Equities
U.S. stock futures pointed to a mixed start early Wednesday with investors looking past the continuing trade dispute between the United States and China. Overnight, global stocks measured by MSCI’s all-world index were higher and touched their best level in two weeks. European markets opened firmer while Asia closed in the black. In this country, TSX futures were little changed with NAFTA talks set to resume and oil prices holding relatively steady.
“All things considered the tit-for-tat tariff spat could have been a lot worse,” CMC chief market analyst Michael Hewson said. "Investors reacted relatively well to the news, but the standoff is even further from being resolved so this situation is likely to resurface again."
As global equities steadied, assets often viewed as safe-haven holdings like U.S. bonds and the Japanese yen slid to multiweek lows. The yield on the U.S. 10-year note held above 3 per cent in early going. The U.S. dollar, meanwhile, notched a two-month high against the yen, hitting 112.42 yen. That was its highest level since June 20.
Earlier this week, the United States and China saw trade tensions escalate with the U.S. decision to levy a 10-per-cent tariff on about US$200-billion in Chinese imports. China responded with duties on about US$60-billion of U.S. goods. The U.S. duties, however, exempted products like the Apple Watch and Fitbit activity trackers, helping bolster tech shares.
In Canada, NAFTA talks will again be in focus as Foreign Affairs Minister Chrystia Freeland returns to Washington. As negotiations continue, Republican House of Representatives majority whip Steve Scalise cautioned that there is “growing frustration” in the capital with Canada’s “negotiating tactics.”
In corporate news, Tilray Inc.'s U.S.-listed shares shot up 51 per cent in premarket trading after CEO Brendan Kennedy told CNBC’s Jim Cramer that pharmaceutical companies need to foster links with cannabis firms as a “hedge." “Cannabis is a substitute for prescription painkillers, prescription opioids, and so if you’re an investor in a pharmaceutical company or you’re a pharmaceutical company, you have to hedge the offset from cannabis substitution,” Mr. Kennedy said, according to a CNBC story on the Tuesday appearance.
On Wall Street, Tesla shares were slightly lower in premarket trading after losing 3.35 per cent on Tuesday. The declines came after the auto maker said the U.S. Department of Justice is investigating CEO Elon Musk’s public statements in August about the possibility of taking the company public. Tesla said it has been asked for documents about Mr. Musk’s announcement as a “voluntary request." Tesla says it is co-operating and that the matter “should be resolved quickly.”
Overseas, the pan-European STOXX 600 edged up 0.08 per cent in late morning trading in Europe. Shares of Danish bank Danske Bank were down about 7 per cent after CEO Thomas Borgen quit following an investigation into payments worth US$234-billion through its Estonian Branch. Britain’s FTSE 100 gained 0.04 per cent. Germany’s DAX added 0.23 per cent and France’s CAC 40 rose 0.28 per cent.
In Asia, markets finished in the black with investors setting aside trade worries. Japan’s Nikkei ended up 1.08 per cent while the broader Topix rose 1.46 per cent. The Bank of Japan held monetary policy steady on Wednesday with BoJ Governor Haruhiko Kuroda stressing that he won’t shift from the current policy stance until inflation hits the 2-per-cent target. Hong Kong’s Hang Seng rose 1.19 per cent. The Shanghai Composite Index rose 1.14 per cent.
Commodities
Oil prices were relatively steady as supply concerns linked to coming U.S. sanctions in Iranian crude offset a surprise build in U.S. stockpiles. The day range on benchmark Brent is US$78.77 to US$79.35 with prices pulling back a bit predawn. West Texas Intermediate has a range of US$69.65 to US$70.22.
“Oil had a positive session yesterday after Saudi Arabia said they were comfortable with Brent crude oil above US$80 per barrel,” David Madden, market analyst with CMC Markets U.K., said. "The major oil-producing nation raised output as to try and keep a lid on the price, as a favour to the US. There are supply concerns ahead of the U.S. sanctions being imposed on Iran in November. "
Later in the morning, the markets will get a fresh reading on U.S. crude inventories with the release of the Energy Information Administration’s weekly report. Late Tuesday, the American Petroleum Institute’s own figures showed a surprise increase with stockpiles rising by 1.2 million barrels last week to 397.1 million. Analysts had been expecting a decline of more than 2 million barrels.
In other commodities, gold rebounded after finishing Tuesday’s session lower. Spot gold was up 0.5 per cent at US$1,202.96 in morning trading in Europe. U.S. gold futures rose 0.4 per cent.
“Somehow the commodity markets have learned to ignore the trade war, but there will be more noise from this theme, so it remains an uncertain element,” Norbert Ruecker, head of commodity research at Julius Baer in Zurich, told Reuters.
Silver prices were up 0.3 per cent. Platinum gained 0.5 per cent. Three-month copper on the London Metal Exchange ralled to its best level since late August, touching US$6,145 before pulling back somewhat.
Currencies and bonds
The Canadian dollar pushed well above the 77-US-cent level early Wednesday ahead of the resumption of NAFTA talks. At last check, the loonie was sitting near the top end of the day range of 77.01 US cents to 77.32 US cents. The loonie managed its best levels since late August on Tuesday helped by a rally in oil prices and strong manufacturing sales figures.
RBC chief currency strategist Adam Cole said in a note that markets had a “risk on” tone overnight with the Australian and New Zealand currencies outperforming and yields on the U.S. 10-year bonds holding above 3 per cent.
“The main catalyst for the positive tone is a series of comments from Chinese Premier Li which suggest an ongoing measured response to U.S. tariffs and continuing stimulus domestically,” Mr. Cole said. “Li said China would ‘not engage in competitive currency devaluation’ and that tax cuts would be the focus of more active fiscal policy.”
For the Canadian dollar, he said, the day’s key driver is news of continued NAFTA talks with an expected meeting between Ms. Freeland and U.S. Trade Representative Robert Lighthizer. However, Mr. Cole also noted that " U.S. officials warned that time is running out for Canada and the U.S. to reach agreement."
Bank of Montreal economist Robert Kavicic noted that, with the U.S. dollar modestly lower this morning, the loonie is "pushing the high end of the four month range.”
In bonds, the yield on the 10-year U.S. note was higher at 3.061 per cent. The yield on the 30-year note was also higher at 3.204 per cent.
Stocks set to see action
The European Union has ruled that Luxembourg did not give the U.S. fast-food giant McDonald’s Inc. a special sweet tax deal and that the non-taxation of some of its profits did not amount to illegal state aid. The EU Commission ended a probe that started in 2015 by saying on Wednesday that advantages granted to McDonald’s were the result of differences between Luxembourg and U.S. tax laws, and EU Commissioner Margrethe Vestager said “Luxembourg did not break EU state aid rules.”
The chief executive of Denmark’s largest bank resigned Wednesday after an internal report into allegations of massive money laundering via an Estonian subsidiary showed that “the vast majority” of transactions were deemed to be “suspicious.” Danske Bank commissioned the probe last year following reports that dirty money was flowing through the Baltic subsidiary including from family members of Russian President Vladimir Putin. The findings, published Wednesday in an 87-page report, show that billions moved through the unit in Estonia, which like its Baltic neighbours Latvia and Lithuania, is a member of the European Union and NATO.
Kirkland Lake Gold Ltd. says it acquired 14.7 million common shares of Osisko Mining Inc. through a private placement financing at a price of $1.70 per share for a total cash payment of approximately $25-million. Kirkland Lake said it now owns 13.6 per cent of Osisko, up from 8.6 per cent.
AutoNation Inc’s longtime chief executive Mike Jackson will step down from the role next year but will remain executive chairman until 2021, the largest U.S. auto retail chain said on Wednesday. Mr. Jackson became AutoNation’s CEO in September 1999 and the company’s shares have more than tripled since then.
Bayer AG unit Monsanto on Tuesday asked a California judge to throw out a $289 million jury verdict awarded to a man who alleged the company’s glyphosate-based weed-killers, including Roundup, gave him cancer. The company said in motions filed in San Francisco’s Superior Court of California that the jury’s decision was insufficiently supported by the evidence presented at trial by school groundskeeper Dewayne Johnson. Mr. Johnson’s case, filed in 2016, was fast-tracked for trial due to the severity of his non-Hodgkin’s lymphoma, a cancer of the lymph system, that he alleged was caused by years of exposure to Roundup and Ranger Pro, another Monsanto herbicide that contains glyphosate.
The union representing Ryanair cabin crew in Belgium has rejected an offer from the Irish airline ahead of a planned one-day strike on Sept. 28, the union said. Separately, European pilots threatened new strikes against Ryanair if talks with unions did not progress more quickly. Europe’s biggest budget airline offered to follow Belgian employment law from March 2020 for Ryanair contracted employees, seeking to address one of the major complaints over the company’s policy to staff under Irish contracts.
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Economic news
ECB president Mario Draghi speaks in Berlin
U.S. housing starts rose 9.2 per cent to a seasonally adjusted annual rate of 1.282 million units in August, the U.S. Commerce Department said.
The U.S. current account deficit narrowed by US$20.3-billion to US$101.5-billion or 2 per cent of GDP in the second quarter.
With Reuters, The Canadian Press and The Associated Press
Terry Weber