Equities
U.S. stock futures recovered from early losses Tuesday morning as investors appeared to take the latest volley in the continuing trade battle between the United States and China in stride. Wall Street futures were lower in the early hours but as the North American open approached recovered the lost ground to point to a modestly higher start to the day. Markets in Europe and Asia were also higher overnight. On Bay Street, futures were higher as oil prices gained.
On Monday, U.S. President Donald Trump said he would impose 10 per cent tariffs on about US$200-billion in Chinese imports and threatened more if China retaliates. The tariffs are set to take effect later this month. In response, China said it had no choice but to strike back, but offered no details of its plans.
“The tariffs have been talked about for some time now and it was only a matter of time until the announcement came so there was no reason to expect too much of a response, unless either the final number was higher or the list included unexpected items that investors deemed damaging,” OANDA analyst Craig Erlam said. “Not only did neither of these happen, but some expected items were not included on the list and the tariff will only be 10 per cent, rising to 25 per cent at the end of the year if negotiations don’t move forward, a minor positive.”
Tech shares drew some solace from reports that the final list of products affected by the tariffs didn’t include items like Apple Watches and Fitbit activity trackers.
In corporate news, FedEx Corp. shares are down nearly 3 per cent in premarket trading after the delivery company reported quarterly results short of Wall Street forecasts. Net profit rose 40 per cent to US$835-million, or US$3.10 a share. Profit excluding items came in at US$3.46 per share. Analysts had been looking for earnings by that measure of about US$3.81 a share. Revenue rose almost 12 per cent to US$17.1-billion, slightly exceeding forecasts. FedEx and competitor United Parcel Service are viewed as bellwethers for the U.S. economy and global trade.
On Bay Street, cannabis stocks will likely continue to garner some attention after Coca-Cola said Monday it was “closely watching” the cannabis drinks market and a Bloomberg report suggested the soft drink giant held talks with Canada’s Aurora Cannabis Inc. Shares of Canadian Aurora finished up nearly 17 per cent on Monday and U.S. listed shares of other Canadian cannabis companies continued to gain in premarket trading early Tuesday. U.S.-listed shares of Tilray Inc. were up 5.3 per cent in premarket trading. That company said early Tuesday that it had received approval from the U.S. Drug Enforcement Agency to export a medical cannabis product to the U.S. for use in a clinical trial. Canopy Growth’s U.S.-listed shares were also up 1.4 per cent ahead of the North American open. (Shares of Aurora Cannabis were halted just ahead of Tuesday’s open pending news.)
In earnings, results are due from General Mills Inc. and AutoZone Inc.
Overseas, European stocks started out lower but pushed past break even in morning trading. The pan-European STOXX 600 was up 0.08 per cent. Britain’s FTSE 100 rose 0.18 per cent. France’s CAC 40 gained 0.26 per cent. Germany’s DAX was also up by 0.26 per cent in late morning trading in Europe.
Asian markets also gained despite the latest trade news. After being closed Monday for a public holiday, Japan’s Nikkei finished Tuesday up 1.41 per cent. Hong Kong’s Hang Seng rose 0.56 per cent. The Shanghai Composite Index rose 1.82 per cent.
Commodities
Oil prices rose in early going on reports that Saudi Arabia has indicated it is comfortable with Brent crude above US$80 a barrel. Brent and West Texas Intermediate were up by more than 1 per cent each in predawn trading. Brent has a day range so far of US$77.46 to US$79.37. The range on WTI is US$68.53 to US$69.95.
A Bloomberg report, citing unnamed sources, said that Saudi Arabia in recent meetings has said it doesn’t want to push Brent crude past US$80 a barrel but but recognizes that it may no longer be avoidable. The report comes ahead of a meeting of major producing countries, including Saudi Arabia, later this month in Algeria.
“Oil prices have gone up after Saudi Arabia said it was comfortable with Brent oil above $80 a barrel,” Olivier Jakob of Petromatrix consultancy said.
However, Tuesday’s gains were also capped by concerns about the potential impact of the latest rounds of U.S. tariffs on Chinese imports.
On Tuesday afternoon, markets will also get the latest reading from the American Petroleum Institute on U.S. crude inventories. Last week, the API reported a drop in U.S. crude stocks of 8.6 million barrels. The API figures will be followed Wednesday by more official U.S. government inventory numbers.
In other commodities, gold prices fell as trade concerns weighed. Spot gold fell 0.2 per cent to US$1,198.78 an ounce in morning trading in Europe, after rising 0.6 per cent in the previous session. U.S. gold futures were down 0.2 per cent at US$1,203.10 an ounce.
Silver prices were down 0.3 per cent and platinum prices were down 0.8 per cent. London copper rallied despite the latest trade news with benchmark copper on the London Metal Exchange rising 1.4 per cent.
Currencies and bonds
The Canadian dollar held early gains after a better-than-expected reading on manufacturing sales in July. Following the release of the report, the loonie was trading near the upper end of the day range of 76.54 US cents to 76.84 US cents. News that Foreign Affairs Minister Chrystia Freeland would return to Washington this week to continue NAFTA talks also helped underpin the loonie.
“NAFTA talks will resume this week – but despite the optimism in some quarters, Trudeau sounds cautious,” Elsa Lignos, RBC global head of FX strategy, said in a note. “He says talks are not yet at a ‘decision point’ adding ‘there were points in the spring where we thought we were perhaps days or weeks away; turned out not to be the case.’”
She says RBC has been arguing that a deal by Sept. 30 is not the near certainty some thing, although Canadian dollar losses would be capped if “we avoid the worst-case scenario of more aggressive auto tariffs.”
On the data front, Statistics Canada said July factory sales rose by 0.9 per cent, with gains being seen in 11 of 21 sectors. The markets had been expecting an increase of 0.6 per cent. July marked the third straight month of gains for manufacturing sales in this country.
In other currencies, the U.S. dollar index was higher in Asian trading but turned lower and fell 0.2 per cent to 94.35, its lowest level since late July.
“The dollar’s knee-jerk reaction has subsided somewhat as some equity markets are managing to rise despite the trade news. It appears that a consensus had already been formed beforehand on what the trade announcement would be,” Shusuke Yamada, currency and equity strategist at Bank of America Merrill Lynch in Tokyo, told Reuters.
In bonds, the yield on the U.S. 10-year note was little changed at 3.001 per cent. The yield on the 30-year note was a touch higher at 3.145 per cent.
Stocks set to see action
General Mills Inc’s quarterly profit fell 3 per cent, as the maker of Cheerios cereal battles rising freight and commodity costs. Net income attributable to the company fell to US$392.3-million, or 65 US cents per share, in the first-quarter ended Aug. 26, from US$404.7-million, or 69 US cents, a year earlier. Shares were lower ahead of the open.
Alphabet’s Google is teaming up with Renault-Nissan-Mitsubishi to add the internet giant’s Android mobile operating system to the auto alliance’s dashboard media systems, The Associated Press reports. Renault-Nissan-Mitsubishi said Tuesday that it’s entering into a technology partnership with Google to embed Android-based next-generation infotainment systems into millions of cars starting in 2021. The deal means drivers will be able to access Google’s Maps navigation software, its voice-operated Assistant or others apps through the Google Play store without needing their phones.
Enbridge has announced a definitive agreement to acquire all public equity of Enbridge Income Fund Holdings Inc. as it moves toward simplifying its corporate structure. The stock-and-cash deal is valued at about $4.7-billion.
Visa Inc., Mastercard Inc, and a number of U.S. banks on Tuesday agreed to pay US$6.2-billion to settle a long-running lawsuit brought by merchants over the fees they pay when they accept card payments. The card issuers named in the U.S. class-action lawsuit include JPMorgan Chase & Co, Citigroup and Bank of America. Mastercard will pay an additional US$108-million from funds set aside in the second quarter, the company said.
Toshiba Corp is in talks with Canada’s Brookfield Asset Management Inc for the potential sale of its UK nuclear unit NuGen, according to a Reuters report citing a source familiar with the matter said on Tuesday. Brookfield has emerged as one of several new candidates since Korea Electric Power Corp (KEPCO) lost its preferred bidder status in July, said the source, who declined to be identified as the talks are private. The talks are reportedly at an early stage.
Health insurer Cigna Corp’s US$52-billion acquisition of pharmacy benefits manager Express Scripts Holding Co has passed U.S. antitrust scrutiny, the companies said on Monday, allowing them to proceed with a combination they say will lead to lower costs by better coordinating pharmacy and medical benefits. Wall Street analysts had expected antitrust approval as the companies have little overlap in their businesses. The decision bodes well for the pending U.S. antitrust review of CVS Health Corp’s proposed US$69-billion acquisition of health insurer Aetna Inc.
More reading:
Tuesday’s small-cap stocks to watch
Canopy no longer the world’s most valuable cannabis company
Economic news
Statistics Canada says July manufacturing shipments rose by 0.9 per cent to $58.6-billion. Overall sales were up in 11 of 21 industries, representing 68 per cent of total factory sales. The market had been looking for a gain of about 0.6 per cent for the month.
(10 a.m. ET) U.S. NAHB Housing Market Index for September. The Street expects a reading of 66, down from 67 in August.
With Reuters, The Canadian Press and The Associated Press
Terry Weber