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Equities
Canada’s main stock index gave back early gains Monday as a gain in energy shares on the back of higher crude prices was offset by loses in tech stocks. South of the border, markets started the day in the black as world stocks caught an updraft on expectations that global central banks will continue on the path to easier stimulus.
At 9:43 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 3.22 points, or 0.02 per cent, at 16,532.11. Tech stocks were down about 1 per cent. In total, eight of the index’s 11 main sectors were underwater. Energy shares, meanwhile, jumped 2 per cent driven by gains in crude prices after Saudi Arabia named a new energy minister.
The Dow Jones Industrial Average rose 68.77 points, or 0.26 per cent, at the open to 26,866.23.
The S&P 500 opened higher by 9.72 points, or 0.33 per cent, at 2,988.43. The Nasdaq Composite gained 27.84 points, or 0.34 per cent, to 8,130.91 at the opening bell.
“Markets are being buoyed by the prospects for policy stimulus, from the ECB this week and the Fed next week (after China cut its reserve ratios last week),” Michael Gregory, deputy chief economist with Bank of Montreal, said. “The positive equity sentiment is pushing Treasury yields higher, ranging from 2.8 basis points at the front end to 4.2 basis points at the back end.”
On Friday, the People’s Bank of China cut banks’ reserve requirements for a seventh time since early 2018 to free up more funds for lending. Below-expectation August employment figures out of the United States on Friday were also seen as likely keeping the Federal Reserve on course to continue lowering borrowing costs.
Monday’s analyst upgrades and downgrades
On the corporate front, Apple Inc. and Foxconn Technology Co. Ltd. rebutted a report Monday accusing them of breaching Chinese labour laws, including on barring temporary staff from exceeding 10 per cent of the total work force. In a statement, however, Apple said it investigated the percentage of temporary workers among the overall workforce and found it “exceeded our standards”. It said it was working with Foxconn to “immediately resolve the issue.”
Apple also said it discovered interns at a supplier facility had worked overtime at night, violating company policy, and that “this issue has been corrected.” It said the interns worked overtime voluntarily and were properly compensated, according to Reuters. The report from China Labor Watch comes one day before Apple is set to announce its new iPhones.
On Wall Street, AT&T shares gained 4 per cent in early trading after shareholder Elliott Management Corp. called for the company to sell some non-core assets and cut costs to boost shareholder value. The hedge fund also called the company “deeply undervalued” and called into question the purchase last year of Time Warner.
Overseas, European markets started positive but turned mixed as trading progressed with Brexit concerns tempering expectations that the European Central Bank will introduce stimulus when it meets next week. The pan-European STOXX 600 was down 0.24 per cent heading into afternoon trading. Britain’s FTSE 100 was off 0.92 per cent. Germany’s DAX gained 0.31 per cent after a report showed a surprise 0.7 per cent rise in German exports in July, offering a solid start to the third quarter. France’s CAC 40 was off 0.24 per cent.
In Asia, Tokyo’s Nikkei gained 0.6 per cent, and the Shanghai Composite rose 0.8 per cent, while Hong Kong’s Hang Seng slipped slightly.
Commodities
Crude prices advanced after Saudi Arabia, the worlds biggest crude exporter, named oil veteran Prince Abdulaziz bin Salman as its new energy minister. The move was seen bolstering the likelihood that OPEC and its allies would continue to curb output in an effort to underpin markets.
The day range on Brent so far is US$61.57 to US$62.26. The range on West Texas Intermediate is US$56.66 to US$57.28.
“There was a surprising changing of the guard at the top of Saudi Arabia oil hierarchy after King Salamd dismissed Energy Minister Khalid -Al-Falih, and who decided to keep it ‘all in the family’ by putting, Prince Abdulaziz in charge of oil policy,” Stephen Innes, managing partner with VM Markets, said.
“The writing was in the cards after Al-Falih was removed as chairman of Saudi Aramco amidst internal squabbles over the IPO. But the change at the top doesn’t necessarily mean a shift in policy as much as it’s as being viewed a move to improve relations within OPEC and with non-OPEC producers in the wake of the latest Russian compliance fissures.”
The new minister helped negotiate the current supply cuts between OPEC and non-OPEC producers, according to Reuters. Speaking on Monday, he suggested little change for Saudi policy and said the current cuts would survive. The United Arab Emirates’ Energy Minister Suhail al-Mazrouei also said on Sunday that members of OPEC and non-OPEC producers were “committed” to achieving oil market balance.
Crude markets also got a boost from a report on Monday showing a 3-per-cent rise in oil imports in China in July. Imports were up about 10 per cent in the first eight months of the year.
Gold prices, meanwhile, pulled back somewhat as risk appetite improved. Spot gold slid 0.1 per cent to US$1,505.20 per ounce after losing about 1 per cent in the previous session. U.S. gold futures fell 0.1 per cent to US$$1,514.1 an ounce.
“Gold and silver also endured relatively high volatility last week as the metal turned sharply lower on Thursday as traders moved towards a more risk-on strategy, and the commodities were hit hard,” CMC Markets analyst David Madden said. “It is worth noting that gold reached a six year high recently, and silver hit its highest level in over two years recently.”
Currencies
The Canadian dollar was trading around the 76-US-cent mark as crude prices advanced and global exchange markets kept the focus on central banks and Brexit.
The day range on the loonie is a fairly narrow 75.85 US cents to 76 US cents.
There were no major releases due in either Canada to offer direction for the Canadian dollar. The next significant report comes on Tuesday when August housing starts will be released. RBC FX associate Daria Parkhomenko says that bank expecting the annual rate of starts to pull back to 211,000 in August after 245,000 in June and 222,000 in July.
“Those months have pushed up the 6-month trend to 209K, and it is likely to rise further as the multi-year (weather-impacted) low in February of 166,000 drops out,” she said.
The loonie also continued to benefit from Friday’s better-than-expected Canadian employment figures, which were released Friday. Strength in the country’s employment market was seen decreasing the odds of a rate cut by the Bank of Canada by the end of the year. Markets have now priced in a 40-per-cent chance of a cut by December. Odds were at about 50 per cent before the release of the August jobs numbers, according to Reuters.
On global markets, the euro clawed back early losses after a report that Germany may boost fiscal stimulus. The euro gained to US$1.1047 against the greenback, up 0.18 per cent on the day, after earlier trading as low as US$1.1014.
Reuters also reports that the Australian dollar, a proxy for risk, jumped to a five-week high of 0.68625 against the U.S. dollar as traders became more optimistic that China would withstand the impact of trade disputes with the United States, after its central bank cut its reserve rate ratio.
In bonds, the yield on the U.S. 10-year note was higher at 1.601 per cent. The yield on the 30-year note was also higher at 2.076 per cent.
More company news:
British Airways (BA) pilots began a two-day strike on Monday, grounding nearly all of its flights and disrupting thousands of passengers in a dispute over pay. The airline, part of the International Airlines Group (IAG), cancelled 1,700 flights to and from London’s Heathrow and Gatwick airports on Monday and Tuesday ahead of action by British Airline Pilots Association (BALPA) members in BA’s first ever pilot strike.
Uber Technologies Inc’s restaurant delivery business will terminate its service in South Korea, Uber Eats said on Monday. “After two years’ partnering with local restaurants to offer convenient, reliable food delivery, we have made the difficult decision to discontinue Uber Eats in South Korea at the end of October 14, 2019,” Uber Eats Korea said in a statement, without elaborating on the reasons for the withdrawal.
Shares in Air France-KLM fell sharply on Monday after a French minister named the airline group as a likely bidder for bankrupt carrier Aigle Azur, which left 19,000 passengers stranded after abruptly halting operations. Air France-KLM said it had no immediate comment on whether it had submitted an offer for all or part of Aigle Azur, as a midday court deadline passed. Junior transport minister Jean-Baptiste Djebbari earlier told Le Parisien that Air France-KLM “appears to want to make an offer” - also mentioning a likely bid from Lionel Guerin, former head of the French carrier’s Hop! short-haul business.
Wells Fargo said it expects full year 2019 net interest income to fall 6 per cent from a year earlier due to lower interest rates, a flatter yield curve and asset sales. The fourth largest U.S. lender said it also expects net interest income in the second half to be down by about $1.8 billion from first half.
Dollar General Corp. says it plans to expand to 46 U.S. states in 2020.
Fred’s Inc said it filed for Chapter 11 bankruptcy protection, the latest retailer to succumb to pressure from the growing popularity of online shopping and rapidly changing consumer tastes. “Despite our team’s best efforts, we were not able to avoid this outcome,” said Joe Anto, chief executive officer at Fred’s. Shares sank 40 per cent on the Nasdaq in early trading.
Economic news
No major reports set for release in Canada or the United States
German exports rose in July, data showed on Monday, marking an unexpectedly solid start to the third quarter. The Federal Statistics Office said seasonally adjusted exports rose 0.7 per cent while imports fell 1.5 per cent. The trade surplus rose to 20.2 billion euros (US$22.27-billion) after a downwardly revised 18.0 billion euros in the prior month.
China’s exports unexpectedly fell in August while imports shrank for a fourth month. August exports fell 1 per cent from a year earlier, the biggest fall since June, when they fell 1.3 per cent. China’s imports shrank for the fourth consecutive month since April. Imports dropped 5.6 per cent on-year in August, slightly less than an expected 6.0% fall and unchanged from July’s 5.6-per-cent decline.
With Reuters and The Canadian Press
Terry Weber