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Canada’s main stock index started lower Tuesday with weaker gold prices weighing on mining and materials stocks. On Wall Street, markets were also in the red as investors grappled with the impact of the continuing U.S.-China trade row on earnings in the wake of a profit warning from Germany’s BASF and tempered expectations of a big move on U.S. interest rates.

At 9:34 a.m. ET, the Toronto Stock Exchange’s S&P/TSX Composite index was down 31.8 points, or 0.19 per cent, at 16,431.15. The materials sector, which includes mining companies, was down 0.4 per cent. Financials were off 0.3 per cent and industrials slid 0.1 per cent.

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The Dow Jones Industrial Average was down 74.98 points, or 0.28 per cent, at 26,731.16 at 9:37 a.m. ET. The S&P 500 was down 6.77 points, or 0.23 per cent, at 2,969.18. Nine of 11 S&P sectors were lower, led by industrials.

The Nasdaq Composite was down 10.23 points, or 0.13 per cent, at 8,088.16.

On Wednesday, Federal Reserve chair Jerome Powell delivers his semi-annual monetary policy testimony before Congress. The remarks come ahead of the Fed’s next rate announcement late this month and investors are nervously awaiting signs of the central bank’s intentions.

“Powell is expected to keep the case for cutting rates open, but he could dash hopes for those expecting hints that we will see a commitment for more than one rate cut this year,” OANDA senior market analyst Edward Moya said.

He also noted that risk aversion remains a dominant theme in the markets Tuesday after BASF, the world’s biggest chemical maker, cut their 2019 operating profit forecast, citing trade concerns. U.S. stocks with exposure to China were lower in early trading. Boeing Co., the biggest U.S. exporter to China, was down 0.3 per cent while Caterpillar Inc. fell 0.5 per cent.

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On Bay Street, central bank news also hovers in the background with the Bank of Canada set to make its latest rate announcement on Wednesday morning. Few expect a move on rates but markets will be closely watching the accompanying monetary policy report for signals of where borrowing costs may be going in coming months.

In corporate news, shares of soft drink giant Pepsico Inc. were off slightly after the company’s revenue topped forecasts in the latest quarter. Net revenue rose 2.2 per cent to US$16.45-billion in the second quarter. Analysts had expected revenue closer to US$16.43-billion, according to IBES data from Refinitiv. Net income attributable to the company rose to US$2.04-billion, or US$1.44 per share, from US$1.82-billion, or US$1.28 per share, a year earlier.

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On this side of the border, retailer Alimentation Couche-Tard releases its quarterly results after the close of trading. The Laval, Que.,-based company hiked its quarterly dividend by 25 per cent in May after posting record third-quarter earnings.

CIBC said it would acquire U.S. boutique investment banking company Cleary Gull, expanding its U.S. footprint. Terms of the deal weren’t disclosed. The Globe’s James Bradshaw reports that the deal bolsters CIBC’s capacity to serve the middle-market, privately owned companies that are the bread and butter of its U.S. commercial banking business, particularly in the U.S. Midwest. Cleary Gull’s typical clients are businesses owned by families and entrepreneurs with earnings before interest, taxes, depreciation and amortization (EBITDA) of $50-million or less. CIBC shares were little changed shortly after the open.

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Overseas, the profit warning from Germany’s BASF sideswiped markets. The company’s stock fell 5.6 per cent after it cited trade tensions for an expected 30-per-cent decline in adjusted annual profit. The pan-European STOXX 600 was down 0.61 per cent with most sectors underwater. Britain’s FTSE 100 was down 0.24 per cent in afternoon trading. Germany’s DAX fell 94 per cent and France’s CAC 40 lost 0.29 per cent.

In Asia, stocks ended mostly on a down note with Apple Inc. suppliers under pressure after an analyst downgrade on expected weaker demand for the company’s flagship iPhone. Japan’s Nikkei edged up 0.14 per cent. The Shanghai Composite Index ended down 0.18 per cent. Hong Kong’s Hang Seng slid 0.76 per cent.

Commodities

Crude prices advanced as supply concerns centred on tensions in the Middle East offset worries over weaker global economic growth. Both Brent crude and West Texas Intermediate were positive as the North American trading day got underway, but off earlier highs. Brent was moving in a range of US$63.76 to US$64.75. WTI has a range of US$57.29 to US$58.19.

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“On top of the duelling narrative between Iran tension and global demand concerns keeping traders guessing, Fed policy uncertainty is also weighing on oil market sentiment if today’s price action in Asia is any indication as policy confusion was feeding into the oil markets conundrum,” Stephen Innes, managing partner with Vanguard Markets, said.

He noted that a weaker global economic outlook is keeping downward pressure on prices, although tensions around Iran’s nuclear program are putting a floor under prices.

“The fact that Iran tension is not boosting prices more considerably continues to emphasize the markets singularly focused nature on the demand side of the equation,” he said. “Under these conditions, It is challenging to hold a robustly bullish conviction when the markets continue to overplay lousy economic news into the demand side of the equation.”

Later Tuesday, markets also get the weekly inventory figures from the American Petroleum Institute. Markets are looking for a decline of about 3.6 million barrels, marking the fourth straight week of lower inventories.

Elsewhere, gold prices were slightly lower as the U.S. dollar firmed although nervous equity markets limited the losses.

Spot gold was down 0.2 per cent at US$1,393.03 per ounce as of 0740 GMT. U.S. gold futures fell 0.3 per cent to US$1,395.70 an ounce.

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“Weakness in gold prices is largely due to easing of rate cut expectations and bond yields are recovering. Markets continue to price in a 25 basis point cut but it looks like sentiment is easing and the dollar has rebounded,” Benjamin Lu, an analyst at Phillip Futures, told Reuters.

Currencies and bonds

The Canadian dollar was down slightly as its U.S. counterpart gained on global currency markets on expectations that the Fed wouldn’t cut rates as much as initially expected when it meets again later this month.

The loonie was trading around the midpoint of the day range of 76.14 US cents to 76.39 US cents at last check. The loonie has been trading around its best levels in eight months ahead of the Bank of Canada interest rate announcement, due Wednesday.

On the data front, Tuesday’s offerings are relatively meager with just Canada Mortgage and Housing Corp.'s June housing starts set for release. (The Canadian dollar was little changed after that release showed the seasonally adjusted annual rate of housing starts in June rose to 245,657 units from a revised 196,809 units in May.)

“Overnight markets have been very quiet ahead of Fed Chair Powell’s testimony tomorrow,” RBC chief currency strategist Adam Cole noted. “Rates markets remain almost exactly priced for a 25-basis-point cut at the July 31 Federal Open Market Committee meeting and for around 60 basis points of easing cumulatively through (the second half of the year).”

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On global currency markets, the U.S. dollar index, which measures the greenback against a basket of rival currencies, rose 0.1 per cent to 97.488, a three-week high. The euro, meanwhile, fell to a low of US$1.1206, its lowest since mid-June.

The Turkish lira steadied after sharp declines caused by President Tayyip Erdogan’s dismissal of the central bank governor over the weekend, a move that prompted worries about the bank’s independence. The lira at one point slid to a two-week low of 5.8245 to the U.S. dollar and was last quoted at 5.7335, according to Reuters on Tuesday morning.

In bonds, yields on U.S. Treasurys moved higher. The yield on the 10-year note was up at 2.06 per cent. The yield on the 30-year note was also higher at 2.533 per cent.

More company news:

Cisco Systems Inc said it would buy optical component maker Acacia Communications Inc for US$2.84-billion in cash. The US$70 per share offer represents a premium of about 46 per cent to Acacia’s close on Monday.

Billionaire Richard Branson’s space-tourism venture, Virgin Galactic, plans to go public by the end of this year as part of a deal with a special purpose acquisition company (SPAC) created by venture-capital firms Social Capital and Hedosophia, the companies said on Tuesday. The SPAC, Social Capital Hedosophia Holdings Corp, will take a 49-per-cent stake in Virgin Galactic, valuing the deal at pro forma enterprise value of US$1.5-billion.

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U.S. weapons maker Northrop Grumman Corp said Chief Executive Officer Kathy Warden will also serve as the company’s chairman from Aug. 1, replacing Wes Bush, who will resign after being in the role since 2011. Ms. Warden, who previously served as the chief operating officer of the company, was appointed CEO on Jan. 1.

Japanese company Sanrio, which owns the Hello Kitty franchise, was fined 6.2 million euros by EU antitrust regulators on Tuesday for preventing cross-border sales of its products in Europe. The European Commission, which started an investigation into the company and several others two years ago, said Sanrio’s non-exclusive licensing agreements breached EU antitrust rules. The anti-competitive practices occurred from January 2008 to December 2018.

Economic news

Canada Mortgage and Housing Corp. says the seasonally adjusted rate of housing starts rose 26 per cent in June to 245,657. Urban starts increased by 26 per cent.

Statistics Canada says the value of building permits issued in May fell 13 per cent to $8.2-billion. Increases were seen in six provinces and all three territories, but those gains were offset by declines in British Columbia, the agency said.

(8:45 a.m. ET) U.S. Fed Chair Jerome Powell gives opening remarks at Fed conference on stress testing.

With Reuters and The Canadian Press

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