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Equities
Indexes on both sides of the border rebounded in morning trading Tuesday after concerns over the spread of the coronavirus in China triggered the worst day in months during the previous session.
At 9:41 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 26.24 points, or 0.15 per cent, at 17,468.76.
Energy shares got a lift after crude prices turned higher following five sessions of losses. The energy sector gained 1 per cent in morning trading. Health-care shares rose 3 per cent with Canopy Growth jumping after RBC upgraded the stock to “outperform”.
In the U.S., the Dow Jones Industrial Average rose 58.48 points, or 0.20 per cent, at the open to 28,594.28. The S&P 500 opened higher by 11.72 points, or 0.36 per cent, at 3,255.35. The Nasdaq Composite gained 62.51 points, or 0.68 per cent, to 9,201.82 at the opening bell.
The Chinese government says the death toll from the coronavirus now exceeds 100 with the number of infected topping 4,500. Concerns over the spread of the virus and the potential impact on the global economy hit markets hard on Monday. The U.S. Federal Reserve begins its two-day meeting on Tuesday. While most expect the central bank to leave rates unchanged, markets will have a close eye on whether the Fed sees any economic fallout from the virus.
“Calm has descended across global markets after yesterday’s selloff,” Chris Beauchamp, chief market analyst with IG, said.
“Markets are not really geared up in the short-term to assess the impact of a global virus," he said. "This still leaves us open to further falls if it becomes clear that infection is spreading more rapidly, but for now equity markets are entering a process of stabilization.”
On the corporate front, earnings will move to the forefront with results due from Apple Inc. after the close of trading.
The Nikkei Asian Review reported on Tuesday that Apple has asked suppliers to make up 80 million iPhones in the first half of this year, marking a 10-per-cent increase in production. However, production, which is set to begin in February, could be delayed due to the outbreak of the coronavirus, the report said. Apple shares have gained about 96 per cent in the last 12 months. In the latest quarter, analysts are expecting revenue of about US$88.37-billion, up from US$84.31-billion a year earlier. Earnings per share are expected to rise to US$4.55 from US$4.18, according to analysts surveyed by Bloomberg. Apple shares opened up 1.5 per cent on Tuesday.
“Apple is likely to have had a strong first full quarter of iPhone 11 sales and their guidance for 2020 is likely to be strong as demand should be high for their 5G iPhone which will come out at the end of the year,” OANDA senior analyst Edward Moya said, although he also noted that a lot of positive news is already ‘baked in'.
Starbucks and eBay also report after the close.
Shares of 3M were down more than 3 per cent in early trading after the U.S. industrial giant posted a 28-per-cent drop in quarterly profit and said it would cut 1,500 jobs globally to cut costs. Net income attributable to 3M fell to US$969-million, or US$1.66 per share, in the fourth quarter ended Dec. 31, from US$1.35-billion, or US$2.27 per share, a year earlier. Net sales fell 2.1 per cent.
In Canada, CN Rail reports its latest quarter after the end of trading. Eight analysts polled by Zacks Investment Research are looking for earnings per share of 91 cents, down from $1.13 a year earlier.
Ahead of the open, grocer Metro Inc. raised its quarterly dividend to 22.5 cents a share. The announcement came as Metro posted a profit of $170.2-million or 67 cents diluted in the latest quarter, compared with $203.1-million or 79 cents a year earlier. The previous year’s quarter included a gain from Metro’s sale of its investment in Colo-D Inc. Metro shares were down 2.7 per cent shortly after the open in Toronto.
Overseas, the pan-European STOXX 600 was higher by afternoon, advancing 0.39 per cent. Britain’s FTSE 100 edged up 0.49 per cent in morning trading. Germany’s DAX gained 0.51 per cent. France’s CAC 40 gained 0.49 per cent. All three indexes lost more than 2 per cent each on Monday.
In Asia, markets in China remain closed. Japan’s Nikkei ended down 0.55 per cent to close at 23,215.71.
Commodities
Oil prices snapped a five-day losing streak to turn slightly positive early Tuesday despite continuing concern over the impact of the coronavirus on future demand.
The day range on Brent crude is US$58.54 to US$59.58. The range on West Texas Intermediate is US$52.68 to US$53.57. Both both benchmarks had spent much of the predawn period in the red but slowly stabilized alongside broader markets. Despite the gains, which come after five days of losses, both are still set to post the biggest monthly decline since last spring.
With the U.S. and other countries warning against travel to China, investors are concerned travel advisories and other restrictions, along with other economic fallout from the spread of the virus, will hamper crude demand.
Saudi Arabia and other OPEC members have sought to assuage concerns. OPEC president Mohamed Arkab said on Monday he sees the outbreak of coronavirus in China as having little impact on the global oil market for the time being, but added that producers were ready to react to any new developments.
“Despite a pronouncement from Saudi Arabia that the virus will have minimal impact on consumption, traders are correctly focusing on the assessment of the medical profession while continuing to reflect on the possible downside risk of a global pandemic.,” AxiTrader strategist Stephen Innes said.
“Let’s face it, in the finely balanced oil markets, OPEC can control supply but demand devastation from a rapid spread of a mutant virus they can’t.”
However, Mr. Innes also noted that, as a point of comparison, the International Energy Agency pointed out that the 2003 SARS outbreak had a sharp impact on oil demand in the short term but a quick recovery followed.
“There is some thought the market is pricing in close if not beyond worst scenarios, while there remain expectations that OPEC will do whatever is necessary to keep prices from falling off the cliff,” he said.
In other commodities, gold prices fell back as investors took profits after recent gains. A firmer U.S. dollar also weighed on bullion prices.
Spot gold fell 0.2 per cent to US$1,577.85 per ounce, after hitting a near three-week peak on Monday. U.S. gold futures were flat at US$1,578.10.
“(Gold) could reach $1,600, but would be more around the $1,570-$1,590 levels as we need to get more information, there are a lot of unknown variables around the virus,” John Sharma, an economist at National Australia Bank (NAB), told Reuters.
In other metals, palladium rose 2.4 per cent to US$2,323.09 an ounce after falling as much as 7 per cent on Monday.
Silver fell 0.5 per cent to US$17.99, while platinum rose 0.3 per cent to US$986.50.
Currencies
The Canadian dollar was slightly weaker in early going as shaky equity markets and falling crude prices continue to weigh on sentiment.
The day range on the loonie so far is 75.73 US cents to 75.87 US cents.
“The broader risk-off tone continues to weigh on the Canadian dollar via weaker stocks and oil prices,” Elsa Lignos, global head of FX strategy, said in an early note.
There were no major economic releases on the Canadian calendar on Tuesday.
On global markets, the U.S. dollar held near its best level in eight weeks amid concern over the spread of the coronavirus and the potential economic fallout.
The U.S. dollar index rose 0.1 per cent to 98.01, its highest level since early December.
Japan’s yen held steady at 108.97 per U.S. dollar, close to its strongest level since Jan. 8. The Swiss franc also strengthened on growing risk aversion, nearing a three-year high against the euro on Monday, according to Reuters.
In the offshore market, China’s yuan rose 0.2 per cent to 6.97 yuan per U.S. dollar in trading in London. The currency has fallen more than 2 per cent in less than a week against the U.S. dollar.
In bonds, the U.S. Treasury yield curve briefly inverted for the first time since October on worries about the spread of the coronavirus.
The gap between yields on three-month notes and 10-year government bonds briefly fell to -0.015 basis points , its lowest since October, before returning to around 0.01 basis points.
More company news
Pfizer Inc reported a 9-per-cent drop in fourth-quarter revenue, hurt by intense competition for its pain treatment Lyrica that lost patent protection last year. Revenue at the company, which is set to spin off its off-patent branded drugs business and combine it with generic drugmaker Mylan NV, fell to US$12.69-billion from US$13.98 billion a year earlier. Net loss attributable to Pfizer narrowed to US$337-million, or 6 US cents per share, in the quarter, from US$394-million, or 7 US cents per share, a year earlier.
Xerox Holdings Corp, which is locked in a battle to take over HP Inc, posted a fall in quarterly revenue on Tuesday as more businesses digitized their paperwork, hurting demand for printers and photocopiers. Total revenue fell to US$2.44-billion in the fourth quarter from US$2.50-billion a year earlier. Net income attributable to Xerox rose to US$818-million, or US$3.61 per share, in the three months ended Dec. 31 from US$137-million, or 56 US cents per share, a year earlier.
Philips will complete its transformation to a health technology business with the sale of its domestic appliances division, which no longer fits with the company’s range of hospital equipment and personal health products. Once a sprawling conglomerate, Amsterdam-based Philips has narrowed its focus in recent years, spinning off the lighting and consumer electronics divisions for which it was previously best known, Reuters reports. Philips said on Tuesday it would carve out the domestic appliances business, which produces coffee machines, vacuum cleaners and airfryers and generated US$2.6-billion in sales last year, in the coming 12 to 18 months.
Renault’s board is set to meet later on Tuesday to approve the nomination of Luca de Meo, the former head of Volkswagen’s Seat brand, as its next chief executive, two sources familiar with the matter told Reuters. The Italian-born executive, who stepped down from Seat earlier this month, is not due to take up his post at the French carmaker until towards July, due to negotiations around his contract, according to one of the sources.
Airbus has agreed in principle to a settlement with French, British and U.S. authorities over an investigation into allegations of bribery and corruption, it said on Tuesday. The European planemaker has been investigated by French and British authorities for suspected corruption over jet sales dating back over a decade. It has also faced U.S. investigations over suspected violations of export controls. Airbus shares gained on the news.
BorgWarner Inc on Tuesday agreed to buy UK-based Delphi Technologies Plc in a US$3.3-billion deal, as the U.S. auto parts maker looks to expand in a growing market for hybrid and electric vehicles. Delphi shareholders will receive 0.4534 shares of BorgWarner for each share held. That translates to US$17.39 per share, a premium of about 77 per cent to Delphi’s closing price on Monday.
Economic news
The U.S. Commerce Department says orders for durable goods rose 2.4 per cent in December. However, excluding defence, new orders would have fallen 2.5 per cent.
(9 a.m. ET) U.S. S&P Case-Shiller Home Price Index for November.
(10 a.m. ET) U.S. Conference Board Consumer Confidence Index for January.
Also: U.S. Federal Open Markets Committee meeting begins
With Reuters and The Canadian Press
Terry Weber