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Equities
Canada’s main stock index started higher Wednesday with rising crude prices buoying energy stocks. Wall Street also opened in the black as signs of easing tensions between the United States and China bolstering sentiment.
At 9:40 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 23.46 points, or 0.14 per cent, at 16,560.8. Seven of the index’s 11 sectors were higher with a 1-per-cent gain in energy stocks leading the way.
The Dow Jones Industrial Average rose 18.62 points, or 0.07 per cent, at the open to 26,928.05. The S&P 500 opened higher by 2.02 points, or 0.07 per cent, at 2,981.41. The Nasdaq Composite gained 7.53 points, or 0.09 per cent, to 8,091.68 at the opening bell.
Early Wednesday, Beijing announced exemptions from additional retaliatory tariffs for 16 types of U.S. products as officials from the United States and China ready to meet again later this month in an attempt to work through their lingering trade differences. In a posting on its website, China’s Ministry of Finance said exemptions will apply to U.S. goods including some anti-cancer drugs and lubricants, as well as animal feed such as whey and fish meal. The exemptions take effect Sept. 17 and run through to next year.
Trade officials are set to meet in mid-September in Washington. That will be followed by a high level meeting early next month with Chinese Vice Premier Liu He, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.
“U.S. equities are likely to struggle recapturing record high territory until we have a clearer picture of both the ECB and Fed easing cycles and if we only see China become more focus on lessening the impact of the trade war than looking to resolve it,” OANDA senior market analyst Edward Moya said. “China began tariff exemptions today but decided to keep life hard on U.S. farmers. China is trying to offer an olive branch here, but in no way is showing any signs they are abandoning their retaliation strategy as U.S. is preparing their next tranche of punitive measures at the start of next month.”
Wednesday’s analyst upgrades and downgrades
In addition to recent trade developments, markets are also awaiting expected policy easing from the European Central Bank which delivers its next policy decision early Thursday. “Germany is the power house of Europe and the economy contracted in the second-quarter, and there is talk of a recession,” CMC Markets analyst David Madden said. "The Fed already cut interest rates in June, and there is speculation about a further cut later this month, so the ECB might want to make the first move."
However, Mr. Madden also said, given that the ECB’s base rate is now 0 per cent and the deposit rate is minus 0.4 per cent, “the bank might not want to move just yet, as they might wish to hold fire in case things get a lot worse.” The ECB decision will be followed next week by the U.S. Federal Reserve’s next rate announcement.
In corporate news, shares of retailer Roots Corp. fell more than 10 per cent after the company reported a loss per share in the latest quarter of 23 cents, up from a loss in the same period a year earlier of 10 cents. On an adjusted basis, Roots posted a loss in the most recent quarter of 15 cents in the latest quarter. Analysts had been looking for a loss closer to 11 cents a share. Overall sales totalled $61.7-million, up from $60.2-million the year before. Comparable sales were down 2.9 per cent.
After the close, cannabis producer Aurora Cannabis Inc. delivers its latest quarterly earnings. In August, Aurora lowered its guidance for the quarter, saying the industry is navigating “through periods of volatility.” At that time, Aurora said it expects net revenue between $100-million to $107-million in the quarter. All key business segments – Canadian and international medical sales, and consumer markets – were expected to continue growing. The amount of cannabis that was available for sale during the quarter is expected to be at the upper end of the 25,000 kilograms to 30,000 kg range, versus previous guidance of 25,000 kg. Aurora shares opened higher in Toronto at $8.27.
Overseas, European markets were higher ahead of Thursday’s ECB decision. The pan-European STOXX 600 was up 0.63 per cent in afternoon trading. Britain’s FTSE 100 added 0.97 per cent. Germany’s DAX gained 0.78 per cent and France’s CAC 40 rose 0.30 per cent.
In Asia, markets finished mixed. The Shanghai Composite Index slid 0.41 per cent. Hong Kong’s Hang Seng jumped 1.78 per cent. Japan’s Nikkei gained 0.96 per cent.
Commodities
Crude prices were higher Wednesday after new figures showed a drop in U.S. inventories and Iraq’s oil minister suggested OPEC would discuss whether production cuts should be deepened.
The day range on Brent crude is US$62.58 to US$63.27. The spread on WTI is US$57.65 to US$58.30. Both benchmarks were up by more than 1 per cent in early going. So far, crude prices have gained more than 7 per cent this month.
Late Tuesday, the American Petroleum Institute said U.S. crude inventories fell by 7.2 million barrels last week. That was more than twice the decline expected by analysts polled by Reuters. Gasoline stocks also fell while distillate inventories rose.
Weekly U.S. government figures are due just after the North American open from the U.S. Energy Information Administration.
Prices had been on the rise through much of the week following the appointment of Prince Abdulaziz bin Salman as Saudi Arabia’s new energy minister, who said he anticipated continuing with current production cuts from OPEC and its allies. The current deal calls for cuts of 1.2 million barrels a day.
On Wednesday, Reuters reported that Iraq’s oil minister Thamer Ghadhban said that OPEC members will discuss at a ministerial meeting on Thursday whether to deepen cuts, noting that at the previous meeting cuts of 1.6-1.8 million barrels per day had been considered.
Also early Wednesday, OPEC cut its forecast for growth in world oil demand in 2020 by 60,000 barrels per day to 1.08 million barrels, citing a slowing global economy. OPEC also indicated the market would be in surplus.
In other commodities, gold prices edged higher, breaking a four-day losing streak.
Spot gold was up 0.3 per cent at US$1,490.27 per ounce. In the previous session, prices fell to their lowest since Aug. 13 at US$1,483.90. U.S. gold futures were up 0.2 per at US$1,502.2 an ounce.
“The ECB is expected to reduce further the interest rate into negative territory... The meeting could serve as a potential catalyst (for gold) and investors are already buying into the rate cut expectations,” Margaret Yang Yan, a market analyst at CMC Markets, said.
Currencies
The Canadian dollar was little changed holding just above the 76-US-cent mark bolstered by higher crude prices and a return by investors to riskier holdings, although there was little on day’s docket to offer direction for the currency.
At last check, the loonie was moving in a fairly narrow range of 75.99 US cents to 76.10 US cents.
The lone item on the Canadian calendar is a report on second-quarter capacity utilization, which isn’t usually market moving. The consensus is for utilization in the quarter to move up to 82 per cent from 80.9 per cent. (Update: Statscan says the rate in the quarter was 83.3 per cent.)
“It would mark a slight bounce from the Q1 dip, and show an economy still operating near full capacity,” Elsa Lignos, global head of FX strategy for RBC, said in a note.
On global markets, a return of risk appetite hit the Japanese yen, which had been trading near year highs last month on concerns about a global recession. But easing U.S.-China trade tensions and broader market gains have taken some of the wind out of that currency’s sails. The yen was down 0.2 per cent at 107.73 yen per U.S. dollar. Late last month, the yen had been trading around 105 yen per U.S. dollar.
Elsewhere, the euro was little changed as traders look for more stimulus from the ECB at Thursday’s meeting. Early Wednesday, the euro was trading at US$1.1044. The U.S. dollar index edged up 0.1 per cent higher to 98.414.
U.S. bond yields continued to move higher as investors look ahead to Thursday’s ECB decision and next weeks policy meeting by the U.S. Federal Reserve. The yield on the U.S. 10-year note was up at 1.718 per cent. The yield on the 30-year note was also higher at 2.198 per cent.
More company news:
Apple Inc’s new, lower priced iPhone that comes with a faster processor but lacks 5G technology disappointed Asia, where cheaper and feature-packed handsets from rivals are already available, Reuters reports. The iPhone 11, launched on Tuesday for US$50 less than last year’s base XR model, was met with a limp response from social media users in Asian markets that are dominated by Huawei Technologies and Samsung Electronics. Lowering the entry price point, a rare move from Apple, was likely an effort to attract buyers in China, where Apple has ceded ground to Huawei due to a surge in support from patriotic Chinese consumers after the Chinese brand was caught in the U.S.-China trade standoff, said analysts.
Cathay Pacific Airways Ltd said on Wednesday it would cut capacity for the upcoming winter season after reporting an 11.3% fall in passenger numbers for August as anti-government protests in Hong Kong hit demand. The airline said inbound traffic to Hong Kong in August had fallen by 38% and outbound traffic by 12% compared with the previous year, and it did not anticipate September would be any less difficult.
Hong Kong Exchanges and Clearing has made an unsolicited US$39-billion takeover bid for the London Stock Exchange, an offer contingent on the LSE ditching its acquisition of data company Refinitiv. The combination would help both exchanges compete better with rivals like ICE and CME from the United States. The LSE has long sought to bolster its presence in Asia and recently launched a link scheme with HKEX rival Shanghai.
General Motors Co is recalling 3.46 million U.S. pickup trucks and SUVs to address a vacuum pump issue that could make braking more difficult and increase the risk of a crash. The recall, which covers vehicles built since 2014 including some Cadillac Escalade, Chevrolet Silverado, GMC Sierra, Chevrolet Suburban and GMC Yukon vehicles, is because the amount of vacuum created by the vacuum pump may decrease over time, GM told the National Highway Traffic Safety Administration (NHTSA) in documents posted Wednesday.
Economic news
Statistics Canada says Canadian industries operated at 83.3 per cent of their production capacity in the second quarter, up from 81.1 per cent in the previous quarter. Markets had been expecting a capacity utilization rate in the second quarter of about 82 per cent.
The U.S. Labor Department said its producer price index for final demand edged up 0.1 per cent last month as a jump in the cost of services offset the largest drop in the price of goods in seven months. In the 12 months through August the PPI advanced 1.8 per cent after increasing 1.7 per cent in July. Economists polled by Reuters had forecast the PPI would be unchanged in August and rise 1.7 per cent on a year-on-year basis.
(10 a.m. ET) U.S. wholesale trade for July.
With Reuters and The Canadian Press
Terry Weber