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Equities
Canada’s main stock index opened weaker Wednesday as a retreat in crude prices pressured energy shares after Saudi Arabia moved to reassure markets production would be restored within weeks. U.S. stocks were also down with a profit warning from FedEx Corp. weighing as investors await an expected rate cut later in the day from the U.S. Federal Reserve.
At 9:36 a.m. ET, the Toronto Stock Exchange’s S&P/TSX Composite index was down 19.11 points, or 0.11 per cent, at 16,815.64. Nine of the index’s 11 sectors were under water. Energy stocks were down 0.7 per cent.
In the U.S., the Dow Jones Industrial Average fell 35.41 points, or 0.13 per cent, at the open to 27,075.39.
The S&P 500 opened lower by 4.20 points, or 0.14 per cent, at 3,001.50. The Nasdaq Composite dropped 11.39 points, or 0.14 per cent, to 8,174.62 at the opening bell.
The Fed concludes its two-day policy meeting with its rate decision at 2 p.m. ET.
Markets have priced in a quarter point cut, but they are looking for hints about future policy moves. Wednesday’s cut would follow a similar move in July, although minutes from the earlier meeting suggest some division among policymakers about whether lower rates were warranted. At the same time, U.S. President Donald Trump has been leaning on the Fed to make dramatic cuts to stimulate the U.S. economy. The decision will be followed by a press conference with Fed chair Jerome Powell.
“Two weeks ago, markets were pricing in more than four FOMC (Federal Open Market Committee) cuts over the next 12 months and the bar for fully confirming these expectations, let alone delivering a dovish surprise, was high,” Stephen Innes, Asia Pacific market strategist at AxiTrader said. “After a 30 basis point sell-off in Treasuries, the markets have already walked down forward expectations so Fed guidance and nuances around the Mid-Cycle narrative will be extremely important.”
On the corporate front, CannTrust Holdings Inc. shares opened down 9 per cent in Toronto after Health Canada suspended the company’s growing and processing licences. CannTrust must stop planting cannabis immediately, and has 10 business days to appeal the suspension. If it fails, the Ontario-based grower could be forced to shutter its greenhouse facility and processing plant until federal regulators decide whether to reinstate or revoke the licences. CannTrust stock closed down more than 14 per cent on Tuesday. The shares have lost more than 70 per cent since July 5, the last trading day before the company announced that it had been rated as non-compliant with Health Canada regulations.
On Wall Street, shares of FedEx Corp. were down more than 12 per cent in early trading after the delivery giant warned that it would miss analysts’ estimates, citing the impact of an ongoing trade dispute between the United States and China and a slowing global economy. FedEx now expects adjusted earnings of US$11 to US$13 per share for full-year 2020 ending May 31. Analysts on average had expected a profit of US$14.69 per share, according to Refinitiv IBES estimates. In its most recent quarter, FedEx said adjusted profit fell 14 per cent to US$3.05 a share. Analysts had been forecasting a number closer to US$3.15.
Overseas, Tokyo’s Nikkei lost 0.2 per cent, and Hang Kong’s Hang Send shed 0.1 per cent, while the Shanghai Composite gained 0.3 per cent.
In Europe markets were mostly mixed in afternoon trading ahead of the Fed decision. The pan-European STOXX 600 was flat. Britain’s FTSE 100 was down 0.02 per cent. Germany’s DAX gained 0.12 per cent and France’s CAC 40 rose 0.09 per cent.
“Whether in the green or in the red, the sizes of the overnight moves have been muted, with markets cautiously awaiting the Fed meeting later today,” IG said in a morning note.
“Elsewhere, energy prices continued to come off, with the Saudi leadership stating that full output would be restored by the end of September, with current production back to 50 per cent. That has helped allay much of the supply fears, leaving the issue as more of a geopolitical issue.”
Commodities
Crude prices continued to slip after Saudi Arabia moved to reassure the markets that it expects to have production restored by the end of the month following weekend attacks.
Brent crude had a day range of US$63.95 to US$64.99. The range on West Texas Intermediate is US$58.64 to US$59.43.
Crude prices fell 6 per cent during the previous session after Saudi Energy Minister Prince Abdulaziz bin Salman said the kingdom had managed to restore oil supplies to customers to where they stood before the attacks on its facilities by tapping inventories. The weekend attacks cut about 5 per cent of global oil output. The Saudi energy minister also said that average oil production in September and October would be 9.89 million barrels per day and that Saudi Arabia would ensure full oil supply commitments to its customers this month.
“The next primary focus should fall on how Saudi Arabia retaliates for the attack,” Mr. Innes said. "Keeping in mind their position as the de-facto leaders of OPEC, frankly, I don’t think they want to stir up a middle east hornet’s nest suggesting a more measured response which would not necessarily add to an already heightened level of supply risk premium."
Meanwhile, the American Petroleum Institute reported late Tuesday that crude inventories rose by 592,000 barrels last week to 422.5 million barrels. Official U.S. government figures are due shortly after the market opens on Wednesday.
Gold prices were little changed as markets await the afternoon Fed decision. Steadying crude prices also sideswiped the metal’s position as a safe-haven holding.
Spot gold was flat at US$1,501.39 per ounce. U.S. gold futures were 0.3 per cent lower at US$1,509.10 per ounce.
“Gold prices are trading with weak momentum. Last week the ECB (European Central Bank) already cut interest rates, now the focus will be on the FOMC (Federal Open Market Committee),” Jigar Trivedi, a commodities analyst at Mumbai-based Anand Rathi Shares & Stock Brokers, told Reuters.
“The recent high near US$1,560 in gold is a good resistance as of now. I do not think prices will go above it, lest the Fed indicates there will be another rate cut in December.”
Currencies
The Canadian dollar was weaker but off morning lows after the latest reading on inflation in this country matched market forecasts.
The day range for the loonie is 75.35 US cents to 75.52 US cents, with the currency sitting around the midpoint after the Statistics Canada report. Statscan said the annual rate of inflation in August ticked down to 1. 9 per cent from 2 per cent in July. The latest reading was in line with forecasts. On a monthly basis, the consumer price index slid 0.1 per cent, slightly above expectations.
“For the Bank of Canada, inflation isn’t running too hot or too cold, it’s just right,” CIBC economist Royce Mendes said.
“Overall, not a lot of implications for Bank of Canada policy, particularly with the average of the three core inflation measures still tracking 2 per cent.”
Earlier, the loonie came under pressure after Saudi Arabia said crude output is expected to be restored by the end of September after weekend drone attacks on oil facilities.
“Oil sold off in the North America afternoon as the Saudi energy minister held his press conference, sounding optimistic on output,” Elsa Lignos, global head of FX strategy for RBC, said. “Saudi Aramco said it has restored 41 per cent of capacity at the Abqaiq refining facility. Brent stabilized overnight around US$59/barrel It is still up 7 per cent on Friday’s close but some geopolitical risk premium needs to be baked in more consistently.”
On global markets, the U.S. dollar held near a seven-week high against the yen ahead of the afternoon Fed announcement.
Against the yen, the dollar edged up 0.1% to 108.23 yen, just below a seven-week high of 108.37 yen tested overnight. The dollar index against a basket of other currencies rose to 98.28, according figures from Reuters.
In other currencies, the euro was little changed at US$1.10620, more than 1 per cent above last week’s two-year low of US$1.0927.
In bonds, U.S. Treasury yields fell as investors await the Fed decision. The yield on the U.S. 10-year note was lower at 1.77 per cent. The yield on the 30-year note was also down at 2.238 per cent.
More company news:
General Mills Inc’s quarterly sales missed Wall Street expectations on Wednesday, hit by weak demand for its yogurt and snacks in the U.S domestic market. Net earnings attributable to the company rose to US$520.6-million, or 85 US cents per share, in the first quarter ended Aug. 25, from US$392.3-million, or 65 US cents per share, a year earlier. Net sales slipped 2.2 per cent to US$4-billion, missing the average analyst estimate of US$4.08-billion, according to IBES data from Refinitiv.
Exxon Mobil Corp said on Wednesday it was looking to sell its 50% stake in the Gippsland Basin oil and gas development in Australia’s Bass Strait as part of a broader review of its portfolio of assets around the world. The Gippsland Basin joint venture, off the state of Victoria, has long been the mainstay oil and gas supplier into southeastern Australia, but output from the fields is in decline.
Nissan Motor Co Ltd is looking to sell its vehicle parts and materials distribution business in a deal that may be valued at about US$1-billion, Bloomberg reported on Wednesday, as the struggling Japanese automaker seeks to slim down.
Canopy Growth Corp. expects to complete its search for a new chief executive officer by the end of the calendar year, its chairman said during its first annual meeting without co-founder Bruce Linton at the helm. The “robust” search is “well underway,” and the cannabis company is interviewing a number of “well-seasoned executives,” chairman John Bell told shareholders in Toronto. “We anticipate, and I am confident that, the CEO transition will be completed by the end of the current calendar year,” he said.
Airbus revised up forecasts for jetliner demand in the next 20 years led by growth in the new industrial hubs of Asia, while voicing alarm over rising protectionism. The European planemaker, revising an annual 20-year forecast that sheds light on economic trends across the globe, predicted the world’s fleet would more than double to 47,680 jets by 2038.
Apple Inc’s new iPhones will used recycled rare earth elements in a key component, the company said on Wednesday. Apple said it will use recycled rare earths in its “Taptic Engine,” a part that lets iPhones mimic a physical button click despite being a flat pane of glass. The part is about one-quarter of the rare earth elements inside the iPhone models.
Economic news
Canada’s annual rate of inflation fell to 1.9 per cent in August from 2 per cent a month earlier, matching market forecasts. On a monthly basis, the consumer price index fell 0.1 per cent. Economists forecasts had called for a monthly decline of about 0.2 per cent.
U.S. housing starts rose 12.3 per cent to a seasonally adjusted annual rate of 1.364 million units last month, the highest level since June 2007, the U.S. Commerce Department said. Economists polled by Reuters had forecast housing starts would advance to a pace of 1.250 million units in August. Building permits increased 7.7 per cent to a rate of 1.419 million units in August, the highest level since May 2007.
(2 p.m. ET) U.S. Fed announcement and summary of economic projections followed by chair Jerome Powell’s press briefing.
With Reuters and The Canadian Press
Terry Weber