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Canada’s main stock index opened higher on Tuesday, helped by gains in energy shares on the back of rising oil prices.
At 9:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 39.14 points, or 0.24 per cent, at 16,077.27.
Health care stocks were the biggest gaining sector, up 0.9 per cent with Aurora Cannabis up 3.5 per cent, and Bausch Health up 0.4 per cent.
Energy stocks rose 0.6 per cent with Gran Tierra Energy up 2.5 per cent, Encana up 1.7 per cent and Cenovus up 1 per cent.
Oil rose to around US$66 a barrel on Tuesday as the market balanced OPEC-led efforts to tighten supply with the restart of Libya’s biggest oilfield and the prospect of weaker demand.
Brent, the international benchmark, rose 41 cents to US$66.08 a barrel. U.S. West Texas Intermediate crude added 25 cents to US$56.84.
U.S. stocks opened little changed on Monday, as investors awaited fresh developments in the U.S.-China trade talks.
The Dow Jones Industrial Average rose 9.42 points, or 0.04 per cent, at the open to 25,829.07.
The S&P 500 opened higher by 1.60 points, or 0.06 per cent, at 2,794.41. The Nasdaq Composite gained 4.73 points, or 0.06 per cent, to 7,582.29 at the opening bell.
U.S. Secretary of State Mike Pompeo said in a media interview that President Donald Trump will reject any trade deal that is not perfect, but added that the United States will still keep working on an agreement.
Reports that Washington and Beijing could close in on a deal as early as March end had initially lifted Wall Street on Monday, but the rally fizzled out and the indexes closed much lower, in part due to weak December construction spending data.
The benchmark index, which closed last week above the significant 2,800-point mark for the first time since Nov. 8, failed to hold on to that level in the previous session.
“Investors are trying to get sense of whether the selloff from yesterday will continue or if it is a one-day event,” said Robert Pavlik, chief investment strategist and senior portfolio manager at SlateStone Wealth LLC in New York.
“I think people are concerned about what happens when a trade deal gets announced.”
Hopes that the world’s two largest economies would soon hammer out a solution to end their trade dispute has been a huge driving force for the market’s rally this year, along with the dovish stance of the Federal Reserve on future rate hikes.
The S&P 500 has climbed about 11 per cent in 2019 and is now about 5 per cent away from its Sept. 20 record closing high.
Among stocks, Target Corp jumped 3.2 per cent, while Kohl’s Corp gained 4.3 per cent after both retailers forecast annual earnings above estimates.
Ctrip.com International climbed 13.3 per cent after the Chinese travel website beat quarterly revenue, helped by international hotel and air businesses and strength in Skyscanner’s direct booking program.
U.S. and Canadian stocks markets are pointing to a positive but flat open Tuesday as traders continue to pin their hopes on the U.S. and China reaching a trade deal soon.
There have been mixed messages regarding the progress of the talks between the two countries. A media report on Monday that U.S. President Donald Trump and Chinese President Xi Jinping could reach a formal trade deal at a summit around March 27 prompted profit-taking rather than follow-through buying as Wall Street’s main indexes ended lower Monday after initially trading higher.
“If you’re a trader, you’re taking profit now. You buy on the rumour, sell on the news, wait till it goes down, and buy again,” said Sean Taylor, chief investment officer for the Asia Pacific at Deutsche Bank’s asset management arm DWS.
Taylor said he expects the two economic superpowers to reach a trade deal soon but cautioned that it would not end the tensions.
“It is the Trade War One which will be finished soon. That’s to do with China buying agricultural goods from the U.S. and China opening up more to international markets. But we still see there’ll be the Trade War Two, which will be about intellectual property and about technology,” he said.
In corporate news, shares of Target rose nearly 5 per cent in premarket trading after the company reported a better-than-expected increase in holiday quarter comparable sales on Tuesday, as strong promotional offers lured customers to its stores and online site. Its comparable sales, that include both store and digital sales, rose 5.3 per cent beating analysts estimate of 5.08 per cent, according to IBES data from Refinitiv. The company’s total revenue fell marginally to US$22.98-billion, edging past analysts estimate of US$22.96-billion.
Overseas, European shares were mixed with Britain’s FTSE up 0.3 per cent, Germany’s DAX off 0.1 per cent and France’s CAC down 0.2 per cent.
Asian shares stepped back on Tuesday, weighed by U.S. economic concerns and as China cut its growth target in the face of intensifying challenges from rising debt and a dispute over trade and technology with the United States.
Beijing lowered the growth target for this year to 6.0 to 6.5 per cent, as expected, from around 6.5 per cent last year and offered more stimulus, including cuts in taxes and social security fees, increases in infrastructure investment and lending to small firms.
MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.15 per cent and Japan’s Nikkei lost 0.4 per cent. China’s Shanghai index edged up 0.9 per cent.
“As further details of the economic package will be rolled out in coming days, Chinese share markets could extend gains further near-term,” said Wang Shenshen, strategist at Tokai Tokyo Research Center.
Reflecting lower tax revenue and higher government spending, Beijing has set a budget deficit target of 2.8 per cent of GDP, up from last year’s 2.6 per cent.
Oil edged higher towards US$66 a barrel on Tuesday as the market balanced OPEC-led efforts to tighten supply with the restart of Libya’s biggest oilfield and the prospect of weaker demand.
Supply curbs by the Organization of the Petroleum Exporting Countries and allies have helped to drive a 20-per-cent gain for Brent crude this year. Russia plans to speed up its output cuts this month, the energy minister said on Monday.
Brent, the international benchmark, rose 8 cents to US$65.75 a barrel. U.S. West Texas Intermediate crude added 23 cents to US$56.82.
“It appears that Saudi Arabia and Russia would be happy with crude oil prices of between US$60 and US$70 for the rest of this year,” said Ole Hansen of Saxo Bank.
A Brent price of US$70, he added, “can be reached quite soon,” citing OPEC cuts, U.S. sanctions against OPEC members Iran and Venezuela, and slowing U.S shale oil production growth.
Putting a dampener on the market was the restart of Libya’s El Sharara oilfield, where the aim is to reach initial output of 80,000 barrels per day. The field had been closed since December.
“This will increase the oil production of Libya, and thus of OPEC, by more than 300,000 barrels per day,” said Commerzbank in a report. “The oil market will then be slightly oversupplied again unless production is cut further or unscheduled outages occur elsewhere.”
Expectations that the latest round of U.S. inventory reports will show rising crude stockpiles also limited the upside. Six analysts polled by Reuters estimated, on average, that crude stocks rose 400,000 barrels in the week to March 1.
Gold prices held close to a more than five-week low on Tuesday as the dollar firmed and global equity markets held near a five-month crest, making bullion less appealing for investors.
Spot gold fell 0.1 per cent to US$1,284.63 an ounce, close to its lowest since Jan. 25 at US$1,282.50, hit in the previous session. U.S. gold futures fell 0.2 per cent to US$1,285.50.
The dollar stood within striking distance of a two-week high against peers on uplifting signs from the U.S. economy and higher Treasury yields.
“We have seen some signs of dollar strength sapping the appetite (for gold),” said Saxo Bank analyst Ole Hansen.
“We have had such a strong rally (in gold) since last August and now we are having the first major setback. That has attracted some profit-taking and long liquidations both in futures and exchange-traded funds.”
Gold prices have fallen nearly 5 per cent since hitting a 10-month high of US$1,346.73 on Feb. 20.
The primary driver to gold’s downward momentum of late are expectations that the U.S. and China will soon agree a trade deal, said ActivTrades chief analyst Carlo Alberto De Casa.
“This is boosting market sentiment and increasing investors’ willingness to take on risk,” he said.
Currencies and bonds
The Canadian dollar slumped to nearly six-week lows on Tuesday, hit by a combination of trade troubles, resignations from Prime Minister Justin Trudeau’s cabinet and expectations the central bank could be on the cusp of changing its policy direction.
Global forex markets were overshadowed by the continued decline in volatility, lending a boost to higher-yielding currencies such as the U.S. dollar and emerging markets.
Focus has turned to meetings at the European Central Bank and the Bank of Canada, with both institutions facing the need to address stuttering economic growth and a slowdown in world trade.
The Canadian currency fell 0.3 per cent to $1.3350 (74.9 cents US), extending Monday’s losses on expectations that the central bank was approaching a policy turning-point.
The BoC is expected to hold rates this week when it meets Wednesday at 1.75 per cent but many reckon it is edging towards a cut later in 2019. A month ago it was seen raising rates twice in 2019.
Charles St Arnaud, senior investment strategist at Lombard Odier, said the impact of rate rises on consumer spending had been underestimated. Question marks over oil exports and the trade slowdown were also concerns.
“The Bank of Canada are probably at the place where they are starting to feel concerned...I can see the Canadian dollar weakening a bit more as I think underperformance of the Canadian economy is not at an end,” St Arnaud said.
Latest data showed Canadian growth slowed sharply to 0.4 per cent on an annualized basis in the fourth quarter of 2018, versus the 1.2 per cent forecast.
There were other concerns too, not least two cabinet minister resignations over the government’s handling of a corruption scandal regarding Quebec engineering and construction firm SNC-Lavalin. That is roiling Trudeau’s tenure months before an October election.
The U.S. dollar stood close to a two-week high against key peers at 96.726, supported by higher U.S. Treasury yields. It had rallied on Monday to 96.816, its strongest since Feb. 19.
Investors are seeking out higher-yielding currencies as price volatility in the world’s most-traded currencies has plummeted following a dovish shift by major central banks.
Stocks to watch
Onex Corp. has hired a former Royal Bank of Canada senior executive to help it expand a division that invests in higher-risk loans and debt securities. Onex, the Toronto-based private-equity firm with US$31-billion in assets under management, said it brought in Blair Fleming as head of origination at Onex Credit, to search for and evaluate middle-market type opportunities in the field.
Papa John’s International has reached a settlement agreement with its founder John Schnatter, a filing on Tuesday showed, signaling an end to the acrimonious battle between the pizza chain and its former chairman. The company said it would co-operate with Schnatter to identify a mutually acceptable independent director, who would not be affiliated to hedge fund Starboard Value LP or Schnatter.
Department store chain Kohl’s Corp. beat Wall Street forecasts for fourth-quarter same-store sales on Tuesday, as attractive promotions and new merchandise helped draw more shoppers during the holiday season. Sales at Kohl’s locations open for at least a year rose 1 per cent, better than the 0.3 per cent growth analysts on average had estimated, according to IBES data from Refinitiv. Its shares rose 5.2 per cent in premarket trading.
Carll Icahn sold of part of his stake in rental car giant Hertz Global, according to a U.S. Securities and Exchange Commission filing, cutting his stake to 28.91 per cent from 35.27 per cent. It shares fell 3.5 per cent in premarket trading.
Salesforce.com reported adjusted earnings of 70 cents US per share for the latest quarter, beating estimates by 15 cents per share, and revenue also beat forecasts. However, its outlook for the current quarter fell below expectations and the stock was down 1.2 per cent in premarket trading.
Gamestop announced it would buy back up to US$300-million in stock and would continue it strategic review. Its stock rose nearly 5 per cent in premarket trading.
Earnings include: Aecon Group Inc.; Alaris Royalty Corp.; Atlantic Gold Co.; CanWel Building Materials Group Ltd.; CanWel Building Materials Group Ltd.; Endeavour Mining Corp.; Evertz Technologies Ltd.; Great Canadian Gaming Corp.; NuVista Energy Ltd.; Stuart Olson Inc.; Timbercreek Financial Corp.; Tourmaline Oil Corp.
(9:45 a.m. ET) U.S. services and composite PMI
(10 a.m. ET) U.S. new home sales for December. The Street is projecting an annualized rate decline of 11.3 per cent.
(2 p.m. ET) U.S. budget balance for January.
With files from Reuters