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Equities
Canadian and U.S. markets caught an updraft early Tuesday as rising optimism over U.S.-China trade talks helped bolster sentiment.
At 9:38 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 57.3 points, or 0.36 per cent, at 16,156.09, on course to rise for a third day. Bank shares remained in focus for Canadian markets with Bank of Montreal and Bank of Nova Scotia reporting their latest results. Financial stocks posted modest gains in morning trading. Nine of the 11 major sectors were higher.
South of the border, the Dow Jones Industrial Average rose 115.63 points, or 0.45 per cent, at the open to 26,014.46.
The S&P 500 opened higher by 14.76 points, or 0.51 per cent, at 2,893.14. The Nasdaq Composite gained 55.05 points, or 0.70 per cent, to 7,908.78 at the opening bell.
On Monday, U.S. President Donald Trump calmed global markets after last week’s sharp drop by predicting that a trade deal with China is coming, telling G7 leaders that he believed Beijing was sincere about wanting an agreement. Chinese Vice Premier Liu He also said China is willing to resolve the conflict through “calm” negotiations.
Despite Tuesday’s gains, analysts remained cautious.
“The markets are back in repair mode again after policymakers played nice at the G7,” Mark McCormick, TD’s global head of FX strategy, said. “We still think this backdrop relies on sentiment and positioning than any real progress in the trade wars. Given the recent escalation from China, we suspect that the U.S. will need to make concessions to support a meaningful recovery. That’s unlikely, increasing the prospects of renewed stress.”
Tuesday’s small cap stocks to watch
Bank of Montreal’s third-quarter profit edged up 1 per cent as expected loan losses grew as retail growth slowed. BMO reported profit of $1.56-billion, or $2.34 per share, both up 1 per cent from $1.54-billion, or $2.31 per share, a year ago. Adjusted to exclude certain items, BMO said it earned $2.38 per share. But that fell far short of the consensus estimate of $2.49 per share among analysts. BMO shares were down more than 2 per cent in early trading in Toronto.
Meanwhile, Scotiabank posted a 2.3-per-cent rise in third-quarter profit on Tuesday helped by strength in its international banking business. Net income rose to $1.98-billion or $1.50 per share, in the quarter ended July 31, compared with $1.94-billion, or $1.55 per share, a year earlier. On a adjusted basis, the company earned $1.88 per share, which included a one-time loss of $400-million, arising from the sale of its operations in Puerto Rico and the U.S. Virgin Islands. Scotia bank stock was up about 1 per cent.
On Wall Street, shares of tobacco giant Philip Morris International Inc. fell more than 5 per cent after it confirmed it was in talks for an all-stock deal to merge with rival Altria Group. Altria shares jumped 8 per cent on the news. According to Reuters, a merger of the two would create a company with a market value of more than US$200-billion at current prices.
In earnings, Hewlett Packard reports after the close.
Tuesday’s analyst upgrades and downgrades
Overseas, major European markets shook off early losses, helped by news that China is weighing the removal on auto purchases as one measure to boost consumption. Europe’s STOXX 600 was up 0.72 per cent in afternoon trading after starting the day lower. Britain’s FTSE 100 rose 0.12 per cent. Germany’s trade-sensitive DAX jumped 0.94 per cent per cent. France’s CAC 40 gained 0.71 per cent.
In Asia, stocks followed Wall Street higher. Japan’s Nikkei gained 0.96 per cent. The broader Topix rose 0.79 per cent. Hong Kong’s Hang Seng slid 0.06 per cent. The Shanghai Composite Index rose 1.35 per cent.
Commodities
Crude prices regained some of the previous session’s losses as a steadier tone in the trade dispute between the United States and China helped calm investor’s nerves.
In early going both Brent and West Texas Intermediate were positive. Both benchmarks lost about 1 per cent on Monday.
The day range on Brent crude is US$58.75 to US$59.37. The range on West Texas Intermediate is US$53.71 to US$54.33.
“With so many headlines to roll with, oil traders are currently focused on the prospect of a China and the U.S. returning to the negotiating table, boosting the possibility of a trade deal being agreed,” Jasper Lawler, head of research for London Capital Group, said. "An end to the current tit-for-tat dispute and a trade deal between the worlds two largest economies can only be a good thing for future oil demand."
However, he also noted that a “less expected headline” out of the G7 - the possibility of a diplomatic solution between the United States and Iran - could have a big impact on crude prices. “Should Trump stick to his word and sit down with his counterpart in Iran, Hassan Rouhani, there is potential for easing tensions in the Middle East, possibly sending oil US$5-US$10 lower,” he said.
Later Tuesday, investors will get U.S. oil and gasoline inventories when the American Petroleum Institute releases its weekly tally. Markets are expecting the report to show a decline in crude inventories. According to a Reuters poll of five analysts, crude stocks are seen falling by 2.1 million barrels for the week ended Aug. 23.
Gold prices, meanwhile, were also higher with trade still in focus. Bullion touched its best level in six years on Monday on uncertainty over the talks sent investors to safer haven holdings.
On Tuesday, spot gold was up 0.3 per cent to US$1,530.28 per ounce, after hitting its highest since April 2013 at US$1,554.56 on Monday. U.S. gold futures rose 0.2 per cent at US$1,540.80.
“It’s clear that the main focus is on the U.S.-China developments. Reports from China on the trade front indicate we are nowhere near any change in the current standoff on trade,” Saxo Bank commodity strategist Ole Hansen told Reuters.
“And with the growth numbers in Germany pointing to a recession, there’s not much of an excuse to sell gold if you are holding any, keeping the market more or less unchanged even though we had a toning down of the confrontational tone on trade,” Hansen said.
Spot silver jumped 2 per cent to touch US$18 an ounce for the first time since September 2017.
Currencies
The Canadian dollar was higher, trading around the mid 75-US-cent mark, as easing trade tensions helped shift investors back toward riskier holdings.
At last check, the loonie was trading near the upper end of the day range of 75.44 US cents to 75.60 US cents. Early Tuesday, the loonie touched its highest level against the greenback since the middle of the month.
“Yesterday’s rebound in risk sentiment was significant technically,” Elsa Lignos, RBC’s global head of FX strategy, said in a note.
“Datawise there is not much in Canada until Friday’s GDP data, though the CFIB [Canadian Federation of Independent Business] business barometer (Thursday, no consensus) is worth watching in the background,” he said.
Already, markets are also starting to look ahead to next week’s Bank of Canada rate decision. BMO senior economist Sal Guatieri said last week’s escalation of the U.S.-China trade war tipped BMO into the “rate-cut camp” for the central bank’s Oct. 30 meeting. “Expect a dovish statement and press conference at next week’s meeting, highlighting the potential impact of unpredictable trade policies on business investment, exports and resource prices, even as recent firmer data on the Canadian economy, housing market and inflation argue against a cut,” he said.
On global markets, major currencies were mostly stable.
The euro was trading at US$1.1103 as market participants looked for signs of whether talks between Italy’s Five Star Movement and the Democratic Party would result in the formation of a coalition government, according to Reuters. The leaders are expected to meet on Tuesday.
The US. dollar index, which weighs the greenback against a basket of world currencies, was down 0.2 per cent at 97.919. Britain’s pound was up 0.4 per cent at US$1.2268 as Britain’s opposition Labour Party leader Jeremy Corbyn said he would do everything necessary to prevent a no-deal Brexit.
Caution also crept back into the bond market with U.S. Treasury yields slipping as uncertainty remained over the state of trade talks. The yield on the U.S. 10-year note was lower at 1.513 per cent. The yield on the 30-year note was also down slightly at 1.998 per cent.
Other company news:
The Globe’s Clare O’Hara and David Milstead report that the Ontario Securities Commission is pursuing settlements with Royal Bank of Canada and Toronto-Dominion Bank in the first major Canadian regulatory action as part of global investigations into foreign-exchange traders. From 2011 to 2013, employees at both banks used electronic chat rooms “many hundreds” of times to share confidential customer information with foreign-exchange traders at outside firms, the OSC said in a statement of allegations published late Monday.
Canopy Rivers Inc., the venture capital arm of cannabis company Canopy Growth Corp., reported a net loss of nearly $3-million in its latest quarter. The company says the loss amounted to two cents per diluted share for the quarter ended June 30, compared with a net loss of $6.6-million or five cents per share a year ago. Operating income in what was the first quarter of the company’s 2020 financial year totalled $2.7-million, up from $744,000, including royalty, interest and lease income.
A unit of Russian conglomerate Rostec said on Tuesday it was ready for an out-of-court settlement with Boeing over its order for 35 Boeing 737 MAX jets, a spokesman for Rostec’s subsidiary Avia Capital Service told Reuters. Boeing MAX 737 jets have been grounded worldwide and airlines are cancelling multimillion contracts following crashes in October and March that killed 346 people. Earlier on Tuesday, Rostec said its unit had filed a lawsuit in the United States to cancel its order for the 35 MAX jets. The Financial Times, which first reported the move, said Avia Capital Service gave Boeing a cash deposit of US$35-million.
Teck Resources Ltd. says zinc production will be less than expected after an electrical equipment failure on the weekend at its refinery in Trail, B.C. The company says the failure affected one of four rectifiers used in the zinc refinery. There were no injuries or environmental impacts related to the incident which occurred Sunday. Teck says repairs are expected to take up to 20 weeks at an estimated cost of $5-million to $10-million.
An Oklahoma judge on Monday ordered Johnson & Johnson to pay US$572.1-million to the state for its part in fueling an opioid epidemic by deceptively marketing addictive painkillers. Shares rose in premarket trading on the news with markets expecting a higher award. The state’s attorney general had filed the lawsuit, seeking US$17-billion to address the impact of the drug crisis on Oklahoma. It had been considered a bellwether for other litigation nationwide over the opioid epidemic. “The expectation was this was going to be a $1.5 billion to $2 billion fine,” said Jared Holz, healthcare strategist for Jefferies & Co. “$572 million is a much lower number than had been feared.” J&J said it would appeal the decision.
Costco Wholesale Corp was forced to shut its first store in China early on its opening day on Tuesday, according to state media, after large crowds flocked through the door and caused traffic jams in the Shanghai neighbourhood. Videos posted on Chinese social media showed thousands of people crowding the aisles of the store in Shanghai’s Minhang district, while signs outside warned incoming shoppers that they might have to wait three hours to park.
J. M. Smucker Co cut its full-year earnings forecast and missed Wall Street estimates for quarterly profit and sales, blaming competition in the pet food industry and its move to cut prices on its peanut butter and coffee. Shares of the company fell about 6 per cent in early trading in New York. The company cut its outlook for fiscal 2020 net sales, saying that it now expects sales in the range of a 1- per-cent drop to flat. It had previously estimated sales to rise 1 per cent to 2 per cent.
Papa John’s International Inc named Arby’s Restaurant Group Inc President Rob Lynch as its new chief executive officer, replacing Steve Ritchie.
Economic Calendar
The S&P CoreLogic Case-Shiller 20-city U.S. home price index rose 2.1 per cent in June from a year earlier, down from a 2.4-per-cent gain in May.
The Conference Board said the index on U.S. consumer confidence slipped to 135.1 in August from an upwardly adjusted 135.8 the month before. Analysts polled by Reuters had forecast a reading of 129.5 for August.
With Reuters and The Canadian Press
Terry Weber