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Equities

Canada’s main stock index pulled back from recent record levels early Tuesday as weakness in energy stocks on the back of lower crude prices weighed on sentiment. U.S. stocks struggled to hold early gains with optimism over trade talks between Beijing and Washington coming up against disappointing forecasts from major U.S. retailers, including Home Depot Inc.

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At 09:46 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 34.49 points, or 0.2 per cent, at 16,990.62.

Energy stocks fell 0.7 per cent. Financial and industrial stocks were also in the red.

In the U.S., the Dow Jones Industrial Average rose 43.54 points, or 0.16 per cent, at the open to 28,079.76.

The S&P 500 opened higher by 5.42 points, or 0.17 per cent, at 3,127.45. The Nasdaq Composite gained 28.08 points, or 0.33 per cent, to 8,578.02 at the opening bell.

With few new headlines, investors continued to mull over reports that China was growing pessimistic over the prospects for an immediate deal because of the reluctance by the U.S. to roll back tariffs.

“China is insisting on tariffs being rolled back as part of any phase one trade agreement, something that [U.S. President Donald] Trump has until now not been receptive to,” OANDA senior analyst Craig Erlam said. “There have been reports that the U.S. trade team has been exploring rolling back some tariffs to get this over the line and the refusal to engage by Trump could simply be posturing, but time is running out if they want it signed this year.”

Despite that uncertainty, Mr. Erlam says investors still aren’t losing faith with equity markets holding at record levels. “Talks have collapsed before though and could again, the key difference this time though being that Trump will not want to go into an election without a deal,” he said.

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On the corporate side, more than 3,000 Canadian National Railway conductors, trainpersons and yard workers are on strike after the union and company failed to reach a deal by the midnight deadline. The union says the two sides are continuing to talk in the hope of reaching a negotiated settlement to the dispute. Teamsters Canada Rail Conference gave the required 72-hour strike notice on the weekend. The union also says passenger rail services Go Transit in Toronto, Exo in Montreal and the West Coast Express in Vancouver would not be affected by the strike. CN stock was down slightly at the open in Toronto.

On the earnings front, Loblaw-parent George Weston posted a profit attributable to common shareholders of $69-million, or 44 cents per diluted share in the latest quarter, up from $51-million or 40 cents a year earlier. Sales or the quarter rose to $15.2-billion, up from about $14.9-billion. On an adjusted basis, Weston earned $391-million or $2.54 per diluted common share, up from $288-million or $2.25 per diluted common share a year ago. Analysts on average had expected an adjusted profit of $2.14 per share, according to financial markets data firm Refinitiv. Weston shares gained about 1.6 per cent in early trading in Toronto.

South of the border, shares of Home Depot Inc. shares opened down more than 3 per cent after the retailer cut is full-year sales outlook. Home Depot said it expected its fiscal 2019 sales to rise about 1.8 per cent, compared to a prior forecast of a 2.3-per-cent increase.

Overseas, the pan-European STOXX 600 gained 0.42 per cent in afternoon trading. Earlier in the day, it hit its best level since 2015. Resource stocks and auto shares were among the top performers. Britain’s FTSE 100 rose 1.10 per cent. Germany’s DAX gained 0.90 per cent. France’s CAC 40 rose 0.11 per cent.

In Asia, Japan’s Nikkei lost 0.53 per cent. The Shanghai Composite Index was up 0.85 per cent. Hong Kong’s Hang Seng added 1.55 per cent.

“The market is looking through the headline ‘ping pong’ in favor [of the idea] that some limited trade deal as imminent,” AxiTrader strategist Stephen Innes said in an early Asia note. “There was some divergence between equities and other risky assets, notably commodities, which is probably due to the uncertainty over the degree of tariff rollbacks.”

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Commodities

Crude prices diverged from equities Tuesday, declining on uncertainty over global trade and the expectation that new figures due later in the session would show an increase in U.S. inventories.

The day range on Brent is US$61.73 to US$62.57. The range on West Texas Intermediate is US$56.39 to US$57.11. Last week, optimism over the U.S.-China trade talks had pushed Brent above US$63 a barrel. However, recent suggestions of pessimism on the part of Beijing have taken some of the wind out of the benchmark’s sails.

“The less than promising reports coming from China on the trade war may have taken some of the energy out of the rally but oil is already trading at quite elevated levels and in a region that has previously been problematic,” OANDA’s Craig Erlam said in a note. “We’re certainly seeing less momentum in the recent rallies which suggests the path of least resistance may be below in the near-term.”

AxiTrader’s Stephen Innes says recent price movement reflects market concerns that a partial agreement without tariff roll backs would be negative for commodities.

“It’s abundantly clear that oil traders view a trade deal without a tariff rollback as meaningless and will provide the minimal economic punch,” he said.

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Later in the day, the American Petroleum Institute releases its weekly report on U.S. inventories. Those numbers will be followed Wednesday by more official U.S. government figures.

A Reuters poll of six analysts suggests that crude inventories for the week rose about 1.1 million barrels. That would mark the fourth consecutive week of increased crude stocks.

Gold prices, meanwhile, held steady as the lack of trade news hit risk sentiment.

Spot gold was little changed at US$1,471.90 per ounce. U.S. gold futures inched up 0.07 per cent to US$1,472.90 per ounce.

“We’re not seeing any big moves at the moment and given the proximity to the $1,490-level, movements will be sideways in the short term, unless Beijing or Washington come and say that a trade deal is unlikely,” Michael McCarthy, chief market strategist at CMC Markets, told Reuters.

Currencies

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The Canadian dollar edged higher after new figures from Statistics Canada showed a lower-than-expected decline in factory sales in September, although underlying weakness limited the gains.

The loonie moved to the upper end of the day range of 75.53 US cents to 75.80 US cents after the report’s release.

For the month, Statscan said factory sales slid 0.2 per cent to $57.4-billion. Markets had been forecasting a decline closer to 0.5 per cent. The September decrease followed an increase of 0.8 per cent in August.

Sales were down in 10 of 21 industries representing about 62.2 per cent of the factory sector, the government agency said. Weaker sales of petroleum and coal products and auto parts made of most of September’s decrease.

“Manufacturing shipments didn’t fall quite as much as expected in September, but the details were less encouraging than the headline in terms of forecasting monthly GDP,” CIBC economist Andrew Grantham said.

Excluding autos and parts, sales were down 0.4 per cent, slightly weaker than forecast. As well, overall sales volumes fell 0.7 per cent, which was also more than markets had been expecting. “Because of these weaker details, market reaction to the headline beat should be limited,” he said.

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Later in the day, Bank of Canada senior deputy governor Carolyn Wilkins is set to deliver a speech. The topic is measures in place to help safeguard Canada’s financial system in a challenging global environment.

On world currency markets, the U.S. dollar index was little changed after three days of losses. Investors are awaiting the afternoon release of minutes from the latest Federal Reserve meeting later in the week.

Against a basket of its rivals, the U.S. dollar index was broadly steady at 97.84 after weakening more than 0.6 per cent in the last three sessions, according to Reuters. It had hit a one-month high of 98.45 on Nov. 13.

In other currencies, Britain’s pound held firm around US$1.2950 with sterling helped by polls indicating a victory by the ruling Conservatives in upcoming elections.

More company news

Canada’s TC Energy said it expects comparable core earnings (EBITDA) to exceed $10-billion in 2022, driven by long-term contracts and assets. The Keystone pipeline operator also said it expects dividends to grow at an average annual rate of 5 to 7 per cent beyond 2021. The company is holding its investor day on Tuesday.

The majority of unions representing workers at Peugeot maker PSA are in favour of a planned merger with Fiat Chrysler, PSA executives and union representatives said. However, the unions said that once the merger deal was signed, they would be seeking detailed information about the plans for the combined company.

Qantas has asked Airbus and Boeing for a better deal on planes capable of non-stop Sydney-London flights before deciding whether to place an order. “We asked them to go back and re-look at that to sharpen their pencils because there still was a gap there,” Qantas International Chief Executive Tino La Spina told an investor briefing on Tuesday after Qantas outlined plans for capital spending to average A$2-billion (US$1.36-billion) a year.

U.S. department store operator Kohl’s Corp cut its annual profit expectations ahead of the all-important holiday shopping season, and missed same-store sales estimates for the third quarter, sending its shares down nearly 10 per cent. Kohl’s said it now expects full-year adjusted earnings to be between US$4.75 and US$4.95 per share, compared to its previous forecast of US$5.15 to US$5.45. Sales from stores open for at least a year rose 0.4 per cent in the third quarter ended Nov. 2, while analysts on average had expected same-store sales to increase 0.76 per cent, according to IBES data from Refinitiv.

U.S. discount store operator TJX Companies Inc has acquired a 25-per-cent stake in Russian low-cost apparel retailer Familia for US$225-million, the Russian company said in a statement on Tuesday. Familia, which has more than 275 stores in Russia selling clothes, shoes, accessories and household goods, enjoyed 24-per-cent turnover growth in the first nine months of 2019 compared with the same period of 2018, with like-for-like sales rising 7 per cent.

Economic news

Canadian factory sales slid 0.2 per cent in September. Markets had been expecting a decline of 0.5 per cent.

U.S. housing starts increased 3.8 per cent to a seasonally adjusted annual rate of 1.314 million units last month, with single-family construction rising for a fifth straight month and activity in the volatile multi-family sector rebounding solidly, the Commerce Department said on Tuesday.

With Reuters and The Canadian Press

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