Equities
Wall Street futures were lower early Thursday as U.S. trade talks with China and the spectre of U.S. import tariffs on the auto industry countered suggestions from the Federal Reserve that it would let inflation run above 2 per cent for the time being. On Bay Street, futures were higher with investors weighing forecast-topping results from Royal Bank and Toronto-Dominion Bank.
“Trump single handily put trade risk firmly back on the table, as he lined up the next target of his America First policy,” Jasper Lawler, head of research for London Capital Group, said. “Before trade issues with China are even close to being resolved, Trump launching an investigation into the U.S. automobile industry, similar to that of the steel and aluminium industry, is understandably unnerving the markets.”
Shares in Japanese and South Korean auto makers were down overnight, with Nissan and Toyota falling 1.2 per cent and 2.3 per cent respectively, he noted.
On Wednesday, U.S. President Donald Trump threatened to impose tariffs of as much as 25 per cent on imported vehicles. The move would come under an obscure provision of U.S. trade law that allows the government to slap duties on imports it deems a threat to national security.
On Bay Street, Royal Bank, the country’s biggest bank by market value, reported an 11-per-cent increase in second quarter profit, helped by gains in its wealth management and retail unites. RBC posted earnings per share in the quarter of $2.06. Excluding one-time items, earnings came in at $2.10 a share, topping analysts’ forecasts of $2.05.
TD Bank also reported results, also topping forecasts. Excluding one-time items, TD reported earnings per share of $1.62, up form $1.34 a year earlier. Analysts had been looking for earnings in the latest quarter of about $1.50.
A day earlier, CIBC topped analysts’ profit forecasts but also said it saw mortgage lending slowing in the second half.
On Wall Street, Best Buy Co. posted a same-store sales increase in the latest quarter of 7.1 per cent, ahead of the 2.9-per-cent gain analysts had been expecting. However, weaker sales growth online pulled the stock lower in premarket trading after an initial pop on the results. The retailer said domestic online comparable sales growth slowed to 12 per cent growth in the latest quarter from growth of 22.5 per cent a year earlier.
Clothing retailer Gap Inc. reports after the close and is seen posting earnings per share of 45 US cents in the quarter, up from 36 US cents a year earlier.
In Europe, the pan-European STOXX 600 was up 0.36 per cent with tech shares higher but auto stocks posting losses. Britain’s FTSE was off 0.03 per cent just before 6:30 a.m. ET. France’s CAC 40 gained 0.50 per cent. Germany’s DAX rose 0.12 per cent.
In Asia, markets finished mostly lower on trade concerns. Japan’s Nikkei lost 1.1 per cent with the auto sector falling. Hong Kong’s Hang Seng edged up 0.31 per cent. The Shanghai Composite Index was off 0.44 per cent.
Commodities
Crude prices were lower on the prospect of OPEC raising output for the first time since 2016 amid concern over supply from Venezuela and Iran. The day range on Brent crude so far is US$78.90 to US$79.78. West Texas Intermediate has a range for the day so far of US$71.25 to US$72.
Desjardins Securities noted the U.S. Energy Information Administration also provided a bearish update with a massive 5.8 million barrel crude build in its latest weekly numbers. The markets had been expecting a modest decline in crude stocks.
“The bearish inventory reading has added further weakness to global oil prices which began checking back late yesterday afternoon following a Reuters article that suggested OPEC and Russia are now considering plans to begin returning production to market later this summer in response to the recent tightening of global supplies,” Desjardins said.
“And while it represented only a single data point, the 5.8 (million barrels) crude build certainly packed a punch for the market as one of the largest weekly misses relative to expectations this year.”
Reuters reported that OPEC may decide at its June meeting to increase oil output to make up for reduced supply from Iran and Venezuela. Supply concerns in Iran and Venezuela following new U.S. sanctions had pushed both Brent and WTI to multiyear highs, with Brent breaking through an $80 threshold last week for the first time since November 2014, the agency report.
OPEC and non-OPEC producers have agreed to cut output by 1.8 million barrels a day to boost prices and clear the global overhang. The next OPEC meeting is set for June 22.
In other commodities, gold prices were higher for a second session helped by a weaker greenback. Spot gold and U.S. gold futures for June delivery were both higher ahead of the North American open. In other metals, silver was also higher.
Currencies and bonds
The Canadian dollar was lower early on as oil prices pulled back. The loonie had a narrow range for the day so far of 77.72 US cents to 77.94 US cents.
In other currencies, the U.S. dollar index was lower at 93.761. The index, which measures the greenback against a basket of world currencies, lost momentum on Mr. Trump’s threat to impost duties on auto imports as well as a Dovish outlook from the Fed in its latest minutes.
“For dollar traders, the minutes had an element of dovishness, which caused the greenback to fall away from session highs,” Mr. Lawler said. “Whilst the Fed gave big hints over its intention to hike when it meets in June, the central bank failed to give the necessary clues that the markets looked-for over (the second half).”
In bonds, the yield on the U.S. 10-year note was higher at 3.008 per cent. The yield on the 30-year note was lower at 3.168 per cent.
Stocks set to see action
The federal cabinet has invoked national security threats to block the proposed $1.5-billion takeover of Canadian construction giant Aecon Group Inc. by a Chinese state-owned enterprise − a decision that is likely to cause a rift with Beijing. The sale of Toronto-based Aecon – the builder of critical infrastructure and the iconic CN Tower – to China Communications Construction Co. Ltd. (CCCC) was opposed by Canadian construction rivals and two former directors of the Canadian Security Intelligence Service, the Globe’s Robert Fife and Steven Chase report.
Deutsche Bank is cutting more than 7,000 jobs to reduce costs and restore profitability while maintaining its international reach as its new chief executive seeks to reassure investors and clients. Germany’s biggest bank said global headcount would fall to well below 90,000 from 97,000, with a 25 per cent cut in equities sales and trading jobs, which are mainly in New York and London and where it has been losing ground to U.S. rivals.
Samsonite International SA, the world’s largest branded-luggage maker, tumbled the most since 2012 after short-seller Blue Orca Capital questioned the company’s accounting and corporate governance, Bloomberg reports. The company’s Hong Kong-listed shares slumped 9.8 per cent.
Facebook says users in Canada and other countries will soon be getting a new type of privacy alert similar to one it first rolled out in the European Union, which is activating a stricter set of regulations on Friday. The social media giant’s chief privacy officer said Thursday in a blog post that Facebook’s new type of alert will prompt users to review details about what they’ve chosen to share.
More reading:
Thursday’s small-cap stocks to watch
Economic news
Initial claims for state unemployment benefits rose 11,000 to a seasonally adjusted 234,000 for the week ended May 19, the Labor Department said. Claims for the prior week were revised to show 1,000 more applications received than previously reported
(10 a.m. ET) U.S. existing home sales are unveiled. The consensus expectation is a 0.9-per-cent annualized rate decline.
With Reuters, The Canadian Press and Bloomberg
Terry Weber