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Equities
Canada’s main stock index turned higher in morning trading with gains in materials stocks offsetting declining energy shares. In the U.S., markets also started on a down note as investors tread water waiting for Wednesday’s Federal Reserve rate announcement.
At 10:03 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 25.62 points, or 0.15 per cent, at 16,776.93. Higher gold prices pushed materials stocks up almost 2 per cent. Energy stocks sank 2.5 per cent following a Reuters report suggesting Saudi production, halved by weekend drone attacks, could be back online within weeks.
Overall, eight of the index’s 11 main sectors were higher by midmorning.
On Wall Street, the Dow Jones Industrial Average fell 66.70 points, or 0.25 per cent, at the open to 27,010.12.
The S&P 500 opened lower by 2.29 points, or 0.08 per cent, at 2,995.67. The Nasdaq Composite dropped 4.89 points, or 0.06 per cent, to 8,148.65 at the opening bell.
Overseas, Europe’s major markets turned lower as the trading day wore on while global shares measured by MSCI’s all-country index were also in the red. Brent futures were down about 1 per cent after surging more than 14 per cent on Monday, marking the biggest single-day gain since 1988. West Texas Intermediate futures were down by nearly 1 per cent.
On the weekend, drone strikes on facilities in Saudi Arabia cut the kingdom’s crude output by half, triggering supply concerns across the markets. Concerns eased somewhat after the U.S. authorized the use of emergency stockpiles although uncertainty over response to the attacks continues to temper investor sentiment.
Tuesday’s analyst upgrades and downgrades
Markets are also now turning their attention to Wednesday’s Fed decision and an expected quarter percentage point rate cut. The Fed begins its two-day policy meeting on Tuesday morning and delivers its decision at 2 p.m. ET on Wednesday.
“Markets fully expect a rate cut tomorrow, with the prospect of higher oil prices pointing towards further economic weakness given the drain on consumer spending and business margins,” Joshua Mahony, senior market analyst with IG, said. “However, with the ECB now embarking on an open-ended QE program, the comparative between the two sides could see the [U.S.] dollar rally if the FOMC continue to point towards a short-lived period of easing from the Fed.”
On Monday, U.S. Donald Trump called on the Fed for a “big interest rate drop", continuing his campaign of pressuring the central bank into further action. At this point, markets have priced in about a 66-per-cent chance of a 25 basis point cut in the Wednesday announcement although analysts are now divided whether the bank will continue on a path toward further easing through the rest of the year. In July, the bank also cut rates at its meeting but suggested the move was a “mid-cycle adjustment” rather than a shift in policy.
On Wall Street, FedEx reports results after the close of trading. Markets will be keeping a close eye on how the continuing trade dispute between the United States and China is affecting the delivery giant. (Mid-level trade officials are scheduled to meet in Washington later this week to restart talks on the dispute.) Shares of FedEx have been down about 30 per cent over the past year. By comparison, rival UPS has seen its stock gain about 5 per cent. Analysts are expecting FedEx to report adjusted earnings per share of US$3.16 on revenue of US$17.06-billion in the quarter. FedEx shares were trading down 1.24 per cent on the New York Stock Exchange shortly after the start of trading.
Other U.S. earnings on Tuesday include Cracker Barrel and Adobe.
On this side of the border, cannabis producer Canopy Growth Corp. holds its annual meeting on Tuesday.
In corporate news, Imperial Oil announced that chairman and chief executive Rich Kruger will retire at the end of December. Exxon executive B.W. (Brad) Corson has been named president and will take on the chair and CEO roles effective Jan. 1. Imperial Oil shares opened up about 0.5 per cent in Toronto.
Overseas, European markets turned lower in afternoon trading. The pan-European STOXX 600 was down 0.4 per cent, sliding 0.02 per cent. Britain’s FTSE was down 0.15 per cent. Germany’s DAX slid 0.51 per cent. France’s CAC 40 gained 0.10 per cent.
In Asia, Tokyo’s Nikkei gained 0.1 per cent, while Hong Kong’s Hang Seng lost 1.2 per cent and the Shanghai Composite shed 1.7 per cent.
Commodities
Crude prices edged lower after spiking during the previous session as markets continue to weigh the impact of weekend attacks on Saudi facilities.
Despite Tuesday’s modest declines both Brent and West Texas Intermediate remain at elevated levels. Brent has a day range of US$67.72 to US$69.26. WTI’s range for the day is US$61.61 to US$62.59. On Monday, crude prices jumped roughly 20 per cent at one point before pulling back somewhat to finish the day up about 15 per cent.
“The longevity of this oil rally is likely to come down to the geopolitical aspect as much as supply, with the sizable knockout in output likely to be made up through backup inventories from both the U.S. and Saudi Arabia,” IG’s Joshua Mahony said in a note. “However, it is the impact it has on Middle East relations that could provide the longer lasting shift in sentiment, with the prospect of military conflict ramping up once again.”
State-owned producer Saudi Aramco has yet to give a timeline on how quickly production will return. Reuters has reported that Aramco could maintain deliveries through this week by tapping stockpiles. Saudi energy minister Prince Abdulaziz bin Salman will hold a news conference on Tuesday.
In other commodities, gold prices were steady ahead of the start of the Fed meeting.
Spot gold slid by 0.1 per cent to US$1,495.74 an ounce, after gaining as much as 1 per cent in the previous session on tensions in the Middle East. U.S. gold futures were down 0.4 per cent at US$1,505.6.
“Central bank easing, trade war uncertainty and the recent middle east escalation should at minimum keep gold prices supported,” Stephen Innes, Asia Pacific market strategist with AxiTrader, said.
Currencies
The Canadian dollar fell Tuesday after a worse-than-expected reading on manufacturing sales.
The loonie fell to the bottom end of the day range of 75.40 US cents to 75.55 US cents after Statistics Canada said factory sales for the month fell 1.3 per cent. Markets had been expecting a decline closer to 0.1 per cent.
“While only around half of the industries saw declines, the large magnitude of the drops in primary metals and motor vehicles in particular drove the downside miss,” CIBC economist Katherine Judge said. “The latter category was held back by a shutdown at an auto assembly plant and could see a reversal of weakness ahead as a result.”
The dollar had already been trending lower ahead of the report as crude prices pulled back from Monday’s big gain.
On Monday, the Canadian dollar - along with other commodity-linked currencies - saw an initial gain on the spike in crude prices, although the rise was fairly tentative as markets took a wait-and-see approach to the situation in the Middle East.
“Even by recent standards, the CAD’s weak reaction to the rally in oil prices was a little surprising,” Shaun Osbourne, chief FX strategist for Scotiabank, and Juan Manuel Herrera, global bank and markets, said in a morning note. “Simple regression work suggests that a 14-per-cent rise in WTI should have driven the USD about 1.5-per-cent lower versus the CAD yesterday, all else remaining equal. The CAD barely managed a 0.3-per-cent rise.”
Some of the reasons for the loonie’s failure to launch, they said, include bottlenecks and restructuring in the Canadian sector, rising U.S. crude output and the indication from the U.S. that it could tap emergency reserves," they said.
"Still, the CAD’s inability to rally more obviously reflect the CAD’s recent under-performance versus a range of (more supportive) variables which we think leaves USDCAD trading a bit higher than it really should be.
On world exchange markets, the U.S. dollar index, which weighs the greenback against a group of global counterparts, advanced 0.1 per cent to 98.66, closing in on the two-year high of 99.37 seen earlier in September.
“The dollar is in demand as risk sentiment remains weak and it will be difficult for the Fed to overcome already dovish market expectations,” Manuel Oliveri, an FX strategist at Credit Agricole in London, told Reuters.
In bonds, U.S. Treasury yields slid ahead of the Fed decision. The yield on the U.S. 10-year note was lower at 1.833 per cent. The yield on the 30-year note was also lower at 2.304 per cent.
More company news:
WeWork owner The We Company said it expected to complete its initial public offering (IPO) by the end of the year, after walking away from preparations earlier in the day to proceed with it stock market debut this month. The U.S. office-sharing startup was getting ready to launch an investor road show for its IPO this week before making a last-minute decision on Monday to stand down, because of concerns not enough stock market investors would participate, people familiar with the matter told Reuters. The company has been under pressure to proceed with the stock market flotation to secure funding for its operations.
Sony Corp said it was rejecting a call by Daniel Loeb’s activist hedge fund Third Point LLC to spin-off its chips business, saying that the business is “a crucial growth driver” for the Japanese company. Sony’s board and management unanimously concluded that retaining the chips business, which includes imaging sensors, was “the best strategy for enhancing Sony’s corporate value over the long term”, the company said in a letter to shareholders.
The Federal Communications Commission on Monday said it voted to approve Nexstar Media Group Inc’s acquisition of Tribune Media Co in a US$6.4-billion deal.
More than 1,000 workers at Diageo’s Scottish distilleries will go on strike on Tuesday after last-minute talks over wage hikes between the company and unions failed again on Monday. Members of Scotland’s GMB and Unite unions told Reuters that “absolutely zero progress” was made during “last-ditch” talks with the drinks giant to improve their pay offer above 2.8%, ahead of the 10-day rolling strike action called by the unions, starting 2100 GMT on Tuesday.
Toronto-Dominion Bank says it is launching a new security feature on all TD Visa consumer credit cards. The feature lets TD credit cardholders temporarily block their Canadian credit cards from any in-person international charges through TD’s app.
Economic news
Canadian manufacturing sales fell 1.3 per cent in July to $57.2-billion. Markets had been expecting a smaller decline of 0.1 per cent.
The Federal Reserve said U.S. manufacturing production rose 0.5 per cent last month after an unrevised 0.4-per-cent drop in July. Economists polled by Reuters had forecast manufacturing output rising 0.2 per cent in August. Production at factories fell 0.4 per cent in August on a year-on-year basis.
(10 a.m. ET) U.S. NAHB Housing Market Index for September.
Also: U.S. Fed meeting begins.
With Reuters and The Canadian Press
Terry Weber