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Equities

Canada’s main stock index dipped at the start of trading Tuesday with energy shares under pressure as crude prices slip ahead of an OPEC meeting to weigh current production cuts. Major U.S. indexes were also down after mixed results from some of that country’s biggest banks.

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At the open, the Toronto Stock Exchange’s S&P/TSX composite index was down 17.42 points, or 0.11 per cent, at 15,621.99 just after the open.

On Wall Street, the Dow Jones Industrial Average fell 41.63 points, or 0.16 per cent, at the open to 26,044.17. The S&P 500 opened lower by 14.11 points, or 0.45 per cent, at 3,141.11, while the Nasdaq Composite dropped 80.59 points, or 0.78 per cent, to 10,310.25 at the opening bell.

JPMorgan shares rose in early trading after the bank reported earnings per share of US$1.38 in the latest quarter, topping analysts’ estimates of US$1.04. JPMorgan also posted a 79-per-cent in trading revenue. The bank set aside US$10.5-billion to cover loan losses. In the accompanying statement, CEO Jamie Dimon said there remains “much uncertainty” about the future path of the economy but added that JPMorgan’s “fortress balance sheet” leaves it well prepared.

Wells Fargo shares, however, were down more than 6 per cent after that U.S. bank posted a second-quarter loss after it set aside US$9.5-billion to cover potential loan losses.

“U.S. earnings season has begun, and while there was plenty of bad news, the bounce in trading revenues (if ‘bounce’ can accurately describe the huge surge in activity for the investment banking divisions) helped to provide a reason for optimism,” Chris Beauchamp, chief market analyst with IG, said.

“It is too early to draw any real conclusions, but with estimates so low it will be tough for companies to really miss forecasts.”

Meanwhile, rising numbers of virus infections continue to temper market sentiment. On Monday, the World Health Organization warned that too many countries are “headed in the wrong direction.” In the U.S., California Governor Gavin Newsom ordered indoor businesses including restaurants, bars and movie theatres to again close as new cases continue to rise.

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In this country, Quebec became the first province to make masks mandatory in indoor public spaces and is asking businesses to enforce the rules or risk fines. Face masks will be required for anyone older than 12 years old in stores, restaurants and other indoor public places starting July 18, Premier François Legault told reporters in Montreal on Monday.

Overseas, major European markets were lower. The pan-European STOXX 600 fell 1.10 per cent in afternoon trading. Britain’s FTSE 100 lost 0.20 per cent. New figures released Tuesday showed that Britain’s GDP grew by 1.8 per cent in May after April’s 20.4-per-cent drop. Economists had been looking for a May rebound of more than 5 per cent.

Germany’s DAX fell 1.30 per cent. France’s CAC 40 lost 1.51 per cent.

In Asia, the Shanghai Composite Index fell 0.83 per cent. Japan’s Nikkei lost 0.87 per cent. Hong Kong’s Hang Seng closed down 1.14 per cent.

Commodities

Crude prices were lower as markets wait for the outcome of an OPEC meeting aimed at determining the future direction of production cuts.

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The day range on Brent is US$41.80 to US$42.38. The range on West Texas Intermediate is US$39.07 to US$39.69.

The Ministerial Monitoring Committee for OPEC and its allies is schedule to meet on Wednesday and is expected to recommend the next level of cuts. The current production caps of 9.7 million barrels a day are set to run through to the end of the month.

Under the existing agreement, OPEC+ is set to reduce those cuts to 7.7 million barrels a day from August through December. OPEC’s secretary general said on Monday that the world’s oil market is now getting closer to balancing as demand recovers.

“While Russia has already indicated it expects to increase production in line with the agreement, there is the possibility that uncertainty around demand as a result of rising coronavirus infections will lead to another extension of the deepest initial phase of cuts,” AxiCorp chief market strategist Stephen Innes said.

Mr. Innes also said oil markets were rattled by news that California was reimposing some restrictions on indoor activities as coronavirus infections continue to rise.

“The Cali lockdown is serving as a stark reminder of the growing COVID-19 laundry list that still lingers,” Mr. Innes said. “But for oil markets, the question is, will OPEC take notice?”

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In other commodities, gold prices slipped as the U.S. dollar strengthened.

Spot gold was down 0.1 per cent at US$1,801.11 per ounce. U.S. gold futures fell 0.6 per cent to US$1,804.

“We are seeing pressure on risk assets given the sentiment and concerns, particularly about China and U.S. relations. But the reversal of dollar weakness is knocking gold around a little at the moment, particularly given that prices are around 9-year highs,” Michael McCarthy, chief strategist at CMC Markets, said.

Currencies

The Canadian dollar pulled back in early going as the U.S. dollar advanced and markets looked for safer holdings.

The day range for the loonie is 73.28 US cents to 73.55 US cents.

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There were no major Canadian economic releases scheduled for Tuesday. The Bank of Canada makes its next policy decision on Wednesday morning.

“If there is a shift away from risk appetite as a driver of short term FX movement then modest losses for the Canadian dollar today might be pinned on weaker crude prices but here too, market participants seem to be looking through the broader improvement in Canadian terms of trade that have emerged since the low point for commodity prices earlier in the spring,” Shaun Osborne, chief FX strategist with Bank of Nova Scotia, said.

On global markets, the U.S. dollar edged higher amid rising tensions between the United States and China.

Markets now face an additional threat from tit-for-tat retaliation between Washington and Beijing over access to U.S. financial markets, civil liberties in Hong Kong and territorial claims in the South China Sea, Reuters reports.

“U.S.-China tensions about the situation in the South China Sea helped U.S. dollar and weighed on cyclical currencies overnight, with the trade weighted dollar remaining firmly in the range of recent weeks,” ING analysts said.

The U.S. dollar index was last up 0.1 per cent at 96.662. The euro was down 0.1 per cent against the dollar at US$1.1331.

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The British pound fell after the economy rebounded in May at a slower pace than expected. The pound was last down 0.3 per cent at US$1.2513.

More company news

JPMorgan Chase & Co reported a more than 50-per-cent drop in second-quarter profit on Tuesday, as the coronavirus pandemic weighed on its lending business and forced the largest U.S. bank to build reserves against a wave of potential defaults. The bank’s net income fell to $4.7-billion, or $1.38 per share, in the quarter ended June 30, compared with $9.65 billion, or $2.82-per share, a year earlier.

Citigroup Inc reported a nearly 73% plunge in quarterly profit on Tuesday as the bank set aside $5.6-billion to brace itself for a potential surge in loan defaults stemming from the coronavirus outbreak. The New York-based bank reported a profit of $1.32 billion, or 50 cents per share, for the second quarter ended June 30, down from $4.8-billion, or $1.95 per share, a year earlier. Revenue rose 5% to $19.77-billion.

Wells Fargo & Co swung to a loss in the second quarter after setting aside $9.5-billion to cover potential loan losses due to the coronavirus pandemic, the bank said on Tuesday. The lender, which has been struggling to recover from a series of misselling scandals, reported a net loss of $2.4-billion, or 66 cents per share, for the quarter ended June 30, compared with a profit of $6.2-billion, or $1.30 per share, in the year-earlier period.

Calfrac Well Services Ltd. is seeking to restructure in a plan that will see its debtholders swap unsecured notes for shares in the company. The company says it has obtained a preliminary interim order under the Canada Business Corporations Act as part of its plan. Calfrac noted that all trade debt and obligations of the company to employees, customers, suppliers and service providers will be unaffected.

Delta Air Lines warned on Tuesday it will be more than two years before the industry sees a sustainable recovery from the “staggering” impact of the coronavirus pandemic, with demand largely tracking the curve of infections in different places. “We’re at a stall right now,” CEO Ed Bastian told Reuters, saying demand that built up over June for travel to places like Las Vegas, Florida or New York had suffered due to fresh cases and quarantines, while picking up to some mountain and international destinations. Delta posted a $2.8-billion adjusted net loss, or $4.43 per share, for the second quarter ended June 30 as passenger revenues plummeted 94 per cent.

Alphabet Inc’s Google has offered not to use health data of fitness tracker company Fitbit to help it target ads in an attempt to address EU antitrust concerns about its proposed $2.1-billion acquisition, the U.S. tech company said late on Monday. The bid, announced in November last year, would help Google take on market leader Apple and Samsung in the fitness-tracking and smart-watch market, alongside others including Huawei and Xiaomi.

Economic news

(8:30 a.m. ET) U.S. consumer price index for June. Consensus is an increase of 0.5 per cent from May and up 0.6 per cent year-over-year.

With Reuters and the Canadian Press

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