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Equities

Canada’s main stock index opened lower Monday with declines in energy and materials shares weighing. Wall Street indexes advanced in early going to hold near record levels as investors await the midweek signing of the first phase of a U.S.-China trade deal and look ahead to the start of earnings season.

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The Toronto Stock Exchange’s S&P/TSX composite index was down 12.29 points, or 0.07 per cent, at 17,222.2 by 10:01 a.m. (ET) but still held just below a record high seen last week. Energy shares were down 1.5 per cent as crude prices pulled back after the previous week’s volatility. Materials shares were down 0.5 per cent with gold prices sliding as investors sought riskier assets.

In the U.S., the Dow Jones Industrial Average rose 45.24 points, or 0.16 per cent, at the open to 28,869.01. The S&P 500 opened higher by 5.78 points, or 0.18 per cent, at 3,271.13. The Nasdaq Composite gained 34.86 points, or 0.38 per cent, to 9,213.72 at the opening bell.

A Chinese delegation will be in Washington this week for Wednesday’s signing of a phase-one agreement. On Sunday, U.S. Treasury Secretary Steven Mnuchin said China’s commitment to the deal was not changed during the long translation process and details of the pact will be made available later this week.

“The main focus this week, in the absence of any fresh Iran tension, is likely to be on this week’s meeting between the U.S. and China in Washington DC, and the expected signing of a phase one trade deal on Wednesday, along with a host of economic reports including the start of U.S. bank earnings season, at the end of the week,” Michael Hewson, chief market analyst with CMC Markets, U.K., said.

U.S. bank earnings, he said, will be closely watched for any signs of a slowdown in loan growth in all areas of the U.S. economy.

“In the previous quarter most U.S. banks showed that the U.S. consumer was in pretty good shape with lower rates helping to fuel decent loan demand, with JP Morgan Chase posting record revenues in its last quarter,” he said. “The challenge now will be not only can it match its last quarter, but with a slightly weaker economy, will forward earnings expectations for U.S. banks get pared back?”

On Bay Street, Shaw Communications reported first-quarter results with revenue rising 2.1 per cent to $1.38-billion. Quarterly earnings per share came in at 31 cents, down from 36 cents in the same quarter a year earlier. Shaw shares opened down slightly in Toronto.

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Markets will also get a pair of reports on the economy from the Bank of Canada. The central bank releases its closely watched Business Outlook Survey just after the start of trading. That report comes amid soft data on the economy and fourth-quarter growth projections by many economists below the Bank of Canada’s last forecast. At the same time, the bank will also release for the first time its Canadian Survey of Consumer Expectations, which is likely to include things like household debt and the labour market. The two reports arrive just ahead of the Jan. 22 rate announcement and monetary policy report from the central bank.

“The Bank of Canada’s quarterly Business Outlook Survey on Monday will be watched closely for just how worried Canadian businesses are about softer recent domestic growth outcomes versus a thawing in U.S.-China trade tensions that has made the go-forward external demand backdrop look less concerning,” RBC economists Nathan Janzen and Josh Nye said.

“Content [of the consumer survey] should cover things like household expectations for inflation (of particular interest for the central bank), labour markets, and household finances,” they said. “The latter in particular may prove timely given concerns about a tick up in household insolvencies over the second half of last year that, while still small from a big-picture perspective was also still surprisingly large given ostensibly very strong labour markets over the period.”

On the corporate front, Vancouver-based Lululemon Athletica Inc. hiked its quarterly sales and profit forecast on strong holiday sales. The retailer now expects fourth-quarter profit per share to be between US$2.22 and US$2.25, up from its prior range of US$2.10 to US$2.13. The company also raised its quarterly net revenue forecast to between US$1.37-billion and US$1.38-billion, from US$1.32-billion to US$1.33-billion. Shares were up more than 2 per cent on the Nasdaq just after the open.

Overseas, major European markets turned flat by afternoon with the pan-European STOXX 600 slipping 0.06 per cent. Britain’s FTSE 100 was up 0.26 per cent. Germany’s DAX fell 0.18 per cent and France’s CAC 40 rose 0.10 per cent.

In Asia, the Shanghai Composite Index rose 0.74 per cent. Hong Kong’s Hang Seng gained 1.1 per cent. Markets in Japan were closed for a public holiday.

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Commodities

Crude prices edged higher as trade between China and the U.S. moved back into the spotlight.

The day range on Brent crude is US$64.71 to US$65.27. The range on West Texas Intermediate is US$58.59 to US$59.27. Both benchmarks saw intense volatility last week amid tensions between the United States and Iran. Brent breached US$71 a barrel at one point in the week before ending Friday below US$65.

“Crude oil prices had quite a week, going from a three-month high to a three-week low, in the space of three days,” CMC’s Mr. Hewson said.

“While Iran tensions look to have come off the boil from the hysteria of a week ago, there still remains the potential for further volatility in the days ahead, and with the Iranian government having to deal with unrest at home due to its belated admission of its shooting down of the Ukrainian airliner, it wouldn’t be a surprise for the Tehran administration to try and distract its population with some bashing of the U.S.”

AxiTrader strategist Stephen Innes said this week’s signing of the first phase of the U.S.-China trade deal and the expected positive impact on the global economy should help support crude prices. However, he also noted that backwardation in Brent remains a focus. (Backwardation is the term used to describe a market structure where near-term contracts are higher than those for later contracts.)

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“Backwardation tends to reflect tightening supplies, and the narrowing of the values indicates that worries over supply disruption are receding,” he said.

“But with Iran-related energy disruption, additional non-OPEC supply will comfortably exceed demand, likely placing downward pressure on prices, only to be offset by OPEC and friends’ compliance commitment.”

Gold prices, meanwhile, were lower as investors moved back into equities after last week’s push toward safe-haven holdings.

Spot gold dipped 0.6 per cent to US$1,552.42 per ounce. U.S. gold futures fell 0.4 per cent to US$1,553.30.

“Gold has moved lower for all the obvious reasons as risk-on continues to permeate markets,” Mr. Innes said.

Currencies

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The Canadian dollar was slightly weaker as investors await reports on business and consumer outlooks from the Bank of Canada.

The day range on the loonie so far is 76.53 US cents to 76.66 US cents.

The two Bank of Canada reports are due at 10:30 a.m. ET.

"(The business outlook survey) arrives at its usual time just over a week before the next BoC meeting and monetary policy report on Jan. 22, RBC chief currency strategist Adam Cole said.

"Activity data (for October) softened into year-end and we are tracking Q4 GDP growth at less than 1 per cent annualized, materially below trend and the BoC’s 1.3 per cent projection from October."

Positive signs from U.S.-China trade and USMCA will provide additional context, although both firmed up after the survey period, he said.

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“The last BOS was relatively solid, including the balance of opinions on future sales (+23 per cent) and investment intentions (+28 per cent), and elevated capacity pressures,” Mr. Cole said.

On global markets, China’s yuan was the biggest mover among trade-sensitive currencies.

The offshore yuan - the currency most attuned to China-U.S. trade developments - crossed the 6.9 per dollar mark to hit a new 5-1/2 month high of 6.8944, 0.3 per cent higher on the day against the U.S. dollar, according to Reuters.

The U.S. dollar index, which measures the greenback against a basket of world currencies, edged up 0.1 per cent to 97.417.

The Australian dollar, which has been hit by concerns about the economic damage of the country’s ongoing bushfires, rose 0.3 per cent to hit a one-week high of 69.19 US cents. The New Zealand dollar also rose 0.2 per cent to its best level since late last week at 66.50 US cents.

More company news

The Globe’s James Bradshaw reports that Canadian Imperial Bank of Commerce faces more than $50-million in potential losses over an alleged fraud at an Ontario-based business that serves trucking companies. In early December, the bank disclosed that it had set aside $52-million to cover potential losses tied to a single unidentified commercial borrower. CIBC executives said the impairment charge was “fraud-related,” but declined to go into detail.

Cott Corp. says it will buy Nasdaq-listed Primo Water Corp. for $14 a share , which values Primo at $775-million. Cott says the move is part of its strategy to move to a pure-play water provider. Last week, Cott said it was looking at options for its coffee and tea unit, including the possible sale of that business. Cott shares were down nearly 5 per cent in Toronto in early trading.

Brookfield Renewable Partners said it has offered to acquire the remaining 38-per-cent stake in TerraForm Power Inc. it does not already own, in a deal that values the electricity utility at US$3.93-billion, as it looks to boost its power portfolio. Brookfield Renewable said on Monday the all-stock offer represents an exchange ratio of 0.36 BRP units for each TerraForm class A share, valuing TerraForm at US$17.31 per share, an 11-per-cent premium to the stock’s last close.

The CEO of Maple Leaf Foods spoke out Sunday against the U.S. government, days after an Iranian missile accidentally shot down a jetliner, killing all 176 people on board — including the family of a company employee, The Canadian Press reports. Michael McCain said in a series of tweets that the time since Wednesday’s crash has not quelled his anger over what he describes as a “needless, irresponsible series of events in Iran.” “U.S. government leaders unconstrained by checks/balances, concocted an ill-conceived plan to divert focus from political woes. The world knows Iran is a dangerous state, but the world found a path to contain it; not perfect but by most accounts it was the right direction,” he wrote, saying he feels that “a narcissist in Washington” destabilized the region. The tweets were sent from the packaged meat company’s official account, though McCain characterized them as “personal reflections.”

Renault shares hit six-year lows on Monday after a media report that Nissan has accelerated secret contingency planning for a potential split from the French carmaker, the latest sign that the downfall of former boss Carlos Ghosn is roiling the 20-year alliance. The plans include war-gaming a total split in engineering and manufacturing, as well as changes to Nissan’s board, the Financial Times newspaper reported on Sunday citing several sources.

Economic news

(10:30 a.m. ET) Bank of Canada’s business outlook survey and Canadian survey of consumer expectations

(2 p.m. ET) U.S Treasury budget for December.

With Reuters and The Canadian Press

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