Canada’s main stock index opened lower Tuesday as rising tensions between the U.S. and Iran rattled global markets. On Wall Street, markets were also weaker as investors await comments from Federal Reserve chair Jerome Powell.
Overseas, major European markets were mixed after a weak start on concerns that this week’s G20 summit may bring little clarity to the ongoing trade dispute between the United States and China. Gold, meanwhile, touched a six-year high as investors sought security amid the possibility of lower U.S. interest rates and escalating geopolitical concerns.
At 9:50 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 49.33 points, or 0.3 per cent, at 16,474.14. Nine of 11 major subsectors were trading lower, with tech stocks among the biggest losers. Energy shares managed slight gains after crude prices clawed back early losses to trade higher.
South of the border, the Dow Jones Industrial Average was down 42.63 points, or 0.16 per cent, at 26,684.91 just before 10 a.m. ET, the S&P 500 was down 5.23 points, or 0.18 per cent, at 2,940.12 and the Nasdaq Composite was down 21.66 points, or 0.27 per cent, at 7,984.04. Rate-sensitive bank stocks were down about 1 per cent in morning trading.
Through the trading session, the markets will get comments from five different Fed officials. Investors will be looking for further suggestions that the powerful U.S. central bank could cut interest rates as soon as next month. On the Iran file, tensions escalated on Monday with U.S. President Donald Trump signing an executive order imposing sanctions on Supreme Leader Ayatollah Ali Khamenei and other top officials. Iran said Tuesday that the sanctions mean the end of diplomacy.
“Markets have now fully priced in a rate cut at the July meeting and we think a rate cut in July is a done deal,” Jasper Lawler, head of research for London Capital Group, said in a note. “It is now up to Mr. Powell to manage these market expectations.”
Mr. Lawler says he doesn’t expect Mr. Powell to undermine the recent dovish pivot when he speaks later in the day. “More talk of doing what is ‘appropriate to sustain the expansion’ seems likely," Mr. Lawler said. "We do think he will try to dispel the idea of a 50 basis point cut in July.”
That, he said, would give the U.S. dollar some respite and could see gold pull back in the short term ahead of the G20 summit.
In corporate news, Bombardier Inc. said it has struck a deal with Japan’s Mitsubishi Heavy Industries to buy Bombardiers Canadair regional jet program for US$550-million. Talks between the two companies were first reported early this month. . “We are confident that MHI’s acquisition of the program is the best solution for airline customers, employees and shareholders," Bombardier CEO Alain Bellemare said in a statement. "We are committed to ensuring a smooth and orderly transition.” Bombardier stock opened up more than 5 per cent in Toronto.
On Wall Street, shares of FedEx Corp. shares started down more than 1 per cent after the delivery giant sued the U.S. government, saying it should not be held liable if it inadvertently shipped products that violated a ban on exports to some Chinese companies. China took issue with FedEx after a package containing a Huawei phone sent to the U.S. was returned to its sender in Britain. FedEx said the move was an operational error. FedEx stock has been weaker on worries that China could blacklist the company. FedEx also reports its latest results after the close of trading.
Overseas, Europe’s major markets started the day in the red but turned mixed as the session progressed. The pan-European STOXX 600 was down 0.06 per cent at last check. Britain’s FTSE 100 was up 0.12 per cent. Germany’s DAX lost 0.02 per cent and France’s CAC 40 gained 0.02 per cent.
In Asia, the Shanghai Composite Index recovered some of the losses seen earlier in the session but still ended down 0.87 per cent. Hong Kong’s Hang Seng closed down 1.15 per cent. In Japan, the Nikkei fell 0.43 per cent.
Gold prices hit their best level in six years buoyed by the possibility of a U.S. interest rate cut and rising tensions between the United States and Iran.
Spot gold hit its highest since May 2013 at US$1,438.63 earlier on Tuesday, before easing slightly to stand US$1,430 per ounce, up 0.8 per cent on the day. Gold now looks set for its sixth straight session of gains. The precious metal has advanced nearly 10 per cent already this month. U.S. gold futures jumped 1.1 per cent to US$1,436.20 an ounce.
“While bullish sentiment maybe a contrarian signal for a short-term pullback, we think gold has a lot further to go,” Mr. Lawler said. “We have moved our medium-term target for gold to US$1680 per ounce. It would take a fall below US$1300 for us to reconsider.”
He noted that short-term market dynamics have been working in gold’s favour with the primary issues being a weaker U.S. dollar, narrowing yield spreads and rising geopolitical tensions. He added that the biggest near-term risk comes with the Fed speakers later in the day if Mr. Powell talks down a big move on rates.
In other commodities, crude prices turned modestly higher after a weaker start with worries over dropping demand offsetting supply concerns amid elevated tensions in the Middle East. The day range on Brent so far is US$64.17 to US $64.98. The range on West Texas Intermediate is US$57.20 to US$58.10.
“The rising [U.S.-Iran] tensions actually played a role in the sell-off in the oil market as traders began to fear that demand for oil will fall,” CMC Markets U.K. analyst David Madden said. “The G20 summit is likely to play a big role in oil’s next move as a fractured trading relationship between the U.S. and China has added to fears that oil demand will decline in the medium-term.”
Tuesday afternoon, markets get U.S. inventory figures from the American Petroleum Institute. Those will be followed Wednesday morning by more official numbers from the U.S. Energy Information Administration. A preliminary Reuters poll on Monday suggested inventories are expected to fall for the second consecutive week.
The Canadian dollar was higher and near the 76-US-cent mark in early going as its U.S. counterpart continued to suffer on global currency markets. The day range on the loonie so far is 75.78 US cents to 75.92 US cents.
The loonie held early gains after Statistics Canada reported better-than-expected wholesale trade in April. Wholesale sales for that month rose 1.7 per cent. Economists had been expecting an increase of about 0.2 per cent. Following the release of the report, the Canadian dollar hit its best intraday level since March. In an early note, RBC chief currency strategist Adam Cole said recent firmer oil prices and buoyant risk sentiment also continue to sustain the overall tone for the Canadian dollar versus its U.S. counterpart.
On world currency markets, the U.S. dollar hit a three-month low against the euro and hit its weakest level against the yen since January. Expectations of a coming U.S. rate cut have weighed on the greenback in recent weeks.
The euro hit a three-month high of US$1.1412, having gained 2.0 per cent from a two-week low of US$1.1181 touched a week ago. It last stood at US$1.1382, down 0.1 per cent on the day, according to Reuters. Against the yen, the U.S. dollar fell 0.4 per cent to as low as 106.78, having only fallen below 107 yen per dollar in the January flash crash and then last back in April 2018. The yen, viewed as a safe haven currency, also saw some benefit from rising tensions between the United States and Iran.
The dollar index, which weighs the U.S. dollar against a basket of currencies, fell to a three-month low of 95.843. The index has fallen about 1.7 per cent over the last five sessions.
In bonds, U.S. Treasury yields were lower ahead of Mr. Powell’s afternoon remarks. The yield on the U.S. 10-year now was lower at 2.007 per cent. The yield on the 30-year note was also down at 2.536 per cent.
More company news
Fund manager Catalyst Capital Group Inc. has acquired a minority stake in Hudson’s Bay Co. from the Ontario Teachers’ Pension Plan and now plans to oppose a $1-billion buyout offer from HBC’s executive chair Richard Baker, the Globe’s Andrew Willis reports. Catalyst is expected to argue that the current $9.45-a-share offer undervalues Hudson’s Bay’s real estate and the potential for a turnaround in its department stores.
AbbVie Inc said on Tuesday it would buy Botox-maker Allergan PLC in a cash-and-stock deal for about US$63-billion to add fast-growing therapeutic businesses such as medical aesthetics and eye care. Allergan shareholders will receive 0.8660 AbbVie shares and US$120.30 in cash for each share held, for a total consideration of US$188.24 per Allergan share, a premium of 45 per cent to Allergan’s Monday close. The deal is expected to add 10 per cent to adjusted earnings per share over the first full year following the close, the companies said.
Walt Disney Co. is in talks to invest in a media subsidiary of Indonesian group Media Nusantara Citra (MNC), an MNC executive told Reuters. “If the two companies can agree, Disney would invest US$200-million for 10 years,” the executive said, asking not to be named due to the confidentiality of the talks. He said a previous deal had been cancelled with Vivendi, that would have seen the French conglomerate spend more than $500 million in acquiring stakes in two affiliates of MNC’s PT Global Mediacom, Indonesia’s largest media company.
Lennar Corp reported a higher-than-expected quarterly profit on Tuesday, as the No. 2 U.S. homebuilder’s sales got a boost from lower interest rates for mortgages, sending its shares up 4 per cent before the opening bell. Net earnings attributable to Lennar rose 36 per cent to US$421.5-million, or US$1.30 per share in the second quarter ended May 31. Total revenue rose 1.9 per cent to US$5.56-billion.
Canadian wholesale trade rose 1.7 per cent in April to $65.3-billion, beating market forecasts which had called for an increase closer to 0.2 per cent. Statistics Canada says five of seven subsectors reported higher sales for the month.
The U.S. Commerce Department said new home sales dropped 7.8 per cent to a seasonally adjusted annual rate of 626,000 units last month, the lowest level since December. April’s sales pace was revised up to 679,000 units from the previously reported 673,000 units.
With Reuters and The Canadian Press
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