Equities
Canada’s main stock index opened lower Monday with energy and financial stocks weighing and shares of CannTrust Holdings Inc. sinking on news Health Canada has hit the cannabis company with a non-compliance order. U.S. markets started in the red as expectations that the Federal Reserve will deliver a big rate cut recede and Apple Inc. shares fall on an analyst downgrade.
At 9:41 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 68.54 points, or 0.41 per cent, at 16,473.45. The index’s 11 main sectors were lower across the board. Energy was down 0.7 per cent. Financials were off 0.4 per cent.
The Dow Jones Industrial Average fell 86.48 points, or 0.32 per cent, at the open to 26,835.64. The S&P 500 opened lower by 10.64 points, or 0.36 per cent, at 2,979.77. The Nasdaq Composite dropped 48.88 points, or 0.60 per cent, to 8,112.91 at the opening bell.
"U.S. stocks markets will likely struggle to rebound until we hear from Fed chair [Jerome] Powell’s testimony to Congress on Wednesday, OANDA senior market analyst Edward Moya said. “Markets are still confident the Fed will cut rates at the end of the month, but the strong labor market have many doubting the Fed will signal more rate cuts will come following a small 25 basis point cut at the end of July FOMC meeting.”
Right now, markets have fully priced in a cut at the Fed’s meeting at the end of the month. However, expectations of a half-percentage-point cut have dropped to slightly more than 2 per cent from 26 per cent before the release of Friday’s strong U.S. employment figures, according to a morning note from online stock broker IG.
In Canada, the Bank of Canada releases its next rate decision on Wednesday morning. Markets aren’t expecting any move on rates but the language in the accompanying statement will be key as global central banks shift toward a more dovish tone.
“While Canada is clearly facing different circumstances than the U.S., there’s a limit to how far the [Federal Reserve] can cut before the BoC is forced to follow suit. For now, this is not an issue as the Canadian data have had a solid run," Benjamin Reitzes, Bank of Montreal’s Canadian rates and macro strategist. said.
On the corporate front, CannTrust Holdings Inc. shares fell more than 18 per cent in Toronto after the cannabis company said it has received a compliance report from Health Canada saying that its greenhouse facility in Pelham, Ont., is non-compliant with certain regulations. CannTrust says its operations at its Pelham and Vaughan facilities remain fully licensed and the company continues to grow, cultivate, harvest and sell cannabis. Health Canada is conducting quality checks of product samples on hold at Pelham, with results expected in 10 to 12 business days. As a result, CannTrust said, some customers and patients will experience temporary product shortages.
Monday’s TSX breakouts: A soaring stock that continues to benefit from online shopping growth
There were no major Canadian earnings on the calendar for Monday although later in the week investors will get results from Alimentation Couche-Tard, Aritzia Inc. and Cogeco Inc.
On Wall Street, Apple shares were down more than 2 per cent in early trading after Rosenblatt Securities downgraded the stock, citing concern over weaker iPhone demand. Rosenblatt cut its rating on the stock to ‘sell’ from ‘neutral.' However, it kept its price target at US$150. Apple reports its latest results at the end of the month.
In Europe, markets started the day mixed. The pan-European STOXX 600 was little changed. Shares of Germany’s Deutsche Bank has jumped at the open on news that the troubled lender would pull out of its global equities sales and trading operations and scale back its investment banking as it cut thousands of jobs. However, as trading progressed the gains faded and the stock was negative in morning trading. Britain’s FTSE 100 slid 0.11 per cent. Germany’s DAX was off by 0.11 per cent and France’s CAC 40 fell 0.15 per cent.
In Asia, expectations of a more modest rate cut by the Fed also tempered investor sentiment. The Shanghai Composite Index sank 2.8 per cent. Hong Kong’s Hang Seng fell 1.54 per cent and Japan’s Nikkei lost 0.98 per cent.
Commodities
Crude prices were steady to modestly higher, bolstered by heightened tensions around Iran’s nuclear program.
The day range on Brent crude was US$64.06 to US$64.70 while the range on West Texas Intermediate was US$57.37 to US$57.91.
Tehran said on Sunday it will soon boost its uranium enrichment above a limit set by a 2015 nuclear deal. U.S. President Donald Trump, who pulled the U.S. out of the agreement, warned that Iran “better be careful.”
“Oil markets are holding up better than I expected, especially with global equity markets turning south,” Stephen Innes, managing partner with Vanguard Markets, said. “More weight getting added to the Middle East GPR [geopolitical risk] index has oil traders back on headline watch.”
Prices also got a lift from Friday’s U.S. jobs report, which showed that economy added 224,000 new jobs, the most in five months. As well, U.S. energy companies reduced the number of oil rigs operating for the first time in three weeks as drillers follow through on plans to cut spending this year.
In other commodities, gold prices were higher as markets focus on global growth concerns. Spot gold was up 0.5 per cent at US$1,406.79 per ounce. U.S. gold futures climbed 0.6 per cent to US$1,408.90 an ounce.
“Despite the strong (U.S. jobs) numbers, the market is expecting a rate cut, just not as aggressive it would have been. We are still in a rate easing cycle right now,” said Howie Lee, an economist at OCBC Bank.
“Additionally, US$1,400 is a pretty strong support level for gold. Also, growth still remains weak globally and we have geo-political tension between the U.S. and Iran. Overall factors are still supportive for higher gold prices,” he added.
Currencies
The Canadian dollar neared its highest level in nearly eight months as investors look ahead to Wednesday’s Bank of Canada rate announcement and monetary policy report. The day range on the loonie so far is a fairly narrow 76.42 US cents to a 76.62 US cents.
“The BoC is nearly universally expected to keep rates steady at 1.75 per cent,” Elsa Lignos, RBC’s global head of FX strategy, said. “Unlike many of its developed market peers, the BoC is unlikely to introduce any easing bias. Instead, we expect GovCo to maintain that the current accommodative stance is appropriate and re-assert their data dependence.”
She said a solid string of reports should see the central bank upgrade its most recent GDP growth forecasts for the second quarter and the year. “The possibility of a dovish forecast change is there for 2020, which was last at 2.1 per cent, relying on optimistic contributions from business investment and net trade,” she said.
On global markets, the U.S. dollar held close to its best level in three weeks as bets on a bigger U.S. rate cut decline. The dollar index stood at 97.233, down slightly on the day but near the three-week high of 97.443 hit on Friday.
The big story in global currencies was the sharp drop in the Turkish lira after President Tayyip Erdogan dismissed the central bank governor, sparking worries about the bank’s independence. Turkey’s lira slid to as low as 5.8245 to the dollar , its lowest in two weeks, and was last down 1.7 per cent at 5.73, according to Reuters.
“Some naive market participants might still hope that the new central bank governor will come across as being independent in a statement announced for this week and at least does not cut interest rates right away,” Commerzbank analysts said.
“That may be the case but does not change the fact that medium term sensible Turkish monetary policy will not be possible.”
In bonds, the gap between Canada’s two-year yield and its U.S. counterpart narrowed by 4.4 basis points to a spread of 20.7 basis points in favor of the U.S. bond, its smallest gap since January 2018, according to Reuters.
More company news
Encana Corp.'s Newfield Exploration Mid-Continent Inc. unit is selling natural gas assets in Oklahoma’s Arkoma Basin for US$165-million. The buyer wasn’t identified in a brief press release. Encana’s Arkoma assets include approximately 140,000 net acres of leasehold and current production of approximately 77 million cubic feet equivalent per day.
Saudi Arabian budget airline flyadeal will not proceed with a provisional US$5.9-billion order for Boeing Co.'s 737 MAX aircraft, instead opting for a fleet of Airbus A320 jets. Flyadeal has been reconsidering a commitment to order the Boeing jets after two MAX aircraft crashed in Ethiopia in March and Indonesia last October. Flyadeal announced on Sunday it would take delivery of 30 A320neos ordered by its parent, state-owned Saudi Arabian Airlines, at the Paris Air Show in June.
Papa John’s International Inc said on Monday it has appointed a McDonald’s Corp veteran to the newly created role of chief of restaurants operations, as the pizza chain remodels itself after the departure of its scandal-hit founder. Jim Norberg, who has spent more than 30 years at McDonald’s, will be responsible for growing sales and profit margins as well as improving customer satisfaction at Papa John’s, the company said.
U.S. financial services provider Fidelity National Information Services Inc (FIS) on Monday won unconditional EU antitrust approval for its $35 billion takeover of payments company Worldpay. The deal was announced in March and is the biggest in the fast-growing electronics payments industry which has seen a wave of consolidation recently. The European Commission said it did not have any concerns regarding the takeover, confirming a Reuters report on July 1.
Economic news
(3 p.m. ET) U.S. consumer credit for May. The Street expects an increase of US$17.5-billion
With Reuters and The Canadian Press
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.
Terry Weber