Futures pointed to a higher opening for Canada’s main stock index on Tuesday, as oil prices gained after Libya declared force majeure on some of its crude exports. Wall Street was also set for a higher start.
Libya’s National Oil Corp declared force majeure on loadings from Zueitina and Hariga ports, resulting in 850,000 bpd of supplies being disrupted.
September futures on the S&P/TSX index were up 0.34 percent at 7:15 a.m. ET.
In Canadian economic data today, Markit manufacturing PMI data is due at 09:30 a.m. ET
Dow Jones Industrial Average e-mini futures were up 0.43 percent at 7:15 a.m. ET, while S&P 500 e-mini futures were up 0.36 percent and Nasdaq 100 e-mini futures were up 0.53 percent.
World stocks rose on Tuesday, supported by gains in Europe and three straight days of tech-driven rises in the United States, even though markets across Asia and especially China remained in the grip of trade turbulence.
Wall Street was set for another firmer session as investors positioned for strong Silicon Valley earnings before the reporting season starts next week, while European shares also rose after a deal on settling a migration policy row that had threatened Germany’s coalition government.
But a July 6 deadline is looming for Washington to impose tariffs on $34 billion worth of Chinese goods that Beijing has vowed to match with tariffs on U.S. products. President Donald Trump also threatened on Monday to “do something” if the United States was not better treated by the World Trade Organisation.
The prospects of a full-blown trade war and relentless yuan weakening – it has fallen 5 per cent in the past two weeks to 10-month lows – reportedly forced China into intervention via state-run banks.. The currency then reversed earlier losses to move back into positive territory for the day against the dollar.
“It is by far the biggest (yuan loss) I can remember. Prudence suggests it has to be matched across South East Asia because of the competitive implications,” Bank of New York Mellon strategist Neil Mellor said.
“So if you have all these currencies weakening and the dollar strengthening against other emerging markets currencies as well, it generates a degree of instability in the market simply by virtue of its scale.”
Other Asian currencies weakened, especially those such as the Indonesian rupiah that are doubly exposed – to trade and oil prices approaching $80 a barrel.
On equity markets, Hong Kong dived as much as 3.3 per cent at one point to nine-month lows, hit also by a U.S. move to block China Mobile from offering services to the U.S. market. Shanghai’s bourse hit a 2-year trough though both indexes inched higher towards the close as the yuan recovered. Japan’s Nikkei edged to a near three-month closing low.
The mood was more cheerful in Europe where a pan-European equity index rose half a per cent, the euro firmed marginally and bond yields rose after German Chancellor Angela Merkel struck the deal with her Bavarian conservative coalition partners.
“The agreement between Chancellor Merkel and German interior minister Horst Seehofer should see German political risk fade into the background as a downside risk for the euro in the near-term,” MUFG analysts told clients.
U.S. tech shares have been relatively resilient to trade fears - the New York Stock Exchange’s index of 10 tech giants including China’s Alibaba has gained over 30 per cent this year. They are seen delivering another set of robust quarterly earnings.
That helped MSCI’s world index to rise 0.2 per cent, inching further off recent 2-1/2 month lows.
CENTRAL BANKS AND CURRENCIES
While U.S. growth and company earnings seem unassailable, tit-for-tat tariffs from China and Europe may ultimately prove detrimental for American businesses and jobs.
U.S. Treasury bond yields rose slightly amid the easier mood but concern about the trade row has pushed the gap between two- and 10-year yields to the narrowest since 2007.
“The recent intensification of global trade tensions imply the probability of trade conflict has risen to levels that could result in significant pain in financial markets and a sizable drop in output and employment,” Deutsche Bank wrote.
The dollar retreated 0.4 per cent against a basket of currencies and the easing tensions in Germany helped the euro to gain 0.2 per cent against the greenback.
But those most exposed to trade such as the Australian dollar and emerging currencies remain under pressure – the Aussie, considered a liquid proxy for China-related risk, was close to 1-1/2-year lows against the greenback
The Reserve Bank of Australia (RBA) kept rates at a record low 1.5 per cent on Tuesday and showed no hint of raising them soon. Its governor cited “the direction of international trade policy in the United States” as an uncertainty.
The Turkish lira, seen as an emerging markets weak link, fell more than 1 per cent after data showed June inflation accelerating to 14-year highs, hit by oil prices and the pass-through from currency weakness .
Reuters