Equities
U.S. stock futures were firmer early Tuesday with a combination of trade tensions, political uncertainty and an expected interest rate hike setting a cautious tone for the trading day ahead. On Bay Street, TSX futures were higher oil prices held at multiyear highs. World stocks struggled overnight with MSCI’s all-country index remaining little changed, although near six month highs.
“A rumoured resignation from Attorney General Rod Rosenstein, plus U.S. and Chinese trade tariffs kicking in dampening hope of further trade negotiations fed a negative tone to trading overnight,” Jasper Lawler, head of research for London Capital Group, said in an early note.
"Asian markets struggled as investors digested escalated tensions in the next chapter of the growing trade spat. Both sides are digging their feet in, with tariffs being levied."
On Monday, both the U.S. and China implemented new tariffs on goods coming into their countries. Early Tuesday, China’s Vice Commerce Minister Wang Shouwen accused the U.S. of putting ‘a knife to China’s neck.’
Mr. Lawler said, at this stage, hope of negotiating a way out of an impasse is slipping, highlighting the problems trade tensions pose for traders. “On the announcement of these latest tariffs the markets moved higher, given that the tariffs were lower than what traders had been expecting,” he said. “Fast forward to the application of the ‘lower’ tariffs and the market dives.”
In North America, the U.S. Federal Reserve begins a two-day meeting that is widely expected to result in the third U.S. interest rate hike this year. The decision is due on Wednesday afternoon and the markets have priced in a 92-per-cent change of an increase. The expected rate hike along with higher U.S. bond yields helped bolster bank shares ahead of Tuesday’s opening bell. Bank of America shares rose 0.68 per cent while JPMorgan shares were up 0.61 per cent. Citigroup shares rose 0.56 per cent.
On Bay Street, the battle over Tim Hortons franchises is back in the headlines. The Globe’s Marina Strauss reports that franchisees are seeking ‘increased transparency on terminations’ and a fair process for renewed deals. The push comes after the abrupt termination of the licence of the leader of a group of discontented franchisees. Tim Hortons is owned by Restaurant Brands International. In a letter, the franchisee group said it is “working on your behalf to ensure the association members’ interests are being protected."
On Wall Street, Facebook shares were down 1.7 per cent in premarket trading following news that founders of Facebook’s Instagram photo-sharing app have resigned. Reports say Kevin Systrom and Mike Krieger plan to leave the company in the coming weeks. According to the report, no reason was given for the resignations.
After the close of trading, Nike Inc. releases its latest results. Shares were up about 0.58 per cent in premarket trading. The results come after a controversial Just Do It campaign featuring former NFL player Colin Kaepernick. Some called for a boycott in the wake of the campaign, but reports also suggested the company saw sales rise in the wake of the ad.
In Europe, the pan-European STOXX 600 was up 0.38 per cent in morning trading with most sectors in positive territory. Oil stocks were among the best performers with Brent crude touching its best level in four years. Britain’s FTSE 100 was up 0.29 per cent. Germany’s DAX rose 0.24 per cent and France’s CAC 40 gained 0.20 per cent.
In Asia, trade tensions between the United States and China weighed on sentiment with the Shanghai Composite Index finishing down 0.58 per cent. Markets in Hong Kong and South Korea are closed. Japan’s Nikkei managed to edge up 0.29 per cent.
Commodities
Crude prices continued to climb early on on the expected impact of U.S. sanctions on Iranian oil exports and suggestions from OPEC and other producers that they aren’t in a rush to increase production to offset the hit to supply. Brent crude was up nearly 1 per cent in the predawn hours. Earlier, Brent hit US$82.20, its best level since November 2014. The day range on Brent so far is US$81.17 to US$82.20. West Texas Intermediate was also higher at last check, sitting in the upper half of the day range of US$72.02 to US$72.66.
“While sentiment is securely buttressed by Iran sanction, the question we have is not so much the case of whether OPEC and Non-OPEC are not offering up a concession to counter the expected supply drop from Iran sanctions,” OANDA analyst Stephen Innes said. “But even if they wanted to ramp up production, could they physically deliver near-term supplies to tame this raging oil bull?"
“If OPEC is physically unable to ramp up production, then Oil prices do indeed have much further to run as this will be viewed as an extremely bullish signal for near-term prices.”
U.S. sanctions on Iranian crude come into effect Nov. 4 and the U.S. government has been pressuring buyers to reduce purchases. On Tuesday, Mohammad Barkindo, OPEC’s secretary general, said in Madrid it was important that OPEC and its non-OPEC partners including Russia co-operate to not “fall from one crisis to another.”
Later Tuesday, markets will also get the latest inventory figures from the American Petroleum Institute. More official figures follow Wednesday from the U.S. Energy Information Administration.
In other commodities, gold prices were steady ahead of the start of the Fed meeting. In morning trading in London, spot gold edged up 0.1 per cent to US$1,200.08 an ounce. U.S. gold futures were little changed at US$1,204.50 an ounce. Silver prices were up 0.4 per cent and platinum rose 0.9 per cent.
Currencies and bonds
The Canadian dollar was slightly higher at last check after trading through the night in a fairly narrow day range of 77.09 US cents to 77.25 US cents.
With no major economic reports due Tuesday, the loonie will likely follow its global counterparts on broader markets. The U.S. dollar index, which weighs the greenback against a group of world currencies, was most flat in the predawn hours at 94.165.
“The major currencies are sitting in a holding pattern awaiting the next impetus,” Mark McCormick, North American head of FX strategy for Toronto-Dominion Bank, said. “We think it is the Fed, though the recent spike in oil has raised some eyebrows. The next move in oil matters insofar as it offers a good reason to keep the selloff in global rates moving, especially as global output gaps are closing.”
RBC chief currency analysts notes that the U.S. dollar was broadly firmer overnight as U.S. bond yields retest the seven-year highs seen in May ahead of Wednesday’s Fed announcement on interest rates. He also noted that U.S. President Donald Trump is scheduled to speak at the UN General Assembly in New York on Tuesday morning although " though his comments are likely to be less contentious than his last appearance a year ago."
In bonds, the yield on the 10-year note was higher at 3.113 per cent around 7 a.m. ET. The yield on the 30-year note was also higher at 3.247 per cent.
Stocks set to see action
Michael Kors Holdings Ltd. shares were slightly higher after the fashion giant confirmed it will buy Versace for US$2.12-billion, including debt. The news followed reports on Monday that the two were nearing a deal. Under Tuesday’s agreement, Donatella Versace, who has helped steer Versace since her brother’s murder in 1997, will stay on to “continue to lead the company’s creative vision.” Michael Kors Holdings will be renamed Capri Holdings Ltd.
Aurora Cannabis said fourth-quarter revenue tripled to $19.1-million, up from $5.9-million a year earlier. Net income attributable to shareholders was nearly $80-million, up from a a loss of $4.82-million a year ago. The results were released after the close on Monday.
Transat A.T. Inc. said it has purchased land and entered into an agreement for an adjacent property in Puerto Morelos on Mexico’s Yucatan Peninsula to build a beachfront resort for a total of US$54-million and US$57-million.
The Globe’s James Bradshaw reports that Royal Bank of Canada has set the bar for bail-in debt, issuing the first in a new class of bonds intended to keep taxpayers from having to bail out distressed banks in the event of a crisis. On Monday, RBC began selling $2-billion of five-year bonds, priced at 95 basis points above government bonds, maturing in 2023. The sale comes one day after new rules came into force, and creates an early benchmark for the premium other large banks can expect to pay as they begin to issue their own bail-in notes.
DHX Media said Tuesday that a special committee has concluded its strategic review of the company. As part of the review, the company has signed a multi-million-dollar agency agreement for Peanuts in China and Asia with CAA Global Brand Management Group LLP.That move comes after the company announced previously that it had sold a minority stake in Peanuts to Sony for $235.6-million.DHX also said it has suspended its dividend, a move that it says will free up about $10-million annual to invest in its WildBrain business and to continue paying down debt.
Clothing retailer Next raised its profit guidance after better-than-expected trading in late summer and said it was well prepared should Britain crash out of the EU without a deal. The company’s shares were up 9 per cent in London on the news. The company, which trades from over 500 stores in Britain and Ireland, about 200 stores in 40 countries overseas and its Directory online business, said that while a no-deal Brexit would mean additional administrative costs, in the context of the overall group they would not be material.
Comcast, the winner in the US$40-billion auction for Sky, said on Tuesday it had bought more than 30 per cent of the European pay-TV group’s shares in the market. Crossing the 30 per cent threshold means that the U.S. cable company must offer to buy out other investors at the formal offer price of 17.28 pounds per share, valuing Sky at around 30.6 billion pounds (US$40.2-billion).
More reading:
Tuesday’s small-cap stocks to watch
Economic news
The S&P CoreLogic Case-Shiller 20-city U.S. home price index increased 5.9 per cent in July compared with a year earlier, down from a 6.4 per cent annual gain in July, The Associated Press reports.
With Reuters and The Associated Press
Terry Weber