U.S. stock futures gave up early gains Wednesday as investors turn from stocks to safer holdings as unease about U.S.-China trade talks and the valuation of China’s currency continue to inject volatility into the markets. World markets started the day in the black with Europe trading higher and MSCI’s all-country index advancing 0.2 per cent. On Bay Street, futures suggested a modestly firmer start for this country’s main index with oil retreating but gold holding around its best level in six years.
“Overnight, the (People’s Bank of China) set the reference point of the yuan at 6.9996, which was slightly weaker than expected, and in turn we saw stocks in Asia slide a little,” David Madden, markets analyst with CMC Markets U.K., said. “We could be in for a bit of back and forth when it comes to the Chinese currency in the near-term, and it is likely to be a driver of volatility.”
Wary investors continued to opt for gold, safer currencies, like Japan’s yen, and government bonds over stocks for the most part. About an hour before the start of trading in North America, U.S. bond markets, meanwhile, suggested that the risk of recession is at its highest since 2007 as yields fell. At 8:52 a.m., the premium on three-month bill rates above 10-year note yields grew to 37 basis points, the highest level since March 2007, according to Refinitiv data.
On the trade front, White House adviser Larry Kudlow said Tuesday that the United States is still planning on hosting a Chinese delegation for further talks next month. Those comments helped temper earlier concern after the U.S. labelled China a currency manipulator, drawing a strong rebuke from Beijing.
On the corporate side, shares of Walt Disney Co. were down more than 3 per cent in premarket trading after the entertainment giant posted a 39-per-cent decline in net income in the latest quarter, falling short of Wall Street forecasts.
The decline came as Disney put cash into the November launch of its own streaming service and starting folding in assets bought from Twenty-First Century Fox. Net income for the fiscal third quarter, which ended June 29, fell to $1.76 billion, from $2.92 billion last year. Excluding one-time items, net income totalled $1.35 per share. Analysts surveyed by FactSet expected net income of $1.72 per share.
U.S. earnings due Wednesday include CenterPoint and NRG Energy. Insurer AIG reports after the close.
Shares of Beyond Meat were up about 4 per cent in premarket trading on news that Subway Restaurants will test the company’s plant-based meat replacement in 685 restaurants in the U.S. and Canada next month. Subway will use Beyond Meat’s product in its Meatball Marinara sub.
On Bay Street, alternative lender Home Capital Group Inc. reported net income of $31.9-million or 53 cents in the latest quarter, up from $27.8-million or 45 cents a share a year earlier. Adjusted profit rose to 58 cents a share from 37 cents a year earlier.
CannTrust Holdings Inc. stock could also attract further interest when trading gets underway following a report in Wednesday’s The Globe and Mail that CannTrust’s former chief executive officer warned in a letter to the chairman of the board in December, 2018, that corporate governance problems and second-guessing from board members were undermining his authority. The letter from then-CEO Peter Aceto to then-chairman Eric Paul, dated Dec. 31, 2018, was sent at a time the company was growing thousands of cannabis plants in unlicensed rooms. It said: “Management often receives conflicting instructions from board members. It is often unclear when and which board members need to be involved in decision-making, and when decisions are made, they are often second-guessed."
Overseas, Asian markets were mixed after the People’s Bank of China set the official midpoint reference rate for the yuan slightly below market expectations. The Shanghai Composite Index closed down 0.32 per cent. Hong Kong’s Hang Seng added 0.08 per cent. Japan’s Nikkei finished the session down 0.33 per cent.
In Europe, markets started the day in the black with the pan-European STOXX 600 rising 0.84 per cent. The FTSE 100 gained 0.77 per cent in morning trading. Germany’s DAX added 1.27 per cent. France’s CAC 40 rose 1.16 per cent.
Commodities
Crude prices were weaker with Brent hitting its lowest level in seven months as the spectre of an escalation in trade tensions between the U.S. and China offset figures showing a bigger-than-forecast weekly decline in U.S. oil inventories.
The day range on Brent so far is US$58.57 to US$59.23. Brent set a new seven-month low during the session and is now down about 20 per cent from its April peak. The range on West Texas Intermediate is US$53.15 to US$53.77.
Stephen Innes, managing partner with VM Markets, said in a morning note that a better-than-forecast draw in U.S. inventories last week failed to lift crude prices, noting the market has “bigger fish to fry today.”
“More damning for price action is that traders are now pricing in worst-case scenarios as the prospects for a full-blown global trade war are looking increasingly likely by the week and it is trade war where traders will be taking their cues as to where oil is headed next,” he said.
“While omnipresent risk in the Middle East, slowing U.S. supplies and OPEC compliance continues to support fundamentals for oil. The imminent and ever-present peril from the US-China trade spat will continue to hang like an anvil above the head of the global economy, so it is challenging to see sentiment improving any time soon.”
After Tuesday’s close, the American Petroleum Institute reported that U.S. crude inventories fell by 3.4 million barrels last week to 439.6 million barrels, compared with analyst expectations for a decrease of 2.8 million barrels. More official figures are due later Wednesday morning from the U.S. Energy Information Administration.
Elsewhere, gold prices rose 1 per cent to a six-year higher as trade concerns linger. Spot gold was up 1.1 per cent at US$1,490.57 per ounce, its highest since April 2013. U.S. gold futures climbed 1.2 per cent to US$1,501.50 an ounce.
“Trade wars are the catalyst for the latest gains. Increasingly fiery rhetoric out of Washington and Beijing is fueling worries that the conflict will amount to a longer-term headwind for global growth,” Ilya Spivak, senior currency strategist with DailyFx told Reuters.
Currencies
The Canadian dollar dipped below the 75-US-cent mark as crude prices declined and global trade concerns continued to push investors toward safe-haven holdings. The day range on the loonie so far is 74.94 US cents to 75.37 US cents.
On the economic front, there was little on the calendar, meaning global forces will likely drive the currency.
“It is another quiet day for scheduled event risk and direction will continue to be dominated by sentiment on the US-China trade dispute,” RBC chief currency strategist Adam Cole said in a note.
On global markets, the New Zealand dollar was the big mover, dropping 2 per cent after that country’s central bank delivered a surprise half percentage point rate cut. Markets had been expecting a quarter point cut.
The move triggered the biggest decline for the New Zealand currency in two years as the central bank also suggested further easing could be in the offing. Mr. Cole noted that the drop in the New Zealand dollar spilled over into its Australian counterpart but elsewhere G!0 markets were quiet.
The Australian dollar fell 0.7 per cent to 67.11 US cents with investors now betting that the Australian central bank will also cut rates faster that previously expected.
Elsewhere, the euro was unchanged against the dollar at US$1.1196 , while against a basket of currencies the greenback was steady.
Britain’s pound weakened 0.2 per cent to US$1.2154.
More company news
Finning International Inc. says its second-quarter net income was up 11 per cent from the same time last year amid strong sales in all its regions and improved efficiencies following restructurings in Canada and South America. The Vancouver-based company reported $88-million of net income, or 54 cents per share with $2-billion of net revenue. That was up from $81-million of net income or 48 cents per share with $1.73-billion of net revenue in 2018. Adjusted earnings per share was 54 cents. Analysts had estimated 42 cents per share of adjusted earnings and $1.8-billion of net revenue, according to financial markets data firm Refinitiv.
U.S. electric vehicle maker Tesla Inc is considering lifting its prices in China from September amid yuan-related uncertainty, two people familiar with the matter told Reuters. The people declined to be named as the plan has not been made public. They did not offer detail on the price change. Tesla currently imports vehicles from the United States to China. It did not immediately respond to a Reuters’ request for comment.
Glencore reported a 32-per-cent drop in first-half core profit on Wednesday, sending its shares to their lowest since late 2016, and said it would suspend output at the world’s biggest cobalt mine because of a steep fall in prices. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were US$5.58-billion for the six months ended June 30, compared with $8.18 billion a year earlier. The company’s shares were trading 2.4-per-cent lower.
CVS Health Corp posted a better-than-expected quarterly profit on Wednesday, benefiting from higher sales in the Aetna health insurance business it acquired last year, and the company raised its full-year earnings forecast. Shares of CVS rose 4 per cent to $56.28 before the bell. Excluding items, CVS earned US$1.89 per share, above the average analyst estimate of US$1.69, according to IBES data from Refinitiv. CVS now expects full-year adjusted earnings per share of US$6.89 to US$7.00, compared with its previous forecast of US$6.75 to US$6.90.
Burger chain Wendy’s Co reported quarterly revenue that fell short of analysts’ estimates, hit by tough competition in a crowded U.S. restaurant market. The results come weeks after other established chains such as McDonald’s Corp, Chipotle Mexican Grill and Starbucks Corp reported solid growth, driven by new menu additions and expanded delivery services. Total revenue rose 5.9 per cent to US$435.3-million, but came in below estimates of US$439.9-million, according to IBES data from Refinitiv. Net income rose 8.4 per cent to US$32.4-million from a year earlier. Excluding items, Wendy’s, which also reaffirmed its full-year adjusted profit forecast, earned 18 US cents per share, beating estimate of 17 US cents.
Private equity firm Permira Funds will buy Cambrex Corp for about US$2-billion, the drug contract development and manufacturing company said on Wednesday. The all-cash offer of US$60 per Cambrex share represents a 47-per-cent premium to the stock’s Tuesday close. The company’s shares were trading at US$59.20 before the bell on Wednesday. Cambrex, which provides drug developers with manufacturing and testing services, said that the deal is expected to close during the fourth quarter. Including debt, the deal is valued at about US$2.4-billion.
Economic calendar
(10 a.m. ET) Canada's Ivey Purchasing Managers Index for July.
(3 p.m. ET) U.S. consumer credit for June. The Street expects an increase of US$16.5-billion.
With Reuters and The Canadian Press
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Terry Weber