Shares of energy companies pushed Canada’s main stock index lower on Monday, ahead of this week’s U.S. Federal Reserve meeting where investors widely expect an interest rate cut.
The Fed is expected to lower borrowing costs this week for the first time since the depths of the financial crisis, by at least 25 basis points, to counter the impact of a protracted U.S.-China trade war.
The Toronto Stock Exchange’s S&P/TSX composite index was unofficially down 38.87 points, or 0.24 per cent, at 16,492.17.
The energy sector dropped 1.8 per cent as shares of Vermilion Energy Inc. tumbled 7.3 per cent after reporting lower production in the second quarter. Husky Energy Inc. lost 4 per cent, while Cenovus Energy Inc. sat 3.7 per cent lower.
Health care stocks finished down just over 1 per cent as marijuana producers weighed. CannTrust Holdings Inc. dipped 5 per cent, while Cronos Group Inc. and Canopy Growth Corp. lost 4 per cent and 3.9 per cent, respectively.
U.S. stocks backed away from record highs on Monday as investors looked forward to an interest rate cut from the U.S. Federal Reserve and for signs of progress from Shanghai, where U.S.-China trade negotiations are underway.
Amazon.com and Facebook Inc weighed heaviest on the S&P 500 and the Nasdaq after the indexes ended last week at new closing peaks.
Market participants girded themselves for an eventful week, with the FOMC meeting, ongoing U.S.-China trade talks and nearly a third of the companies in the S&P 500 reporting second-quarter results.
The Fed, watchful of languid inflation and signs of economic softness arising from tariff disputes, is expected to lower interest rates for the first time in a decade at the conclusion of its two-day monetary policy meeting, which convenes on Tuesday.
“The Fed announcement is going to be key, especially the Fed outlook,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.
The central bank is “beginning to accept the idea that the success of these (U.S.-China trade) negotiations will be modest at best and will cut rates in order to perpetuate the economic expansion,” Ghriskey added.
U.S. negotiators are meeting their Chinese counterparts in Shanghai this week in an effort to find a path toward resolving the long-running, market-rattling trade war between the world’s two largest economies.
The Dow Jones Industrial Average rose 28.96 points, or 0.11 per cent, to 27,221.41, the S&P 500 lost 4.88 points, or 0.16 per cent, to 3,020.98, and the Nasdaq Composite dropped 36.88 points, or 0.44 per cent, to 8,293.33.
The British pound touched its lowest against the dollar in over two years after Prime Minister Boris Johnson said a hard divorce from the EU was in the cards, while stocks dipped globally on Monday after last week hitting their highest in five months.
The U.S. dollar index edged up and touched its highest since late May as markets counted down to a likely cut in U.S. interest rates this week, with much riding on whether the Federal Reserve signals more cuts will follow.
Sterling fell to a 28-month low of $1.2213 as Johnson’s cabinet prepared the ground for a “no-deal” British exit from the European Union on October 31, which many investors say would tip Britain into a recession and inject unwanted uncertainty into financial markets.
The pound was last trading at $1.2225, down 1.25 per cent on the day.
“There is a realization the market had not fully priced the increased chances of a no-deal Brexit,” said Claire Dissaux, head of global economics and strategy at Millennium Global Investments.
The dollar index rose 0.05 per cent, with the euro up 0.15 per cent to $1.1142.
The Japanese yen weakened 0.12 per cent versus the greenback at 108.82 per dollar.
A stronger-than-expected U.S. gross domestic product report on Friday led some investors to doubt whether the Fed will continue easing this year after its Wednesday meeting.
Interest rate futures are fully priced for a quarter-point rate cut from the Fed on Wednesday, with a 1-in-4 chance of a half-point move.
MSCI’s gauge of stocks across the globe shed 0.17 per cent and emerging market stocks lost 0.34 per cent. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.53 per cent lower, while Japan’s Nikkei lost 0.19 per cent.
The pan-European STOXX 600 index rose 0.03 per cent.
Investors were also keeping an eye on U.S.-China trade talks. U.S. and Chinese negotiators meet in Shanghai this week for their first in-person talks since a G20 truce last month, but expectations for a breakthrough are low.
Oil prices rose on Monday as the prospect of an expected interest rate cut by the U.S. Federal Reserve overshadowed pessimism over U.S.-China trade talks and worries about slower global economic growth.
Brent crude gained 25 cents to settle at $63.71 a barrel, while U.S. West Texas Intermediate (WTI) crude futures rose 67 cents to settle at $56.87 a barrel.
“Prices appear to be treading water ahead of this week’s events,” said John Kilduff, partner at Again Capital Management.
Traders and investors are watching the Fed this week, with U.S. central bankers expected to lower borrowing costs for the first time since the depths of the financial crisis more than a decade ago.
U.S. President Donald Trump said a small Fed rate cut “is not enough.”
Economic growth in the United States slowed less than expected in the second quarter, strengthening the outlook for oil consumption. Elsewhere, disappointing economic data has increased concerns about slower growth.
U.S. and Chinese negotiators meet this week for their first in-person talks since a G20 truce last month, but expectations are low after Trump said China might not want to sign a trade deal until after the 2020 U.S. election.
“Today’s kickoff to some renewed trade negotiations between U.S. and China will likely inspire some modest price support,” Jim Ritterbusch of Ritterbusch and Associates said in a note. “However, the mid-week Fed decision and associated commentary could prove to be this week’s larger driver of oil pricing.”
Crude prices were also supported by supply risk as tensions remained high around the Strait of Hormuz, through which about a fifth of the world’s oil passes.
Reuters