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Equities
Canada’s main stock index gave up early gains to turn lower Monday morning, tracking world markets lower after U.S. President Donald Trump said he would restore tariffs on steel and aluminum imports from Brazil and Argentina. On Wall Street, major indexes also went south on the combined impact of fresh trade concerns and a weak reading on the U.S. factory sector.
At 10:37 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 51.91 points, or 0.3 per cent, at 16,988.29.
South of the border, the Dow Jones Industrial Average was down 118.11 points, or 0.42 per cent, at 27,933.30 at 10:05 a.m. ET, and the S&P 500 was down 19.36 points, or 0.62 per cent, at 3,121.62. The Nasdaq Composite was down 87.43 points, or 1.01 per cent, at 8,578.04.
U.S. markets had been mostly flat out of the gate, but lost steam after the the Institute for Supply Management said its index of U.S. manufacturing activity fell to 48.1 from 48.3 the month before. The reading was below expectations of 49.2 from a Reuters poll of 57 economists. A number above 50 indicates expansion while a reading below that line suggests a contraction.
An early morning tweet from Mr. Trump also weighed on markets. The U.S. president accused Brazil and Argentina of hurting U.S. farmers through currency manipulation and said he would restore tariffs on steel and aluminum imports in retaliation.
“Stock markets have turned red on Monday after Donald Trump unexpectedly announced that tariffs on steel and aluminum would be reimposed on Argentina and Brazil,” OANDA senior market analyst Craig Erlam said.
“I’m not sure many would agree that the movements in those currencies is a case of manipulation but then, Trump has never been particularly concerned about that,” Mr. Erlam said. “Whether his reasoning is justified has always come a distant second to his desire to level the playing field.”
Earlier, sentiment was helped by a report out of China showing the Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) index rose to 51.8 in November from 51.7 in the previous month. The latest reading marked the fastest expansion since late 2016. Meanwhile, a similar report out of the euro zone showed continued contraction although forward-looking indicators signaled improvements on the horizon.
On Bay Street, Husky Energy Inc. released its 2020 capital spending plan. The energy company now plans capital expenditures of between $3.2-billion and $23.4-billion. That represents a reduction of $500-million over 2020-21 from projections in May, $100-million of it next year and $400-million a year later. Husky also projected production of 295,000 to 310,000 barrels of oil equivalent a day. Husky shares gained 2 per cent in early trading in Toronto.
Catalyst Capital Group says it has extended the deadline for the board of Hudson’s Bay Co. to accept its offer letter. The deadline is now 5 p.m. ET today. The deadline was initially to expire on Nov. 29. Catalyst said it extended the deadline because of “indications of positive progress.” Last week, Catalyst offered $11 a share for the retailer, topping a competing offer of $10.30 a share spearheaded by HBC chair Richard Baker. HBC stock was up 1 per cent in early trading.
Later in the week, investors get the bulk of earnings from Canada’s biggest banks. Bank of Montreal reports on Tuesday. Royal Bank and National Bank deliver results on Wednesday, and CIBC and TD Bank report on Thursday.
Canadian markets also get the Bank of Canada’s final rate announcement for the year on Wednesday. Markets aren’t expecting any move on borrowing costs but analysts will have a close eye on the bank statements as they debate the possibility of a rate cut in the new year. On Friday, Statistics Canada reported that the Canadian economy grew at an annual rate of 1.3 per cent in the third quarter. That was down from the second quarter, although some economists said the tepid headline reading masked stronger underlying details as domestic demand remained sound.
“The Bank of Canada will take this report into next week’s policy deliberations and we suspect they’ll be on hold — possibly for a long while,” BMO senior economist Robert Kavcic said.
Overseas, the pan-European STOXX 600 gave back early gains to fall 0.44 per cent by afternoon. Britain’s FTSE 100 was down 0.16 per cent. Germany’s DAX lost 0.64 per cent. France’s CAC 40 fell 0.78 per cent.
In Asia, Tokyo’s Nikkei gained 1 per cent, Hong Kong’s Hang Seng rose 0.4 per cent, and the Shanghai Composite added 0.1 per cent.
Commodities
Crude prices gained in early going as markets hold out hope that OPEC and its allies will agree to extend production cuts beyond March when the group meets later in the week.
The day range on Brent is US$60.72 to US$62.06. The range on West Texas Intermediate is US$55.42 to US$56.67.
“Crude oil rose around 1 per cent at the start of the week, with speculation growing that OPEC could ramp up production restrictions in a bid to stabilize prices,” Joshua Mahony, senior market analyst at IG, said in a note.
"With the gap between demand and supply expected to widen in 2020, the prospect of lower prices is clearly something that OPEC has to weigh up when they meet this week."
He also said, with Saudi Aramco’s initial public offering on the horizon, markets could see Saudi-led action to help bolster oil prices “in a bid to boost the short-term windfall they achieve from this [historic] listing.”
OPEC members’ current production caps are set to run through until March. Iraq’s oil minister said on Sunday that the group may also consider deepening cuts.
New figures out of the Chinese factory sector also helped underpin prices, with manufacturing activity in November posting its fastest expansion since late 2016.
“Brent and WTI are both trading more than 1 per cent higher today - buoyed by an encouraging growth in the Chinese manufacturing PMI over the weekend,” OANDA’s Mr. Erlam said, although he also noted that “this may be a market prone for correction.”
The Chinese factory figures, meanwhile, weighed on gold prices as investors moved back into riskier assets.
Spot gold was down 0.5 per cent at US$1,456.70 per ounce, having earlier touched its highest since Nov. 22. U.S. Gold futures fell 0.7 per cent to US$1,463.
“Positive data from China creates an optimism that the Chinese market is improving, that gives people confidence to invest in riskier assets, and in turn, reduces the safe-haven demand for gold,” Hareesh V, head of commodity research at Geojit Financial Services, told Reuters.
Currencies
The Canadian dollar was slightly lower as markets await the midweek policy decision from the Bank of Canada.
The day range on the loonie so far is 75.22 US cents to 75.35 US cents.
The Bank of Canada’s rate announcement is due Wednesday morning. Markets have largely ruled out a move on borrowing costs, leaving the bank’s key policy rate at 1.75 per cent.
“Friday’s GDP reports were close enough to expectations not to change that view,” RBC chief currency strategist Adam Cole said. “The meeting comes just five weeks after their Oct. 30 Monetary Policy Report where they noted that the economy needed to show ‘resilience’ and that they considered an insurance cut (in the opening statement to the press conference).”
In a report last week by RBC senior economists Nathan Janzen and Josh Nye, they note that about 40 central banks around the world have eased monetary policy this year. The said they’re expecting the central bank to maintain a cautious tone in its statement but with a “less overtly dovish message message than in October when governor [Stephen] Poloz wasn’t shy about saying a rate cut was debated.”
Wednesday’s policy announcement will be followed by an address on Thursday by deputy Bank of Canada governor Timothy Lane, who will speak on economic progress and take questions from the media.
On global markets, a shift into riskier holdings weighed on safe-have assets.
The safe-haven yen fell to 109.73 per U.S. dollar, its lowest level since May. Reuters also notes that riskier currencies also rallied after the Chinese data, with the Australian dollar up a third of a percent at 67.79 US cents.
New Zealand’s currency rose to a one-month high of 64.60 US cents. Analysts said the currency was also buoyed by talk of fiscal stimulus to boost the New Zealand economy.
In bonds, the yield on the 10-year note was higher at 1.848 per cent. The yield on the 30-year note was also up at 2.285 per cent.
More company news
China’s Zijin Mining Group Co., Ltd. has struck a deal to buy Canadian miner Continental Gold Inc. for about $1.3-billion. Zijin will pay $5.50 per share in cash for Continental, a premium of about 13 per cent to the Canadian company’s closing price on Friday. Newmont Goldcorp and its directors and officers, who hold a 21.5-per-cent interest in Continental, have agreed to back the deal. Continental shares gained 10 per cent in morning trading in Toronto.
Obsidian Energy Ltd. has named Stephen E. Loukas as its interim chief executive officer, effective Dec. 5. The takes over the role from Michael J. Faust, who had been serving as interim CEO. Mr. Faust will return to his previous position as independent director and take on new responsibilities as chair of the commercial committee, Obsidian said in a statement.
Roots has named Mona Kennedy as its new chief financial officer, effective the end of the first quarter in fiscal 2020. She takes over the role from Meghan Roach, who had been serving as acting CFO since August.
The World Trade Organization has found that the European Union has failed to withdraw all subsidies to planemaker Airbus amid U.S. tariffs on European goods, three people familiar with the matter told Reuters. A new compliance report to be published as soon as Monday found that the Airbus A350 jetliner continues to be subsidized as a result of earlier government loans, they said. However, the WTO could scale back the amount of harm deemed to have been caused to U.S. rival Boeing, which influenced a decision to allow US$7.5-billion of U.S. tariffs against the EU earlier this year, according to the Reuters report.
Nissan Motor Co. chief executive Makoto Uchida said on Monday that he would work to improve the auto maker’s financial performance and co-operate closely with alliance partner Renault SA, while maintaining Nissan’s independence. Mr. Uchida became CEO of Nissan on Dec. 1, as Japan’s No. 2 car maker tries to recover from a profit slump and draw a line under a year of turmoil after the Carlos Ghosn scandal.
British fashion retailer Ted Baker said it may have overstated inventory by as much as US$32.08-million and appointed an independent law firm to take stock of unsold goods, kicking its shares to their lowest in a decade. Monday’s announcement comes at the busiest time of year for retailers and exactly a year after a misconduct scandal that forced founder Ray Kelvin to step down as chief executive officer. Finance chief Lindsay Page took over as CEO.
Economic news
The IHS Markit Canada Manufacturing Purchasing Managers’ index (PMI), a measure of manufacturing business conditions, rose to a seasonally adjusted 51.4 in November, its highest level since February, from 51.2 in October. A reading above 50 shows expansion in the sector.
The U.S. economy’s manufacturing sector contracted for a fourth straight month in November, according to the Institute for Supply Management. The ISM said its index of national factory activity fell to 48.1 from 48.3 the month before. The reading was below expectations of 49.2 from a Reuters poll of 57 economists. A number below 50 indicates contraction.
With Reuters and The Canadian Press
Editor’s note: This story has been corrected to show a reading of the ISM below 50 indicates a contraction in the U.S. manufacturing sector.
Terry Weber