Equities
Canada’s main stock index opened lower Tuesday in the wake of a disappointing reading on inflationary pressures in the Canadian economy. Key U.S. indexes were also weaker in early trading after mixed results from some of the biggest U.S. lenders.
At 9:32 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 114.19 points, or 0.54 per cent, at 20,947.69.
In the U.S., the Dow Jones Industrial Average fell 99.44 points, or 0.26 per cent at the open to 37,493.54.
The S&P 500 opened lower by 11.48 points, or 0.24 per cent, at 4,772.35, while the Nasdaq Composite dropped 64.50 points, or 0.43 per cent, to 14,908.26 at the opening bell.
“I sense that the first quarter of this year will be marked by the realization that it’s too early for the central banks to cut the interest rates unless something really bad – like another bank crisis, or a real estate crisis, or another debt crisis hits the fan,” Swissquote senior analyst Ipek Ozkardeskaya said in a morning note.
In Canada, investors got December inflation data before the start of trading. Statistics Canada says the annual rate of inflation ticked up to 3.4 per cent in December, from 3.1 per cent a month earlier. The increase matched market forecasts. Month-over-month, the consumer price index fell 0.3 per cent in December after a 0.1-per-cent gain in November, Statscan said.
“The Bank of Canada’s preferred core measures, CPI-trim and CPI-median failed to fall, with trim accelerating by two ticks to 3.7 per cent and median remaining at 3.6 per cent (from an upwardly revised prior month reading that was previously 3.4%),” CIBC economist Katherine Judge said.
“Those measures also accelerated in three-month and six-month annualized change terms, measures that the Bank of Canada will need to see more progress in before considering rate cuts.”
The Globe’s Mark Rendell reports that a pair of Bank of Canada surveys released Monday suggested high interest rates are bringing down inflation expectations and slowing the pace that businesses are raising prices, while also creating considerable financial hardship for household. The surveys bolstered market expectations that the central bank will keep interest rates steady at its Jan. 24 meeting before starting to cut borrowing costs later in the year.
On Wall Street, bank earnings continue to roll in with results due today from Goldman Sachs and Morgan Stanley. Four big U.S. banks - including JPMorgan and Citigroup - posted mixed results on Friday.
Ahead of the opening bell, Goldman reported a profit of US$2.01-billion, or US$5.48 per share, for the latest quarter, compared with US$1.33 billion, or US$3.32 per share, a year earlier. Morgan Stanley’s net income fell to US$1.5-billion, or 85 US cents per diluted share, in the three months ended Dec. 31, compared with US$2.2-billion, or US$1.26 per diluted share, last year. Morgan Stanley’s profit was hit in the most recent quarter by by one-time charges related to a Federal Deposit Insurance Corporation’s special assessment, according to Reuters.
Morgan Stanley shares were down more than 3 per cent in New York shortly after the opening bell. Goldman shares were also modestly lower in early trading.
Overseas, the pan-European STOXX 600 was down 0.27 per cent by midday. Britain’s FTSE 100 slid 0.27 per cent. Germany’s DAX and France’s CAC 40 lost 0.32 per cent and 0.21 per cent, respectively.
In Asia, Japan’s Nikkei finished down 0.79 per cent while Hong Kong’s Hang Seng dropped 2.16 per cent.
Commodities
Crude prices were mixed with economic concerns weighing on sentiment offset by continuing uncertainty in the Middle East.
The day range on Brent was US$77.85 to US$78.69 in the early premarket period. The range on West Texas Intermediate was US$71.23 to US$72.98.
“Oil prices remain very choppy amid the uncertainty in the Middle East following the U.S. and U.K. attacks on Houthi targets,” OANDA senior analyst Craig Erlam said.
“We haven’t seen a significant increase in the price of oil on the back of the attacks but the brief spikes we’ve seen have highlighted the sensitivity in the market to events around the Red Sea.”
Reuters reported Yemen’s Houthi movement will expand its targets in the Red Sea region to include U.S. ships, an official from the Iran-allied group said on Monday, as it vowed to keep up attacks after U.S. and British strikes on its sites in Yemen. Meanwhile, more tankers continue to avoid the region.
In other commodities, spot gold was down 0.3 per cent at US$2,048.70 per ounce by early Tuesday morning. U.S. gold futures rose 0.1 per cent to US$2,053.00.
“The yellow metal remains buoyed by very aggressive rate-cutting expectations, particularly in the U.S., but at the same time, it is struggling to generate fresh momentum around the prior record highs, near US$2,070,” Mr. Erlam said.
“We obviously saw a spike in early December well above this but the timing of the move and the speed with which it reversed it suggests the market was never fully behind it, so the prior highs continue to look like a significant psychological threshold.”
Currencies
The Canadian dollar fell while its U.S. counterpart touched a one-month high in early trading as markets turned cautious on the timing of rate cuts.
The day range on the loonie was 74.06 US cents to 74.50 US cents in the early premarket period. For the year to date, the Canadian dollar has is down about 1.9 per cent against the greenback.
On world markets, the U.S. dollar index jumped 0.78 per cent to 103.20 in the predawn period.
“The hawkish ECB commentaries last night have fuelled concerns that market pricing for the Fed rate path may also be aggressive,” said Charu Chanana, head of currency strategy at Saxo in Singapore.
On Monday, the ECB’s Joachim Nagel suggested it was too early to talk about cutting interest rates while ECB Governing Council member Robert Holzmann suggested investors expecting a rate cut this spring were likely to be disappointed and that he “may even foresee no cut at all this year.”
The euro slumped 0.61 per cent to US$1.0886. Britain’s pound was down 0.68 per cent to US$1.2640 by early this morning.
In bonds, the yield on the U.S. 10-year note was higher at 4.007 per cent ahead of the North American opening bell.
More company news
The Globe’s Susan Krashinsky Robertson reports this morning that the parent company of Tim Hortons is buying its largest Burger King franchisee in the United States, a US$1-billion deal intended to accelerate its turnaround plan for the chain. Toronto-based Restaurant Brands International Inc. announced on Tuesday that it had agreed to acquire Carrols Restaurant Group, Inc., a publicly-traded company that operates 1,022 Burger King locations in the U.S., mostly in the northeastern states. Carrols is also a franchisee for 60 locations in RBI’s Popeyes chain.
British energy major Shell has agreed to sell its Nigerian onshore oil and gas subsidiary in Nigeria to a consortium of five mostly local companies for up to $2.4 billion, after nearly a century of operations there. Active in the West African country since the 1930s, Shell has struggled for years with hundreds of oil spills at its onshore operations as a result of theft, sabotage and operational issues that led to costly repairs and high-profile lawsuits. It has sought to sell its Nigerian oil and gas business since 2021, but will remain active in Nigeria’s more lucrative and less problematic offshore sector. -Reuters
The Globe’s Stefanie Marotta reports Royal Bank of Canada said late Monday that it expects to close its $13.5-billion takeover of HSBC Holdings PLC’s Canadian subsidiary in March, clinching the biggest domestic banking deal on record. Canada’s largest lender said in a statement that it plans to close its proposed acquisition of HSBC Bank Canada on March 28, less than half a year later than its initial timeline. The deal received its final stamp of approval from Ottawa in December after RBC faced opposition from stakeholder groups and federal opposition parties in recent months.
Economic news
(8:15 a.m. ET) Canadian housing starts for December.
(8:30 a.m. ET) Canadian CPI for December.
With Reuters and The Canadian Press
Terry Weber