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Equities
Markets on both sides of the border posted tepid starts early Wednesday after comments from the U.S. and Iran eased investor concerns about the potential for an escalating conflict in the Middle East.
At 9:34 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 6.7 points, or 0.04 per cent, at 17,174.76.
The Dow Jones Industrial Average fell 27.54 points, or 0.10 per cent, at the open to 28,556.14. Declines in Boeing shares weighed on the Dow in the wake of a fatal crash involving one of the company’s aircraft. The S&P 500 opened higher by 1.41 points, or 0.04 per cent, at 3,238.59. The Nasdaq Composite dropped 0.55 points, or 0.01 per cent, to 9,068.03 at the opening bell.
Early Wednesday, S&P 500 futures had fallen about 2 per cent at one point but curbed losses after Iran’s Foreign Minister Mohammad Javad Zarif tweeted that the Iranians “do not seek escalation or war.” Earlier, U.S. President Donald Trump said in a tweet “All is well!” and “So far, so good!” Iran launched missile attacks on two American air bases in Iraq early Wednesday in retaliation for the U.S. killing of Tehran’s top general. World markets were also whipsawed by the news, with Europe opening lower but recouping most of the losses as the trading day progress.
“Wall Street seems convinced we will not see the U.S. and Iran fully enter into a war,” OANDA senior analyst Edward Moya said. "The conflict is far from over and it seems we could continue to see a prolonged period of proxy wars in the region. Iran needed to act swiftly, without leading an attack that delivered the loss of American forces."
“All eyes are on President Trump this morning, with some insiders expecting him to somewhat deescalate the situation,” he said.
Mr. Trump is scheduled to speak later Wednesday morning.
In stocks, Boeing Co. shares were down 1.5 per cent just after the opening bell after the crash of a Ukrainian International Airlines Boeing 737-800 killed 176 people, including 63 Canadians. The crash took place shortly after takeoff at Tehran’s Imam Khomeini airport.
On Wall Street, Constellation Brands shares were up nearly 4 per cent in early trading after the brewer hiked its forecast for full-year adjust earnings and posted better-than-expected sales in the most recent quarter. Constellation now expects to earn US$9.45 to US$9.55 a share for its fiscal 2020, excluding the impact from its investment in Canadian cannabis producer Canopy Growth on a comparable basis, up from its previous forecast of US$9 to US$9.20. In the latest quarter, net sales rose 1.4 per cent to US$2-billion, beating the average analyst estimate of US$1.95-billion
In this country, Cott Corp. said it is evaluating strategic alternatives for its coffee and tea unit, including the possible sale of that business. Cott said the move is aimed at transitioning the company to a “pure-play water solutions provider.” Cott shares were up 1.8 per cent Wednesday morning in Toronto.
Overseas, Europe’s main markets were little changed by afternoon with the pan-European STOXX 600 trading around break even. Britain’s FTSE 100 was down 0.13 per cent. Germany’s DAX gained 0.34 per cent. France’s CAC 40 edged up 0.01 per cent.
In Asia, markets also retraced some early losses but still finished mostly lower. Japan’s Nikkei fell 1.57 per cent after being down as much as 2 per cent earlier in the session. Hong Kong’s Hang Seng ended down 0.83 per cent. The Shanghai Composite Index finished off 1.22 per cent.
Commodities
Crude prices shed overnight gains as market worries eased over possible disruption to oil production in the Middle East after Iranian air strikes in Iraq.
In the immediate wake of the strike, Brent crude again breached US$70 a barrel to trade at its best level since September while West Texas Intermediate managed its highest price since April.
Both benchmarks gave back some of those gains after comments from both the U.S. and Iran suggested neither side sought to further escalate tensions.
The day range on Brent so far is US$68.44 to US$71.75. The range on WTI is US$62.69 to US $65.65. Shortly before the North American open, both Brent and WTI had slipped into the red.
“Oil understandably spiked another 5 per cent in the immediate aftermath of the attack but has reversed much of these gains as the dust has settled,” OANDA senior analyst Craig Erlam said. “It remains vulnerable to these sharp spikes as tensions between the U.S. and Iran become increasingly heightened. This is the second time Brent has breached US$70 and failed to hold above which suggests, in the event that no major escalation comes, we may have found a ceiling.”
A draw in U.S. crude inventories also helped support prices. The American Petroleum Institute said in its weekly report that crude stocks by 5.95 barrels last week, more than analysts had been expecting. Official U.S. government figures are due later in Wednesday’s session.
In other commodities, gold prices jumped on the latest Middle East headlines, again nearing their best levels in seven years, before pulling back somewhat.
Spot gold was 1 per cent higher at US$1,589.40 per ounce, having earlier hit its highest since March 2013 at US$1,610.90, up 2.4%. U.S. gold futures rallied 1.1 per cent to US$1,590.90.
“Fears of uncertainty and further escalation in this military confrontation are dragging up gold prices,” Margaret Yang Yan, a market analyst at CMC Markets, told Reuters.
“This (the Iran situation) is definitely fueling demand for safe havens, not just gold but also yen, while equities are being heavily sold off.”
Currencies
The Canadian dollar traded down slightly as markets initially shied away from riskier holdings in the wake of Iran’s strike on sites in Iraq.
The day range on the loonie was 76.84 US cents to 77.06 US cents. The dollar was near the low end of that spread at last check.
“News that Iran had launched ballistic missiles at two bases that house U.S. troops in Iraq sparked an immediate sell off in risk,” RBC chief currency strategist Adam Cole said.
"However, a growing sense that this will be the full extent of Iranian retaliation has seen both moves fully reverse and G10 currencies are back to close to where they closed yesterday."
For the loonie, the next key event will be a speech in Vancouver by Bank of Canada Governor Stephen Poloz on Thursday. In a note earlier this week, Benjamin Reitzes, director of Canadian rates and macro strategist for Bank of Montreal, said he wouldn’t be surprised if Mr. Poloz struck a more cautious tone in his remarks.
On broader markets, currencies whipsawed on news out of the Middle East, with the safe-haven yen hitting a three-month high against the U.S. dollar before retreating. For the day, the yen finished unchanged at 108.41 per U.S. dollar.
Against other major currencies, the U.S. dollar was mostly steady, with the euro hovering around US$1.1152.
More company news
McDonald’s Corp said on Wednesday it was expanding its pilot of plant-based meat burgers using Beyond Meat patty in 52 restaurants across Kitchener-Waterloo, Guelph and nearby areas in Canada. The fast-casual restaurant chain had rolled out plant-based meat burgers in 28 Canadian restaurants in October. Reuters reported on Tuesday that Beyond Meat’s rival Impossible Foods is no longer trying to win a deal to supply McDonald’s with plant-based burgers.
Macy’s Inc reported just a 0.6-per-cent drop in holiday period same-store sales, quelling fears of a more dramatic fall in the department store operator’s numbers for the crucial annual shopping season after an earlier profit warning. The company benefited from strong online sales and demand for gifting assortments, Macy’s Chief Executive Officer Jeff Gennette said. The reported drop was for the months of November and December. Macy’s shares rose more than 4 per cent in New York.
Drugstore chain Walgreens Boots Alliance Inc posted a 24.8-per-cent drop in quarterly profit, hurt by higher costs related to its acquisition of stores from rival Rite Aid Corp Net income attributable to Walgreens fell to US$845-million, or 95 US cents per share, in the first quarter ended Nov. 30, from US$1.12-billion, or US$1.18 per share, a year earlier. Revenue rose to US$34.34-billion from US$33.79-billion.
Lennar Corp reported an 8-per-cent rise in quarterly revenue, benefiting from an increase in home sales on the back of lower mortgage rates. Net income attributable to the company fell to US$674.3-million, or US$2.13 per share, in the fourth quarter ended Nov. 30, from US$796.1-million, or US$2.42 per share, a year earlier. Revenue rose to US$6.97-billion from US$6.46-billion.
Apple Inc said its Apple News service has reached 100 million monthly active users versus 85 million a year prior, demonstrating growth in a key services business that is being closely watched by investors as iPhone sales decline. The users come from the United States, United Kingdom, Canada and Australia, Apple said. Apple also offers a paid version of its news service called Apple News+ for $9.99 per month but did not disclose subscriber numbers.
Economic news
Payroll processor ADP said U.S. private payrolls jumped by 202,000 jobs in December after an upwardly revised 124,000 gain the previous month.
(3 p.m. ET) U.S. consumer credit for November. Consensus is an increase of US$14.5-billion from October.
With Reuters and The Canadian Press
Terry Weber