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Inside the Market Before the Bell: What every Canadian investor needs to know today

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U.S and Canadian stock futures are pointing to a strong opening Tuesday after the U.S. reached a tentative deal to avoid another government shutdown and investors were optimistic about a fresh set of U.S.-China trade talks.

“We have had two bits of relatively good news overnight - optimism about the U.S. shutdown not resuming and optimism about a trade deal,” said Societe Generale strategist Kit Juckes.

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“Equities are higher, bond yields are a little bit higher, yen and Swiss franc weakest overnight of the major currencies so it’s sort of risk-on rules OK!”

Juckes said he reckoned there was now a 75-per-cent chance that a ratcheting up of U.S. tariffs on Chinese goods at the start of March will be avoided and a 95-per-cent chance that another U.S. government shutdown will be dodged.

Those odds got a boost on Monday after U.S. lawmakers reached a tentative deal on border security funding, though aides cautioned that it did not contain the US$5.7-billion President Donald Trump wants to build a wall on the Mexican border.

U.S. and Chinese officials expressed hopes the new round of talks, which began in Beijing on Monday, would bring them closer to easing their months-long trade war.

Beijing and Washington are trying to hammer out a deal before a March 1 deadline, without which U.S. tariffs on $200-billion worth of Chinese imports are scheduled to increase to 25 per cent from 10 per cent.

“There will be no winner in a trade war. So at some point they will likely strike a deal,” said Mutsumi Kagawa, chief global strategist at Rakuten Securities in Tokyo.

In Toronto, stock futures pointed to a strong open as both oil and gold prices rose and investors prepared for a slew of earnings reports. On Monday, both the TSX and Dow closed lower. The TSX was weighed down by weak gold prices and the ongoing controversy over SNC-Lavalin.

Overseas, global shares gained on the positive notes coming out of Washington. Tokyo’s Nikkei set the tone with its best day of the year so far, it was up 2.6 per cent, and Europe wasted little time in trying to lift the STOXX 600 back to the two-month high it set last week.

China’s Shanghai index jumped 0.7 per cent and Hong Kong’s Hang Seng rose 0.1 per cent.

Germany’s DAX jumped more than 1.2 per cent, after rising 1 per cent on Monday, and France’s CAC rose 1.2 per cent, while London’s FTSE approached a four-month peak despite ongoing Brexit uncertainty and was up 0.4 per cent.

Commodities

Oil prices gained nearly 2 per cent on Tuesday, supported by OPEC-led production cuts which Saudi Arabia said it would surpass by over half a million barrels per day (bpd) and by U.S. sanctions against Iran and Venezuela.

Brent crude futures were up US$1.17 or 1.9 per cent at US$62.68 a barrel. U.S. West Texas Intermediate (WTI) crude oil futures rose 89 cents or 1.7 per cent to US$53.30.

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Markets are tightening because of voluntary production cuts, effective since Jan. 1, led by the Organization of the Petroleum Exporting Countries and allies including Russia aimed at forestalling a global glut.

Saudi Arabia, the world’s top oil exporter and de facto leader of OPEC, said it would reduce crude production to around 9.8 million bpd in March, over half a million bpd more than it originally pledged.

Gold rose on Tuesday’s slight pause in the dollar’s rally as the United States and China continue talks aimed at ending their trade conflict.

Spot gold was up 0.3 per cent at US$1,312.45 an ounce after falling 0.4 per cent in the previous session. U.S. gold futures gained 0.4 per cent to US$1,316.70.

“The sentiment this morning is a little more constructive towards the deal,” said ING analyst Warren Patterson.

“The (gold) price direction really hinges on how these trade talks play out. A positive outcome at trade talks could weigh on the dollar and that is constructive for gold prices.”

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Among other metals, palladium was up 0.2 per cent at US$1,388.84 an ounce while silver gained 0.6 per cent to US$15.80. Platinum firmed 0.4 per cent to US$784.50 an ounce, having touched its lowest since Jan. 2 at US$779.50 in the previous session.

Currencies and bonds

The Canadian dollar rose Tuesday above the 75.4 cent level as gold and oil prices gained.

“Resistance stands at $1.3329 (75.02 cents US), followed by $1.3375 (74.76 cents US) and $1.3437 (74.42 cents US). Meanwhile, the initial support zone stands at $1.3138/$1.3142 (76.11/76.09), followed by the key support trend line at $1.3079 (76.45 cents US),” said Adam Cole with RBC Capital Markets, in a note.

The U.S. dollar was on track for its longest winning streak in two years on Tuesday.

At the end of 2018, the dollar was the consensus short trade among hedge funds, as traders bet the U.S. Federal Reserve would pause in its rate increases and other major economies would grow quickly. But while the Fed held interest rates steady last month, the case for buying the euro and the pound has weakened steadily. Economic data in Europe have deteriorated and Brexit concerns have dogged the British pound.

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“It is remarkable for the dollar to post this kind of rising streak after a dovish Fed last month, and it shows how cautious investors are becoming over the outlook of the global economy,” said Lee Hardman, a currency strategist at MUFG in London.

The dollar has gained for nine consecutive sessions, its longest series of gains since February 2017, according to Refinitiv data. It was a touch higher at 97.063 on Tuesday.

On Jan. 30, the Fed said it would be “patient” before raising rates again and signalled its balance sheet would remain larger than previously expected.

The 10-year Treasury yield was up slightly at 2.688 per cent. The 10-year Canadian bond yield was at 1.936 per cent.

Stocks to watch

Prime Minister Justin Trudeau conceded on Monday that he discussed the prosecution of SNC-Lavalin last fall with then-justice minister and attorney-general Jody Wilson-Raybould but provided few details – citing cabinet confidentiality. Speaking at a Vancouver news conference, Mr. Trudeau recounted a conversation with the minister in the fall of 2018 in which he said to her that she alone would determine how to proceed in cases handled by the Public Prosecution Service of Canada.

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Dissident Tim Hortons franchisees are preparing to settle their long-running disputes with Canada’s biggest coffee chain for far less than their original demands. Tim Hortons came to a tentative, non-binding settlement last week with some of its unhappy franchisees over two lawsuits they had launched. However, some franchisees view the proposed settlement as a setback for the restaurant owners who had formed the Great White North Franchisee Association in 2017 to fight what they said were attempts by parent company Restaurant Brands International Inc. (RBI) to shift costs to franchisees, industry observers said. This came as RBI reported a drop in its fourth-quarter profit despite improved sales, mostly because of one-time items and accounting changes. Still, Tim Hortons enjoyed signs of a sales recovery at existing restaurants, posting a 2.2-per-cent increase in that important metric in its fourth quarter in Canada – the highest of the past 10 quarters, said Daniel Schwartz, executive chairman and former chief executive of RBI.

Shopify Inc.’s loss narrowed in the fourth quarter, the online store builder said on Tuesday, as it signed up more businesses and earned higher payment processing fees. The Canadian company, which helps businesses set up online stores and payments systems, said net loss narrowed to $1.5-million or 1 cent per share in the three months ended Dec. 31, from about $3-million or 3 cents per share a year earlier. Revenue overall rose to $343.9-million from $222.8-million.

Aurora Cannabis Inc.’s revenue surged as the company sold a record amount of cannabis in a quarter, but the pot producer’s selling price fell sharply as it entered the competitive recreational market. Aurora touted overall quarterly sales of $54.2-million, up 83 per cent from the prior quarter, $21-million of which came from in recreational sales.

Earnings include: Activision Blizzard Inc.; Belo Sun Mining Corp.; Clarke Inc.; DHX Media Ltd.; Fidelity National Information Services Inc.; International Petroleum Corp.; Killam Apartment REIT; Mainstreet Equity Corp.; Morguard North American Residential; Occidental Petroleum Corp.; RioCan REIT; Shopify Inc.; Supreme Cannabis Company Inc.; Taseko Mines Ltd.; West Fraser Timber Co. Ltd.; Western Forest Products Inc.

Economic news

(8:30 a.m. ET) U.S. producer price index (benchmark revisions)

(10 a.m. ET) U.S. Job Openings & Labor Survey (JOLTS) for December.

(12:45 p.m. ET) U.S. Fed Chair Jerome Powell speaks on economic development in high poverty rural areas

With files from Reuters

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