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Equities
Canada’s main stock index saw a tepid start Monday as lower gold prices weighed on material stocks while stronger crude prices lifted energy shares. Wall Street’s main indexes also posted a mixed opening with bond yields continuing to pressure tech shares.
At 9:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 2.09 points, or 0.01 per cent, at 18,383.05.
In the U.S., the Nasdaq Composite dropped 15.9 points, or 0.12 per cent to 12904.264 at the opening bell. The Dow Jones Industrial Average rose 15.9 points, or 0.05 per cent, to 31512.15, while S&P 500 rose 2.4 points, or 0.06 per cent, at the open to 3844.39.
“Higher Treasury yields are tempering optimism over President Joe Biden’s $1.9-trillion pandemic relief plan and the economic growth outlook,” Axi chief market strategist Stephen Innes said in a note.
“But honestly, the last thing anyone wants in a recovering global economy is higher oil prices, and we are likely nearing a point when higher oil prices become a negative rather than a positive influence over risk assets,” he said.
Early Monday, Brent crude prices briefly topped US$71 a barrel and West Texas Intermediate managed a two-year high in the wake of reports of reports of attacks on Saudi Arabian facilities. Meanwhile, the yield on the U.S. 10-year Treasury was up at 1.608 per cent in the predawn period.
“The biggest concern appears to be around inflationary pressures, which have shown signs of accelerating quite sharply, with Brent crude prices closing the week back above $70 a barrel, its highest level in 13 months,” CMC Markets chief market analyst Michael Hewson said.
In this country, investors turn their attention to the midweek policy decision from the Bank of Canada.
The Globe’s Mark Rendell writes that the central bank will be walking a tight rope when communicating its rate decision this week, as rising bond yields and strong economic data have put its downbeat forecast at odds with brightening market expectations for a postpandemic recovery.
Few expect a policy change with the bank clearly signalling its intention to keep rates low as the economy recovers from the impact of the COVID-19 pandemic. However, the bank faces a communication challenge in addressing recent better-than-expected economic data in recent weeks.
“Notwithstanding recent developments, we think the stance of policy at next week’s meeting should look and feel pretty similar to the January meeting and, more recently, Tiff Macklem’s speech last week,” National Bank economists Taylor Schleich and Warren Lovely said in a recent report.
“We continue to expect the Bank will step down its pace of QE at the April meeting. We’ll have two jobs reports between now and then, a federal budget laid out and overall better clarity of the recovery.”
Overseas, major European markets were mostly higher with the pan-European STOXX 600 up 0.60 per cent. Britain’s FTSE 100 slipped 0.14 per cent. France’s CAC 40 gained 0.53 per cent.
In Asia, Japan’s Nikkei finished down 0.42 per cent. Hong Kong’s Hang Seng fell 1.92 per cent.
Commodities
Crude prices traded near recent highs, with Brent crude briefly topping US$71 a barrel, after reports of attacks on facilities in Saudi Arabia.
The day range on Brent is US$69.22 to US$71.38. The range on West Texas Intermediate is US$66.03 to US$67.98.
Reuters reports that Yemen’s Houthi forces fired drones and missiles at the heart of Saudi Arabia’s oil industry on Sunday, including a Saudi Aramco facility at Ras Tanura vital to petroleum exports, in what Riyadh called a failed assault on global energy security.
Monday’s gains also came after OPEC and its allies agreed last week to leave current production caps in place, citing the fragile nature of the recovery as the global economy rebounds from the impact of the pandemic.
“While rising crude prices do highlight a growing optimism over demand levels, this continued ascent in energy prices does elevate inflation expectations going forward,” IG senior market analyst Joshua Mahony said.
“Inflation is going to be a key determinant of central bank expectations, and Jerome Powell has admitted that the bank has to act if prices get out of control. With OPEC deciding against a production hike, there is clearly a desire to continue driving prices higher as we move towards the one-year anniversary of the historic 2020 April crude collapse.”
Meanwhile, gold prices slid in early going as the U.S. dollar firmed alongside rising bond yields.
Spot gold fell 0.6 per cent to US$1,690.01 per ounce by 0958 GMT, after hitting its lowest since June 8 at US$1,686.40 on Friday. U.S. gold futures declined 0.7 per cent to US$1,686.80.
“Gold remains on life support, though, and if U.S. dollar strength continues, a fall to US$1,600 an ounce is entirely possible later in the week,” OANDA senior analyst Jeffrey Halley said.
“Gold needs to recapture the US$1,760 an ounce region to suggest that the worst is over.”
Currencies
The Canadian dollar was down, sliding alongside weaker risk sentiment, as its U.S. counterpart managed its best level in more than three months with rising Treasury yields hitting equity markets.
The day range on the loonie is 78.74 US cents to 79.21 US cents.
There were no major Canadian economic releases due Monday. Investors will be awaiting the Bank of Canada’s policy decision on Wednesday. No move on rates is expected, but markets will be watching for hints about how the central bank views recent better-than-expected economic reports.
“The BoC is very likely to acknowledge stronger growth in Q4 and January, though it may temper this given continued concerns about labour market scarring,” Alvin Tan, Asia FX strategist with Royal Bank, said.
“Improved vaccine distribution of late is likely to reinforce the BoC’s (and our own) expectation for accelerating growth through 2021. Overall, we expect that the BoC will have the confidence to announce a taper to its bond purchases at the April meeting.”
On global markets, the U.S. dollar index stood at 92.186 against a basket of six major currencies, up 0.3 per cent and just shy of a late-November high of 92.201 set on Friday, according to figures from Reuters.
The Australian dollar rose 0.2 per cent to US$0.7696, but was well off its session high of US$0.77230. The New Zealand dollar was down about 0.1 per cent after earlier rising 0.4 per cent to US$0.719.
The U.S. dollar held near a one-month high against the British pound, at US$1.3819.
More company news
Private equity firm Apollo Global Management said on Monday it had agreed to buy Athene Holding in an all-stock deal valuing the retirement services company at about $11-billion. Under the terms of the deal, each outstanding class A common share of Athene will be exchanged for 1.149 shares of Apollo common stock.
The aircraft leasing industry is on the brink of its biggest shake-up in almost a decade as top two players AerCap and General Electric’s GECAS discuss a deal to forge an industry titan with over 2,000 jets, financial sources told Reuters on Monday. Negotiations for a tie-up follow years of speculation over the sale of GECAS and come as COVID-19 is expected to shift more of the world’s fleet into the arms of the leasing industry, which already holds around half of Airbus and Boeing deliveries. The Wall Street Journal, which first reported the possible deal, valued it at $30 billion and said an announcement could come as early as Monday barring a last-minute hitch.
Deliveroo announced plans to launch what could be the biggest London listing in more than seven years on Monday, after the British food delivery firm’s business surged during the COVID-19 pandemic, although it still posted a loss for 2020. The initial public offering (IPO) is expected to value Deliveroo at more than $7-billion, based on a $180-million private funding round completed in January with backers including minority shareholder Amazon, the world’s most valuable company.
American Airlines Group Inc said on Monday it intends to privately offer notes worth about $5 billion to pay down government debt. The U.S. airline, which has been hard hit by the COVID-19 pandemic, would also enter into a $2.5 billion term loan credit facility backed in part by its loyalty program AAdvantage.
Economic news
(10 a.m. ET) U.S. Wholesale trade for January
With Reuters and The Canadian Press
Terry Weber