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Canada’s main stock index rose at the open Tuesday as crude prices recouped some of the previous session’s declines and Canadians woke up to a Liberal minority government. On Wall Street, key indexes rebounded following yesterday’s deep rout with investors nervously watching developments with China’s Evergrande and awaiting the midweek policy announcement from the Federal Reserve.
At 9:31 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 140.24 points, or 0.7 per cent, at 20,294.78.
In the U.S., the Dow Jones Industrial Average rose 55.14 points, or 0.16 per cent, at the open to 34,025.61.
The S&P 500 opened higher by 16.72 points, or 0.38 per cent, at 4,374.45. The Nasdaq Composite gained 89.46 points, or 0.61 per cent, to 14,803.36 at the opening bell.
“I would remain cautious in the present climate...and markets are probably just one headline away from an abrupt about face which will see investors hitting the sell button again,” OANDA senior analyst Jeffrey Halley said in an early note.
“We can expect more of the same intra-day volatility throughout the rest of the week until Evergrande’s Thursday payment date.”
A number of factors hit markets this week, led concern over the possible default by debt-laden Chinese property giant Evergrande. Evergrande has been trying to raise funds to pay its lenders, suppliers and investors, with regulators cautioning that its US$305-billion of liabilities could spark broader risks to the financial system if not stabilized.
On Tuesday, Evergrande Chairman Hui Ka Yuan said in a letter to staff the company is confident it will “walk out of its darkest moment” and deliver property projects as pledged. Investors are concerned a failure by Evergrande could reverberate through China’s property market and sectors connected to it.
As well, markets are nervously watching the Federal Reserve, which delivers its policy statement on Wednesday afternoon. Economists are expecting the central bank to layout a roadmap for tapering its massive bond-buying program.
In this country, Canadians awoke to another Liberal minority government following Monday’s federal election. Early Tuesday morning, the Liberals were leading or elected in 158 seats, the Conservatives were at 119, the Bloc Québécois at 34 and the NDP at 25. The Green Party was at two seats.
The election marks the third straight win for Justin Trudeau’s Liberals, although the party returns to Ottawa short of the majority they had sought after calling a snap election last month.
“So what changes post-election?” Elsa Lignos, RBC’s global head of FX strategy, said.
“Pre-election promises have focused more on tax increases and cutting emissions so Canada is expected to see more left-leaning policies, but bottom line is the next Parliament will largely be an extension of the previous one.”
On the corporate side, U.S. investors will get earnings from FedEx after the close of trading. Analysts are expecting sales to fall to US$21.9-billion in the most recent quarter from US$22.6-billion in the same period a year earlier.
Overseas, major European markets stabilized after Monday’s sharp losses. The pan-European STOXX 600 was up 1.02 per cent by midday. Britain’s FTSE 100 rose 1.2 per cent. Germany’s DAX and France’s CAC 40 advanced 1.45 per cent and 1.21 per cent, respectively.
In Asia, Japan’s Nikkei fell 2.17 per cent, playing catch up after being closed for a public holiday on Monday. Hong Kong’s Hang Seng gained 0.51 per cent. Markets in China remain closed for a public holiday.
Crude prices rose in early going with signs of tight supply in the U.S. helping steady investors’ nerves and offset concern about the potential impact faltering Evergrande could have on China’s economy.
The day range on Brent is US$74.20 to US$75.18. The range on West Texas Intermediate is US$70.59 to US$71.63. Brent fell nearly 2 per cent on Monday, while WTI slid about 2.3 per cent.
“Although prices have recovered in Asia, I suspect that short-term sentiment remains fragile as it is elsewhere and is vulnerable to headline driven moves,” OANDA’s Jeffrey Halley said.
“A series of lower daily highs on both contracts suggests that we could still see more downside pressure ahead of China returning tomorrow [markets have been closed this week for a public holiday], and with it, hopefully more clarity surrounding its intentions for Evergrande.”
In other commodities, gold prices were steady, helped by a tamer U.S. dollar.
Spot gold was little changed at US$1,764.46 per ounce, while U.S. gold futures were up 0.1 per cent to US$1,765.00 per ounce.
“The big question that needs to be answered is will the current market uncertainty change any prospective timeline that the Fed might have when it comes to announcing its tapering of asset purchases,” Michael Hewson, chief market analyst at CMC Markets UK, said.
“That more than anything is likely to put further downward pressure on gold.”
The Canadian dollar rose as risk sentiment steadied and crude prices advanced while its U.S. counterpart pulled back from a one-month high against a basket of world currencies.
The day range on the loonie is 77.96 US cents to 78.49 US cents.
There were no major Canadian economic releases due Tuesday and the return of a Liberal minority government to power was seen by most economists as having little impact on the loonie.
“We doubt the election has any long run significance for the CAD at this point,” Shaun Osborne, chief FX strategist with Scotiabank, said. “CAD positives remain in the form of relatively wide and CAD-supportive short-term spreads and the rebound in commodities but investors will want to see how these trends develop beyond the FOMC [Federal Open Market Committee] before embracing the CAD more fully.”
On world markets, the U.S. dollar index steadied at 93.190 after reaching its highest since Aug. 23 at 93.45 in the previous session.
The safe-haven Swiss franc edged higher to 1.0869 per euro, but was still near Monday’s peak of 1.08750, according to figures from Reuters.
The Australian dollar rallied 0.4 per cent to US$0.7278, rebounding with oil prices after sliding to US$0.72205 in the previous session for the first time since Aug. 24.
In cryptocurrencies, bitcoin steady around US$43,000 on Tuesday after earlier touching US$40,192.90 for the first time since Aug. 6.
More company news
Teck Resources Ltd cut its forecast for annual refined zinc production on Tuesday, citing an impact on its operations from wildfires in British Columbia. The company projected refined zinc production for 2021 to be in the range of 285,000 tonnes to 290,000 tonnes, down from a previous estimate of 290,000 tonnes to 300,000 tonnes. Teck’s Trail Operations, located in British Columbia, were temporarily shut in August for about ten days due to poor ambient air quality resulting from wildfires.
Universal Music Group’s shares leapt more than a third in their stock market debut on Tuesday as investors bet a boom in music streaming still has a long way to run. The world’s biggest music label, which represents musicians and song catalogues from Billie Eilish to The Rolling Stones and Bob Dylan, saw its market value leap to 47 billion euros (US$55-billion) in Europe’s largest listing of the year. The company was spun off by France’s Vivendi, which handed a 60% stake in Universal to its shareholders.
Uber Inc expects to record breakeven in a key measure of profitability in the current quarter, its chief financial officer said. “With positive adjusted EBITDA in July and August, we believe Uber is now tracking towards adjusted EBITDA breakeven in Q3, well ahead of our prior guidance,” said CFO Nelson Chai. Shares were up 7 per cent in morning trading in New York.
Johnson & Johnson said Tuesday a second shot of its COVID-19 vaccine given about two months after the first increased its effectiveness to 94% in the United States against moderate to severe forms of the disease. That compares to 70% protection with a single dose.
Royal Dutch Shell said on Monday it would sell its Permian Basin assets to ConocoPhillips for $9.5-billion in cash, an exit from the largest U.S. oilfield for the energy major shifting its focus to the clean energy transition. For ConocoPhillips, it is the second sizable acquisition in a year in the heart of the U.S. shale industry, as American and European producers diverge in whether to focus on hydrocarbons going forward.
(830 am ET) U.S. housing starts for August.
(830 am ET) U.S. current account deficit.
With Reuters and The Canadian Press