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Equities
Canada’s main stock index bounced at Tuesday’s open after dropping into correction territory during the previous session amid a global rout. On Wall Street, key indexes also managed gains although sentiment remained fragile as traders anticipate aggressive action by the Federal Reserve on interest rates.
At 9:31 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 92.96 points, or 0.47 per cent, at 19,835.52.
In the U.S., the Dow Jones Industrial Average rose 75.60 points, or 0.25 per cent, at the open to 30,592.34.
The S&P 500 opened higher by 13.89 points, or 0.37 per cent, at 3,763.52, while the Nasdaq Composite gained 88.20 points, or 0.82 per cent, to 10,897.43 at the opening bell.
Traders have been nervously awaiting the Fed’s next policy decision after last week’s hot reading on U.S. inflation in May. Markets have been increasingly betting that that the powerful U.S. central bank will raise rates by 75 basis points in a bid to curb rising price pressures.
“The market now sees 200 basis points in the next three meetings, including the possibility of a 75-basis-point hike this week,” Stephen Innes, managing partner at SPI Asset Management, said.
“The widespread consensus is that equities have yet to bottom out with the second waves of earnings slashes, lower consumer demand and expected slowing global data dotting the horizon. At least the market is coming to terms with the global inflation problem and moving in the right direction by acknowledging it.”
The Fed begins its two-day meeting today and delivers its policy decision at 2 p.m. ET on Wednesday.
In this country, retailer Roots Inc. report a year-over-year sales increase of 15.3 per cent in the latest quarter to $43.1-million, topping market forecasts for revenue of $43.1-million. The per-share first-quarter net loss totalled 13 cents, in line with market expectations.
On the economic side, Statistics Canada released April Canadian factory sales ahead of the open. The agency said factory sales rose 1.7 per cent for the month, roughly in line with early estimates. Sales of petroleum and coal products and motor vehicles led the gains.
Overseas, the pan-European STOXX 600 was off 1.25 per cent in late morning trading. Britain’s FTSE 100 fell 0.81 per cent. Germany’s DAX was off 0.90 per cent while France’s CAC 40 lost 0.87 per cent.
In Asia, Japan’s Nikkei finished down 1.32 per cent. Hong Kong’s Hang Seng was flat.
Commodities
Crude prices were higher in early going with tight supply outweighing worries about a possible recession and the impact of COVID-19 curbs in China on demand.
The day range on Brent is US$123.79 to US$121.63. The range on West Texas Intermediate is US$122.37 to US$120.38.
“The continuing squeeze on refined products globally, as well as a lack of investment to bring online more supplies from OPEC members, or other sources, means lost Russian production is nowhere near being covered by global markets,” OANDA senior analyst Jeffrey Halley said in a note.
“Adding to the noise is news that Libyan production has fallen from 1.1 million barrels per day to just 0.10 million bpd. Not a game-changer in normal times, but with the current situation, it is certainly enough to keep prices elevated.”
Meanwhile, Reuters reports that UBS raised its Brent price forecast to US$130 a barrel for end-September and to US$125 for the subsequent three quarters, up from US$115 previously. The bank cited “low oil inventories, dwindling spare capacity, and the risk of supply growth lagging demand growth” among the reasons.
Later in the day, markets will get the first of two weekly U.S. inventory reports, with fresh numbers from the American Petroleum Institute. More official figures will follow on Wednesday from the U.S. Energy Information Administration. Markets are expecting weekly crude inventories to have fallen by 1.2 million barrels for the week ended June 3.
In other commodities, gold prices edged up from four-week lows.
Spot gold rose 0.3 per cent to US$1,824.21 per ounce by early Tuesday morning, after falling to its lowest since May 19 at US$1,810.90 earlier in the session.
U.S. gold futures fell 0.2 per cent to US$1,827.80.
“Only a sharp US dollar correction lower is likely to alleviate selling pressure on gold,” Mr. Halley said.
Currencies
The Canadian dollar was slightly weaker while its U.S. counterpart held near 20-year highs as markets bet on an aggressive rate move by the Fed.
The day range on the loonie is 77.40 US cents to 77.73 US cents.
“The CAD, along with its commodity peers, continues to underperform, Shaun Osborne, chief FX strategist with Scotibank, said. “Higher volatility is undercutting support for the CAD and the near two big figure jump in the USD since the start of the week and 3.3-per-cent straight line rise in the USD since last Wednesday suggests there is little to do but watch and see where the CAD can settle in this volatile environment.”
On world markets, the U.S. dollar index, which weighs the greenback against a group of world currencies, managed a two-decade high of 105.29 on rising expectations of an outsize rate move by the Fed and was trading just shy of that by early Tuesday morning.
“USD has reversed a small part of yesterday’s gains as bonds and equities have both recovered after closing at the lows yesterday,” RBC chief currency strategist Adam Cole said.
In bonds, the yield on the U.S. 10-year note was down modestly at 3.316 per cent. Rate expectations took the yield as high as 3.44 per cent on Monday.
More company news
Takeover target Spirit Airlines Inc said on Tuesday it was in talks with JetBlue Airways Corp over a US$3.4-billion sweetened offer. The budget carrier said it was also in discussions with Frontier Group Holdings Inc under the terms of an existing merger agreement. Spirit said in a statement that JetBlue and Frontier were being given access to the same due diligence information, on the same terms.
Shale producer Continental Resources Inc said it has received an all-cash buyout proposal from its founder Harold Hamm, valuing the company at US$25.41-billion. Hamm family holds about 83 per cent of the total outstanding shares of the company’s common stock. The proposal of US$70 per share represents about 9 per cent premium over Continental’s last closing price.
Elon Musk will address Twitter employees Thursday for the first time since the billionaire and Tesla CEO offered US$44-billion to buy the social media platform, the company said Tuesday. Twitter CEO Parag Agrawal announced an all-hands meeting to employees in an email on Monday, saying they’d be able to submit questions in advance, according to The Wall Street Journal.
Economic news
(8:30 a.m. ET) Canadian manufacturing sales and new orders for April.
(8:30 a.m. ET) Canadian new motor vehicle sales for April
(8:30 a.m. ET) U.S. PPI for May.
Also: U.S. Fed meeting begins
With Reuters and The Canadian Press
Terry Weber