Equities
Canada’s main stock index opened higher Wednesday with materials stocks gaining after gold prices turned positive and crude prices steadied. South of the border, major U.S. markets were mostly flat with trade concerns and investor nervousness over U.S. banking results injecting a degree of uncertainty.
At 9:40 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 27.35 points, or 0.17 per cent, at 16,529.77. Seven of 11 major sectors were higher, led by health-care companies. Materials stocks, which include precious metal miners, were up 0.2 per cent.
On Wall Street, the Dow Jones Industrial Average fell 14.72 points, or 0.05 per cent, at the open to 27,320.91. The S&P 500 opened higher by 1.06 points, or 0.04 per cent, at 3,005.10. The Nasdaq Composite gained 1.20 points, or 0.01 per cent, to 8,224.00 at the opening bell.
Concern over the state of trade talks between China and the United States moved back to the forefront after Mr. Trump threatened tariffs on another US$325-billion in Chinese imports. The comments came after a World Trade Organization ruling that could allow China to levy sanctions on the U.S. if it doesn’t remove certain tariffs that break WTO rules. Mr. Trump said Tuesday, in reference to current trade negotiations, that the two sides still have “a long way to go.”
Wednesday’s analyst upgrades and downgrades
“There are precious few signs that any progress is being made, and thus we have seen the focus shift onto the Fed (last week) and now earnings,” Joshua Mahony, senior market analyst with IB, said in an early note. " With a host of U.S. banks in the spotlight this week, the headline profitability has been somewhat overshadowed by falling net interest margins which will only get worse when the Fed stat cutting rates."
Citi, JPMorgan and Wells Fargo have all reported this week, posting weaker net interest margins, a signal that low interest rates are having an impact on the bottom line. Wednesday morning, Bank of America reported a 10-per-cent increase in quarterly profit. Net income applicable to common shareholders rose to US$7.11-billion, or 74 US cents per share, in the second quarter ended June 30 from US$6.47-billion, or 63 US cents per share, a year earlier. Revenue, net of interest expense, was up about 2 per cent at US$23.08 billion. However, the shares were under pressure in early trading after the bank trimmed its net interest income guidance amid lower interest rates.
Outside banks, earnings are also due from streaming giant Netflix Inc after the close. Netflix stock is up more than 36 per cent so far this year. Analysts polled by Bloomberg expect to see adjusted earnings of about 77 US cents on revenue of US$4.93-billion. Net new subscribers are expected to come in around 352,000 in the United States and 4.8 million international. Netflix had warned in April of weaker new subscriber growth.
IBM is also scheduled to report.
On this side of the border, Kinder Morgan Canada reports its latest results. Markets also get a reading on inflation with economists expecting lower gas prices to push the annual headline rate of inflation to 2 per cent in June from 2.4 per cent the previous month.
Overseas, major European markets were tempered in midday trading with the pan-European STOXX 600 little changed. Britain’s FTSE 100 was down 0.22 per cent. Germany’s DAX fell 0.24 per cent. France’s CAC 40 slid 0.21 per cent.
In Asia, trade concerns pushed major markets lower. The Shanghai Composite Index ended down 0.2 per cent. Hong Kong’s Hang Seng finished off 0.09 per cent. Japan’s Nikkei closed down 0.31 per cent.
Commodities
Oil prices steadied after a smaller-than-expected decline in crude inventories sent both Brent and West Texas Intermediate sharply lower during the previous session.
Both benchmarks were positive early on with Brent moving in a day range of US$64.41 to US$64.98. WTI has a range for the day so far of US$57.46 to US$58.01.
Late Tuesday, the American Petroleum Institute reported that crude stocks fell by 1.4 million barrels last week to 460 million barrels. Analysts had been looking for a decline of about 2.7 million barrels for the week. The report came after significant production cuts in the Gulf of Mexico ahead of hurricane Barry last week. The number suggested the cuts had a modest effect on inventories.
Crude gave back some early gains Wednesday morning after the U.S. Energy Information Agency’s weekly report showed gasoline inventories rose by 3.1 million barrels, offsetting a decline in crude inventories of 3.1 million barrels.
Reuters, meanwhile, reports that more than half of daily crude production in the Gulf of Mexico remained offline on Tuesday in the wake of hurricane Barry, as most oil companies were re-staffing facilities to resume production. The Bureau of Safety and Environmental Enforcement said 1.1 million barrels per day of oil, or 58 per cent of the region’s total, and 1.4 billion cubic feet per day of natural gas output remained shut, the news agency said.
In other commodities, gold prices turned higher after the International Monetary fund said the U.S. dollar is overvalued. Spot gold was trading up 0.52 per cent at US$1,413. U.S. gold futures were up 0.32 per cent at US$1,415.70.
Copper retreated from a two-week high on Wednesday after Mr. Trump threatened to impose further tariffs on China, a move which could dent demand for metals. Three-month copper on the LME fell 1.3 per cent to US$5,933.50 per tonne, after touching its highest since July 1 in the previous session.
Currencies
The Canadian dollar was higher early on after pulling back from nine-month highs during the previous session on oil’s sharp decline. At last check, the loonie was sitting near the upper end of the day range of 76.38 US cents to 76.61 US cents.
Traders are also weighing Statistics Canada’s latest reading on inflation. The agency said headline inflation fell to an annual rate of 2 per cent in June, from 2.4 per cent in May. Low energy prices were behind the decline. Excluding energy, the consumer price index rose 2.6 per cent year over year, Statscan said. The dollar continued higher after the report, although off early morning peaks.
“There was little change in the BoC’s three core measures which averaged marginally above 2 per cent,” CIBC economist Andrew Grantham said. “Separately, manufacturing sales for May rose by 1.6 per cent - a strong increase albeit a little weaker than had been expected after a surge in manufactured exports...Overall, the data this morning were all close to consensus expectations and so shouldn’t see much market reaction.”
In other currencies, the U.S. dollar index was down modestly at 97.309 after jumping to a week high on Tuesday following the retail sales figures. The number were seen as tempering any lingering expectation that the U.S. Federal Reserve would cut interest rates by a half percentage point at the end of the month. Markets are now expecting a quarter point reduction.
The euro fell to a one-week low against the U.S. dollar and towards the lower end of this year’s trading range, weighed down by expectations of monetary policy easing and investors’ preference for the higher-yielding U.S. currency. Markets are currently waiting for the European Central Bank’s policy meeting next week and the expectation the central bank may unveil fresh stimulus.
The euro was unchanged at US$1.1214 even after euro zone consumer price inflation was revised up to 1.3 per cent year-on-year in June and construction output showed a small contraction in May. Earlier in the session, the euro touched its lowest level since July 9. The euro is now down by more than 2 per cent this year against the U.S. dollar.
In bonds, U.S. Treasury yields slid after new figures showed home building in the U.S. fell for the second month in a row in June and permits dropped to a two-year low. The benchmark 10-year notes were last up 9/32 in price to yield 2.09 per cent, after falling as low as 2.08 per cent after the housing data.
More company news
EU antitrust regulators will investigate Amazon, the world’s largest online retailer, to see if its use of other merchants’ data breaches EU antitrust rules, the European Commission said on Wednesday. The investigation will focus on Amazon’s standard agreements with marketplace sellers and its use of data in choosing winners of the “buy box,” which allows consumers to add items from a specific retailer directly into their shopping carts, the EU enforcer said.
U.S. cannabis retailer Curaleaf Holdings Inc said it would acquire privately held GR Companies Inc (Grassroots) in a cash and stock deal valued at about US$875-million. The deal will expand Curaleaf’s presence to 19 states from 12 at present, and the combined entity will have 131 dispensary licences, 68 operational locations and 20 cultivation sites, the company said.
Canadian Pacific Railway Ltd. says its net income jumped more than two-thirds to $724-million or $5.17 per diluted share in the quarter ended June 30, compared with $436-million or $3.04 per diluted share in the same quarter last year. Revenue increased by 13 per cent to $1.98-billion last quarter, a record for the second quarter and up from $1.75-billion a year ago. CP Rail says its adjusted earnings per diluted share hit $4.30, rising 36 per cent from $3.16 in 2018. Analysts on average had expected a profit of $4.18 per share, according to Thomson Reuters Eikon.
Abbott Laboratories Inc reported a 37-per-cent rise in quarterly profit on Wednesday, driven by demand for its heart devices and FreeStyle Libre system used to monitor blood sugar levels. The company’s net earnings rose to US$1-billion, or 56 US cents per share, in the second quarter ended June 30, from US$733-million, or 41 US cents per share, a year earlier.
Canopy Rivers Inc. reported a loss of $1.8-million in its latest quarter compared with a profit of nearly $14.6-million in the same quarter last year. The venture capital arm of marijuana company Canopy Growth Corp. says the loss amounted to two cents per diluted share for the quarter ended March 31 compared with a profit of 11 cents per diluted share a year ago. Operating income for what was the company’s fourth quarter totalled nearly $6.1-million, down from $19.5-million a year earlier.
Economic news
The annual rate of inflation in June fell to 2 per cent from 2.4 per cent a month earlier, matching market expectations.
Factory shipments rose 1.6 per cent to $58.9-billion in May, following a 0.4 per cent decline in April. May’s increase was mostly due to higher transportation sales, Statscan says.
(2 p.m. ET) U.S. releases its Beige Book on economic conditions.
With Reuters and The Canadian Press
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Terry Weber