Equity Markets
Canada's main stock index fell on Monday as a decline in oil prices weighed on the energy sector.
The Toronto Stock Exchange's S&P/TSX composite index was down 34.9 points, or 0.23 per cent, at 15,021.09 shortly after the open
Wall Street opened higher on Monday, boosted by consumer discretionary stocks, while investors assessed the impact of Tropical Storm Harvey on the U.S. economy.
The Dow Jones Industrial Average rose 41.98 points, or 0.19 per cent, to 21,855.65. The S&P 500 gained 5.92 points, or 0.24 per cent, to 2,448.97. The Nasdaq Composite added 20.40 points, or 0.33 per cent, to 6,286.05.
Stocks of refiners, pipeline operators, insurers and home improvement retailers will be in focus after Harvey was set to dump more rain on Houston on Monday, worsening flooding that has paralyzed the country's energy hub.
Harvey has knocked out a quarter of oil production from the Gulf of Mexico, prompting fears it could overturn years of excess U.S. oil capacity and low prices.
U.S. crude futures, which earlier hit two-year highs, dipped more than 1 per cent to $47.38 over concerns that refinery shutdowns could reduce demand for American crude.
"The unfortunate event from Hurricane Harvey will have some sort of impact on the numbers, down the line ... at this point, it does not appear to affect equities," said Andre Bakhos, managing director at Janlyn Capital.
U.S. economic growth had more than halved in the quarter after Hurricane Katrina mauled Louisiana in August 2005.
"Although the full impact of the storm's damage is yet to be determined, the markets expect the impact will be felt globally and affect energy markets for many weeks," analysts at FxPro said in a note.
Reuters notes that U.S. economic growth fell by more than half in the quarter following hurricane Katrina in 2005 before rebounding early the following year as reconstruction took hold and gas prices levelled off.
In this country, investors will be gearing up for the continuation of bank earnings later in the week. Bank of Montreal and Bank of Nova Scotia report Tuesday morning, followed by National Bank a day later. Last week, strong results from Royal Bank of Canada and Canadian Imperial Bank of Commerce buoyed the outlook for reporting season despite uncertainty over interest rates and Canada's housing outlook. The week's big economic news comes Thursday when Statistics Canada releases its reading on second-quarter gross domestic product growth. Economists are looking for growth at an annual rate of 3.7 per cent. U.S. jobs figures are released Friday, but the Canadian report will follow a week later.
Trading in Europe was subdued with markets in London closed for a public holiday.
European markets were lower as the euro jumped.
"The strong euro is weighing on the European stock markets," LCG analyst Ipek Ozkardeskaya said in a note. "...Tapering talks could further demoralize stock traders on the run up to the ECB verdict."
Germany's DAX was off 0.06 per cent in early trading. France's CAC 30 was off by 0.03 per cent.
In Asia, markets were mixed. Japan's Nikkei finished mostly flat, ending the first trading day of the week down 0.1 per cent. Hong Kong's Hang Seng rose 0.05 per cent and Shanghai's composite index was up 0.94 per cent at the closing bell.
Commodities
Oil prices were lower as storms battered Texas. At last check, West Texas Intermediate was off by more than 1 per cent after steady declines overnight. Benchmark Brent crude was also lower.
Tropical Storm Harvey hammered the U.S. Gulf Coast on the weekend killing at least two people, causing widespread flooding and forcing thousands from their homes. Although the long-term impact on energy markets remained to be seen, numerous refineries were put out of commission raising concerns about U.S. production. The storm is the most powerful to hit Texas in 50 years.
Reuters notes that Texas is home to 5.6 million barrels per day of refining capacity, and Louisiana has 3.3 million barrels a day. Over 2 million barrels a day of refining capacity was estimated to be offline as a result of the storm. In Harvey's wake, U.S. gasoline futures spiked 7 per cent to the highest levels seen since late July 2015.
Ms. Ozkardeskaya said reports suggests more than 20 per cent of crude production from the Gulf of Mexico and 10 per cent of U.S. refining capacity has been affected by the storm.
"Heavy floods are expected to push the gasoline prices higher this week," she said. "The upside pressures could translate into higher oil prices as well."
"WTI crude could attempt to $50/barrel, although the supply to demand relation is not fully convincing for the fundamental buyers. Short-term support is at $46.95."
Gold prices, meanwhile, rose to their highest level in a week as the U.S. dollar weakened and the euro pushed higher. The euro gained ground late last week after a conference of central bankers in Wyoming. At the Jackson Hole retreat, European Central Bank chief Mario Draghi refrained from talking down the currency.
Spot gold prices were higher. Gold futures also advanced. Silver prices rose as well.
Currencies and bonds
The Canadian dollar pushed solidly above the 80-cent mark as the U.S. currency faltered. The loonie traded within a fairly narrow band overnight. The day's range so far is 80.05 cents (U.S.) to 80.32 cents. At last check, the loonie was trading near the upper end of that range.
The Canadian dollars gains came as the U.S. dollar fell in the wake of the weekend storms. Against a basket of world currencies, the greenback fell to its lowest level since early May last year before recovering somewhat. Comments from U.S. Federal Reserve chair Janet Yellen further weighed on the U.S. currency, analysts said.
"The U.S. dollar weakened after the Federal Reserve (Fed) Chair Janet Yellen sounded less hawkish in her Jackson Hole speech," Ms. Ozkardeskaya said in a note. " Yellen concentrated on post-crisis regulatory reforms, including regulations on bank reserves and lending standards."
Meanwhile, the euro rose to a two-and-a-half year high on thin trading Monday, building on the 1-per-cent rise seen Friday following ECB chief Mario Draghi's comments at the Jackson Hole meeting.
"This is about what he did not say," said Commerzbank currency strategist Esther Reichelt, in Frankfurt. "He does not seem to be overly concerned with the current euro levels, which is the market's justification to move the euro higher."
In bonds, the yield on the U.S. 10-year note was higher at 2.176 per cent early on. The yield on the 30-year note was also higher at 2.764 per cent.
In Europe, German 10-year bond yields rose 1 basis points to 0.39 per cent , just off eight-week lows hit last week at 0.37 per cent.
Stocks set to see action
Gilead Sciences Inc. has agreed to buy Kite Pharma Inc. for about $11-billion in an all-cash deal, the Wall Street Journal reported on Monday, citing people familiar with the matter. Gilead will pay $180 per share, the report said, representing a 29 per cent premium over Kite's Friday close. Kite is one of the leading players in an emerging field called CAR-T, or chimeric antigen receptor T-cell therapy, which harnesses the body's own immune cells to recognize and attack malignant cells. Kite's shares were halted in premarket trading on Monday, while Gilead's shares were up 2.7 per cent.
Industrial equipment company Toromont Industries Ltd. has a friendly deal to buy the Hewitt Group of Pointe Claire, Que., for a combination of cash and shares worth about $1.02-billion. The transaction will combine two of Canada's largest heavy equipment distributors and expand Toromont's network of Caterpillar dealerships.
General Electric Co. wants its industrial software business to cut costs and lift profits next year under new chief executive John Flannery, and is considering expanded partnerships and the possible sale of some equity in the unit, according to people familiar with the business. Former chief executive Jeffrey Immelt spent six years and more than $4 billion transforming 125-year-old GE into a "digital industrial" company. But GE has had technical problems and delays with its software platform, known as Predix, which connects equipment like turbines and elevators to computers that can predict failures and reduce operating costs. This spring, GE called an unusual, two month "time-out" to tackle the Predix problems, which have not been previously reported. With fixes in place, GE will now emphasize sales to existing customers in its energy, aviation and oil-and-gas businesses, and scale back efforts to sell to new customers in other sectors, three senior GE executives told Reuters.
CBS Corp., the United States' most-watched television network, on Monday said it plans to buy its biggest customer in Australia, Ten Network Holdings Ltd, and launch its streaming service in the country. Through the deal, Ten's biggest creditor has thwarted a takeover by a consortium led by Lachlan Murdoch – co-chair of CBS rival and fellow Ten creditor News Corp – that was widely expected after Ten entered administration in June.
Samsung Electronics Vice Chairman Jay Y. Lee has filed an appeal against the five-year jail term he was given for bribery and other charges through his lawyer, according to the Seoul Central District Court's website on Monday. The website did not give any details about the appeal, which will be assigned to a higher court.
Expedia CEO Dara Khosrowshahi has been named Uber's top executive, taking the difficult job of mending the dysfunctional ride-hailing giant and turning it from money-losing behemoth to a profitable company. Khosrowshahi has been CEO of Expedia since August of 2015. The online booking site is one of the largest travel agencies in the world.
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Economic News
Japan's government maintained its upbeat view on the economy and signalled the country is on course to match its second longest period of economic expansion in postwar history, indicating its confidence over a solid, domestic demand-led recovery. In its monthly report for August released on Monday, the government said the economy "continues to recover moderately as a trend," a view it has kept for three straight months in a nod to growing signs of strength in consumption and capital spending.
With files from Reuters