Energy sector fuels TSX, Dow takes dip

The energy sector helped Canada’s main stock index close higher Monday, while U.S. markets were flat to lower amid rising trade tensions between the U.S. and China.

Trade tensions between the U.S. and Canada have also escalated recently after U.S. President Donald Trump threatened to impose tariffs on auto imports.

The increased threat to cross-border trade added to pressure the loonie was already feeling after the U.S. Federal Reserve raised interest rates last week, said Candice Bangsund, vice president and portfolio manager at Fiera Capital Corp.

“We’re seeing the loonie is being weighed down by escalating trade tensions, which has arguably complicated the status of NAFTA negotiations.”

The Canadian dollar averaged 75.68 cents US Monday, down 0.21 of a US cent.

The drop in the loonie, which started last week at over 77 cents US, is part of the widespread impact trade uncertainty with the U.S. has caused, said Bangsund.

“The Canadian dollar, Canadian interest rate, even equity market have all been unfairly punished due to this overhanging uncertainty on NAFTA. Our expectation is if we do get some sort of clarity on the NAFTA front, investors can look past that uncertainty towards the fundamentals, which actually do support a stronger Canadian dollar, higher stock prices, and higher interest rates in Canada.”

The S&P/TSX composite index closed up 69.21 points at 16,383.63 points Monday despite the trade dispute as the August crude contract closed up 84 cents at US$65.69 per barrel.

The rise in oil prices came as speculation around the Organization of the Petroleum Exporting Countries (OPEC) meeting later this week shifted towards a more limited increase in production in its efforts to make up for dropping output from Iran and Venezuela.

“Today the news was that we could expect maybe a smaller increase or boost to production to offset those declines, so the market is obviously taking some comfort that these OPEC-plus producers aren’t going to flood the market,” said Bangsund.

In New York, the Dow Jones industrial average closed down 103.01 points at 24,987.47. The S&P 500 index was down 5.91 points at 2,773.75 and the Nasdaq composite index was up 0.65 of a point at 7,747.03.

The market was risk-averse after Trump said Friday he would impose tariffs on Chinese goods, with China responding with planned tariffs on $34 billion worth of U.S. goods.

“That stepped-up protectionist rhetoric that we’ve been hearing from President Trump has really intensified the trade dispute between the U.S. and China last week, on Friday. In general this is weighing on sentiment here today.”

The August gold contract ended up US$1.60 at US$1,280.10 an ounce and the July copper contract was down four cents at US$3.11 a pound. The July natural gas contract ended down seven cents at US$2.95 per mmBTU.

Baytex Energy Inc. closed down 63 cents or 12.35 per cent at $4.47 and Raging River Exploration Inc. was down 63 cents or 10.03 per cent at $5.65 after the two companies announced a $2.8-billion merger.

Meanwhile, Shares of Arizona Mining Inc. soared in early trading after the company announced a deal to be acquired by Australian company South32 Ltd. that valued the company at about $2.1 billion.

Under the deal, South32, which already holds a 17 per cent stake in the company, has agreed to pay $6.20 per share for the shares it does not already hold.

Shares in Arizona Mining were up $2.00 or about 48 per cent at $6.13 in trading on the Toronto Stock Exchange.