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Equities

Canada’s main stock index dropped at the bell today with the energy sector weighed down by a fall in crude prices nearing 2 per cent. South of the border, U.S. stocks opened flat after worries over a U.S.-China trade war were couched by a tame reading on U.S. inflation that increased speculation that the U.S. Federal Reserve would soon cut interest rates. Global markets ended a seven-day winning streak with Asia finishing lower and Europe starting out in the red.

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At 9:50 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 25.54 points, or 0.16 per cent, at 16,223.22. The energy sector dropped 1.2 per cent, the biggest percentage decliner, weighed down by losses in Encana Corp and Nuvista Energy. The materials sector, which includes precious and base metals miners and fertilizer companies, added 0.2 per cent as prices of safe-haven bet gold rose on heightening trade tensions.

At 9:33 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 40.75 points, or 0.25 per cent, at 16,208.01.

At the open on Wall Street, the Dow Jones Industrial Average was down 4.04 points, or 0.02 per cent, at 26,044.47 and the S&P 500 was down 0.91 points, or 0.03 per cent, at 2,884.81. The Nasdaq Composite was down 16.34 points, or 0.21 per cent, at 7,806.23.

Ahead of the start of trading, the U.S. Labor Department said its consumer price index edged up 0.1 per cent in May, matching market forecasts. Excluding the volatile food and energy components, the consumer price index edged up 0.1 per cent.

“Today’s inflation report keeps the Fed’s options open,” RBC senior economist Josh Nye said. “With the U.S. economy showing few signs of inflationary pressure (at least from a consumer price standpoint), the central bank has leeway to respond to any slowdown in growth caused by tariffs and trade policy uncertainty.”

On trade, U.S. President Donald Trump said Tuesday he was holding up an agreement with Beijing and added that he had no interest in moving forward unless China agreed to four or five “major points.” He didn’t elaborate on those points of concern. Mr. Trump also renewed his criticism of the Federal Reserve saying interest rates are too high and that the powerful central bank had “no clue.”

"Trump has taken firm ownership of the problem he created, declaring that he was the main obstacle to a trade deal," Chris Beauchamp, chief market analyst with IG, said in a note.

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"The spat between the two powers is playing out in a similar fashion to many other negotiations in his life – an initial deal is rejected, followed up by tough language, but in the end a deal (probably similar to what was on the table in the first place) is finally signed."

On the corporate front, Vancouver-based Lululemon Athletica releases its latest results after the close of trading. Analysts polled by Bloomberg are looking for earnings of about 70 US cents a share. Revenue is seen coming in at US$756.35-million. The retailer’s stock has had good run so far this year climbing more than 40 per cent to this point. According to Bloomberg data, the average price target for the stock is US$184.77.

Ahead of the start of trading, retailer Roots Corp. reported its latest results posting an adjusted loss per share of 17 cents. Analysts had been looking for a loss by that measure of about 14 cents. Roots also said same-store sales were up 1.5 per cent in the first quarter. Total sales rose 6.5 per cent to $54.4-million. Roots also said it was on track to hit its financial targets for the year. Roots stock was down over 3 per cent just after the opening bell.

On Wall Street, shares of Tesla Inc. were up around 1.5 per cent after CEO Elon Musk told shareholders that the electic auto maker was on track to hit its volume production goal for the end of this year and had “a decent shot at a record quarter on every level.”

Overseas, European markets were lower in morning trading, hit by renewed trade concerns. The pan-European STOXX 600 was down 0.51 per cent at last check with oil and gas stocks among the day's losers. Britain's FTSE 100 fell 0.65 per cent. Germany's DAX was off 0.55 per cent and France's CAC 40 fell 0.70 per cent.

In Asia, the Shanghai Composite Index fell 0.56 per cent after new inflation figures showed the country’s producer price index rising by 0.6 per cent in May. Consumer prices were up 2.7 per cent year-over-year, the fastest pace in more than a year. Hong Kong’s Hang Send fell 1.73 per cent. Japan’s Nikkei ended down 0.35 per cent.

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Commodities

Crude is being weighed down today by a weaker demand outlook and a rise in U.S. crude inventories despite the expectations of extended supply cuts led by OPEC.

Both Brent and West Texas Intermediate are down by around 2 per cent, with the day range on Brent being US$60.30 to US$61.85 and WTI coming in at US$51.46 to US$53.05.

The U.S. Energy Information Administration (EIA) cut its forecasts for 2019 world oil demand growth and U.S. crude production on Tuesday, but a surprise increase in U.S. crude stockpiles kept oil prices under pressure. U.S. crude inventories rose by 4.9 million barrels in the week ended June 7, data from the American Petroleum Institute (API) showed on Tuesday. That compared with analyst expectations for a decrease of 481,000 barrels.

With the next meeting of the Organization of the Petroleum Exporting Countries set for the end of this month, the market is looking to whether the world’s major oil producers will prolong their supply cuts. OPEC, along with non-members including Russia, have limited their oil output by 1.2 million barrels per day since the start of the year to prop up prices.

“A break below $50 in WTI crude could be a very bearish signal in the near-term while at the same time likely being influential when it comes to OPEC+ meets to discuss output cuts early next month,” Craig Erlam, a senior market analyst at OANDA, wrote in a note. “It’s just a question of how low we go before traders sit up and pay attention to the cuts.”

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In other commodities, gold is up today following a one-week low in the previous session. Spot gold was up over 0.7 per cent to US$1,336.29 per ounce with gold futures similarly up to US$1,341.30. Safe haven bets like bullion are getting more popular as the global economic outlook remains uncertain and U.S.-China trade tensions cloud investor confidence.


Currencies and bonds

Most currencies are little changed today, though the Canadian dollar is down slightly against the U.S. dollar to just above the U.S. 75-cent mark. The day range on the loonie is 75.16 U.S. cents to 75.31 U.S. cents.

The U.S. dollar is holding steady, but down against its peers as expectations of a rate cut continue. Trade tensions with China, which had caused the dollar to fluctuate, are steady but simmering, with President Donald Trump expected to make a decision on tariffs following a meeting with China’s president Xi Jinping at the G20 later this month.

The pound is up against the U.S. dollar today, standing at US$1.2753 at last check. The pound has been strong recently despite poor performance in British manufacturing an uncertain future for Brexit as the Conservative party searches for a new leader, the country’s next Prime Minister. “Boris Johnson is probably seen as the greatest risk for the currency and while we keep getting told that the favourite never wins, it’s not providing much comfort at the moment,” Mr. Erlam wrote.

At last check, the yield on the benchmark 10-year U.S. Treasury was 2.124 per cent, down slightly from yesterday. U.S. bond yields are up this week as investors consider just how realistic a rate cut is in the near future. This has some analysts saying that investors may be ignoring the broader trends that could lead the Fed to cut rates.

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“Markets have a short memory and investors tend to overweight the recent events,” wrote Ipek Ozkardeskaya, a senior market analyst at London Capital Group, in a note. “As such, the markets may have gone well ahead of themselves after last week’s jobs report pointed at a softening labor market in the U.S. and the Fed Chair Jerome Powell hinted that a rate cut could be considered to give support to the economy.” The U.S. inflation figures out today add to recent data weighing on the Fed’s decision.


More company news

Tesla Inc shares rose almost 1.5 per cent in early trade on Wednesday, with analysts still divided on the electric-car maker’s chances of meeting delivery and production targets in the months ahead, after comments by Chief Executive Officer Elon Musk at an annual shareholder meeting. Musk told shareholders on Tuesday that Tesla was on track to hit its volume production goal for the end of this year and had “a decent shot at a record quarter on every level.” A 31 per cent fall in first-quarter deliveries stirred concern among investors over the appetite for Tesla’s Model 3 sedans and its cashflow as it invests to ramp-up output and get cars out to customers on time.

British American Tobacco (BAT) warned on Wednesday of steeper declines in cigarette sales globally mainly due to waning demand in its main U.S. market, sending its shares down more than 4 per cent. BAT, the maker of Lucky Strike and Dunhill cigarettes and the world’s second largest tobacco company, forecast global industry volumes to fall around 3.5 per cent this year, with the U.S. expected to decline 4 per cent to 6 per cent. The company previously forecast a 3 per cent drop globally and 3.5 per cent to 4.5 per cent in the United States.

Adidas shares fell 3 per cent on Wednesday on news that one of the German sportswear company’s top shareholders, Groupe Bruxelles Lambert (GBL), was preparing to sell a portion of its near 4 billion euro stake, three traders said. Belgian investment firm GBL was placing a tenth of its 7.5 per cent holding, or 1.37 million shares, at 257.75 euros on the market for sale, a 1.7 per cent discount to Tuesday’s closing price, the traders added. The sale is worth 353.1 million euros.

Facebook Inc. said monthly users to its Watch video service had doubled since December while announcing more partnerships with international broadcasters and publishers in its bid to take on Alphabet Inc.’s YouTube. Some 720 million people monthly and 140 million people daily now spend at least one minute daily on Facebook Watch, the company said, as it outlined the expansion of its money-generating Ad Breaks service into Canada and five new languages. The company rolled out the video service globally last year, one year after it was launched in the United States, and had 75 million people spending at least a minute on the service daily in December.

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Toymaker Mattel Inc. last week rejected another merger offer from Bratz doll maker MGA Entertainment Inc, MGA’s chief executive officer, Isaac Larian, said on Tuesday. MGA Entertainment made the proposal in a letter to Mattel CEO Ynon Kreiz dated May 21, according to emails that Larian shared with Reuters.

Economic news

The U.S. Labor Department said its consumer price index edged up 0.1 per cent last month. The CPI gained 0.3 per cent in April. In the 12 months through May, the CPI increased 1.8 per cent, slowing from April’s 1.9-per-cent gain. Economists polled by Reuters had forecast the CPI would rise 0.1 per cent in May and 1.9 per cent year-on-year.

An update on the state of the U.S. budget deficit for May, which was US$146.8-billion in May 2018, will come at 2:00 p.m. ET.

With files from Reuters and the Associated Press and The Canadian Press.

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