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Inside the Market Before the Bell: Wall Street futures flat on North Korea summit result; Bay Street eyes firmer start

Equities

U.S. stock futures were little changed Tuesday after the conclusion of a highly anticipated meeting between U.S. President Donald Trump and North Korean leader Kim Jong Un resulted in a pledge to work toward denuclearization of the Korean peninsula but offered few details. On Bay Street, futures turned slightly higher as oil prices traded near break even. World stocks managed modest gains overnight with the MSCI all-country index, which tracks shares in 47 countries, trading up less than 0.1 per cent.

“It looks a lot like ‘buy the rumour, sell the fact’ where the Trump-Kim summit is concerned,” IG chief market analyst Chris Beauchamp said in an early note.

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“Having shrugged off the failed G7 meeting, markets are finding it hard to make progress this morning despite the bullishness that was very much in evidence yesterday.”

He also said anticipation of Wednesday’s Federal Reserve decision on interest rates and a policy announcement the following day from the European Central Bank may be keeping investors in check for the moment.

“The overall picture remains firmly bullish, and is probably an opportunity to add to risk in the near-term, markets having weathered the storm of trade wars successfully thus far,” he said.

At the conclusion of the U.S.-North Korea summit, the U.S. vowed unspecified “security guarantees” while North Korea recommitted to the “complete denuclearization of the Korean peninsula.” The meeting followed a fractious G7 summit in Quebec which ended with the U.S. withdrawing from the final communique while Mr. Trump offered harsh criticism of Canadian Prime Minister Justin Trudeau. Speaking following Tuesday’s summit, Mr. Trump said Mr. Trudeau “learned” from the mistake of criticizing him and suggested it would cost Canada “a lot of money.” He also indicated that he has a good relationship with the Canadian Prime Minister.

On Bay Street, Hudson's Bay shares could get some attention as the retailer holds its annual meeting. The Globe’s Marina Strauss reports that, heading into the AGM, some of HBC’s biggest institutional investors are opposing the $55.8-million pay package for executive chairman Richard Baker. Ontario Teachers’ Pension Plan and British Columbia Investment Management Corp. (BCIMC), two of Canada’s largest pension-fund managers, said they are voting “no” in HBC’s say-on-pay vote at the retailer’s annual meeting on Tuesday, as is the California Public Employees’ Retirement System (CALPERS), a U.S. pension giant.

Elsewhere, retailer DavidsTea reported that its net loss more than tripled in the first quarter. The Montreal-based company posed a loss of $1.2-million or 5 cents a share in the period, compared with a loss of $362,000 or 1 cent a share a year earlier. The results were released after the end of trading on Monday. In a conference call, CEO Joel Silver said the company’s overall performance in the quarter is “clearly not where it needs to be.” The results come ahead of Thursday’s annual meeting where investors will chose between a slate of directors proposed by management or another from co-founder Herschel Segal.

Overseas, European markets were mixed as investors look ahead to Thursday’s ECB meeting and the possibility of a time table to begin withdrawing stimulus. The pan-European STOXX 600 edged up 0.07 per cent in morning trading. Britain’s FTSE 100 was off 0.28 per cent. Germany’s DAX advanced 0.07 per cent and France’s CAC 40 was off 0.20 per cent.

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In Asia, stocks inched higher with Japan’s Nikkei advancing 0.33 per cent. Hong Kong’s Hang Seng was up 0.13 per cent while the Shanghai Composite Index rose 0.91 per cent.

Commodities

Crude prices were mostly flat early on as traders weighed the outcome of the U.S.-North Korea summit and awaited fresh U.S. inventory figures. Brent crude was positive but off early highs with a day range of US$76.30 to US$77.07. West Texas Intermediate has a range for the day of US$66 to US$66.59.

Market gains have been capped recently by higher output from Russia, the United States and Saudi Arabia, offset by concerns over possible declines in production by Iran and Venezuela. U.S. production has risen by roughly a third over the past two years to a U.S. record of 10.8 million bpd. Bloomberg reports that oil’s gains have also been capped by a deepening divide between OPEC and non OPEC producers over whether to ease current production cuts. Russia and Saudi Arabia have moved to gather support to lift output limits while Iraq, Venezuela and Iran opposed such a move, the news agency said.

Later Tuesday, traders will get a fresh reading on U.S. inventories with the release of the weekly report from the American Petroleum Institute. Those numbers are followed Wednesday by more official figures from the U.S. Energy Information Administration.

In other commodities, gold prices slid as the U.S. dollar firmed in the immediate wake of the summit. At last check, spot gold was off 0.1 per cent at U.S. $1,297.96 an ounce. U.S. gold futures for August delivery were down by a similar amount.

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“The dollar has been a big driver for some time now and investors are certainly taking more from that than from easing geopolitical risks in recent runs ... I suspect that will be the key driver for the short term,” ANZ analyst Daniel Hynes said.

In other metals, silver prices were also weaker.

Currencies

The Canadian dollar was slightly weaker against its U.S. counterpart, slipping below 77 US cents on a day range of 76.85 US cents to 77.05 US cents. The U.S. dollar, meanwhile, bounced on news out of the summit but then lost some altitude as traders saw few concrete measures coming out of the meeting.

The U.S. dollar index, which weighs the greenback against a basket of currencies, turned negative at 93.154 at last check. The index had rise 0.3 per cent to 93.89 in early trading in Asia. That was its highest level since June 5.

“While it may be an historic event with lots of great photo ops and hand shaking, (I didn’t see Trump dusting any dandruff off Kim’s shoulder, though) there’s been nothing particularly game changing from this Summit – a damb squib, you might say,” Sue Trinh, head of Asia FX strategy, said in a note.

Despite the pledge to work toward “complete denuclearization” both sides “remain far apart” on what that means, she said.

“To the U.S., it means NK must deliver complete, verifiable and irreversible denuclearization,” she said. “To Kim, it means NK suspends nuclear and missile tests in exchange for major economic concessions and the U.S. stepping back as torchbearer for the Asian region (basically dismantling its alliance with South Korea and ultimately the region as a whole).”

For currency markets, attention will now turn to the central bank news. The Fed begins its two-day meeting today and is expected to raise interest rates on Wednesday afternoon. The ECB’s policy announcement Thursday is expected to signal plans to start unwinding its massive bond-buying program.

In bonds, U.S. government debt prices were little changed with the yield on the U.S. 10-year note up slightly at 2.963 per cent. The yield on the 30-year note was also slightly higher at 3.102.

Stocks set to see action

Ballard Power Systems shares were up more than 11 per cent in premarket trading on news of a contract extension with Audi. The Canadian hydrogen fuel cell maker said it has signed a 3.5-year extension to its contract with Audi. Ballard says the HyMotion program is now extended to Aug. 2022, with the extension valued at $80-million to $130-million. The previous six-year contract ran to March 2019.

Aurora Cannabis will buy Anandia Laboratories Inc. for $115-million in an all-stock transaction.The companies said in a statement that privately held Anandia is considered the industry leader in science, genetics, and independent cannabis product testing.

Pipeline operator, Enbridge Inc, said it was taking steps to address complaints from oil shipper BP PLC about abrupt changes it made in allocating space on its Mainline system. The company announced the policy change late last month before reversing it last week, after it caused panic among shippers and dramatically increased a discount on Canadian heavy crude. Enbridge had intended to change how it verifies shippers’ oil supplies before dividing up capacity on the Mainline to prevent shippers from overestimating how much crude they had to move, a problem known as “air barrels.” In a letter to Canadian regulator the National Energy Board (NEB), Enbridge said it would not use the revised system in August, and had no plans to do so thereafter.

Shares of Urban Outfitters Inc rose almost 4 per cent on a series of price-target increases by brokerages after the retailer issue a positive quarterly same-store sales outlook. The company said same-store sales so far in the second quarter had climbed to the mid-teens percentage range. The company’s stock rose to $48.79 pre-market after the news from a regulatory filing, according to a Reuters report.

Ballard Power Systems says it has signed a 3.5-year extension to its current technology solutions contract with Audi AG, part of the Volkswagen Group. It says the HyMotion program has been extended to August 2022 and the total value of the contract extension is expected to be about $80-million to $130-million

French defense electronics group Thales is partnering with Microsoft to jointly develop a common defense cloud solution for armed forces, the companies said on Tuesday. Based on Microsoft’s Azure Stack platform, the “flexible cloud application platform” will allow armed forces to keep sensitive data inside their own infrastructures. Thales will integrate its connectivity and end-to-end cybersecurity and encryption solutions into Microsoft’s cloud platform which is delivered as an integrated system.

Fashion retailer Ted Baker Plc reported subdued retail sales growth for the opening weeks of 2018 as it suffered from a long and harsh winter in Europe and North America, while its online business continued to soar. Shares in the company fell more than 3 per cent after it posted revenue growth for the 19 weeks since the end of January of 4.2 percent - less than a third of the 14.2 per cent expansion it reported at the same time last year.

More reading:

Tuesday’s small-cap stocks to watch

Economic news

The U.S. consumer price index rose 0.2 per cent in May. That followed a similar gain in the CPI in April. In the 12 months through May, the CPI increased 2.8 per cent. That was the biggest increase since early 2012.

(2 p.m. ET) U.S. treasury budget of May. Consensus is a deficit of US$114.5-billion, rising from US$88.4-billion a year ago.

With Reuters and The Canadian Press



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