Canada’s main stock index opened higher on Tuesday as energy stocks gained tracking oil prices, which rose on signs that OPEC would not be prepared to raise output to address shrinking supplies.
The Toronto Stock Exchange’s S&P/TSX composite index was up 11.13 points, or 0.07 per cent, at 16,093.44
U.S. stocks opened slightly higher on Tuesday, buoyed by a rise in oil prices and concessions that analysts said made the latest round of trade tariffs on China less damaging than initially feared.
The Dow Jones Industrial Average rose 14.09 points, or 0.05 percent, at the open to 26,076.21.
The S&P 500 opened higher by 1.94 points, or 0.07 per cent, at 2,890.74. The Nasdaq Composite gained 7.77 points, or 0.10 per cent, to 7,903.57 at the opening bell.
The Canadian dollar strengthened against its U.S. counterpart on Tuesday as oil prices rose and domestic manufacturing data supported the view that the Bank of Canada will raise interest rates further in October.
Canadian factory sales grew by 0.9 per cent in July from June on higher sales in the transportation equipment industry, Statistics Canada said. Analysts surveyed by Reuters had forecast an increase of 0.6 per cent.
“Canadian factories continued to hum in July,” Avery Shenfeld, chief economist at CIBC Capital Markets, said in an email. “The data give some upside to our Q3 GDP forecast, and underscore that the Bank of Canada is positioned to hike in October as long as NAFTA talks don’t blow up.”
The central bank has raised interest rates four times since July 2017. Money markets see a nearly 80-per-cent chance of another hike in October.
The price of oil, one of Canada’s major exports, climbed on signs that the Organization of the Petroleum Exporting Countries would not be prepared to raise output to address shrinking supplies from Iran and as Saudi Arabia signaled it was in no rush to bring prices down.
U.S. crude prices were up 1.4 per cent at $69.89 a barrel.
The Canadian dollar was trading 0.3 per cent higher at $1.3002 to the greenback, or 76.91 U.S. cents. The currency traded in a range of $1.2995 to $1.3065.
The gain for the loonie came despite an escalation in the China-U.S. trade war.
European stocks wobbled slightly and even copper and the Aussie dollar, which have been highly sensitive to the trade tensions, made good ground.
“In a way it is remarkable that the market is holding up so well,” said Rabobank’s Head of Macro Strategy Elwin de Groot.
“This is clearly a further ratcheting up of the trade war and we are now getting close to a situation where you can almost speak of a full-fledged trade war. Clearly that is not positive.”
One theory for the becalmed reaction was that the $200-billion U.S. move had been largely priced in to markets following weeks of hinting reports and social media speculation.
Chinese shares had initially dipped as Asia digested the details but then rallied to close up 2 percent as some locals bet on Beijing stepping up infrastructure investment to keep the economy humming.
Japan’s Nikkei also ended 1.4 per cent higher and MSCI’s 24-country emerging market index was up for the fourth day in the last five as 1.3-per-cent gains in Poland and Russia added to Asia’s rebound.
Trump’s announcement “is largely consistent with the claims made earlier,” Citi analysts said in a note, estimating a 33 basis point drag on China’s economic growth from the 10 percent tariff.
Taking a bigger picture view, Dutch bank ING estimated that 2.5 percent of world trade was now affected by the tariffs and it will be 4 per cent if Trump carries out threats to put levies on all of the U.S.’s Chinese imports.
“Although this percentage may seem small, the tariffs will disrupt Sino-American supply chains, and may, therefore, triple the effects on world trade,” ING also warned.
China’s promise to respond to the moves also came as The South China Morning Post newspaper reported that Beijing was reviewing plans to send a delegation headed by Vice Premier Liu He to Washington for trade talks.
Foreign Ministry spokesman Geng Shuang told a daily news briefing later that the U.S. steps had brought “new uncertainty” to talks between the two countries.
“China has always emphasised that the only correct way to resolve the China-U.S. trade issue is via talks and consultations held on an equal, sincere and mutually respectful basis. But at this time, everything the United States does does not give the impression of sincerity or goodwill,” he added.
Not to be outdone, Trump later tweeted “There will be great and fast economic retaliation against China if our farmers, ranchers and/or industrial workers are targeted!”
Despite all the noise, the widely-tracked dollar currency index was broadly flat at 94.438 although on an individual basis it rose against the Japanese yen to just over 112.20 and took 1.7 percent off Turkey’s troubled lira.
At the same time it was down slightly against the Chinese yuan in ‘offshore’ markets. The sensitive Australian dollar also moved up 0.3 percent to $0.72 having also initially been hit when the tariff details broke.
With FX participants wary that Beijing authorities may quickly step in to markets at any point, investors were “spontaneously” liquidating their short yuan positions said a trader at one Chinese bank.
“China is likely to reject the invitation from the U.S. Treasury for the new round of trade talk,” OCBC Bank also said in a note on Tuesday.
Reuters