Equities
U.S. stock futures were higher early Monday suggesting a reverse from last week’s weak finish amid reports the U.S. and China are quietly talking to ease trade tensions. On Bay Street, futures rose even as oil prices slipped. Overnight, MSCI’s world index of shares in 47 countries, shifted higher after touching its lowest level since early February. The turnaround came following reports that Treasury Secretary Steve Mnuchin could travel to Beijing to begin trade talks with China.
International markets also got a lift from news that South Korea would be the latest country to gain exemptions from U.S. steel and aluminum imports.
“It is a calm morning after the stormy atmosphere of last week,” IG’s Chris Beauchamp said in an early note. “U.S. futures have raced higher on weekend reports that the U.S. and China are working towards a possible deal that improves access for U.S. firms.”
He said, with equity markets beaten down last week, a rebound was a definite possibility, but the questions remains how long it will last.
“Churchill’s observation that ‘to jaw jaw is better than to war war’ applies to these tariff battles as well,” Mr. Beauchamp said. “The decision to exempt key U.S. allies from the tariffs is a sign that the White House is not as dogmatic as the rhetoric appears, and should give negotiators room for manoeuvre.”
Still, he said, given how badly markets reacted last week, a failure in talks would likely trigger another ugly sell-off.
On Bay Street, shares of cannabis company Aphria Inc. could attract some attention. The Globe’s Christina Pellegrini reports that executives and three other directors personally owned shares in Nuuvera Inc. at the time they orchestrated a takeover deal for the cannabis firm, but didn’t disclose their holdings to investors and later voted to approve the transaction at a board meeting.
Aphria agreed to buy Nuuvera for $826-million in late January, only three weeks after Nuuvera went public on the TSX Venture Exchange.
On Wall Street, Boeing shares were up in premarket trading after the company announced it had delivered its first 787-10 Dreamliner to Singapore Airlines on Sunday. Singapore Airlines is now the first carrier in the world to operate all of the 787 Dreamliner family of planes.
Overseas, the pan-European STOXX 600 was up about 0.38 per cent with most major sectors in positive territory. Britain’s blue chip FTSE 100 was up 0.32 per cent. France’s CAC 40 advanced 0.37 per cent. Germany’s DAX rose 0.66 per cent.
In Asia, markets bounced back in late day trading on news of South Korea’s exemption from U.S. steel tariffs.
Japan’s Nikkei clawed back early losses to finish up 0.72 per cent. Hong Kong’s Hang Seng rose 0.79 per cent. The Shanghai Composite Index bucked the trend, slipping 0.60 per cent as Chinese mainland markets finished mixed.
Commodities
Crude prices were lower early Monday although declines were capped by gains in equities markets and rising tensions between Saudi Arabia and Iran. Brent crude was lower with a day range of US$69.91 to US$71.05. West Texas Intermediate was also lower with a range for the day so far of US$65.28 to US$66.55.
Reuters reported that Saudi air defences shot down seven ballistic missiles fired by Yemen’s Iran-aligned Houthi militia on Sunday, some of which targeted Saudi capital Riyadh.
“Geopolitical risk factors are accelerating — and appear bullish for global oil prices,” Desjardins Capital said in a morning note. “The recent news cycle has been exhausting from any perspective, with a rapidly escalating global trade war, alleged Russian spy poisoning on UK soil and planning for the first ever direct talks between a U.S. president and North Korean leader on potential nuclear disarmament.”
Desjardin said, recent developments are “generally bullish” for crude although many unknowns remain.
“We note in particular the addition of two well-established foreign policy hawks to the most senior U.S. diplomatic and national security posts with the appointment of Mike Pompeo as Secretary of State and John Bolton as National Security Adviser,” Desjardins said. “Most immediately, the U.S. now appears unlikely to recommit to the 2015 Iran nuclear framework when it comes up for quarterly confirmation on May 12, which could have a significant impact on crude oil exports (these have been recovering since the deal was first signed).”
Desjardin noted that both Mr. Pompeo and Mr. Bolton have also advocated a hardline stance against Venezuela. “This could arguably have a greater impact on the global oil market to the extent that the US still imports ~500–700 mbbl/d of primarily heavy oil supplies from Venezuela; in contrast, Iran exports crude to other trading partners. In other words, U.S. sanctions on Venezuela could have an immediate real impact on crude flows,” Desjardin said.
U.S. drill count figures also weighed on sentiment. Energy services company Baker Hughes reported Friday that the number of active U.S. rigs in service rose to 804 last week, the highest level in three years. U.S. oil out put has already risen by a quarter since the middle of 2016 and markets are concerned that rising production will offset production caps by OPEC.
In other commodities, gold prices were lower as fears of a U.S.-China trade war eased. Spot gold and U.S. gold futures for April delivery were both down in early going.
Silver prices were slightly higher.
Currencies
The Canadian dollar was higher but off the morning’s best levels as the U.S. dollar lost ground against its global counterparts. The day range on the loonie so far is 77.55 US cents to 77.87 US cents.
Sue Trinh, RBC’s head of Asia FX strategy, notes that the key risk event for the loonie this week will be Thursday’s January GDP report. RBC is forecasting a monthly increase of 0.1 per cent, matching December’s showing.
“The 14-per-cent drop in home resales in the month after the implementation of new mortgage guidelines should detract 0.1 percentage points from GDP, while manufacturing is likely to hold up well based on an addition to inventories.” she said.
Wholesale and retail sales volumes are also likely to be positive contributors, she said. A January increase of 0.1 per cent to 0.2 per cent, Ms. Trinh said, would be consistent with RBC’s expectation of first-quarter annualized growth around 1.9 per cent, above the Bank of Canada’s 1.6-per-cent estimate for potential growth.
In other currencies, the U.S. dollar index, which weighs the greenback against a group of world currencies, was lower at 89.232 at last check. Traders said risk sentiment remains cautious despite reports that China and the United States are quietly talking to improve U.S. access to the Chinese market. Last week, U.S. President Donald Trump moved to impose stiff tariffs on Chinese imports to the U.S.
The U.S. dollar was near a 16-month low against the yen overnight. The greenback was also lower against the euro.
In bonds, the yield on the U.S. 10-year note was higher at 2.846 per cent. The yield on the U.S. 30-year note was also higher at 3.092 per cent.
Stocks set to see action
Aurora Cannabis said Monday it has increased its stake in Hempco to 35 per cent. Aurora exercised 10.6 million warrants to purchase shares of Hempco for proceeds of $4.3-million to Hemco. Aurora now owns 21.1 million common shares in the company.
Bombardier Inc. said it has secured a rail services contract extension with the Maryland Transit Administration. The agreement will see the current contract extended by five years. Bombardier Inc. Transportation says the extension is valued at $288-million.
Louis Vuitton has named Kanye West collaborator Virgil Abloh as its new men’s wear artistic director. The 37-year-old is founder of the Off-White label and is Vuitton’s first African-American artistic director. He replaces Kim Jones, who left in January to become men’s wear designer for Christian Dior. In a statement, Abloh said “I find the heritage and creative integrity of the House are key inspirations and will look to reference them both while drawing parallels to modern times.”
Japan’s SoftBank Group Corp is looking to invest US$1-billion in Chinese truck-hailing company Manbang Group, the Wall Street Journal reported on Monday, citing people familiar with the matter. SoftBank’s possible investment, through its US$98-billion Vision Fund, would be part of Manbang’s efforts to raise between US$500-million and US$1 billion to help expand in China’s growing logistics market, the Journal said.
More reading:
Monday’s Insider Report: Companies insiders are buying and selling
Economic news
China foreign direct investment
With Reuters and The Canadian Press