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Equities

Stock indexes on both sides of the border opened in the red Monday after positive weekend headlines on U.S.-China trade talks gave way to reports of pessimism in China as a result of the U.S. reluctance to roll back tariffs.

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At 9:40 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 30.92 points, or 0.18 per cent, at 16,997.55. The index is coming off an 11-day winning streak. Energy stocks fell 1.1 per cent as crude prices turned negative. Financials and industrials were also down in morning trading.

In New York, the Dow Jones Industrial Average fell 11.67 points, or 0.04 per cent, at the open to 27,993.22.

The S&P 500 opened lower by 2.55 points, or 0.08 per cent, at 3,117.91. The Nasdaq Composite dropped 11.66 points, or 0.14 per cent, to 8,529.16 at the opening bell.

Chinese state media said over the weekend that Beijing and Washington had “constructive talks” on trade in a high-level phone call that included Vice Premier Liu He, U.S. trade representative Robert Lighthizer and Treasury Secretary Steven Mnuchin. That positive sentiment, however, was dented Monday when CNBC reported that the mood in China over a deal was “pessimistic” because of U.S. President Donald Trump’s reluctance to roll back tariffs.

“While this is arguably a positive conversation that enables a deal to be reached, we were meant to be at the point of agreeing a date and location for it to be signed off,” OANDA senior analyst Craig Erlam said. “Trump looks to have been a little premature in his assertion that a deal is done last month with there clearly still being plenty more work to do.

“It always seemed a little odd how one sided the deal looked, with the Chinese clearly expected a greater commitment from the U.S. side of tariff rollbacks, which is one issue that seems to be holding things up,” he said, noting the back-and-forth could now go on beyond the end of the year “and even fall apart altogether which could be troublesome for the markets which have already invested so heavily into it.”

More reading: Something peculiar has happened to Canadian markets in 2019

Meanwhile, the People’s Bank of China surprised markets by cutting the rate it charges banks for short-run liquidity by five basis points to 2.50 per cent. It was the first reduction since 2015. The move pushed Asian markets higher and bolstered world indexes as traders speculated further cuts could be coming. MSCI’s all-country index advanced 0.1 per cent and now stands about 1 per cent below the record level seen early last year.

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“Looking ahead, with economic growth still slowing and unlikely to bottom out in the near-term, we think the PBOC will take further steps to shore up lending, which has weakened recently,” Capital Economics economist Julian Evans-Pritchard said in a note. “Admittedly, headline consumer price inflation has already jumped above the PBOC’s target and will keep rising in the near-term. But we think the PBOC will focus more on the downbeat signals from easing core consumer price inflation and deepening factory-gate deflation, as well as broader evidence of economic weakness.”

On the corporate front, Volkswagen German car maker Volkswagen cut its medium-term outlook for operating profit as the industry is being hit by a global downturn. VW now expects operating profit before special items to grow by at least 25 per cent in the 2016-2020 period, down from a previous forecast of more than 30 per cent, slides for a presentation showed. It also cut its forecast for medium-term sales growth to 20 per cent from more than 25 per cent.

On Wall Street, HP Inc. said on Sunday that its board has rejected a US$33.5-billion takeover offer from Xerox Holdings Corp. The Palo Alto, Calif.-based company said the cash-and-stock deal undervalues its business, and its board cited concerns about “outsized” debt levels should the companies combine. Xerox shares opened lower on Monday.

On Bay Street, Aimia Inc. says it has struck a deal with a group of dissident shareholders to revise its board and buy back as much as $125-million in shares. The deal ends a feud with a the group, which has sought to shakeup Aimia’s board. Under the deal, Aimia says it will reconstitute its board by Feb. 28, 2020. Aimia shares jumped 9 per cent on the news in early trading.

Overseas, European markets turned negative in afternoon trade. The pan-European STOXX 600 was down 0.09 per cent. Britain’s FTSE 100 edged up 0.08 per cent. Germany’s DAX fell 0.48 per cent and France’s CAC 40 slid 0.43 per cent.

In Asia, Tokyo’s Nikkei gained 0.5 per cent, Hong Kong’s Hang Seng 1.4 per cent, and the Shanghai Composite 0.6 per cent.

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Commodities

Crude prices turned lower in morning trading with uncertainty over U.S.-China trade talks tempering positive weekend news on negotiations.

The day range on Brent was US$63.05 to US$63.57. The range on West Texas Intermediate was US$57.62 to US$58.09.

Last week, Brent gained 1.3 per cent. WTI rose 0.8 per cent on the week.

“Reports of a constructive discussion between U.S. and Chinese officials over the weekend on trade and a fourth consecutive weekly decline in the U.S. oil rig count reported on Friday are supporting oil this morning, with Brent above US$63 a barrel for only the second time since mid-September,” AxiTrader strategist Stephen Innes said.

He also noted that OPEC’s planned meeting in the first week of December is “setting up to be a significant catalyst for oil sentiment, with expectations that the group will extend and deepen the existing production cut agreement.”

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“But its a likely Phase one deal that is painting a more positive global demand outlook, which should keep oil holding a bid until the critical OPEC confirmation,” he noted.

OANDA’s Craig Erlam, however, noted early price action - which saw crude weaker before firming as the session progressed - suggests that markets are taking the weekend trade news with a grain of salt.

“The challenge for oil now is momentum, which appears to be heading in the reverse direction to price,” he said. “Not a healthy sign when you’re already trading at elevated levels around notable resistance.”

Meanwhile, gold prices slid on the latest trade news.

Spot gold was down about 0.3 per cent to US$1,463.40 per ounce, while U.S. gold futures were 0.4 per cent lower at US$1,462.90.

“A recovery in risk sentiment across Asia and investors cautiously optimistic about the phase one deal to go through before Christmas, are weighing on gold,” Margaret Yang Yan, a market analyst at CMC Markets, told Reuters, adding that a weak U.S. dollar limited bullion's decline.

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Currencies

The Canadian dollar was little changed as its U.S. counterpart slid against world currencies.

The day range on the loonie so far is 75.59 US cents to 75.70 US cents.

There were no significant economic releases scheduled for Monday. Later in the week, Canadian markets get readings on factory sales, inflation and retail sales.

First up will be Statistics Canada’s report on Tuesday on September manufacturing sales. Daria Parkhomenko, FX associate with RBC, says that bank is forecasting a monthly decline of 0.4 per cent after August’s 0.8 per cent gain. On Wednesday, the consumer price index is seen rising 0.2 per cent on a monthly basis in October with the annual rate of inflation edging down to 1.8 per cent.

“With a renewed focus on consumption from the Bank of Canada, the September retail sales report on Friday will be the pick of the data this week,” Ms. Parkhomenko said.

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“Our economists project a 0.3 per cent month-over-month decrease in nominal sales in September on expected 1-per-cent declines in gas prices and autos. Outside these two categories, (core) sales should see a 0.5 per cent m/m bump. Volumes should be little changed in the month."

On world currency markets, the euro was last up 0.1 per cent at US$1.1068, its highest since Nov. 7. The U.S. dollar index, which weighs that currency against a group of world counterparts, was down 0.1 per cent at 97.90.

The offshore Chinese yuan, however, remained below 7 per U.S. dollar, last falling 0.1 per cent to 7.0142. The yuan is the most sensitive currency to the trade dispute.

“USD/CNY above 7.0 suggests that the market is not yet convinced a solution is near,” Marshall Gittler chief strategist at FX analysis firm ACLS Global," said.

In bonds, the yield on the U.S. 10-year note was higher at 1.845 per cent. The yield on the 30-year note was also up at 2.323 per cent.

More company news

Australia’s Saracen Mineral Holdings Ltd said it would buy Barrick Gold Corp’s 50-per-cent stake in the Super Pit gold mine in Western Australia for US$750-million. The Super Pit is one of Australia’s largest gold mines with an average production of 660,000 ounces per annum at an all-in sustaining cost of about A$1,100 per ounce, according to Saracen.

Dubai state-owned airline Emirates said on Monday it had placed a firm order for 50 Airbus A350 jets worth $16 billion at list prices. “Together with the A380, the A350 will give us more capacity and flexibility. We will be able to expand to new markets with these aircraft,” Emirates Chief Executive Officer Ahmed bin Saeed Al Maktoum said at the Dubai Airshow. The deal signed at the show marked a final and amended version of a tentative deal for 40 A330neo aircraft and 30 A350 jets, which has been pending since the start of the year.

T-Mobile US Inc said Chief Executive Officer John Legere will step down on April 30 and Chief Operating Officer Mike Sievert will take over. The third largest U.S. wireless carrier is currently locked in a lengthy battle to close its merger with smaller carrier Sprint Corp.

Cosmetics maker Coty Inc said on Monday it would acquire a majority stake in reality TV star Kylie Jenner’s make-up and skincare businesses for US$600-million. Coty will acquire a 51 per cent ownership in the company and the deal is expected to close in the third quarter of fiscal year 2020. Shares of Coty were up nearly 2 per cent in early trading in New York.

WeWork is preparing to cut at least 4,000 people from its work force as it tries to stabilize itself after the company’s breakneck growth racked up heavy losses and led it to the brink of collapse, two people with knowledge of the matter told The New York Times. The cuts are expected to be announced as early as this week and will take place across WeWork’s sprawling global operation, according to the report.

Blackstone said it will continue talks with Japanese hotel chain Unizo Holdings on its proposed US$1.6-billion takeover bid and plans to make an announcement by Nov. 22.

Online services Yahoo Japan and Line Corp. have announced they are merging, The Associated Press reports. Z Holdings Corp., which owns SoftBank Corp. that operates Yahoo Japan, and Naver Corp. of South Korea, which owns a majority stake in Line, said Monday they are aiming for a final agreement by next month. The combination in a joint venture through a tender offer will form an online giant with retail services, advertising and other mobile services such as messaging.

De Havilland Aircraft of Canada Ltd. said it landed an order for 20 Dash 8-400 turboprops from lessor Palma Holding, as the planemaker bets on airline and energy sector demand in the Middle East and Africa to help turn around its recently acquired aircraft program from Bombardier Inc. De Havilland signed a letter of intent with Dubai-based Palma during the Dubai Airshow, which runs between Nov. 17-21.

Economic news

(10 a.m. ET) U.S. NAHB Housing Index for November. The Street expects a reading of 71, unchanged from October.

With Reuters and The Canadian Press

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