 75-US-cent mark ahead of the North American open. The day range on the loonie so far is 75.47 US cents to 75.77 US cents. The lower end of that range marks the loonie’s weakest levels in a year.The 52-week range on the loonie is 74.92 US cents to 82.89 US cents, with the lower end seen last summer.
Elsa Lignos, global head of FX strategy, said little of the movement is specific to the loonie but instead reflects the broader currency markets.
“Risk appetite is soft overnight with Trump responding to China’s retaliatory tariffs from Saturday by releasing a statement instructing the United States Trade Representative to identify US$200-billion of Chinese goods for further tariffs,” she said, noting that the legal aspect of that process could take time. She told The Globe’s Michael Babad that RBC traders “have been of the view this morning that trade has just been an excuse [to buy the U.S. dollar.]”
Overnight, investors bought currencies like the yen and the franc that are traditionally seen as save havens. The yen reached its highest level in a week against the U.S. dollar and the franc gained as much as 0.3 per cent agains the greenback.
However, the U.S. dollar was higher against a basket of currencies. The dollar index was up at 95.140, having posted steady gains through the overnight period.The dollar index has been holding near its best levels in seven months this week.
In bonds, U.S. Treasury yields slumped on trade concerns. The yield on the 10-year note was sharply lower at 2.878 per cent. The yield on the 30-year note was also lower at 3.011 per cent.
Stocks set to see action
Wells Fargo & Co said it is considering restructuring and possibly combining two of its retail brokerage businesses, a move to increase efficiency among the two legacy units. The two divisions - the private client group overseen by David Kowach and wealth brokerage services overseen by Jay Welker - have long overlapped. Both employ financial advisers who work with mass affluent clients. However the businesses are organised in different channels. Wealth brokerage services, which employs brokers who work in bank branches, is in the same section of the bank as the private bank, which employs wealth managers who advise the ultra-rich.
Tesla Inc Chief Executive Elon Musk said in an e-mail to staff that an unnamed Tesla employee had conducted “extensive and damaging sabotage” to the company’s operations including allegedly making unspecified code changes to its manufacturing operating system and sending what the e-mail said was sensitive Tesla data to unnamed third parties. Tesla shares were down 1 per cent in premarket trading.
Department store chain Debenhams cut its profit forecast for the third time in six months on Tuesday and said it might sell its Danish shops to bolster its finances and help cope with an industry crisis at home. A string of British store groups have either gone out of business or announced plans to close shops this year, as they struggle with subdued consumer spending, rising business property taxes and growing online competition. Department stores appear particularly vulnerable, with Bhs going bust in 2016 and House of Fraser announcing plans earlier this month to shut around half of its shops.
Osisko Gold Royalties Ltd says it has entered into a binding term sheet to provide Falco Resources Ltd. (FPC-X) with a senior secured silver stream credit facility related to the future silver produced from the Horne 5 development-stage project in Rouyn-Noranda, Qué. As part of the silver stream, Osisko says it will make staged upfront cash deposits to Falco of up to $180-million and ongoing payments equal to 20 per cent of the spot price of silver, to a maximum of US$6 per ounce.
Bonterra Resources Inc. is buying Metanor Resources Inc. in a proposed deal valued at $78-million. As part of the letter of intent, Bonterra will acquire all of the issued and outstanding common shares of Metanor for 73 cents in equity consideration per share at an exchange ratio of 1.6039 Bonterra shares for each Metanor share. The company said the purchase price represents a 30-per-cent premium to its closing price on June 15.
Shares of ZTE Corp. plummeted on Tuesday after the U.S. Senate’s passage of a defence bill set up a potential battle with the White House over whether the Chinese telecom can resume business with its U.S. suppliers. The 85-10 bipartisan vote – one of the few times the Republican-led Senate has veered from White House policy – came on the same day that U.S. President Donald Trump threatened to impose a 10 per cent tariff on $200-billion of Chinese goods, escalating tensions between the world’s two biggest economies.
Videogame and electronics retailer GameStop Corp confirmed on Tuesday that it was in exploratory talks with third parties about a possible transaction. On Monday, Reuters reported that the Grapevine, Texas-based company was in discussions with private equity firms about a potential deal after receiving buyout interest.
More reading
Tuesday’s small-cap stocks to watch
Tuesday’s analyst upgrades and downgrades
Economic News
U.S. housing starts rose 5 per cent to a seasonally adjusted annual rate of 1.350 million units in May, the U.S. Commerce Department said. That was the highest level mid 2007. April’s figures were revised to show starts fell to a rate of 1.286 million units instead of the previously reported pace of 1.287 million units.
(8:30 a.m. ET) U.S. housing starts for May.The Street expects an annualized rate increase of 2.2 per cent.
Reuters and The Canadian Press
Terry Weber