Equities
Bank earnings move to the forefront in Canada on Tuesday with Bank of Nova Scotia kicking off earnings season for the country’s biggest lenders. Ahead of the opening bell, Bay Street futures were slightly lower, tracking weakness seen in world markets overnight. On Wall Street, futures were also in the red with trade tensions weighing after U.S. President Donald Trump indicated he expected to move ahead with raising tariffs on US$200-billion in Chinese imports to 25 per cent from the current 10 per cent.
The comments also tempered the global market optimism seen early in the week with with MSCI’s all-country index, which follows shares in 47 countries, edging up 0.1 per cent overnight.
“Stock markets in Asia overnight were broadly a little higher despite the warnings from President Trump that customers could face a 10 per cent tariff on iPhones and laptops imported from China,” CMC Markets analyst David Madden said. “Mr. Trump also threatened to drive up the tariff rate on US$200-billion worth of Chinese imports to 25 per cent, from 10 per cent, and he warned about imposing additional tariffs too. This could just be bluster ahead of the G20 summit, but Trump is known to be unpredictable.”
Mr. Trump’s latest comments were made in an interview with The Wall Street Journal and come ahead of a meeting between the U.S. President and Chinese President Xi Jinping at the G20 summit later this week in Argentina. Apple shares were down nearly 2 per cent in premarket trading on suggestions iPhones could face tariffs.
On Bay Street, Scotiabank was the first of Canada’s big banks to report its latest results, reporting a jump in fourth-quarter profit. The bank reported profit of $2.27-billion, or $1.71 a share, from $2.07-billion or $1.64 a year earlier. On an adjusted basis, Bank of Nova Scotia reported earnings per share of $1.77, up from $1.65 a year earlier. Analysts had been looking for adjusted earnings per share of $1.79, according to IBES data from Refinitiv. The bank also said it plans to exit nine countries in the Caribbean as it refocuses its business in the region.
Earnings are also due from Quebec retailer Alimentation Couche-Tard Inc. after the close.
On Wall Street, a number of Federal Reserve officials are scheduled to speak. Fed vice-chair Richard Clarida delivers the keynote address at a conference in New York. Three Fed presidents are also scheduled to participate in in a panel discussion later in the day. Later in the week, Fed chair Jerome Powell is expected to deliver remarks at an event at the Economic Club of New York.
Overseas, trade concerns hit early going in Europe with the pan-European STOXX 600 dipping 0.38 per cent. London’s FTSE 100 was down 0.27 per cent. Shares of travel company Thomas Cook sank 33 per cent at the open after it cut its profit forecast and suspended its dividend. In Germany, the DAX was down 0.36 per cent. France’s CAC 40 fell 0.27 per cent.
Asian markets finished the session mostly positive with Japan’s Nikkei adding 0.64 per cent. The broader Topix rose 0.14 per cent. Hong Kong’s Hang Seng slipped 0.17 per cent while the Shanghai Composite Index edged down 0.04 per cent.
Commodities
Crude prices were steady to modestly higher but still near year lows as rising production was offset somewhat by the expectation that OPEC and its allies would cut output at a meeting next month. At last check, Brent crude was holding above US$60 and had a range for the day of US$59.50 to US$61.15. West Texas Intermediate was also positive and had a spread of US$50.70 to US$51.93.
On Monday, prices rebounded about 3 per cent after falling more than 6 per cent on Friday. This week’s gains, however, were tempered by reports that Saudi Arabia raised production in November to record highs with output hitting 11.1 million barrels a day to 11.3 million barrels a day.
“Record production from Saudi Arabia is the last thing that this market needs right now,” Jasper Lawler, head of research at London Capital Group, said in a note. “Oversupply concerns combined with slowing demand fears have seen an oil price correction develop into an oil rout of epic proportions. We are returning to the days of past, where the next OPEC meeting is being watched with a level of intensity not seen since 2016.”
The next OPEC meeting is scheduled for Dec. 6. Saudi Arabia has been among the producers pushing for a production cut.
New U.S. inventory figures are also due later Tuesday and could have an impact on prices.
“The API (American Petroleum Institute) inventory number later on could pile further misery on Brent and WTI if another significant build is reported, although I do once again find myself questioning whether the sell-off is a little overdone under the circumstances,” OANDA analyst Craig Erlam said. “The market seems to be pricing in either no output cut or only a small one, which may leave oil prices prone to a short squeeze."
Gold prices, meanwhile, touched their lowest level in a week as Mr. Trump’s comments on tariffs pushed the U.S. dollar higher. Spot gold inched 0.1 per cent higher to $1,223.75 per ounce in morning trading in Europe, after hitting its lowest since Nov. 19 at US$1,219.04. U.S. gold futures were up 0.1 percent at US$1,223.70 an ounce.
Currencies and bonds
The Canadian dollar was little changed ahead of the North American open as crude prices steadied and the U.S. dollar touched its best level in two weeks against a group of world currencies. The day range on the loonie so far is 75.33 US cents to 75.54 US cents.
Elsa Lignos, RBC’s global head of FX strategy, noted that “no major data releases scheduled until Friday’s Q3 GDP, leaving [the Canadian dollar] to track the risk backdrop and broader moves in the [U.S. dollar] for short-term direction.” RBC is forecasting annual GDP growth in the third quarter of about 2 per cent.
The U.S. dollar, meanwhile, got a boost from Mr. Trump’s comments that it was “highly unlikely” the U.S. would hold off on an increase in tariffs on Chinese goods. The U.S. dollar index, which measures the dollar against six other major currencies, rose 0.2 per cent to 97.28, its best level in nearly two weeks. Reuters notes that the greenback has advanced over the two previous sessions as investors seek safe havens on concerns over the strength of the global economy.
In bonds, U.S. yields fell as traders awaited comments from Fed officials later in the session. The yield on the 10-year note was lower at 3.059 per cent. The yield on the 30-year note was also lower at 3.311 per cent.
Stocks set to see action
Thomas Cook lost a third of its value on Tuesday after the holiday operator cut its profit guidance for the second time in two months and suspended its dividend, burned by the effects of a hot British summer and one-off charges. The oldest travel company in the world, Thomas Cook has been hurt by the heatwave that gripped northern Europe this year, deterring holiday makers from booking lucrative last minute deals and sending its shares down 70 per cent in 12 months. On Tuesday it updated the market two days ahead of schedule to cut its underlying operating profit again, this time by 11 per cent. It said it had not breached the terms of its lending agreements and would continue to invest in the business. Shares in the company fell an initial 33 per cent at the open in London.
Tesla Inc.’s vehicle sales in China sank 70 per cent last month from a year ago, the country’s passenger car association told Reuters on Tuesday, underscoring how the Sino-U.S. trade war is hurting the U.S. electric carmaker. An official from China Passenger Car Association said data from the industry body showed Tesla sold just 211 cars in the world’s largest auto market in October. Reuters said Tesla did not respond to repeated calls and written requests for comment on Tuesday. The electric carmaker, which imports all the cars it sells in China, said in October that tariff hikes on auto imports were hammering its sales there. In July, Beijing raised tariffs on imports of U.S. autos to 40 per cent amid a worsening trade standoff with the United States.
There’s been a dramatic increase in the number of complaints raised against Canada’s telecommunications providers, according to an annual tally released Tuesday by the private-sector body assigned to resolve disputes brought by customers who haven’t been able to get satisfaction directly from their provider. The 14,272 complaints raised by Canadian telecom and TV customers over the 2017-18 period was up 57 per cent from the previous year, while the total number of issues they raised rose 67 per cent to 30,734, the Commission for Complaints for Telecom-Television Services says in its report for the 12 months from Aug. 1, 2017 to July 31, 2018.
The Globe’s Andrew Willis reports that two of Greece’s largest financial institutions announced merger plans on Monday in a deal that better positions major shareholder Fairfax Financial Holdings Ltd. for a rebound in the Greek economy. Eurobank, the third largest lender in Greece, plans to acquire real estate investment company Grivalia Properties in an all-stock transaction valued at US$866-million. The deal significantly boosts the bank’s capital and lifted the share price in both publicly traded companies on Monday. Eurobank stock surged 23.8 per cent to 58.5 euro cents on the news of the transaction, while Grivalia stock jumped 10.6 per cent to €7.93.
Maple Leaf Foods Inc. announced plans Monday to build a $660-million poultry processing facility in London, Ontario that is expected to meet a growing appetite for meals that revolve around premium chicken products. Mississauga-based Maple Leaf is building a 640,000 square foot plant in southern Ontario that CEO Michael McCain said: “to best of our knowledge…will be the single most technically advanced facility in the world.”
United Technologies Corp said on Monday it would separate into three companies consisting of its aerospace, elevators and building divisions, making it the latest industrial conglomerate to pursue such a break-up. The decision follows the completion this month of United Technologies’ US$30-billion acquisition of avionics maker Rockwell Collins, which gave enough scale to its aerospace business to be a standalone company.
More reading:
Tuesday’s small-cap stocks to watch
Analyst upgrades and downgrades
Economic news
The S&P CoreLogic Case-Shiller 20-city home price index rose 5.1 per cent in September from a year earlier. The September increase was down from the 5.5-per-cent gain seen a month earlier.
(10 a.m. ET) U.S. Conference Board Consumer Confidence Index for November. Consensus is a reading of 136.1, down from 137.9 in October.
With Reuters and The Canadian Press
Terry Weber