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Equities
Canada’s main stock exchange opened higher Tuesday after the Liberals survived a challenge from the Conservatives to form a minority government. U.S. markets were also positive at the outset with solid earnings and a positive tone in the China-U.S. trade talks helping to boost sentiment.
At 9:33 a.m., the Toronto Stock Exchange’s S&P/TSX composite index was up 45.55 points, or 0.28 per cent, at 16,464.
On Wall Street, the Dow Jones Industrial Average rose 22.79 points, or 0.08 per cent, at the open to 26,850.43.
The S&P 500 opened higher by 4.01 points, or 0.13 per cent, at 3,010.73. The Nasdaq Composite gained 25.14 points, or 0.31 per cent, to 8,188.12 at the opening bell.
On the China-U.S. trade file, China’s Vice Foreign Minister Le Yucheng said early Tuesday that Beijing and Washington had achieved some progress in their trade talks. No country can prosper without working with other nations, Mr. Le said at the Xiangshan Forum in Beijing, according to a Reuters report. The world wants China and the United States to end their trade war, he said. That required openness rather than a “de-coupling” of countries or a new Cold War.
In this country, economists say the don’t expect to see a big swing in the loonie or the markets on the results.
“With one of the tightest federal elections in recent history now concluded, the historical significance of a Liberal minority with respect to the stock market performance is mixed, but slightly more positive than Conservative minorities, especially at the start,” Brian Belski, chief investment strategist with BMO Capital Markets, said.
“Although overall we continue to believe the impact of the election to be relatively minor, negative sentiment towards energy and pipelines is likely to be the main narrative,” he said. “Ultimately, we believe fundamentals matter and according to our work, energy companies have made significant adjustments in recent years, including reduced pipeline dependency, and have significantly restored cash flow and profitability.”
Citigroup’s Veronica Clark also said partnerships with parties on the left could be less supportive of the energy sector, particularly projects like the Trans Mountain pipeline expansion. “Ultimately however, while there is scope for a slight boost to growth over the coming year from increased fiscal stimulus, the results of the 2019,” she said. “Federal election [does] not significantly affect our base-case outlook for still solid economic activity into 2020.”
On the corporate front, West Fraser Timber Co. Ltd. reported a third-quarter loss o f$45-million on reduced output in Canada. The loss amounted to 65 cents a share in the quarter, compared with profit of $3.25 in the year-earlier period. West Fraser said output was down 3 per cent compared to the second quarter as it completed the permanent closure of its Chasm, B.C., lumber mill and eliminated the third production shift at its 100 Mile House, B.C., operations. Sales totalled $1.19-billion, down from $1.65-billion a year earlier. The results were released after the close of trading on Monday. West Fraser shares started down about 2 per cent in Toronto on Tuesday.
Results are due after Tuesday’s close from Canadian National Railway Co.
South of the border, McDonald’s Corp. shares fell more than 2 per cent in early trading after the restaurant chain reported quarterly sales at its U.S. outlets below market forecasts. Sales at U.S. restaurants open for at least 13 months rose 4.8 per cent. Analysts had been expecting growth of 5.17 per cent during the period. Globally, McDonald’s said comparable sales rose 5.9 per cent.
Biogen Inc. shares shot up more than 36 per cent at the open after the company made a surprising reversal on its Alzheimer’s treatment with plans now to seek U.S. regulatory approval
Texas Instruments and Snap report after the end of trading.
Overseas, major European markets mostly higher in afternoon trading. The pan-European STOXX 600 was up 0.03 per cent. Britain’s FTSE 100 rose 0.76 per cent. Germany’s DAX rose 0.04 per cent. France’s CAC 40 fell 0.02 per cent.
Tokyo’s Nikkei was closed, but Hong Kong’s Hang Seng gained 0.2 per cent, and the Shanghai Composite rose 0.5 per cent.
Commodities
Crude prices were slightly higher in early going, helped by the positive tone around U.S.-China trade talks although expectations that new figures due later in the session will show a build in U.S. inventories put a ceiling on gains.
The day range on Brent so far is US$58.75 to US$59.27. The range on West Texas Intermediate is US$53.10 to US$53.49.
Later Tuesday, the American Petroleum Institute releases its weekly reading on U.S. crude stocks. Crude inventories are expected to climb for a sixth straight week, according to a Reuters poll. Distillates and gasoline stocks are seen falling.
“Price action in the oil markets is like watching paint dry today,” AxiTrader strategist Stephen Innes said. “Trade calm is holding the base in check, and weaker global economic data is throwing a damp towel on any rallying cry, the market its desperate need of a catalyst to break the range trade mentality that is starting to set.”
In other commodities, gold prices were up slightly as markets await the next move in the Brexit saga. Lawmakers are set to debate and vote on the withdrawal agreement bill and then again on the government’s timetable for approving legislation.
“The consolidation in gold continues on Tuesday, as prices continue to hover between roughly US$1,475 and US$1,500,” OANDA senior analyst Craig Erlam said. “The range is tightening, though, which gives me some hope that price will break out soon and lead to a surge in activity. The direction of the break will be very interesting.”
“Gold continues to look a little vulnerable in the near-term but the correction is dragging its feet, which adds a layer of doubt to this,” he said.
In other metals, silver rose 0.3 per cent to US$17.61 an ounce, marking a fifth straight session of gains. Platinum dipped 0.1 per cent to $887.11 and palladium gained 0.3 per cent to $1,763.05 an ounce.
Currencies
The Canadian dollar slid in early trading, taking a hit on weaker-than-forecasts retail sales after mostly holding steady in the wake of the outcome of the federal election.
The day range on the loonie so far is 76.27 US cents to 76.50 US cents. The dollar fell to the low end of that spread after Statistics Canada said retail sales in August fell 0.1 per cent. Economists had been expecting a gain of about 0.4 per cent.
Up until the release of those numbers, the loonie had remained relatively steady despite the emergence of a minority government out of Monday’s vote.
“A minority government for the Liberals and PM Trudeau is no great surprise for markets this morning, given that polling had strongly suggested this outcome was likely in the run up to the election,” Shaun Osborne, chief FX strategist for Bank of Nova Scotia, said in an early note.
“The CAD is indeed little changed form last night’s firm-ish close against the USD. We think the result itself should be more or less discounted in the spot rate and markets will quickly move on from the vote to focus on what is a busy day for Canadian data.”
Later Tuesday morning, the Bank of Canada releases its third quarter business outlook survey, offering a window into how companies are feeling about the economy.
In a note earlier in the week, Elsa Lignos, global head of FX strategy, said the business outlook survey is the most important release ahead of the Bank of Canada’s Oct. 30 rate announcement and monetary policy report.
“Canadian data – both soft and hard – have held up relatively well overall and we do not expect a paradigm shift in the BOS, though do see the headline indicator somewhat weaker than the last iteration,” she said.
“Beyond the survey data, the BoC’s commentary is probably more important than usual as it could provide additional insights on global influences,” Ms. Lignos said.
In other currencies, the euro was little changed ahead of Tuesday’s vote on the Brexit withdrawal agreement bill.
The euro was flat at US$1.1146 after hitting a two-month high against the U.S. dollar during the previous session. Against a basket of major currencies, the U.S. dollar was also little changed at 97.32.
In bonds, the yield on the U.S. 10-year note was down at 1.78 per cent. The yield on the 30-year note was also lower at 2.271 per cent.
More company news:
Procter & Gamble Co beat Wall Street estimates for quarterly revenue, powered by demand for its premium beauty brands such as SK-II and Olay, as well as healthcare products. Net income attributable to the company rose to US$3.59-billion, or US$1.36 per share, in the first quarter ended Sept. 30, from US$3.20-billion, or US$1.22 per share, a year earlier. Net sales climbed 6.6 per cent to US$17.80-billion, beating analysts’ average estimates of US$17.42-billion, according to IBES data from Refinitiv.
United Parcel Service Inc. reported a quarterly profit that came ahead of Wall Street estimates , benefiting from strong e-commerce demand and rival FedEx Corp’s breakup with Amazon.com Inc. Excluding items, the company earned US$2.07 per share Analysts on average had estimated earnings of US$2.06 per share, according to IBES data from Refinitiv.
Under Armour founder Kevin Plank will step down as CEO in the new year to become the company’s executive chairman and brand chief. Patrik Frisk, who became president and chief operating officer two years ago, will be the athletic gear company’s second CEO since it was founded in 1996. The 56-year-old Frisk will report to Plank and will take a seat on the board.
Hasbro Inc shares sank 15 per cent after the toy maker’s results fell short of Wall Street estimates for third-quarter revenue, hit by weak demand for its toys such as Nerf guns, My Little Pony and Play-Doh. Net income fell to US$212.9-million, or US$1.67 per share, in the three months ended Sept. 29, from US$263.9-million, or US$2.06 per share, a year earlier. Net revenue rose marginally to US$1.58-billion, but missed the average analyst estimate of US$1.72-billion, according to IBES data from Refinitiv. Hasbro also cited the impact of tariffs on Chinese imports for its weaker quarter.
Swiss bank UBS is axing high-paying investment banking staff after a disappointing performance at the division prompted a 16% slide in third-quarter net profit and put the group’s 2019 profit goals further out of reach. Chief Executive Sergio Ermotti, credited for rapidly turning UBS around after the financial crisis, announced a further $90 million in expected annual cost savings at the investment bank on Tuesday, following a prolonged performance dip which Ermotti described as unsatisfying even given a tough market.
Lockheed Martin Corp reported a 9.2-per-cent rise in quarterly profit, helped by increased sales in its aeronautics business, which makes the F-35 fighter jets. Net income rose to US$1.61-billion, or US$5.66 per share, in the third quarter ended Sept. 29, from US$1.47-billion, or US$5.14 per share, a year earlier. Net sales rose to US$15.17-billion from US$14.32-billion.
Renault Chairman Jean-Dominique Senard is determined to get the carmaker’s alliance with Japan’s Nissan back on track next year, he said on Tuesday, adding other matters such as a potential tie-up with Fiat Chrysler were less of a priority. The Renault-Nissan partnership was rocked by former alliance boss Carlos Ghosn’s arrest in Tokyo almost a year ago on financial misconduct charges, which he denies. The two firms are still trying to repair relations, including through recent management overhauls, to focus again on combined efforts to cut costs and invest in new technologies - among the pressing issues thrown into sharp relief by a Renault profit warning last week.
Hyundai Motor said on Tuesday it was considering raising its stake in its underperforming truck joint venture in China, potentially joining other foreign automakers in boosting ownership in the world’s biggest car market. Sichuan Hyundai Motor is Hyundai’s only commercial car venture in China that makes cargo trucks and buses.
Economic news
Canadian retail sales slid 0.1 per cent in August. Economists had been expecting a gain of about 0.4 per cent. Sales were down in six subsectors representing about 51 per cent of retail trade, Statistics Canada said.
The National Association of Realtors said U.S. existing home sales fell 2.2 per cent to a seasonally adjusted annual rate of 5.38 million units last month, reversing two straight months of gains. August’s sales pace was upwardly revised to 5.50 million units.
(10:30 a.m. ET) Bank of Canadian Business Outlook Survey and Senior Loan Officer Survey
With Reuters and The Canadian Press
Terry Weber