Wall Street’s main indexes opened lower on Monday after a sharp recovery late last week, as signs of inflationary pressures building in the economy kept investors worried about monetary policy tightening.
The Dow Jones Industrial Average fell 6.84 points, or 0.02%, at the open to 34,375.29. The S&P 500 opened lower by 3.93 points, or 0.09%, at 4,169.92, while the Nasdaq Composite dropped 61.18 points, or 0.46%, to 13,368.80 at the opening bell.
The TSX opened slightly higher, as oil and gold prices tracked modestly higher.
European indexes are also generally a bit weaker after mixed performance in Asia overnight.
The S&P 500 index gained Friday, rebounding from heavy selling earlier, but finished the week down 1.4% for its biggest weekly loss in three months. The TSX gained 230 points Friday in what was also a broad rally, led by the energy sector. In the end, the Canadian benchmark lost only about half a percentage point after a volatile week.
Stock markets last week saw three days of heavy selling driven by investor worries about a possible rise in U.S. inflation. The major indexes had hit all-time highs the previous week.
Thailand reported 9,635 new coronavirus cases overnight. That added to concern after Taiwan and Singapore announced limits on public gatherings and other curbs over the weekend following new infections. The rebound in economies that appeared to have the disease under control fueled concern the region’s recovery might be pushed back.
In a blockbuster deal in the U.S. this morning, AT&T Inc, the owner of HBO and Warner Bros studios, and cable and streaming network Discovery Inc, the owner of lifestyle TV networks such as HGTV and TLC, have confirmed they will combine their media assets. The proposed deal would put together one of Hollywood’s most powerful studios, home to the Harry Potter and Batman franchises, with Discovery’s stable of unscripted home, cooking and nature and science shows.
Under the terms, AT&T would receive $43 billion in a combination of cash, debt securities, and WarnerMedia’s retention of certain debt. AT&T’s shareholders would receive stock representing 71% of the new company, while Discovery shareholders would own 29% of the new company.
With the earnings season at its tail-end, overall earnings for S&P 500 companies are expected to have climbed 50.6% from a year ago, according to Refinitiv IBES, the strongest pace of growth in 11 years. Earnings this week will be scrutinized for clues on whether rising prices had any impact on consumer demand and if retailers could sustain their strong earnings momentum.
Walmart Inc, home improvement chain Home Depot Inc and department store operator Macy’s are set to report on Tuesday, with Target Corp Ralph Lauren and TJX Cos on tap later in the week.
In a relatively quiet week for U.S. economic data, minutes from the Fed’s policy meeting on Wednesday could shed more light on the policymakers’ outlook of the economic rebound last month. This morning brings several fresh reports on the state of Canada’s real estate market, including housing starts and existing home sales and prices for April. The reports suggest some slight weakening from the pace of sales in March, but the numbers are still eye opening on a year over year basis.
In Asia, the Shanghai Composite Index gained 0.8% to 3,517.62 after government data showed April growth in factory output, retail spending and investment decelerated from the previous month’s explosive rate. The Nikkei 225 in Tokyo fell 0.9% to 27,824.83 while Hong Kong’s Hang Seng advanced 0.6% to 28,194.09. India’s Sensex rose 1.4% to 49,407.13.
Commodities
Oil prices held firm on Monday, trading in a tight range as European economic reopenings offset gloom from surging COVID-19 cases in Asia, fresh restrictions and underwhelming Chinese manufacturing data.
Crude futures contracts were close to unchanged early Monday. Bench WTI and brent crude benchmarks have risen more than 30% since the start of the year.
“The fact that prices remained relatively stable during this rather turbulent five-day period indicates that the confidence in a healthy oil market remains intact and unless something unpredictably negative occurs, any downside potential will be limited,” PVM Oil analyst Tamas Varga said.
Currencies and bonds
The Canadian dollar is largely unchanged against its U.S. counterpart this morning.
Data released on Friday showed speculative investors are getting increasingly bullish on the loonie, as it continues to benefit from surging commodity prices and a Bank of Canada that has dropped hints that it may tighten monetary conditions even before the U.S. Federal Reserve.
The net long position in the Canadian dollar advanced the most since December over the week up until last Tuesday, rising by about US$1-billion to $3-billion, according to CFTC data on Friday.
“Negative sentiment persisted for much of the CAD’s recovery from its low point last March and net positioning only flipped to—modestly—net long around the turn of the year,” a Scotiabank note said late Friday. “Gross CAD longs have risen significantly in the past two weeks and are now are now at the highest since late 2019. Positioning is elevated but not excessive.”
Net Canadian dollar long positions now represent the second-largest single currency bet against the U.S. dollar after the euro, Scotiabank noted.
“We think positive commodities and CAD-supportive spreads should continue to provide support for the CAD and Friday’s CFTC data seem to reflect that positive backdrop,” a separate note from Scotiabank forex strategists said this morning.
Other corporate news
AT&T Inc, the owner of HBO and Warner Bros studios, and cable and streaming network Discovery Inc, the owner of lifestyle TV networks such as HGTV and TLC, will combine their media assets, the U.S. telecoms giant said on Monday. The deal also marks the unwinding of AT&T’s $108.7 billion acquisition of U.S. media conglomerate Time Warner in 2018, and underscores its recognition that TV viewership has moved to streaming, where scale is required to take on the likes of Netflix Inc and Walt Disney Co. Under the terms, AT&T would receive $43 billion in a combination of cash, debt securities, and WarnerMedia’s retention of certain debt. AT&T’s shareholders would receive stock representing 71% of the new company, while Discovery shareholders would own 29% of the new company.
OMERS Private Equity and the Alberta Investment Management Corporation (AIMCo) have sold a controlling stake in consultancy Environmental Resources Management (ERM) to private equity firm KKR, the Canadian funds said on Monday. The 60% stake sale gives ERM an enterprise value of $2.85 billion, a source familiar with the matter told Reuters. UK-headquartered ERM operates in 40 countries and has more than 5,500 staff, advising clients on sustainability challenges and commercial opportunities. OMERS had a little over 40% of the business while AIMCo had slightly under 20%, with ERM management holding the balance, the source added.
Earnings include: Galaxy Digital Holdings Ltd.; Headwater Exploration Inc.; Marathon Gold Corp.; Seabridge Gold Inc.
Economic news
Canada Mortgage and Housing Corp. says the annual pace of housing starts fell nearly 20 per cent in April as the pace of multiple-unit housing projects slowed. The housing agency says the annual pace of starts for April was 268,631 units, down from 334,759 units in March.
Canadian home sales fell 12.5% in April from March, with the average selling price also declining slightly on the month, data from the Canadian Real Estate Association showed on Monday. The actual national average selling price was C$696,000 in April, falling 2.9% from March but up 41.9% from a year earlier as it was compared with a sharp decline in April 2020 amid the first wave of COVID-19, the industry group said. Actual sales, not seasonally adjusted, rose 256% from a year earlier, while the group’s Home Price Index was up 23.1% on the year and up 2.4% from March.
Canadian investment in foreign securities totalled $21.2 billion in March, mainly from purchases of US shares. Meanwhile, foreign investment in Canadian securities was $3.2 billion, mostly in acquisitions of Canadian shares, Statistics Canada reported. As a consequence, international transactions in securities generated a net outflow of funds of $18.0 billion from the Canadian economy in the month. The outflow of funds totalled $24.7 billion in the first quarter, the largest amount since the fourth quarter of 2007.
(10 a.m. ET) U.S. NAHB Housing Price Index for May. The Street expects a reading of 83, unchanged from April.
With files from Reuters and The Associated Press
Darcy Keith