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Equities
Canada’s main stock index started higher Monday as global markets steadied following a sharp selloff in China. U.S. markets also rebounded after the previous session’s heavy losses as a move by China’s central bank to inject liquidity into the economy helped ease worries over the impact of the spread of the coronavirus.
At 9:47 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 73.29 points, or 0.42 per cent, at 17,391.78. Monday’s gains come after two straight sessions of declines for the index.
Energy shares were down 0.3 per cent as crude prices fell. Weaker gold prices also weighed on the materials sector, which slid 0.4 per cent.
South of the border, the Dow Jones Industrial Average rose 63.62 points, or 0.23 per cent, at the open to 28,319.65. The S&P 500 opened higher by 10.14 points, or 0.31 per cent, at 3,235.66. The Nasdaq Composite gained 39.79 points, or 0.43 per cent, to 9,190.72 at the opening bell.
“Monday’s price action on Wall Street is a tale of two markets. Chinese stock markets returned from the extended Lunar New Year holiday to a sea of red.” OANDA senior analyst Edward Moya said.
“U.S. and European stocks are rebounding in early trade on expectations that the coronavirus was mostly contained to China and that central bank stimulus from the PBOC and the rest of the world will keep on propping up stocks,” Mr. Moya said.
In China, the Shanghai Composite Index shed nearly 7.8 per cent to its worst level in more than four months as traders returned to work for the first day since the extended break. The rout carved US$420-billion in value off the benchmark index. The Chinese yuan, meanwhile, fell to its weakest level of the year. The People’s Bank of China attempted to stabilize the situation by injecting US$173-billion into the markets by way of open market reverse repo operations.
Despite the heavy selling on mainland China, Hong Kong’s Hang Seng still managed for finish the day modestly positive, gaining 0.71 per cent. Japan’s Nikkei fell about 1 per cent.
More reading: The obscure but important Baltic shipping index tells us global growth is in trouble
On the corporate side, earnings continue to be a key driver on North American markets.
On Monday, markets will get results from Google parent Alphabet Inc. after the close on Wall Street. Analysts are looking for earnings per share of US$12.76, down about 0.1 per cent from a year earlier, on revenue of US$46.87. Alphabet stock gained about 7 per cent in the first month of this year, following an increase of nearly 30 per cent in 2019. Shares were up 2 per cent just after the start of trading on Monday.
“Traders will be paying close attention to the Google’s revenue stream, which in the last quarter jumped by 17 per cent,” David Madden, market analyst with CMC Markets U.K., said. “Advertising revenue accounts for the vast majority of the group’s income so the paid-per-click metric for Google will be closely watched. Non-core areas of the business, such as the phone unit and the cloud computing business will be of some interest to dealers too.”
Canadian investors, meanwhile, will get results from some of this country’s biggest names later in the week. BCE Inc. reports fourth-quarter results on Thursday. The release will mark the first under new chief executive officer Mirko Bibic. On Wednesday, Suncor Energy posts its latest earnings after the markets close. In December, Suncor said it expects capital spending for the year from its oil operations to remain relatively flat.
Also, Cineplex Inc. says the seven-week go-shop period has expired without any superior bids to Cineworld’s $34-a-share takeover offer coming forward. During the period, Cineplex’s financial adviser contacted 52 potential buyers. Three of those entered into confidentiality agreements with Cineplex but, in the end, the company did not receive a superior proposal. Cineplex shareholders will vote on the Cineworld bid at a special meeting on Feb. 11. Cinplex shares were little changed in early trading.
In Europe, markets held their modest gains by afternoon, with the pan-European STOXX 600 rising 0.13 per cent. Britain’s FTSE 100 advanced 0.43 per cent in the first trading day since Brexit. Germany’s DAX gained 0.23 per cent. France’s CAC 40 rose 0.35 per cent.
Commodities
Crude prices were struggling in early going after touching one-year lows as traders continue to try to assess the impact of the spread of the new coronavirus on global demand.
The day range on Brent so far is US$55.42 to US$56.68. The range on West Texas Intermediate is US$50.42 to US$51.94. The bottom end of both spreads marks the weakest for the two benchmarks since the start of last year.
“The most damaging immediate effects are getting felt from the number of airlines canceling flights into China that are toppling like dominoes as this is lost demand the oil producers can’t make up,” AxiTrader Stephen Innes said.
“China’s larger oil market footprint (5.7 million barrels a day in 2003 versus 13.9 million barrels a day today) raises the potential for enormous demand devastation given China’s current oil demand profile in comparison to the SARS epidemic era,” he said.
Reuters reported that Sinopec Corp., Asia’s largest refiner, told its facilities to cut throughput this month by around 600,000 barrels per day. Independent refineries in Shandong province, which collectively import about a fifth of China’s crude, also cut output by 30 per cent to 50 per cent in just over a week, according to the news agency.
Crude found some support as the North American open approached from a report suggesting that OPEC and its allies are considering a further cut in their oil output of 500,000 barrels a day to offset the impact of the virus on markets. The report, which cites two unnamed OPEC sources, also said the group is considering holding a ministerial meeting in February, earlier than the scheduled March meeting.
Gold prices, meanwhile, pulled back from multi-week highs after China’s central bank moved to inject liquidity into the markets. Spot gold fell as much as 1 per cent before trading 0.8-per-cent lower at US$1,577.38 per ounce later in the session. Earlier, bullion managed its best level since Jan. 8 at US$1,591.46. U.S. gold futures shed 0.4 per cent to US$1,581.70.
Currencies
The Canadian dollar was steady, holding around the 75-US-cent mark, ahead of key economic reports later in the week.
The day range on the loonie so far is 75.44 US cents to 75.60 US cents.
For the loonie, the week’s big events come Wednesday with the release of December trade numbers and Friday when Statistics Canada details releases its report on employment in January.
Bank of Canada Deputy Governor Carolyn Wilkins is also scheduled to deliver a noon address in Toronto on Wednesday on the topic of central banking in a slow-growth world.
Elsa Lignos, RBC’s chief currency strategist, said that bank’s economists are expecting the December trade report to show a small improvement in the trade deficit, mostly because of a partial rebound in energy export volumes after a pipeline disruption the previous month.
On employment, RBC is expecting to see an increase in hiring of about 10,000 new jobs following December’s gain of 27,300 positions.
“Given the BoC’s more data-dependent mode, [the two reports] should get more of a reaction in the event of surprises,” she said.
On world markets, safe-haven currencies like the yen and the Swiss franc pulled back despite heavy market losses in China. Traders suggested the sharp decline in equity markets in the region came as a result of pent up selling pressure after the new year break.
The yen fell to 108.52 per U.S. dollar, off a three-week high of 108.305 set on Friday.
The Swiss franc traded at 0.96395 franc per U.S. dollar, off more than two-week lows.
Offshore, the Chinese yuan fell to its lowest since mid-December at around 7.0230 per U.S. dollar while the onshore yuan fell over 1 per cent from its levels before the holiday to 7.0268 per U.S. dollar, according to Reuters.
More company news
Torstar Corp. said it has an agreement to sell the land and building used by the Hamilton Spectator for $25.5-million. Torstar expects the sale to close in the first quarter.
Aecon Group Inc. has signed a deal to acquire Voltage Power, an electrical transmission and substation contractor based in Winnipeg. Under deal, Aecon will pay $30-million in cash, with additional payments possible based on achieving minimum financial targets over the next three years.
Cigarette maker Imperial Brands Plc named Stefan Bomhard, CEO of car dealer Inchcape, as its new chief executive on Monday to steer the company through challenges in e-cigarettes and vaping and falling consumption of tobacco products. Mr. Bombard replaces Alison Cooper, whose departure was announced last October.
Ryanair has submitted an offer to Boeing for a new order of its grounded 737 MAX jet but does not expect to finalize it until the plane returns to service, Chief Executive Michael O’Leary said on Monday. Ryanair made the offer for an undisclosed number of 737 MAX 10 jets, a larger model than the MAX 200 model the Irish airline currently has on order, O’Leary said on a conference call following the release of financial results for the last three months of 2019.
The Associated Press reports that a consortium of buyers, including mall owners Simon Property Group, Brookfield Property Partners, are bidding US$81-million for Forever 21, the ubiquitous mall staple that filed for bankruptcy protection in September. Simon and Brookfield are Forever 21’s biggest landlords. The other bidder is Authentic Brands Group, which has acquired the licensing rights to other troubled retailers like Barneys New York.
Economic news
Canadian manufacturing activity expanded in January for the fifth straight month. The IHS Markit Canada Manufacturing Purchasing Managers’ index (PMI), a measure of manufacturing business conditions, rose to a seasonally adjusted 50.6 in January from a four-month low of 50.4 in December.
(9:45 a.m. ET) U.S. Markit Manufacturing PMI for January.
(10 a.m. ET) U.S. ISM Index for January for January.
(10 a.m. ET) U.S. construction spending for December.
With Reuters and The Canadian Press
Terry Weber