Canada’s main stock index rose on Tuesday as tensions between the United States and Iran seemed to ease with no escalation on either side.
The U.S. dollar gained, helped by better-than-expected data in the U.S. non-manufacturing sector, and oil prices retreated on Tuesday as investors anxiously scanned developments in the stand-off in the Middle East.
Gold prices inched higher after backing off an almost seven-year high on Monday, when risk-adverse investors drove demand. Stocks in Europe and on Wall Street traded mostly little changed, with an upward tilt.
A U.S. drone strike in Baghdad on Friday killed Iranian military commander Qassem Soleimani, widely seen as Iran’s second-most powerful figure, in a slaying that threatens to spark regional conflict.
Tehran has vowed retaliation and French President Emmanuel Macron urged Iran to avoid any actions that could worsen Mideast tensions. Germany called for a joint European response to Iran’s decision to scrap limits imposed on its nuclear enrichment program.
In Toronto, the S&P/TSX composite index was unofficially up 62.59 points, or 0.4 per cent at 17,168.06.
The materials sector, which includes precious and base metals miners and fertiliser companies, added 1.4 per cent on strength in gold miners as bullion prices rose, adding to recent safe-haven plays.
The energy sector dropped just over 0.1 per cent as oil prices relinquished some of their recent gains.
Leading the index were Lightspeed POS Inc., up 9.1 per cent, NovaGold Resources Inc., up 5.1 per cent, and Alacer Gold Corp., higher by 4.8 per cent.
Lagging shares were Hexo Corp., down 5.3 per cent, Exchange Income Corp., down 3.2 per cent, and ARC Resources Ltd., lower by 3.0 per cent.
MSCI’s gauge of stocks across the globe was flat, while the pan-European STOXX 600 index rose 0.25 per cent.
“Earnings and the economy have taken a bit of a back seat relative to the rising tensions in the Mideast and investors are keenly focused on what might happen there next,” said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.
Even amid rising geopolitical tensions, cyclical stocks have outperformed defensive shares, an indication the U.S. economy remains strong and growth will reaccelerate later in the year despite the flare-up in the Middle East, he said.
“The ISM non-manufacturing number was a little bit above expectations. That would support the idea the consumer and cyclicals that benefit from the consumer are the leadership today even in a down market,” Arone said.
The Institute for Supply Management said its non-manufacturing activity index rose to 55.0 last month from 53.9 in November. A reading above 50 indicates expansion in the services sector, which accounts for more than two-thirds of U.S. economic activity.
The report came after an ISM survey last week showed its measure of U.S. factory activity dropped in December to its lowest since June 2009, and contracting for a fifth straight month.
History suggests when a discrepancy between manufacturing and services is large, the gap will be closed with the former rebounding, said Joseph LaVorgna, chief economist in the Americas at Natixis, in a note.
A rebound is a key factor behind LaVorgna’s bullish call on economic growth in 2020, he said.
Rising European and U.S. semiconductor stocks offset a decline in energy shares, as Microchip Technology raised its third-quarter sales outlook. The technology index rose 1.3 per cent, the most among European sub-sectors.
A more than 4 per cent gain for Infineon Technologies helped Germany’s DAX close up 0.8 per cent while STMicroelectronics’s 2.5 per cent gain lifted Italian stocks by 0.6 per cent.
On Wall Street, the Dow Jones Industrial Average fell 120.04 points, or 0.42 per cent, to 28,583.34, the S&P 500 lost 9.13 points, or 0.28 per cent, to 3,237.15 and the Nasdaq Composite dropped 2.88 points, or 0.03 per cent, to 9,068.58.
Emerging market stocks rose 0.33 per cent.
The safe-haven Japanese yen fell from a three-month high versus the dollar and the Swiss franc pulled back from recent highs against the greenback, though concerns remained paramount about U.S.-Iranian relations.
The dollar index rose 0.36 per cent, with the euro down 0.46 per cent to $1.1142. The yen weakened 0.15 per cent versus the greenback at 108.55 per dollar.
The dollar was up 0.39 per cent at 0.9718 franc.
Oil prices fell almost 1 per cent, surrendering some of the gains of recent days as investors weighed the likelihood of immediate supply disruptions in the Middle East.
Brent crude fell 64 cents to settle at $68.27 a barrel. U.S. West Texas Intermediate crude settled down 57 cents at $62.70 a barrel.
Euro zone government bond yields edged up from three-week lows and yields on U.S. Treasuries were little changed.
Germany’s benchmark Bund yield was little changed at around -0.28 per cent, having risen from more than three-week lows on Monday at -0.31 per cent. But it remained below last week’s seven-month highs amid euphoria over the year-end stock rally.
Benchmark 10-year notes fell 5/32 in price to yield 1.8282 per cent.
Gold prices rose. Absent aggressive rhetoric, the perceived risk to oil will diminish and reduce gold’s appeal, said Bart Melek, head of commodity strategies at TD Securities.
“The market thinks that at this point the conflict may not escalate too much,” Melek said.
Spot gold rose 0.34 per cent at $1,571.21 an ounce. U.S. gold futures settled 0.3 per cent higher at $1,574.30.
Reuters