Equities
Wall Street futures rose early Wednesday after U.S. President Donald Trump indicated trade talks with China are continuing and that he won’t raise tariffs ahead of an agreement. World markets stabilized on the news even as British Prime Minister Theresa May faces a no-confidence vote over her Brexit deal. On Bay Street, futures were positive with oil prices advancing on a decline in U.S. crude inventories.
Ahead of the opening bell, Dow futures were up by triple digits. In an interview with Reuters, Mr. Trump said talks with China are taking place by phone and that tariffs on Chinese imports won’t be raised until he’s sure about a deal. He also suggested he could intervene in the U.S. Justice Department’s case against Huawei Technologies chief financial officer if it would serve national security interests or help strike a trade agreement. Huawei CFO Meng Wanzhou was released after 10-days in jail in Vancouver on $10-million bail. She also must remain in the Vancouver area under around-the-clock surveillance.
MSCI’s all-country index rose 0.5 per cent with European markets opening higher and Asia finishing on a positive note.
Overseas, the British pound was off 20-month lows after Ms. May said she would fight a challenge to her leadership with “everything I’ve got.” Ms. May faces a confidence vote later Wednesday. She could be forced out if 158 of 315 lawmakers vote against her. Ms. May argued that a new leader wouldn’t be able to renegotiate a withdrawal from Brexit and get legislation through Parliament by March 29, meaning a delay or even stop to the exit process. (Just over an hour before the open, Reuters reported than 158 Conservatives have publicly indicated their support for Ms. May.)
“From an investors standpoint this is hugely undesirable, if only due to the level of uncertainty it creates around the negotiations, not to mention the future relationship and the economy post-March 29th,” OANDA analyst Craig Erlam said. “The pound is holding up surprisingly well in the midst of all of this, despite flirting below US$1.25 overnight. A defeat for May could see this temporary support break in spectacular fashion as the prospect of no-deal Brexit rises.”
In corporate news, some of Canada’s biggest retailers and bread makers are in court on Wednesday asking for a delay to a class-action lawsuit that claims they overcharged consumers by an estimated $5-billion by fixing the price of bread. The Globe’s Marina Strauss reports that the price-fixing scandal surfaced about a year ago after grocer Loblaw Cos. Ltd. and its parent George Weston Ltd., which owns bread maker Weston Foods, disclosed they had struck a deal with the federal Competition Bureau to avoid criminal charges for their role in the alleged conspiracy to fix bread prices between 2001 and 2015. Wednesday’s request for a delay is being opposed by two consumers who are trying to launch the class-action on behalf of Canadian consumers.
On Wall Street, China-based music streaming company Tencent Music Entertainment Group says it raised nearly US$1.1-billion in its U.S. initial public offering after it priced its shares at the low end of the target range. Tencent priced its American Depositary Receipts (ADRs) at US$13 per share, at the low end of its indicated US$13 to US$15 per share range, it said in a filing with the Hong Kong stock exchange. The IPO values Tencent at US$21.3-billion. The company is set to begin trading Wednesday on the New York Stock Exchange under the symbol TME.
In Europe, markets rose on the latest trade news, with the pan-European STOXX 600 advancing 0.94 per cent with trade-sensitive resource stocks among the top performers. Britain’s FTSE was up 1.12 per cent with the country’s leadership now in focus. News of Wednesday’s no-confidence post initially sideswiped the British pound although the currency regained some of its footing after Ms. May vowed to fight to stay on. Germany’s DAX rose 0.97 per cent and France’s CAC 40 gained 1.60 per cent.
In Asia, easing trade tensions between the United States and China helped bolster markets, with Japan’s closing up 2.15 per cent helped by reports that China was moving to reduce tariffs on U.S. auto imports. Hong Kong’s Hang Seng gained 1.61 per cent. The Shanghai Composite Index finished 0.31 per cent higher.
Commodities
Crude prices continued advance on a drop in U.S. inventories and the impact of a cut to OPEC-member Libya’s exports. Heading into the North American open, Brent crude was up more than 1 per cent with a day range of US$60.46 to US$61.43. West Texas Intermediate was also higher and had a range of US$51.91 to US$52.80 for the day.
Sentiment got a boost from figures released late Tuesday by the American Petroleum Institute showing that U.S. crude stocks fell by 10.2 million barrels last week. The decline was more than analysts had been expecting. The U.S. Energy Information Administration releases its weekly inventory figures later Wednesday morning.
Libya’s move to declare force majeure on exports from its biggest oilfield on the weekend after the facility was seized by a militia group also helped support prices.
“Also, there was revived optimism that the OPEC cuts could rebalance markets when traders started digesting how OPEC supply cuts would be implemented after Saudi Arabia said is planning to slash out output to around 10.2 million barrels down 900,000 per day from November while Russia confirmed their commitment to at least 50,000 barrels per day reduction,” OANDA analyst Stephen Innes said. “...While the Russia number is hardly eye-popping, I guess on that front; something is better than nothing.”
Gold prices, meanwhile, edged higher despite a firmer U.S. dollar and rallying stock markets. Spot gold was up 0.1 per cent at US$1,244.51 per ounce by midmorning in Europe, while U.S. gold futures rose 0.2 per cent to US$1,249.90 per ounce.
“The fact that we are seeing some risk coming back to the market: the stocks are climbing, the dollar is up and the yen is weaker, does remove some of the demand in gold. But overall, it’s holding relatively well but is missing a spark to move higher,” Saxo Bank analyst Ole Hansen told Reuters.
Currencies and bonds
The Canadian dollar edged higher while its U.S. counterpart marked its third day of gains buoyed by rising U.S. bond yields ahead of next week’s Federal Reserve decision on interest rates. Ahead of the open, the loonie was slightly firmer sitting not far off the top of the day range of 74.64 US cents to 74.80 cents. Rising crude prices have helped underpin the loonie although a lack of major Canadian economic reports on Wednesday suggests that the currency will be at the mercy of the broader markets.
“WTI oil prices are up nearly 2 per cent to US$52.6, underpinning the loonie at $1.338 (74.74 US cents),” BMO senior economist Sal Guatieri said. “Canadian oil prices have snapped back with gusto, with Western Canadian Select at around $41 a barrel, and now less than $12 below WTI compared with a longer-term normal spread of around $17.”
On world currency markets, the U.S. dollar index was up 0.2 per cent at 97.41 drawing support from easing trade tensions and interest rate differentials.
Britain’s pound, meanwhile, dropped below US$1.25 on news of the confidence vote but later found some support in Ms. May’s vow to fight for her position.
“Still, the soap opera that is Brexit goes on and it seems with every passing day the chaos is being ramped up a notch which is starting to taking its toll on the currency,” Mr. Erlam said in an early note. “The pound dipped below US$1.25 against the dollar on Tuesday for the first time since April last year and in the near term at least – unless May arrives home jubilantly waving a concession on the backstop – it’s tough to build a bullish case or the currency.”
In bonds, the yield on the U.S. 10-year note was higher at 2.886 per cent. The yield on the 30-year note was also modestly higher at 3.139 per cent.
Stocks set to see action
Canadian cannabis company Aphria Inc. said Wednesday it has entered into a supply deal with Paraguayan pharmaceutical company Insumos Medicos S.A. After the deal closes, Paraguay will be the third market in Latin America after Argentina and Colombia where Aphria products are distributed.
Bausch Health Companies Inc.- formerly Valeant - said it has struck a deal to buy certain assets of Synergy Pharmaceuticals Inc. for about $200-million. Synergy is a biopharmaceutical company focused on the development and commercialization of gastrointestinal therapies. Synergy shares were up 12 per cent in premarket trading.
Johnson & Johnson said on Wednesday its drug Tremfya was more effective than a rival medicine from Novartis AG, and met the main goal of a late-stage study in adults with moderate to severe plaque psoriasis. The study involving 1,048 participants showed Tremfya was superior to Novartis’ Cosentyx in reducing the severity and area of the body affected by the condition, which causes dry, flaky and itchy skin patches, J&J said. J&J shares were up slightly in premarket trading.
Shares of Lululemon Athletica rose more than 2 per cent in premarket trading after Citigroup raised it to ‘buy’ from ‘hold'.
More reading:
Wednesday’s small-cap stocks to watch
Wednesday’s analyst upgrades and downgrades
Economic news
Statistics Canada says this country’s industries operated at 82.6 per cent of their capacity in the third quarter, down from 84.1 per cent in the previous quarter. The decline follows five straight quarterly increases.
The U.S. consumer price index rose at an annual rate of 2.2 per cent in November, matching market forecasts.
With Reuters and The Canadian Press
Terry Weber