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Equities
Markets in Canada and the U.S. gave up early gains Tuesday after new figures showed U.S. factory activity contracted for the second consecutive month in September.
An hour into the trading day, the Toronto Stock Exchange’s S&P/TSX composite index was down 39.26 points, or 0.24 per cent.
On Wall Street, the Dow Jones Industrial Average and the S&P 500 both opened higher but quickly lost altitude after the release of the ISM’s manufacturing index, which fell to 47.8 in September. That was the lowest since mid-2009. A reading below 50 indicates contraction in the sector.
At 10:05 a.m. ET, the Dow Jones Industrial Average was down 53.23 points, or 0.20 per cent, at 26,863.60, the S&P 500 was down 4.35 points, or 0.15 per cent, at 2,972.39. The Nasdaq Composite was up 12.18 points, or 0.15 per cent, at 8,011.52.
Markets had been nervously watching developments in relations between the U.S. and China after reports that the U.S. was considering delisting Chinese companies from U.S. exchanges. However, on Monday, White House trade adviser Peter Navarro dismissed those reports. China had earlier warned that such a move would result in market turmoil. The report came just ahead of renewed trade talks between the two countries later this month.
“Traders are seemingly a little more relaxed about the current situation, with the Fed having cut interest rates at each of the last two meetings and talks between the U.S. and China ongoing,” OANDA senior market analyst Craig Erlam said. “I don’t think traders are fully satisfied in either case but minimum expectations are just about being met.”
In this country, investors got a look at how the Canadian economy was performing heading into the third quarter. Statistics Canada said GDP was unchanged in July after three months of growth with a decline in goods-producing industries offsetting gains in the services sector. Economists had been forecasting growth of about 0.1 per cent.
In a note this earlier week, CIBC chief economist Avery Shenfeld says markets are now putting “very low odds” on a Bank of Canada rate cut through to January. But he says the case can be made that those odds are too low. He cited downside risks to the economy like the U.S.-China trade war, deepening trade frictions between Canada and China and a slowing global economy. For next year, median forecasts see growth in the Canadian economy of 1.7 per cent.
But Mr. Shenfeld says CIBC is now predicting a more modest 1.4-per-cent growth rate in 2020 with the first signs of deceleration visible by the fourth quarter.
“That will then skew the Bank of Canada’s risk-reward calculation in favour of an ‘insurance’ rate cut in either December or perhaps January, a cut that the bond market is not currently pricing-in,” he said.
On the corporate side, shares of Montreal-based Dorel Industries Inc. sank more than 30 per cent in late morning trading after the company said it has suspended its dividend, citing the impact of increased U.S. tariffs. Dorel said the dividend declared on Aug. 2 isn’t affected and will be paid on Oct. 2. “The impact of the increase on Dorel businesses was still unclear at the end of the second quarter,” Dorel Dorel president and chief executive officer, Martin Schwartz said in a statement. “We raised prices midway through the third quarter and this has had several negative consequences.”
Telus Corp. it has struck a deal to buy the Canadian operations of security firm ADT for $700-million. ADT Canada has about 500,000 customers across the country. Telus shares opened higher in Toronto.
In New York, shares of discount brokerage Charles Schwab were down more than 8 per cent after it said it is eliminating commissions for online trading of stocks, ETFs and options listed on U.S. or Canadian exchanges. Shares of TD Ameritrade and ETrade were also down sharply in the wake of the news.
Overseas, the pan-European STOXX 600 fell 0.3 per cent after the IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) showed the factory sector overall shrank for a fifth month in a row, its longest such run since mid-2009. Britain’s FTSE 100 was down 0.04 per cent in afternoon trading as British Prime Minister Boris Johnson readied amended plans for a divorce deal with the EU.
Germany’s DAX fell 0.12 per cent. France’s CAC 40 lost 0.15 per cent.
In Asia, markets in China and Hong Kong were closed. Japan’s Nikkei ended down 0.59 per cent.
Commodities
Crude prices rebounded after new reports showed lower output from OPEC as well as the United States and Russia.
The day range on Brent so far is US$59.37 to US$60.08. The range on West Texas Intermediate is US$54.17 to US$54.84.
“Oil prices are recovering slightly after falling almost 4 per cent on Monday on reports that Saudi Arabia has fully restored output at the facilities that were attacked only two weeks ago,” OANDA’s Craig Erlam said. “There was a lot of skepticism around whether they would manage to fully restore these facilities but this remarkable turnaround has apparently been delivered.”
A Reuters survey Tuesday showed that output from the Organization of the Petroleum Exporting Countries fell to the lowest in eight years in September at 28.9 million barrels per day, down 750,000 bpd from August’s revised figure and the lowest monthly total since 2011.
Output at the world’s two largest producers, the United States and Russia, also fell in July and September, respectively. Russia’s output fell to 11.24 million bpd in Sept. 1-29, down from 11.29 million bpd in the previous month, according to a Reuters report, citing sources.
Meanwhile, the U.S. Energy Information Administration’s monthly report showed U.S. crude oil output declined 276,000 bpd in July to 11.81 million barrels, according to a U.S. Energy Information Administration monthly report released on Monday. U.S. production peaked at 12.12 million bpd in April.
Later Tuesday, markets also get the first of two weekly readings on U.S. crude inventories. The American Petroleum Institute releases its weekly tally Tuesday afternoon, followed by a more official report Wednesday morning from the EIA. Markets are expecting an increase in inventories of about 1 million barrels.
In other commodities, gold prices fell, hit by a rising U.S. dollar. Spot gold was down 0.8 per cent at US$1,459.91 per ounce, after declining to its lowest since Aug. 6 at US$1,458.50 earlier in the session. U.S. gold futures were 0.4 per cent lower at US$1,467.20 per ounce.
“Odds of another rate [U.S.] cut this year have been slipping and are now below 70 per cent while talks are ongoing between the U.S. and China, offering some hope of a deal at some point in the future,” Mr. Erlam said. “This has supported the dollar and hit gold as a result, which has benefited throughout the summer on hopes of multiple rate cuts and unsuccessful negotiations.”
Currencies
The Canadian dollar fell after Statscan said economic growth in July was unchanged.
The loonie was sitting near the low end of the day range of 75.28 US cents to 75.56 US cents immediately after the release of the figures.
The morning’s key event will be the release of Statscan’s reading on GDP growth in July. Markets are looking for modest growth of 0.1 per cent.
Statscan said the flat growth came after four months of growth. A decline in the goods producing sector offset gains in the services sector. Economists had been expecting growth of 0.1 per cent for the month.
CIBC economist Royce Mendes said the biggest drag for the month came in the oil and gas sector, which declined 3 per cent.
“The slowdown in oil and gas was a result of a shutdown in Atlantic Canada’s offshore production, and as a result should prove only temporary,” he said. “Still, with the first month of Q3 undershooting expectations, third quarter tracking forecasts for growth will fall closer to the 1.5 per cent that the Bank of Canada had penciled into the July Monetary Policy Report. The disappointment will be bullish for fixed income and bearish for the loonie.”
On global currency markets, the U.S. dollar index hit its best level in 29 months as investors bet the U.S. economy would continue to outperform its global counterparts.
Against a basket of other currencies, the dollar rose 0.2 per cent to 99.58, its highest since May 2017.
“The fourth quarter is under way. Just like Q3 but with darker mornings (in London, anyway). The dollar’s the strongest of the major currencies this morning, much as it was in Q3. The key to a dollar turn is a U.S. economic turn for the worse," Kit Juckes, global fixed income strategist at Société Générale, said in an early note.
In other currencies, the Australian dollar was among the biggest losers, falling 0.7 per cent to 67 US cents after that country’s central bank cut interest rates for a third time this year. Expectations of further easing also pushed the New Zealand dollar to its lowest in four years at 62.38 US cents.
In bonds, the yield on the U.S. 10-year note was higher at 1.737 per cent. The yield on the 30-year note was also up at 2.186 per cent.
More company news:
Facebook Inc., Amazon.com Inc. and Alphabet Inc.’s Google will face a congressional inquiry on how the big technology companies may be damaging the competitive landscape for small businesses, Bloomberg reported on Tuesday. House Small Business Committee Chairwoman Nydia Velazquez plans to invite the companies to face questions from the committee in late October or early November, Bloomberg said.
Swiss bank Credit Suisse says a senior executive and the head of its security operation have resigned over a decision to snoop on a former wealth management chief who joined rival UBS. Credit Suisse said Tuesday chief operating officer Pierre-Olivier Bouee “assumed responsibility for this matter” and the bank accepted his immediate resignation. Its head of global security services is also leaving immediately. The bank said Bouee ordered the security chief to “initiate the observation” of Iqbal Khan Aug. 29, when UBS announced Khan’s appointment. Bouee says he decided alone to keep tabs on Khan “in order to protect the interests of the bank” and didn’t discuss the matter with CEO Tidjane Thiam or other top managers.
The Globe’s Rachelle Younglai and Jeffrey Jones report that, as Hudson’s Bay Co.'s executive chairman seeks to privatize the retailer, his company is facing more uncertainty due to problems at one of its partners, WeWork, and further criticism from a dissident shareholder. Richard Baker’s $1-billion privatization offer has the support of shareholders representing 57 per cent of HBC’s outstanding stock. Those shareholders include WeWork and private-equity company Rhone Capital LLC. ut the money-losing WeWork, the New York-based office-sharing company, was forced to withdraw its initial public offering on Monday and announced plans to focus on its core business after questions about its profitability and its future.
National Bank of Canada has raise its target price on Sun Life Financial Inc. to $63 from $59
Economic news
Canada’s GDP was unchanged in July. Economists had forecast growth of 0.1 per cent.
Canadian manufacturing activity expanded in September at the fastest pace in seven months. The IHS Markit Canada Manufacturing Purchasing Managers’ index (PMI), a measure of manufacturing business conditions, rose to a seasonally adjusted 51.0 in September, its best level since February, from 49.1 in August. A reading above 50 shows expansion in the sector.
(10 a.m. ET) U.S. manufacturing ISM for September. Consensus is 50.5, rising from 49.1 in August.
(10 a.m. ET) U.S. construction spending for August. Consensus is a rise of 0.4 per cent from July.
With Reuters and The Canadian Press
Terry Weber