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Equities

Canada’s main stock index edged higher early Tuesday as investor fears over an escalation of tensions in the Middle East abated. South of the border, the Dow and the S&P 500 were modestly lower although the tech-heavy Nasdaq drew some support from chipmakers.

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At 9:51 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 27.89 points, or 0.16 per cent, at 17,133.36. Information technology was the best performing sector, gaining 1.2 per cent. Strong gold prices boosted materials stocks by 0.4 per cent. The energy sector fell 0.6 per cent as crude prices gave back some recent gains.

The Dow Jones Industrial Average fell 64.20 points, or 0.22 per cent, at the open to 28,639.18. The S&P 500 opened lower by 4.42 points, or 0.14 per cent, at 3,241.86. The Nasdaq Composite gained 5.18 points, or 0.06 per cent, to 9,076.65 at the opening bell.

Markets had been hit by news last week that the U.S. had killed a top Iranian military leader in an airstrike in Baghdad and a subsequent round of threats from Tehran and Washington.

“As we’ve seen plenty of times before, investors have a remarkable ability to move past major geopolitical shocks rather quickly,” OANDA senior analyst Craig Erlam said. “Ultimately, every sell-off on the back of one of these events is just an opportunity to buy a dip. As long as it’s not followed with a rapid retaliation and escalation, which this has not.”

That doesn’t mean, he said, that Iran won’t respond but, at this point, the timing remain’s unclear, with crude prices particularly vulnerable to news headlines.

“The rhetoric from all sides has become no less provocative but investors are clearly quite happy to look through that,” he said.

Early Tuesday, MSCI’s all-country index, which weighs stocks in 49 countries, was just 0.4 per cent off record levels.

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In corporate Canada, Canadian Pacific railway says it moved a record amount of grain in the final three months of the year. CP Rail said in a statement issued after the close of trading on Monday it moved 7.9 million tonnes of grain and grain products, breaking a record set in the fourth quarter of 2018 by 400,000 tonnes. Montreal-based Canadian National Railway also said it moved 7.5 million tonnes over the last three months. That included a monthly record of 2.79 million tonnes in October and the second best December on record despite a work stoppage.

The Globe’s James Bradshaw reports that Bank of Nova Scotia will record an after-tax gain of $175-million in its fiscal first-quarter results, driven by the sale of a large part of its stake in a bank in Thailand, but offset by a series of one-time charges. Scotiabank preannounced four items that will affect its results for the quarter that ends Jan. 31, which will be reported on Feb. 25. The heads of Canada’s big banks are scheduled to speak at a conference in Toronto on Tuesday.

On Wall Street, Tesla shares were up more than 2 per cent in early trading after the company’s Shanghai factory delivered its first vehicles to customers this week. CEO Elon Musk also said Tesla will set up a design centre in China to create a model for sale around the world. On Monday, Tesla stock touched a record high, giving the electric car maker a market cap of US$80-billion, according to a note from London Capital Group.

Overseas, major European markets were in the black in afternoon trading. The pan-European STOXX 600 gained 0.17 per cent, paring early gains. Britain’s FTSE 100 gained 0.03 per cent. Germany’s DAX rose 0.61 per cent. France’s CAC 40 advanced 0.07 per cent.

In Asia, Japan’s Nikkei closed up 1.6 per cent, erasing much of the previous session’s 2-per-cent decline. The Shanghai Composite Index rose 0.69 per cent. Hong Kong’s Hang Seng ended up 0.34 per cent.

Commodities

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Crude prices pulled back after two straight sessions of gains as concerns about supply disruption in the Middle East receded.

The day range on Brent crude is US$67.86 to US$68.75. The range on West Texas Intermediate is US$62.30 to US$63.15.

During the two prior sessions, Brent had hit its best level since September while WTI managed its highest price since April in the wake of the death of Iranian military leader Qassem Soleimani in a U.S. airstrike. Both benchmarks were lower early Tuesday as investors reconsidered the likelihood of a quick escalation in the conflict and the potential for disruption of supply in the region.

“We saw after the Saudi attacks last year that traders have an incredible ability to get over these events rather quickly if nothing escalates, although it’s hard to imagine Iran doing nothing at this stage,” OANDA’s Craig Erlam said.

At this point, he said, markets are already seeing some profit taking with Brent back below US$70 a barrel and just 3.5 per cent above where it was before last week’s airstrike.

“Oil prices have settled a little as traders regain a little composure,” he said. “Still, Brent is trading at a premium as a result of the assassination and that could continue for a short while.”

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Later in the day, markets also get the first of two weekly readings on U.S. crude inventories with new figures from the American Petroleum Institute. Those will be followed Wednesday by official U.S. government figures from the U.S. Energy Information Administration.

Markets are expecting stockpiles to have fallen for a fourth consecutive week. Analysts expect crude stocks to have fallen by 4.1 million barrels last week, according to a Reuters poll.

In other commodities, gold prices wavered after spiking to their highest level since 2013 earlier in the week.

Spot gold rose 0.2 per cent to US$1,569.27 per ounce after falling as much as 0.7 per cent earlier in the session, its biggest daily percentage decline in about a month, according to Reuters. On Monday, prices had hit US$1,582.59, their highest since April 2013.

“The lack of any haven buying in U.S. treasuries suggested that while investors were a little spooked by the rising tensions in the Middle East, as seen by the sharp rise in the gold price,” Michael Hewson, chief market analyst with CMC Markets U.K., said in an early note. “The inability of both oil prices and gold prices to consolidate their new peaks encouraged investors to start buying back into stocks.”

Currencies

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The Canadian dollar dipped below 77 US cents after Statistics Canada reported weaker imports and exports in November.

The day range on the loonie is 76.94 US cents to 77.17 US cents. The dollar was closer to the low end of that range after the release of the latest figures.

Statscan says Canada’s trade gap narrowed to $1.1-billion in November, from a revised $1.6-billion in October. However, the agency also noted that exports fell 1.4 per cent while imports dropped 2.4 per cent. Statscan also said that widespread declines in exports and imports coincided with a disruption in rail transportation this month. (Canadian National Railway was hit by an eight-day strike in November.)

“Despite a narrower deficit, the November trade report revealed that Canadian trade continues to struggle which does not bode well for GDP in the final quarter of 2019,” Benjamin Reitzes, director of Canadian rates and macro strategist for Bank of Montreal, said. “Add in the recent strength in the Canadian dollar and don’t be surprised if we get a more cautious tone from [Bank of Canada Governor Stephen] Poloz in his fireside chat later this week.”

On world currency markets, Japan’s yen was last at 108.33 yen per U.S. dollar, down from its high on Monday of 107.77.

The Swiss franc weakened 0.2 per cent versus the greenback and was unchanged against the euro.

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The U.S. dollar, which fell on Monday, rose 0.2 per cent against the euro to US$1.1176. Against a basket of currencies the dollar index edged up 0.1 per cent to 96.772.

More company news:

Goldman Sachs Group Inc said on Tuesday it renamed its main business units ahead of its quarterly results next week, as part of the Wall Street bank’s efforts to provide greater transparency for investors into its financial performance. The bank said it would report its future earnings, starting with the latest December quarter, under the newly named business units - investment banking, global markets, asset management and consumer & wealth management.

American Airlines Group Inc said it had reached a confidential agreement with Boeing Co to address damages the airline incurred in 2019 due to the ongoing grounding of its fleet of Boeing 737 MAX aircraft. American, the largest U.S. airline, said the compensation will be received over several years. The airline will use more than US$30-million of the compensation for the airline’s 2019 employee profit-sharing program.

Aston Martin warned its annual profit would almost halve as tough trading conditions continued through its peak month of December, sending the luxury carmaker’s shares down about 12 per cent. Tuesday’s warning is the latest from the British company, whose shares have plunged about three quarters in value since their 2018 listing. Aston Martin said on Tuesday tough conditions continued through December, leading to a 7-per-cent drop in wholesale volumes for the year, with Europe underperforming the rest of its markets.

Facebook Inc is setting up a new engineering team in Singapore to focus on its lucrative China advertising business, according to three people familiar with the effort told Reuters. The move comes even as chief executive Mark Zuckerberg ramps up criticism of a country that blocks the social network. The team at Facebook’s Asia-Pacific headquarters is tasked with developing better ad-buying tools for Chinese customers who have to work around internet restrictions in China known as the “great firewall,” according to the Reuters report.

Economic news

Canada’s trade deficit narrowed to $1.1-billion in November from $1.6-billion a month earlier. Exports fell 1.4 per cent while imports declined 2.4 per cent.

The U.S. Commerce Department said that country’s trade deficit decreased 8.2 per cent to US$43.1-billion, the smallest since October 2016.

Canadian economic activity expanded at a slower pace in December, according to Ivey Purchasing Managers Index (PMI) data released on Tuesday. The seasonally adjusted index fell to 51.9 from 60.0 in November. A reading above 50 indicates an increase in the pace of activity.

With Reuters and The Canadian Press

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