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Equities

Canada’s main stock index opened higher on Tuesday as investors turned away from the simmering U.S.-China trade feud and focused instead on the prospect of easing policy moves from the world’s central banks. Fiscal stimulus out of China and higher oil prices are also bolstering market strength. Overseas, MSCI’s all-country index adding 0.26 per cent after a positive start in Europe.

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At 9:37 a.m. ET, the Toronto Stock Exchange’s S&P/TSX Composite index was up 59.24 points, or 0.37 per cent, at 16,275.5. Nine of the index’s 11 major sectors were higher, led by the energy sector which climbed 0.9 per cent.

On Wall Street, stocks opened higher as the market edges back toward record high territory. The Dow Jones Industrial Average rose 117.91 points, or 0.45 per cent, at the open to 26,180.59. The S&P 500 opened higher by 16.54 points, or 0.57 per cent, at 2,903.27. The Nasdaq Composite gained 77.87 points, or 1.00 per cent, to 7,901.04 at the opening bell.

Trade fears eased last week after U.S. President Donald Trump called off a plan for penalties on imports from Mexico. However, this week, he turned the focus back to China, warning that he could impose more tariffs on Beijing if he doesn't make progress in talks with President Xi Jingping at the G20 summit later this month.

"Visibly, investors prefer turning their head away from the US – China’s trade war story for a while and concentrate on the dovish shift in global monetary policies," Ipek Ozkardeskaya, senior market analyst with London Capital Group, said.

"Hence, the prospect for cheaper market liquidity is clearly what explains the positive investor sentiment across the globe, as more central bankers join the doves’ party."

Already, central banks in New Zealand and Australia cut rates last month. The U.S. Federal Reserve has signalled the possibility of a cut in coming meetings and the European Central Bank recently pushed back planned rate hikes into next year. Economists at Canadian Imperial Bank of Commerce also recently said they now expect the central bank in this country to “reluctantly” cut interest rates next year. CIBC is the first of this country’s big banks to make a call for a rate cut. To this point, most have suggested the central bank will remain on hold through to 2020.

In corporate news, shares of Beyond Meat Inc., which has soared since the company’s early May IPO, were down almost 12 per cent following the open after JPMorgan cut its rating on the stock to neutral from overweight, citing valuations.

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Elsewhere, Amazon.com Inc. has surpassed Google and Apple as the world’s most valuable brand, according to the 2019 BrandZ Top 100 released Tuesday by WPP and Kantar. The report cites Amazon’s smart acquisitions, which have led to new revenue streams and its ability to remain ahead of competitors as reasons for the move. The survey says Amazon’s brand value has risen by 52 per cent this year to US$315.5-billion, topping Apple’s US$309.5-billion and Google’s US$309-billion. Amazon shares were up around one per cent after the bell.

Apple shares were also up about 1 per cent after Bloomberg reported that its manufacturing partner Foxconn has enough capacity to make all iPhones destine for the United States outside of China, if the current trade dispute worsens.

On this side of the border, SNC-Lavalin said early Tuesday that chief executive Neil Bruce is retiring. He will be replaced on an interim basis by chief operating officer Ian Edwards. Shares were up nearly 6 per cent shortly after markets opened.

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Overseas, European markets gained in morning trading, with the pan-European STOXX 600 adding 0.82 per cent. Britain’s FTSE 100 added 0.47 per cent. Fashion brand Ted Baker was among the biggest losers in London, with its stock dropping 25 per cent on a profit warning for next year. Germany’s DAX rose 1.29 per cent with trade-sensitive auto stocks among the winners as investor worries take a back seat for the moment. France’s CAC 40 was up 0.75 per cent.

In Asia, the Shanghai Composite Index jumped 2.58 per cent. Hong Kong’s Hang Seng rose 0.76 per cent. In Japan, the Nikkei was up 0.33 per cent.

Commodities

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Crude prices were up slightly on Tuesday morning as buoyant equities and expectations that OPEC+ will continue withholding supply countered concerns about a gloomy economic outlook and demand.

The day range on Brent so far is US$62.03 to US$62.29, with West Texas Intermediate coming in at US$53.28 to US$53.98.

OPEC and some allies including Russia, known collectively as OPEC+, have been withholding supplies since the start of the year to prop up prices. Russia said on Monday it might support an extension of OPEC-led supply cuts that have been in place since January. Oil was also lifted by rising equities following news of a U.S. deal with Mexico over border security, averting the imposition of dire tariffs, as well as China’s easing of financing rules to stem an economic downturn.

Though this recent rebound in oil prices is occurring against an uncertain backdrop of how OPEC+ decisions will turn out, an OANDA analyst suggested.

“The latest stumble may prove to just be some early profit taking but there is a feeling that there’s more to it,” said Craig Erlam, a senior market analyst at OANDA. "There still appears to be little idea of how much Russian involvement there’ll be in an extension and with the date of the OPEC+ meeting now looking like early July, perhaps producers are looking to make a decision with one eye on the outcome of the Trump/Xi meeting.”

Still, the price of Brent is down almost 20 per cent from its 2019 peak above US$75 a barrel in April, pressured by an economic downturn that has started to impact oil demand.

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In other commodities, gold prices held steady following its biggest one-day percentage fall in two months in the previous session. Investors are grappling with safe haven bets as U.S.-Mexico trade tensions ease and U.S. trade relations with China remain on uneasy footing. Gold prices fell following news of the deal with Mexico late last week but are holding steady on U.S. President Trump’s promise to make a tariff decision on China after a meeting with President Xi Jinping at the G20 in Japan later this month.

Spot gold was down 0.2 per cent to US$1,322.73 per ounce with U.S. gold futures down 0.23 per cent to US$1,326.30.

“We’re seeing some more profit taking in gold on Tuesday, with the rebound in the dollar and stronger risk appetite likely contributing to the declines," Mr. Erlam said. "Gold failed to break above $1,350 on this occasion, or hold above the February high, but that doesn’t necessarily mean the rally has run its course.”


Currencies and bonds

The Canadian dollar is up today, hovering just under the mid-75-US-cent mark early Tuesday as the U.S. dollar is steadying after recent lows with hopes of progress on the U.S.-China trade front.

A 3.5-per-cent rally in the U.S. dollar against its rivals in the first five months of 2019 has come to a halt in recent weeks as dovish comments from Federal Reserve officials and weak economic data bolster rate-cut expectations. Rate cut bets have also spurred investors to increase holdings of other currencies.

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On the Canadian dollar, Adam Cole, RBC Capital Markets’ chief currency strategist, said in a note that “last Friday’s bearish long-term trend reversal below 1.3335 points to a shift in sentiment whereby the market moves away from buying USD/CAD on dips to selling rallies toward 1.3342 as risk aversion levels decrease.”

The euro is firmer today at around $1.13 to the U.S. dollar.

The pound is up at around $1.27 against the U.S. dollar following a positive jobs report out of the U.K., though this bucks the trend of a weak pound. British manufacturing continues to suffer and the country’s political future remains contested as the Conservative party searches for a new leader, the country’s next Prime Minister.


More company news

Canfor Corp. is curtailing operations at all of its British Columbia sawmills, except its WynnWood operations, due to poor lumber markets. The company says a majority of the mills will be curtailed for two weeks or the equivalent, with extended curtailments at select locations.

Tesla is holding its annual shareholder meeting today, where CEO Elon Musk is expected to be asked about the company’s stock price, which is down 36 per cent this year. The company’s shares were up over 2 per cent after the bell.

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Merck & Co Inc. said on Tuesday its blockbuster cancer drug Keytruda won approval from the U.S. Food and Drug Administration to treat a type of head and neck cancer. The drug was approved for use as a monotherapy, as well as in combination with a common chemotherapy regimen, to treat previously untreated patients with head and neck squamous cell carcinoma, Merck said.

Ted Baker shares lost more than a quarter of their value on Tuesday after the British fashion retailer warned that underlying profit for the year would fall short of analysts’ estimates after an “extremely difficult” start to 2019. The warning underlined the task facing Lindsay Page, who was promoted to permanent boss in April as the high street retailer sought to move on from misconduct allegations against its founder and leading shareholder Ray Kelvin.

Economic news

The U.S. report on May’s producer price index (PPI) final demand will be released at 10:00 a.m. ET.

With files from Reuters and the Associated Press.

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