Equities
Wall Street futures were sharply lower early Monday as escalating trade tensions hit global stocks. On Bay Street, futures were lower as crude prices struggled ahead of a key OPEC meeting later in the week. Overnight, global stocks extended Friday’s declines into the new week after U.S. president Donald Trump announced tariffs on Chinese imports and Beijing responded in kind.
“Tariff wars are stalking investors today, with a general move lower seen across global equities,” Chris Beauchamp, chief market analyst with IG, said in an early note.
“A general lack of news on the economic front has not helped matters, providing little distraction from the ongoing crisis.”
After recent strength, especially in the European markets, stocks have become more vulnerable to bad news, although any selloff for the time being “should still represent a buying opportunity in the longer-term,” he said.
As well, he added, a shift in tone by central banks has reminded investors that they can’t consider easy monetary policy as a given anymore, making markets more sensitive to trade developments.
On Bay Street, Australia’s South32 Ltd. has bid $1.3-billion to take full control of Toronto-listed Arizona Mining. The offer of $6.20 a share offers a 50-per-cent premium to Arizona’s last close and puts an equity value on the company of $1.6-billion, South32 said. Arizona’s directors have unanimously recommended shareholders vote in favour of the deal.
Also, Canadian oil and gas producer Baytex Energy Corp said it will buy rival Raging River Exploration Inc for about $2.8-billion. Raging River shareholders will get 1.36 shares of Baytex for each share they hold.
South of the border, Alphabet’s Google will invest US$550-million in Chinese e-commerce giant JD.com as it looks to expand its footprint in Asia and take on retail behemoth Amazon. The two companies said the investment is part of a broader partnership that will include the promotion of JD.com products on Google’s shopping service.
Overseas, European markets started the week in the red with the pan-European STOXX 600 trading down 0.69 per cent at last check. Britain’s FTSE 100 slid 0.13 per cent and Germany’s DAX fell 1.07 per cent. France’s CAC 40 lost 0.89 per cent.
In Asia, trade worries continued to weigh on investors. Japan’s Nikkei finished down 0.75 per cent. Shippers, steel makers and oil stocks were all lower. The Shanghai Composite Index and Hong Kong’s Hang Seng were both closed Monday.
Commodities
Crude prices wavered early on as traders await an expected production increase out of an OPEC meeting later in the week. Brent crude was slightly higher after spending much of the premarket period in the red. The day range on Brent was US$72.45 to US$74.29. West Texas Intermediate, however, remained underwater although off early lows and had a range for the day so far of US$63.59 to $64.92. The low end of that spread marks a two-month low for WTI.
“Oil prices have been under notable pressure amid growing expectations that Saudi Arabia and Russia will make moves to ease the current supply cut limits at the OPEC meeting in Vienna on Friday,” Jasper Lawler, head of research for London Capital Group, said in a note.
“After a year of oil production cuts, the more recent U.S. sanctions on Iran and the political crisis slowing production in Venezuela to an almost stand still, there is a growing consensus between the Saudis and the Russians that a ‘gradual’ increase in production should be deemed necessary.“
However, he also noted that position isn’t necessarily “clear cut” given that other OPEC members including Iran and Iraq are against raising production, concerned it would trigger renewed supply issues. Rising U.S. shale production, Mr. Lawler added, also still provides “a growing risk in the eyes of OPEC.”
The growing trade row between the U.S. and China has also tempered sentiment in the crude market, traders said Monday.
“These punitive measures on bilateral trade have unnerved investors as it hurts global economic growth,” Benjamin Lu, of futures brokerage Phillip Futures, told Reuters.
In other commodities, gold prices held near their lowest levels in more than five months as a stronger U.S. dollar offset market jitters over the global trade situation. Spot gold was trading at US$1,279.30 early Monday after hitting US$1,275.01 - its weakest level since late December - on Friday. Gold futures for August delivery, meanwhile, were slightly higher in early going.
Currencies and bonds
The Canadian dollar posted slim gains early Monday and traded around the 76-US-cent mark early on as its U.S. counterpart neared its best level in seven months in the wake of last week’s Federal Reserve rate hike.
The day range on the loonie so far is 75.72 US cents to 75.98 US cents.
The U.S. dollar index, which weighs the greenback against a basket of world currencies, was higher at 94.874. That’s down from levels seen earlier in the session but still not far off the seven-month high seen Friday following a rate increase and hawkish statement from the powerful U.S. central bank.
For the loonie, the week’s market-moving economic news doesn’t come until Friday with the release of May inflation figures and April retail sales. Sue Trinh, RBC’s head of Asia FX strategy, says RBC is forecasting a 2.5-per-cent reading on inflation, up from the previous month’s annual rate of 2.2 per cent.
“There is some upside potential for the BoC’s three core measures (the CPI-Median and CPI-Trim measures saw slightly below trend-like gains one year ago), which have averaged 2 per cent for the past three months and are consistent with the largely eliminated output gap,,” she said.
Retail sales, meanwhile, are seen sliding 0.3 per cent in April on expectations that auto sales fell during the month after a sharp increase in March, she said.
In bonds, trade worries pushed U.S. Treasury yields into the red. The yield on the U.S. 10-year note was lower at 2.917 per cent ahead of the North American open. The yield on the 3-year note was also lower at 3.045 per cent.
Stocks set to see action
Magna International Inc. plans to engineer and build electric vehicles in China, marking the first time North America’s largest auto supplier is expanding its car manufacturing capabilities beyond its 20-year-old Steyr venture, Bloomberg reports. The Aurora, Ontario-based company is forming two joint ventures with China’s largest EV maker, Beijing Electric Vehicle Co., known as BJEV. The engineering and manufacturing ventures are set to take over an existing factory in Zhenjiang with the intention of producing vehicles by 2020, Magna said in a statement.
Valeant Pharmaceuticals International said on Monday that U.S. health regulators had declined to approve its drug to treat plaque psoriasis, citing questions related to certain data. The U.S. Food and Drug Administration’s letter to the company did not cite any deficiencies related to clinical safety or efficacy, but noted questions regarding pharmacokinetic data, Valeant said. Valeant’s U.S.-listed shares were down more than 5 per cent in premarket trading.
The head of Volkswagen’s Audi was arrested on Monday, the most senior company official so far to be taken into custody over the German car maker’s emissions test cheating scandal. Munich prosecutors said Rupert Stadler was being detained due to fears he might hinder an ongoing investigation into the scandal, plunging Volkswagen (VW) into a leadership crisis.
Google will invest US$550-million in Chinese e-commerce powerhouse JD.com, part of the U.S. internet giant’s efforts to expand its presence in fast-growing Asian markets and battle rivals including Amazon.com. The two companies described the investment as one piece of a broader partnership that will include the promotion of JD.com products on Google’s shopping service.
Boeing has reorganized its sales operations as part of a push into services that has helped it take a lead over rival jet maker Airbus this year. Boeing set up a standalone division in 2017 to build a US$50-billion business in services for civil and defense aircraft. These can include repairs, crew rostering, parts and even wind forecasts. It previously offered fewer, more dispersed services. Now sales of jetliner services have been brought under the same umbrella as plane sales, headed by senior vice president Ihssane Mounir, Boeing Co’s overall commercial sales chief.
Barclays, CIBC and Credit Suisse all raised their price target for high-end coat maker Canada Goose. The retailer saw its stock hit record levels last week after posting a surprise profit. Barclays has raised its raises price target to $87 from $64. CIBC raised its target to $92 from $48 and Credit Suisse hiked its target price to $88 from $52.
More reading:
Monday’s Insider Report: Companies insiders are buying and selling
Economic news
(10 a.m. ET) U.S. housing market index for June. Consensus is 70, unchanged from May.
With Reuters and The Canadian Press
Terry Weber