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Equities

Canada’s main stock index fell at the open Tuesday with weaker energy prices and a decline in Shopify Inc. shares weighing on sentiment. On Wall Street, markets also started in the red as investors sift through a mixed bag of earnings.

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At 9:39 a.m. ET, the Toronto Stock Exchange’s S&P/TSX Composite index was down 52.28 points, or 0.32 per cent, at 16,335.25. Seven of the index’s 11 main sectors were underwater. Tech stocks were down 1.3 per cent. The energy sector was down 0.6 per cent.

The Dow Jones Industrial Average fell 29.65 points, or 0.11 per cent, at the open to 27,061.07.

The S&P 500 opened lower by 4.03 points, or 0.13 per cent, at 3,035.39. The Nasdaq Composite dropped 12.64 points, or 0.15 per cent, to 8,313.35 at the opening bell.

Overseas, major European markets were mostly lower while Asia finished mixed, although Japan’s Nikkei managed its best session in months in the wake of a record showing by the S&P 500 during Wall Street’s Monday session.

“Investors appear to have one eye on tomorrow’s FOMC (Federal Open Market Committee) rate decision where investors widely expect the Federal Reserve to cut rates for the third meeting in succession, by 25 basis points,” Michael Hewson, chief market analyst with CMC Markets U.K., said.

“It does seem rather odd that the wider narrative appears to be geared to a U.S. central bank in easing mode at a time when the S&P 500 is trading at record highs, and the U.S. economy is trending at just below 2 per cent GDP growth, and unemployment is at 40-year lows.”

On the corporate front, shares of Alphabet were off by 1.6 per cent in early trading after the company fell short of analysts’ profit forecasts in the latest quarter. The company reported a profit of US$7.1-billion, or US$10.12 per share. Analysts had been looking for earnings of US$8.811-billion, or US$12.44 per share. Profit was hit by rising quarterly expenses.

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Alphabet posted third-quarter revenue of US$40.5-billion, up about 20 per cent from last year. Analysts on average estimated 19.52-per-cent growth and US$40.325-billion in revenue, according to IBES data from Refinitiv. In the 12 months leading up to Monday’s results, Alphabet shares have gained about 17 per cent, trailing other big names in the sector like Microsoft Corp. and Facebook Inc., which have seen gains of 33 per cent and 29 per cent, respectively.

Shares of plant-based food maker Beyond Meat Inc. were down more than 23 per cent even as the company posted its first profit on record and raised its full-year sales forecast. Investors seemed concerned by the company’s suggestion that it would need to offer more store discounts in the face of stiffer competition in the marketplace. Also weighing on the stock was the fact that the company’s lock-up period has ended, freeing early backers to cash in the stock’s sharp rise.

“The company said it now expects net revenue for the year of US$265-million to US$275-million, an upgrade to previous guidance, which, while encouraging, wasn’t enough to prevent the share price falling sharply after hours,” Mr. Hewson said. "This is because, despite the encouraging update, its market valuation of US$6.3-billion remains way ahead of what is logical for a company of its size.

On Bay Street, WestJet Airlines Ltd. reported quarterly profit of $119.4-million or $1.02 a share, up from $70.1-million or 61 cents in the year-earlier period. Analysts had expected earnings per share of 80 cents in the most recent quarter, according to financial markets data firm Refinitiv. Revenue increased 10.5 per cent to $1.39-billion. WestJet is in the process of being acquired by Onex Corp. WestJet shareholders backed the deal this summer and an Alberta court has also approved the acquisition. The carrier is now awaiting further regulatory approvals. Shares were up slightly at the opening bell.

Air Canada, meanwhile, reported adjusted net income rose to $613-million, or $2.27 per share, in the third quarter, from $580-million, or $2.10 per share, a year earlier. Shares were down modesly in early trading.

U.S.-listed shares of Shopify Inc. were down more than 6 per cent in Toronto after the e-commerce company posted a bigger third-quarter loss. The company’s net loss widened to US$72.8-million, or 64 US cents per share, in the quarter ended Sept. 30, from a loss of US$23.2-million, or 22 US cents per share, a year earlier. Total revenue rose 45 per cent to US$390.6-million.

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Overseas, major European markets were in the red in afternoon trading. The pan-European STOXX 600 was down 0.43 per cent with Brexit news still at the forefront. On Monday, Britain’s Prime Minister Boris Johnson failed to win the necessary two-thirds majority to force a December general election. He will now try to introduce legislation requiring only a simple majority. Britain’s FTSE 100 was down 0.60 per cent. Germany’s DAX fell 0.14 per cent. France’s CAC 40 hovered around break even.

Tokyo’s Nikkei gained 0.5 per cent. During the session, the Nikkei topped 23,000 for the first time since Oct. 11, 2018. Hong Kong’s Hang Seng lost 0.4 per cent, and the Shanghai Composite shed 0.9 per cent.

Commodities

Crude prices were weaker again Tuesday as markets await a fresh reading on U.S. inventories later in the session and further indications of progress in trade talks between the U.S. and China.

The day range on Brent is US$60.98 to US$61.70. The range on West Texas Intermediate is US$55.17 to US$55.88.

The American Petroleum Institute releases its latest weekly figures on Tuesday afternoon, followed by U.S. government numbers from the U.S. Energy Information Administration on Wednesday morning.

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A Reuters poll suggests analysts are expecting to see a decline in crude stocks of about 700,000 barrels last week. A week earlier, inventories posted a surprise decrease, marking the first decline in six weeks.

“Oil prices are paring gains again on Tuesday, following an impressive run built primarily on hopes of a phase one trade accord between the U.S. and China,” OANDA senior analyst Craig Erlam said. “[U.S. President Donald] Trump and his team have repeatedly stressed the progress made in recent days and the prospect of it being wrapped up earlier than anticipated, although by now we should take this kind of rhetoric with a pinch of salt.”

However, he also noted that energy traders are still buoyed by the tone of the talks since any de-escalation in the dispute removes hurdles for the world economy and addresses concerns on the demand side in energy markets.

“Brent found resistance around US$62 but that may prove temporary if trade headlines continue to improve and central banks keep slashing interest rates,” he said.

On Monday, Mr. Trump said he expected to sign part of a trade agreement with China ahead of schedule but offered no further indication of timing.

Gold prices were little changed with markets waiting for the next move by the Fed.

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Spot gold was little changed at US$1,493.09 per ounce, after losing almost 1 per cent on Monday. U.S. gold futures fell slightly to US$1,495.50 an ounce.

“Gold remains in consolidation mode on Tuesday but bullish pressures are clearly building as we head into the Fed decision,” Mr. Erlam said. “The rally at the back end of last week quickly ran out of steam as the yellow metal approached US$1,520, a level that’s proved a stumbling block throughout October.”

Currencies

The Canadian dollar was little changed after a choppy night that saw it move in a narrow day range of 76.56 US cents to 76.62 US cents.

The loonie has been helped by improved risk sentiment although investors remain largely on hold until Wednesday’s rate decisions from the Bank of Canada and the Federal Reserve.

The Bank of Canada is seen again keeping rates steady while the Fed is expected to deliver its third rate cut of the year. There were no major Canadian economic reports due Tuesday.

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“The Bank of Canada is widely expected to hold policy rates steady at 1.75 per cent on Wednesday,” Benjamin Reitzes, director of Canadian rates and macro strategist at BMO Capital Markets, said in a note earlier this week. “Since the September meeting, the global backdrop has improved, with an initial (though not yet signed) U.S./China deal and falling odds of a hard Brexit.”

He said the central bank highlighted trade as a big risk through much of the year and devoted a section of the July monetary policy report to the issue. Domestically, he said, the Canadian economy “isn’t in great shape” but it is growing at a decent enough pace.

“With the BoC believing that the economy is near capacity, anything around 1.5 per cent GDP growth is good enough,” he said, also noting that the bank isn’t likely to want to fuel further acceleration in credit growth by lower borrowing costs.

In other currencies, the British pound was broadly steady around US$1.285 after British Prime Minister Boris Johnson failed to gain the majority backing in parliament he required for an election, the third time he has failed to do so. Australia’s dollar, seen as a gauge for the market’s appetite for risk, posted its third straight day of gains against the safe-haven Swiss franc. The Australian dollar has gained about 1.3 per cent against the franc so far this month, its best monthly showing since April.

In bonds, the yield on the U.S. 10-year note was modestly lower at 1.824 per cent. The yield on the 30-year note was down a touch at 2.312 per cent.

More company news

A special committee at Canfor Corp. is recommending that shareholders approve a $981.7-million bid by B.C. billionaire Jim Pattison to take full control of the lumber producer. Mr. Pattison, who owns 51 per cent of Canfor through Great Pacific Capital Corp., announced his bid in August to acquire the rest of Canfor’s stock and take the company private with his cash offer of $16 a share.

Mastercard Inc reported an 11-per-cent rise in third-quarter profit as more transactions were made on its network, boosting fees for the world’s second-largest payment processor. The company’s net income rose to US$2.11-billion, or US$2.07 per share, in the third quarter ended Sept. 30 from US$1.9-billion, or US$1.82 per share, a year earlier.

General Motors Co posted a lower third-quarter profit but beat Wall Street estimates as strong U.S. sales of high-margin pickup trucks and SUVs offset the impact of a 40-day U.S. labor strike and weak sales in China. Net income in the third quarter fell to US$2.3-billion, or US$1.60 a share, compared with US$2.5-billion, or US$1.75 a share, a year earlier. Excluding one-time items, GM earned US$1.72 a share. Analysts had expected US$1.31, on average, according to IBES data from Refinitiv.

BP’s third-quarter profit dropped sharply, but still beat expectations, hurt by weaker oil prices, lower production and one-off charges linked to large divestments. London-based BP reported on Tuesday third-quarter underlying replacement cost profit, the company’s definition of net income, of US$2.3-billion, exceeding forecasts of US$1.73-billion in a company-provided survey of analysts. That compared with US$3.83-billion a year earlier and US$2.81-billion in the second quarter of 2019.

Drug maker Merck & Co Inc reported a drop in third-quarter profit, hit by a US$982-million charge related to its acquisition of Peloton Therapeutics. Net income fell to US$1.90-billion, or 74 US cents per share, from US$1.95-billion, or 73 US cents per share, a year earlier. Sales rose to US$12.40-billion from US$10.79-billion.

Pfizer Inc raised its 2019 full-year earnings forecast, sending its shares up 3 per cent. The company said it expects to earn between US$2.94 per share and US$3 per share, up from a prior estimate of US$2.76 to US$2.86. Total revenue fell 5 per cent to US$12.68-billion, but sales from its biopharma unit rose 7 per cent to US$10.12-billion in the third quarter.

Economic news

The S&P CoreLogic Case-Shiller 20-city U.S. home price index rose 2 per cent in August from a year earlier, matching July’s increase.

(10 a.m. ET) U.S. pending home sales for September. Consensus is a decline of 0.5 per cent from August.

(10 a.m. ET) U.S. Conference Board Consumer Confidence Index for October. The Street expects a reading of 127.0, up from 125.1 in September.

With Reuters and The Canadian Press

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