Before the Bell: What every Canadian investor needs to know today

Equities

U.S. stock futures surged and the Canadian dollar jumped to a four-month high on news that Canada and the United States had reached a tentative agreement to overhaul NAFTA. Bay Street futures were slightly weaker ahead of the open even as oil prices pushed higher on global supply concerns. Overnight, world stocks kicked off the fourth quarter of the year on a positive note bolstered by word of the trilateral deal, although worries about Italy’s debt capped the gains.

European markets were positive in morning trading and markets in Japan had a solid finish.

“The trilateral agreement brings an end to months of uncertainty surrounding North American trade,” Jasper Lawler, head of research for London Capital Group, said. "The resultant risk on sentiment has seen equity futures rally strongly overnight. The S&P futures are back towards record territory, whilst the safe haven yen tumbled to a fresh year to date low versus the U.S. dollar.

Investors, he said, have been "waiting patiently for some good news regarding trade since the U.S. escalated trade tensions earlier this year."

“There is clear elation that a deal has been struck; with the Canadian dollar up 0.6 per cent and the Mexican peso rising 0.8 per cent,” Mr. Lawler said. “However, concessions have been made and the deal has come at a cost to Canada. The U.S. have proved they are no walkover when it comes to renegotiating these deals.”

The Globe and Mail reports that U.S. President Donald Trump signed off the deal - which trades access to Canada’s protected dairy market for preservation of a key dispute resolution system and exemption from auto tariffs - late Sunday night. The agreement will be renamed the United States-Mexico-Canada Agreement.

In corporate news, Husky Energy Inc. shares will be in the spotlight at the open after it launched a hostile bid for MEG Energy Corp in a bid to bolster its oil sands assets. Husky said on Sunday that it would pay $11 in cash or 0.485 of a Husky share for each MEG share, representing a 37-per-cent premium over MEG’s closing price on Friday. The deal is valued at $3.3-billion. Husky will also assume MEG’s 3.1-billion in debt.

On Wall Street, Tesla Inc. shares were up 16 per cent in premarket trading following a settlement between CEO Elong Musk and the U.S. Securities Exchange Commission that will see Mr. Musk pay $20-million and step down as chair of the company to settle claims he violated securities law in tweets this summer about financing to take the auto maker private. Tesla was also fined $20-million under the settlement.

“The Securities and Exchange Commission could have dished out a far more severe penalty to Mr. Musk, and some traders feel he got off lightly,” CMC Markets analyst David Madden said in a morning note.

Overseas, the pan-European STOXX 600 was up 0.34 per cent in morning trading. Trade news bolstered European stocks, but a report that the EU could reject Italy’s budget plans next month tempered the gains. Ryanair stock was down as the discount carrier warned on profit as strokes and rising fuel costs hit the bottom line. Britain’s FTSE 100 was up 0.11 per cent. Germany’s DAX gained 0.66 per cent and France’s CAC 40 was up 0.31 per cent.

In Asia, Japan’s Nikkei finished up 0.52 per cent while the broader Topix closed little changed. Markets in Hong Kong and China were closed. South Korea’s Kospi finished down 0.18 per cent, off session lows.

Commodities

Brent crude touched its best level since 2014 early Monday as supply concerns continue to haunt the markets ahead of next months U.S. sanctions on Iranian oil. At last check, Brent was trading above US$83 a barrel and had a range for the day of US$82.68 to US$83.32. The top end of that range represents the highest level for Brent in four years. West Texas Intermediate was also higher ahead of the North American open with a range of US$73.25 to US$73.65.

“Oil prices have gained, with international benchmark Brent hitting a four-year high, as U.S sanctions on Tehran squeezed Iranian crude exports, tightening supply even as other key exporters increased production,” OANDA analyst Dean Popplewell said.

He added WTI is supported by Friday’s report of a stagnant rig count in the U.S. “which could suggest a slowdown in U.S. crude production.”

“Over the weekend, it was reported that President Trump called Saudi Arabia’s King Salman on Saturday to discuss ways to maintain sufficient supply once Iran’s exports are hit by sanctions,” Mr. Popplewell said.

U.S. sanctions on Iranian crude take effect Nov. 4. Major buyers like India and China have indicated they will reduce Iranian purchases. Reuters reports that China’s Sinopec said it had halved loadings of Iranian oil in September.

“If Chinese refiners do comply with U.S. sanctions more fully than expected, then the market balance is likely to tighten even more aggressively,” Edward Bell, commodity analyst at Emirates NBD bank wrote in a note.

Gold prices, meanwhile, were lower early on as the U.S. dollar firmed following last weeks Federal Reserve interest rate hike and indications that at least one more increase is on the horizon this year. Spot gold was down 0.5 per cent at US$1,186.29, in early trading. In the previous session, gold hit its lowest since mid-August at US$1,180.34 an ounce. U.S. gold futures slid 0.5 per cent to US$1,190.60 an ounce.

“Ahead of the open, gold prices have dipped as the ‘big’ dollar firms against G10 pairs in the wake of indications from the Fed last week that it will pursue a tighter monetary policy – after hiking rates 25 basis points, the Fed said it has planned for four more increases by the end of 2019 and another in 2020,” Mr. Popplewell said.

London copper prices were also lower following weak manufacturing numbers from China. Benchmark copper on the London Metal Exchange was down 0.2 per cent at US$6,247 a tonne in morning trading in London.

Currencies and bonds

The Canadian dollar rallied to its highest level in four months after a tentative agreement was reached on NAFTA. At last check, the loonie was up early 1 per cent to sit at the top of the day range of 77.62 US cents to 78.17 US cents.

“For markets, the Canadian dollar has had a nice early pop, but it’s doubtful that it will run much further – unless Canadian oil prices can more firmly benefit from global gains,” Douglas Porter, chief economist at Bank of Montreal, said. “As well, the reality is that Canada continues to deal with many competitiveness challenges above and beyond NAFTA.”

For the Bank of Canada, he added, “this clearly gives them the green light to hike in October and does bump the odds of further rate hikes over the next year.” In terms of the impact for the broader economy, he said. “we wouldn’t change the outlook yet - we too were assuming a deal would get done - but it does put some upside risk to the growth outlook, rather than the lingering downside risk from the uncertainty on this file over the past year.”

Aside from trade developments, the big news for the loonie comes late in the week with the release Friday of the September employment figures. Economists are expecting to see the creation of about 32,000 new jobs for the month, with the jobless rate falling 0.1 per cent to 6 per cent. U.S. employment figures are due the same day.

In global currencies, the dollar index edged up to 95.32, just below a Sept. 10 high of 95.38 seen in the previous session. The euro was lower at US$1.15775 in early trading, hit by concerns over Italy’s debt load and a potential conflict with the EU.

In bonds, Italian bond yields surged in opening trade on a report the European Commission was likely to reject Italy’s budget plans in November and open a procedure against the country’s public accounts in February, according to Reuters.

U.S. bond yields jumped on the NAFTA news with the yield on the 10-year note rising to 3.087 per cent. The yield on the 30-year note was also higher at 3.234 per cent.

Stocks set to see action

Encana Corp. said it has reached a deal to sell its San Juan assets located in New Mexico for US$480-million to Denver’s DJR Energy LLC. “This transaction is consistent with our strategy and our objective of delivering quality returns to our shareholders, Encana CEO Doug Suttles said in a statement. "It adds to our financial strength and is aligned with our focus on maximizing the value of our assets and disciplined allocation of capital.”

Pfizer Inc said its Chief Executive Officer Ian Read would step down at the start of next year. Mr. Read will be succeeded by Chief Operating Officer Albert Bourla, the company said, adding that from Jan. 1, Read will serve as the executive chairman indefinitely. Pfizer shares were slightly higher in premarket trading.

General Electric Co Chief Executive Officer John Flannery stepped down on Monday after a year in charge as the company announced a US$23-billion charge related to its power business. Flannery’s departure calls into question his plans to reorganize one of America’s best-known corporations by selling businesses and cutting costs. GE shares were up more than 14 per cent in premarket trading.

Ryanair cut its forecast for full-year profit by 12 per cent on and said worse may be to come if recent co-ordinated strikes across Europe continue to hit traffic and bookings. Europe’s largest low-cost carrier has struggled with labour relations since it bowed to pressure to recognize trade unions for the first time last December. Industrial unrest has escalated in recent months as it makes slow progress in talks with some unions. Shares in Ryanair, which is also counting the cost of stubbornly high fuel prices, fell by as much as 10 per cent.

Honeywell International Inc, said it will acquire Germany-based warehouse automation business Transnorm for about US$492.8-million from IK Investment Partners. Honeywell also said it completed spin-off of Garrett Motion Inc, its former transportation systems business. Garrett shares will begin trading on the New York Stock Exchange on Monday, it added.

Danske Bank appointed an interim chief executive as it sought to reassure investors rattled by a US$235-billion money laundering scandal and looking for a new leader. Jesper Nielsen, the head of Danske Bank’s domestic banking business, will take on the running of the bank while a replacement is found for Thomas Borgen, who resigned last month but was not originally going to leave with immediate effect.

Luxury British car maker Aston Martin has cut the upper end of its initial public offering price range to 20 pounds per share, giving it a potential market value of up to 4.6 billion pounds (US$6-billion), following mixed feedback from investors. Aston Martin had initially set a range of 17.50 pounds to 22.50 pounds per share, but said on it Monday it had narrowed this to 18.50 pounds to 20 pounds and that it had enough bid interest to cover all the shares being sold at this level.

More reading:

Monday’s small-cap stocks to watch

Economic calendar

(9:30 a.m. ET) Canadian Markit Manufacturing PMI for September.

(9:30 a.m. ET) U.S. Markit Manufacturing PMI for September.

(10 a.m. ET) U.S. ISM Index for September.

(10 a.m. ET) U.S. construction spending for August.

With Reuters and The Canadian Press