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Equities

Canada’s main stock index opened higher this morning on the back of a strong energy sector as global markets react to tumult in the Middle East and Asia. Two suspected attacks on oil tankers near the Strait of Hormuz are driving up oil prices and violent protests in Hong Kong are shaping Asian markets. Questions of if and when a rate cut may come from the U.S. Federal Reserve are keeping the market optimistic as ongoing trade tensions between the U.S. and China continue to loom.

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At 9:32 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 24.43 points, or 0.15 per cent, at 16,251.67.

On Wall Street, the Dow Jones Industrial Average rose 32.11 points, or 0.12 per cent, at the open to 26,036.94. The S&P 500 opened higher by 6.40 points, or 0.22 per cent, at 2,886.24. The Nasdaq Composite gained 29.84 points, or 0.38 per cent, to 7,822.56 at the opening bell.

Two oil tankers were hit in suspected attacks in the Gulf of Oman on Thursday a month after four other tankers were damaged by limpet mines in the region. One of the tankers, the Front Altair, carrying a cargo of petrochemical feedstock, was ablaze in waters between Gulf Arab states and Iran. As well as heightening geopolitical tensions in the region, these suspected attacks are driving up oil prices that have been suppressed in recent weeks.

“The knee jerk reaction is more a response to the risks associated with higher tensions in the region and prospect of more attacks, than immediate impact on oil supplies,” Craig Erlam, senior market strategist at OANDA, wrote in a note. “It comes at a time when oil prices have been under pressure from weaker economic prospects and record US output, despite efforts by OPEC and its allies to reduce output and cut the oversupply.”

In Hong Kong, a few thousand protesters on Thursday readied for potentially more clashes with police over a planned extradition law with mainland China, a day after police fired tear gas and rubber bullets at unarmed demonstrators. Hong Kong authorities have shut government offices in the city’s financial district for the rest of the week after some of the worst violence in Hong Kong since Britain handed it back to Chinese rule in 1997. The extradition law, which would cover Hong Kong residents as well as foreign and Chinese nationals living or travelling through the city, has sparked concerns it may threaten the rule of law that underpins the area’s international financial status. Asian market reactions to this news are mixed: Tokyo’s NIKKEI was down almost 0.5 per cent, the Shanghai Composite index gained less than 0.1 per cent, and Hong Kong’s Hang Seng is down fractionally lower at 0.1 per cent.

Speculation over a rate cut in the U.S. continues to drive investor confidence, with yesterday’s marginally poor U.S. inflation data not affecting the market but adding to the case for a cut. Ultimately, the planned meeting between U.S. president Donald Trump and Chinese president Xi Jinping at the G20 in Japan later this month will play a crucial role in both shaping global financial markets and informing the calculus of a Fed rate decision. Until then, expect more uncertainty over trade as anticipatory statements from both sides continue to trickle out. Yesterday, the U.S. president said that he thinks his country will end up making a deal with China, while China’s commerce ministry said they will not yield to pressure from Washington.

Small-cap stocks to watch today

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European markets are slightly higher today, with London’s FTSE up near 0.1 per cent, Frankfurt’s DAX up near 0.5 per cent, and Paris’ CAC up near 0.1 per cent.

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In company news, Dollarama reported quarter one earnings of $0.33 per share with sales of $828 million, falling slightly below estimates of $0.34 per share but exceeding sales estimates of $813.1 million. Dollarama stock was up over 4 per cent after the bell to near $44 a share.

Earnings are also out from Hudson’s Bay Company, which reported first quarter revenue of $2.1 billion with quarterly earnings per share at $1.15. Its $275 million profit this quarter stems from the sale of its flagship Lord and Taylor building in New York. Quarter one inventory for the company declined by 7 per cent from last year and comparable sales dropped 4.3 per cent. Executive chairman Richard Baker is spearheading an effort to take HBC, which also owns luxury chain Saks Fifth Avenue, private with a $1-billion cash proposal. HBC also has a deal in the works to sell around half of its European operations to its partner there for about $1.5-billion, and that sale must close before the company becomes private. Stock was down over 0.6 per cent to $9.25 a share at last check.

Transat A.T. Inc.'s earnings came out today, showing smaller profits in the second quarter. The airline has been in exclusive talks with Air Canada over a $13 a share sale since May 16, and has been approached by more than one buyer. Rising fuel prices and a weak loonie are to blame for smaller profits, with earnings per share at 6 cents, down from 21 cents this time last year. Revenue was up 3.5 per cent to $897-million with the company’s adjusted net loss at $6.3 million. Shortly after the open, Transat stock was up close to 1 per cent to near $13.50 a share.

Commodities

The two suspected attacks on oil tankers in the Gulf of Oman today are sending oil prices up between 3 per cent and 4 per cent: the day range on Brent is US$59.78 to US$62.64, with West Texas Intermediate (WTI) standing at a range of US$50.92 and US$53.11.

This bump comes the day after a nearly 2-per-cent drop in oil prices, with crude weighed down by a weaker demand outlook and a rise in U.S. crude inventories despite the expectations of extended supply cuts led by OPEC. Today’s bump will likely spell good news for the TSX, which was dragged down yesterday by crude, but some analysts are saying that as long as WTI prices remain below US$55 per barrel, the oil market remains vulnerable.

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“Oil prices have suffered heavily off the back of rising U.S. crude stockpiles, but today the price of both Brent and WTI has rallied off the lows of June,” wrote Chris Beauchamp, chief market analyst at IG, in a note. “With an OPEC report due to be released soon, the oil price looks primed for further upside in the short-term at least.”

European markets also reacted today to a statement from Trump yesterday of possible sanctions over Russia’s Nord Stream 2 pipeline project, including a warning to Germany on over-reliance on Russia for fuel.

Gold prices rose to a week high today supported by expectations of an interest rate cut by the U.S. Federal Reserve following soft inflation data. Lower interest rates decrease the opportunity cost of holding non-yielding bullion and weigh on the dollar, making gold cheaper for investors holding other currencies.

Spot gold was up 0.2 per cent to US$1,336.19 per ounce, with U.S. gold futures similarly up to US$1,339.60 per ounce.

“The shallow correction earlier this week will be encouraging for gold bulls, having only retraced around a third of the previous rally, although this optimism may fade fast if it runs out of steam prior to the peak,” Mr. Erlam said. “Risk appetite in the markets is likely to work against gold but the dollar looking vulnerable is clearly supportive.”

Palladium spot is also up today over 1.6 per cent, to US$1,435.84 per ounce.

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Currencies and bonds

The Canadian dollar is up around 0.3 per cent today against the U.S. dollar, standing slightly above the U.S. 75-cent mark. The day range on the loonie is 74.94 U.S. cents to 75.18 U.S. cents.

The U.S. dollar dipped slightly, with the index hitting 96.965 after softer-than-expected inflation numbers published on Wednesday. The greenback hit its lowest since late March on Monday as expectations grow that the Fed will soon cut rates.

The euro stands steady against the U.S. dollar at US$1.1287.

Sterling slipped after a strong week for the pound following British lawmakers’ defeat of the opposition Labour Party’s attempt to try and block a no-deal Brexit. Voting begins today for the next leader of the U.K’s Conservative Party, who will take over from Theresa May as the country’s next prime minister and have to deal with a looming hard exit from the European Union this coming October. Euroskeptic Boris Johnson, one of the leaders of the 2016 Brexit campaign, leads the polls by a healthy margin.

The yield on the benchmark 10-year U.S. Treasury dipped fractionally, standing at 2.117 per cent.

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More company news

Lululemon Athletica Inc. raised its full-year forecasts and reported strong quarterly results yesterday, benefiting from efforts to boost online presence in a highly competitive retail industry. The athletic apparel maker, which has plans to more than double its digital revenues by 2023, said its online net revenue increased 33 per cent in the first quarter. The company’s stock has surged nearly 40 per cent this year and was up nearly 5 per cent in trading this morning.

U.S. online retailer Amazon and British supermarket group Morrisons are extending their “Morrisons at Amazon” same-day online grocery delivery service to more cities across Britain. The service, currently available to Amazon’s Prime Now customers in Leeds, Manchester, Birmingham and parts of London, will be rolled out to Glasgow, Newcastle, Liverpool, Sheffield and Portsmouth this year, the companies said on Thursday.

Tesco, Britain’s biggest retailer, said sales growth slowed in its latest quarter, blaming a subdued overall market that has been hampered by poor early summer weather, sending its shares lower today. Shares in Tesco fell as much as 3.3 per cent in early trading after the group said UK like-for-like sales rose 0.4 per cent in the 13 weeks to May 25, its fiscal first quarter. The stock had risen 20 per cent this year prior to the update and made up most of the lost ground in the first hour of trading.

U.S. private equity investor KKR & Co Inc. said yeesterday that it’s selling Korea-based KCF Technologies (KCFT) to SKC, an affiliate of South Korean conglomerate SK Group, for 1.19 trillion won (US$1 billion).

Economic news

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Canadian household debt as a share of income, a measure closely watched by policy makers, slipped to 173.0 per cent in the first quarter from 173.7 per cent in the fourth quarter but is still near record levels, Statistics Canada said today. The Bank of Canada is particularly concerned about the levels of household debt and whether Canadians will be able to cope when interest rates increase. On a seasonally adjusted basis, households borrowed $20.2 billion in the first quarter, down from $20.6 billion in the preceding quarter. Mortgage borrowing rose to $13.2 billion from $12.3 billion.

U.S. import prices fell by the most in five months in May amid a broad decline in the cost of goods, the latest indication of muted inflation that strengthens the case for the Federal Reserve to cut interest rates this year. The Labor Department said today that import prices dropped 0.3 per cent last month, the biggest decline since last December. Data for April was revised down to show import prices rising 0.1 per cent instead of climbing 0.2 per cent as previously reported.

With files from Reuters and the Associated Press.

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