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Equity Markets

Canada's main stock index fell on Tuesday as lower commodity prices weighed on energy and gold mining stocks, while the heavyweight financials group also lost ground.The Toronto Stock Exchange's S&P/TSX composite index was down 41.51 points, or 0.27 percent, at 15,063.77, shortly after the open. Nine of the index's 10 main groups were lower.

Shares of Jean Coutu Group slipped after it reported higher first-quarter revenue but lower profit compared with last year, mostly because of its generic drug manufacturing division. The Quebec-based pharmacy retailer had $45.5-million or 25 cents per share of net income in the quarter. That's down from $49-million or 27 cents per share in the comparable period last year.

Alimentation Couche-Tard Inc. has signed an agreement to buy Upper Midwest U.S. convenience store player Holiday. The transaction will see Quebec-headquartered Couche-Tard acquire 374 stores operated by Holiday and 148 franchisees. The purchase price wasn't disclosed. Its shares rose 2.3 per cent.

The B.C. wildfires have forced Canadian lumber mills, including those owned by Norbord Inc. and West Fraser Timber Co., to shut down and were edging closer to a Kinder Morgan Inc. oil pipeline as hot, dry weather sparked blazes across swathes of western Canada and the U.S. Norbord shares were down 0.22 per cent and West Fraser's stock slipped 0.41 per cent.

The Canadian dollar was flat at 77 cents (U.S.)

In the U.S., stocks opened little changed on Tuesday as gains in energy stocks offset losses in technology and investors waited for more hints on interest rate hikes from Federal Reserve policymakers.

The Dow Jones industrial average was down 0.73 of a point, or 0.00 per cent, at 21,407.79, the S&P 500 was down 2.77 points, or 0.11 per cent, at 2,424.66 and the Nasdaq composite was up 2.25 points, or 0.04 per cent, at 6,178.64.

Crude prices are about 18 per cent below their 2017 opening levels despite a deal led by the Organization of the Petroleum Exporting Countries to cut production from January.

"The markets have been shifting their focus back onto oil today, amid a threat of further downside for the already depressed commodity," IG analysts Josh Mahony and Chris Beauchamp said in a morning note. "Goldman Sachs have proclaimed that we could see sub-$40 crude if OPEC do not act with both strength and surprise. However, the fact is that with Trump in charge, a lower taxation environment coupled with recently reduced costs could mean that low oil prices are the norm given sky-high U.S. production."

On central banks, traders in Canada continue to wait for the Bank of Canada's interest rate announcement Wednesday morning. The markets have already priced in a quarter point rate hike - the first in roughly seven years - although some nay-sayers suggest low inflation could keep the central bank on the sidelines until later in the year.

"The question is whether the BoC is willing to overlook the low inflation environment to focus on recent economic strength," Mr. Mahony and Mr. Beauchamp said.

In the U.S., a series of Federal Reserve officials are set to speak ahead of Wednesday's appearance by Fed chair Janet Yellen on Capitol Hill.  Reuters reported that San Francisco Federal Reserve President John Williams said Tuesday in Sydney that it was a reasonable view to expect one more rate hike this year, and his own view was to start adjusting the central bank's balance sheet in the next few months.

Fed Governor Lael Brainard is also scheduled to speak at a New York conference and Minneapolis Fed President Neel Kashkari will participate in a round table in that city.

As earnings season kicks in, the markets got early results Tuesday from PepsiCo Inc. The company said second-quarter profit rose 5 per cent with a boost from higher sales in its Frito-Lay business in North America and the sale of its minority stake in a British bottler. In Canada, retailer Jean Coutu reported quarterly earnings per share of 25 cents, ahead of analysts' forecasts.

During the previous session, the S&P and Nasdaq both ended higher with tech stocks getting a lift on optimism over earnings. The Dow closed down modestly. All three are trading near record highs.

Overseas, European markets were mixed with traders keeping a close eye on choppy oil prices. The FTSE 100 was down 0.44 per cent early on. France's CAC 40 slid 0.23 per cent. Germany's DAX edged up 0.19 per cent. In Asia, markets were mostly higher with Japan's Nikkei finishing up 0.57 per cent. Hong Kong's Hang Seng gained 1.48 per cent. The Shanghai composite index fell 0.29 per cent.

Technology gains on Wall Street helped list MSCI's broadest indes of Asia-Pacific shares outside Japan up 0.6 per cent.

Commodities

Oil prices gave back early gains with both Brent crude and West Texas Intermediate turning lower after banks cut their price forecasts in the face of continued concerns about the global supply overhang. Brent had been trading as high as $47.37 overnight, but closer to the North American open was down closer to the lower end of the day's range of $46.43. WTI followed a similar pattern, edging toward $45 a barrel around 3 a.m. (ET) before sliding back down closer to the $44 mark.

Reuters reported that banks including BNP Paribas and Barclays had cut their crude price forecasts.  BNP Paribas lowered its forecasts for Brent by $9 to $51 a barrel for 2017 and by $15 to $48 for 2018. Barclays bank also cut its 2017 and 2018 Brent forecasts to $52 a barrel for both years from $55 and $57 respectively.

So far, U.S. oil production has risen about 10 per cent over last year's levels. Crude prices are now down about 18 per cent from levels seen at the start of 2017.

"The downside risks increase on fresh news that Indian Oil Corp, India's biggest refiner, will buy 1.6 million barrels of Mars Blend from the Gulf of Mexico in October due to its more competitive price," LCG senior market analyst Ipek Ozkardeskaya said.

"This could be the beginning of more trouble for the OPEC's strategy, given that OPEC efforts to cut production have done little to reduce the global supply, yet apparently have pushed the Middle East prices relatively higher due to restricted regional extraction. This situation could wane speculations of co-operation in the future and continue weighing on energy prices."

In other commodities, gold prices held near their lowest level in four months as the U.S. dollar ahead of Ms. Yellen's remarks in Washington on Wednesday. Spot gold prices and U.S. gold futures were both lower. Expectations of higher interest rates - including an expected rate hike in Canada - have put pressure on gold prices. Silver prices were also lower.

Copper prices were flat in London as concerns over rising inventories eased.

Currencies and bonds

The Canadian dollar was trading lower in early going as traders put in time ahead of Wednesday's Bank of Canada interest rate announcement. The markets have already largely priced in a quarter point rate hike. Close attention will be paid to the central bank's monetary policy report update.

The loonie closed Monday's session at 77.59 cents (U.S.). On Tuesday, the Canadian dollar's day range was 77.40 cents (U.S.) to 77.60 cents. The loonie was trading closer to the low end of that range as the North American open approached.

"Wednesday remains the most notable session of the week, with Fed Chair Janet Yellen testifying before the House Financial Services Committee and the Bank of Canada potentially raising interest rates for the first time in almost seven years," OANDA senior market analyst Craig Erlam said. "A rate hike from the BoC would come as a number of the G7 central banks adopt a more hawkish stance, despite the economic data not necessarily supporting such a move."

In other currencies, the U.S. dollar was higher against a broad basket of global currencies and touched a four-month high against the yen. The U.S. dollar index was up about 0.1 per cent in early going. The U.S. dollar also edged higher against the euro.

In bonds, U.S. debt prices were lower ahead of a raft of central bank speeches. the yield on the 10-year note was up 2.387 per cent. The yield on the 30-year note was up 2.939 per cent.

Stocks set to see action

PepsiCo Inc. reported a better-than-expected quarterly profit on Tuesday, helped by higher pricing of its sodas and snack foods sold in North America and the sale of its minority stake in British bottler Britvic Plc. Revenue in PepsiCo's North America beverage business, the company's biggest, rose 2 percent to $5.24 billion in the second quarter ended June 17. While volume sales were flat, net pricing was up 1 percent, the company said. Revenue from its Frito-Lay North America business rose 3 percent, helped by a 1 percent rise in volume and 3 percent rise in net pricing.

Jean Coutu Group reportied higher first-quarter revenue but lower profit compared with last year, mostly because of its generic drug manufacturing division. The Quebec-based pharmacy retailer had $45.5-million or 25 cents per share of net income in the quarter. That's down from $49-million or 27 cents per share in the comparable period last year. Jean Coutu said the reduced profit was primarily due to a lower contribution from the Pro Doc's generic drug business following a regulatory change that took effect in January.Overall revenue increased to $750.4-million from $723.6-million a year earlier, mostly because of overall market growth.

Alimentation Couche-Tard Inc. says it has signed an agreement to buy Upper Midwest U.S. convenience store player Holiday. The transaction will see Quebec-headquartered Couche-Tard acquire 374 stores operated by Holiday and 148 franchisees.

Pearson is set to raise $1-billion from the sale of a 22-per-cent stake in book publisher Penguin Random House to majority owner Bertelsmann, in the British group's latest bid to rebuild following a string of profit warnings. Hit by a sharp downturn in its biggest markets, Pearson has sold off some of its best known assets in recent years including the Financial Times and the Economist to enable it to invest in its core business of education. The 173-year-old group said on Tuesday it would now reduce its stake in the world's biggest consumer book publisher to 25 per cent from 47 per cent, enabling it to free up cash to return to shareholders and bolster its balance sheet.

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Economic News

Canada Mortgage and Housing Corp. said Tuesday that the seasonally adjusted annual rate of housing starts for all ares in the country was 212,695 units in June, up from 194,955 units in May.

U.S. wholesale inventories increased more than previously estimated in May as automobile stocks rose amid declining sales, but inventory investment still likely weighed on economic growth in the second quarter. The Commerce Department said on Tuesday wholesale inventories climbed 0.4 per cent. That was the biggest gain since December 2016 and followed a 0.4 per cent decline in April. The department reported last month that wholesale inventories increased 0.3 percent in May.

With files from Reuters and The Canadian Press