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Equities

Canada’s main stock index opened higher on Monday as shares of material companies were boosted by higher gold prices, ahead of this week’s U.S. Federal Reserve meeting where investors widely expect an interest rate cut.

At 9:34 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 2.95 points, or 0.02 per cent, at 16,533.99. However, it slid lower shortly after the open and was down 23.34 points at 16,507.70 by 9:45 a.m. ET, led lower by tech, health care and energy stocks.

Wall Street’s main indexes opened below their record highs on Monday, in a muted start to a week likely to be dominated by the Federal Reserve’s policy stance and a round of tech company earnings that will again test the impact of trade concerns on global growth.

The Dow Jones Industrial Average fell 0.21 points at the open to 27,192.24. The S&P 500 opened lower by 1.39 points, or 0.05 per cent, at 3,024.47. The Nasdaq Composite dropped 5.11 points, or 0.06 per cent, to 8,325.10 at the opening bell.

The S&P 500 and Nasdaq indexes closed at record highs on Friday, as upbeat earnings from Google-parent Alphabet and Starbucks Corp. capped a strong week for U.S. retailers and tech companies.

While Refinitiv data shows 75 per cent of the 218 S&P 500 companies that have reported earnings so far have topped profit estimates, data on the U.S. economy went in the opposite direction, supporting action by the Fed on Wednesday.

Monday, investors turned their attention to Wednesday’s U.S. Federal Reserve policy decision – expected to be the first rate cut in more than a decade.

Investors will also be watching to see what the Fed hints when it comes to possible interest rate cuts in the months ahead. Economists are predicting one to three rate cuts this year. The Fed raised rates four times last year in response to strong economic growth.

A potential cut by the Fed will put pressure on the Bank of Canada and investors are wondering if the central bank will follow suit in order to address its own trade concerns.

A quarter point cut to bolster the amount of capital coursing through financial markets and support borrowing by ordinary Americans is fully priced in for Wednesday and it will be policymakers’ comments on what next that should define whether a rally since May continues.

“The key question facing investors now is whether the Fed can get away with a small number of insurance cuts or whether it will be pushed towards a more fundamental loosening of policy,” Neil Shearing, group chief economist at Capital Economics, said in a note.

Among other stocks, Mylan NV jumped 12.8 per cent as it confirmed reports over the weekend that it was combining with Pfizer Inc’s off-patent branded and generic established medicines business to form a new global player.

Pfizer fell 1.4 per cent after the drugmaker slashed its full-year profit and revenue forecast in an unexpected release of its quarterly results to go with the deal announcement.

Starbucks slipped 0.9 per cent from Friday’s record highs after J.P.Morgan downgraded the coffee chain’s stock to “neutral” saying its valuation has become “beyond stretched.”

Hopes that the Fed would take a more dovish approach to counter the impact of a protracted U.S.-China trade war has helped Wall Street’s main indexes scale record levels this month.

But the market’s recovery from a torrid month of trading in May have also been dependent on other indicators like earnings not being so robust as to make the Fed hold fire.

Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey, said, markets will see a 25 basis point cut as a happy medium, an indication that things aren’t that bad.

Some 33 per cent of S&P companies will be reporting this week, led by Apple Inc. after hours on Tuesday.

The ongoing U.S.-China trade war is also on the radar with U.S. and Chinese officials scheduled to meet in Shanghai this week. It would be the first one-on-one talks since last month’s G20 meeting. Expectations for a comprehensive deal are low after President Donald Trump said China might not want to sign a trade deal until after the 2020 U.S. election.

Data on the weekend showed profits earned by China’s industrial firms contracted in June, fuelling concerns that the trade war will drag on economic growth.

“We remain cautiously optimistic that both sides can agree on a narrow agreement that addresses important trade-related issues, such as U.S. demands to increase exports,” said analysts at Barclays in a note.

“That said, we are skeptical about the prospects of a broader agreement that includes the more challenging security-related issues.”

Overseas, MSCI’s All Country World Index of stocks, down by as much as 0.2 per cent on the day, erased losses to trade 0.06 per cent higher.

“The week is off to a mixed start which isn’t wholly surprising given just how much investors have to follow in what is typically a peaceful time of year,” said Craig Erlam, senior market analyst at OANDA.

“There’s no summer lulls just yet, with the Fed about to embark on an easing cycle, the BoE (Bank of England) offering its first assessment since Boris Johnson became PM, a third of S&P 500 and a quarter of Dow companies reporting second quarter earnings, the US jobs report being released and trade talks restarting between the U.S. and China. As ever, this is almost entirely spread over four days so today may be the calm before the storm.”

In Europe, Britain’s FTSE was up 2.02 per cent, Germany’s DAX edged higher by 0.42 per cent and France’s CAC gained 0.25 per cent.

In Asia, the Nikkei was down 0.2 per cent, China’s Shanghai was off 0.12 per cent and Hong Kong’s Hang Seng fell 1.03 per cent.

Commodities

Oil prices weakened amid pessimism over U.S.-China trade talks and the prospect of slower economic growth globally that could reduce demand for crude.

Brent crude futures were down 21 cents at US$63.25 a barrel. Prices rose 1.6 per cent last week.

U.S. West Texas Intermediate crude was down 7 cents at US$56.13 a barrel. WTI gained 1 per cent last week.

Economic growth in the United States slowed less than expected in the second quarter with a boom in consumer spending, strengthening the outlook for oil consumption. But non-U.S. growth is slowing faster, due partly to the country’s trade war with China over the last year.

“Fragile economic growth caused by the confrontational and protectionist U.S. trade policy is having a profound impact on oil demand and oil demand growth,” PVM analyst Tamas Varga said.

“Even though the crude oil supply picture is fundamentally tight ... and geopolitical risks front and centre, the market remains extremely bearish around demand risks due to the escalation in protectionist trade policies and the risk of additional punitive tariffs,” said Emily Ashford, director of energy research at Standard Chartered.

Gold was little changed as caution set in ahead of this week’s U.S. Federal Reserve meeting, with investors likely to look beyond an expected rate cut to the central bank’s guidance on monetary policy for the rest of the year.

Spot gold edged 0.1 per cent higher to US$1,419.45 per ounce. U.S. gold futures were flat at US$1,419.30 an ounce.

“A rate cut is entirely priced in while a 50 basis points cut is extremely unlikely. So guidance becomes absolutely key,” OANDA senior market analyst Craig Erlam said.

“(Gold’s movement) will depend on how dovish or how far ajar Jerome Powell leaves the door on these rate cuts in the months ahead.”

Currencies and bonds

The Canadian dollar edged higher and was trading near 75.9-U.S.-cents as oil prices slid but gold prices remained steady.

The U.S. dollar held near a two-month high on Monday ahead of what is expected to be the first U.S. interest rate cut since the financial crisis, while Britain’s rising Brexit risks slugged the pound to a fresh 28-month low.

Most major currencies were keeping moves small ahead of Wednesday’s expected 25 basis point cut by the Federal Reserve.

The dollar index stood little changed at 98.064, after hitting a two-month high of 98.093 on Friday. The euro hovered at US$1.1126, almost flat and not far from Thursday’s low of US$1.1101, a trough since May 2017.

“What everyone is interested in right now is whether the U.S. will enter a full rate-cut cycle,” said Kyosuke Suzuki, director of forex at Societe Generale.

“The GDP figures were a bit stronger than expected, putting a dent to the view of the U.S. entering a long easing cycle.”

U.S. gross domestic product (GDP) increased at a 2.1 per cent annualized rate in the second quarter, above forecast of 1.8 per cent, as a surge in consumer spending blunted some of the drag from declining exports and a smaller inventory build.

The pound saw another 0.4 per cent swoon after Britain’s new foreign minister and former Brexit chief, Dominic Raab, told the European Union it needed to change its “stubborn” position to avoid a no-deal crunch in October.

Sterling’s drop also followed comments by senior UK ministers over the weekend that the government was ramping up preparations for a no-deal outcome and was working on the assumption that the European Union will not renegotiate its Brexit deal.

The Canadian 10-year bond yield was down at 1.450 per cent. The U.S. 10-year Treasury yield fell as prices rose awaiting the Fed’s decision later this week and was at 2.0633 per cent.

Other corporate news

Mylan NV confirmed that it would combine with Pfizer Inc’s off-patent branded and generic established medicines business to form a global generic drugmaker. Under the terms of the agreement, which is structured as an all-stock deal, each Mylan share would be converted into one share of the new company. Pfizer shareholders would own 57 per cent of the combined new company and Mylan shareholders would own 43 per cent, Mylan said.

London Stock Exchange shares rose more than 14 per cent to a record high after it said it was in talks to buy financial data firm Refinitiv, in a deal worth US$27-billion including debt. The proposed deal, which would turn LSE into a global player in financial data and expand its footprint in foreign exchange and fixed income, comes less than a year after Blackstone bought a majority stake in Refinitiv from Thomson Reuters, which valued it at US$20-billion.

BlackRock Inc., an investor in Cofense Inc., is in advanced talks to take over the U.S. cyber security firm, after a U.S. national security panel asked buyout firm Pamplona Capital Management LLP to sell its stake, people familiar with the matter said on Sunday.

Earnings include: Beyond Meat Inc.; Capital Power Corp.; Caribbean Utilities Co.; First Quantum Minerals Ltd.; Illumina Inc.; Nutrien Ltd.; Vermilion Energy Inc.; Waste Connections Inc.

Economic news

No North American economic news scheduled.

With files from Reuters

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