TOP OF THE MORNING

Ian Campbell of Reuters Breakingviews makes the case that the prospects for gold aren’t too shiny despite widespread geopolitical tensions:

The outlook for gold remains bad. Its appeal is hurt by a rising U.S. dollar, the imminent end to Federal Reserve money-printing and the eventual approach of higher U.S. interest rates. More investors are likely to leap …

Gold enthusiasts who anticipate a surge of buying from Asia have been disappointed. Indian demand, affected by government restrictions, was down by 11 per cent. Chinese demand rose by only two per cent.

The underlying cause for weak demand is simple: An ounce of gold still costs far too much. Annual jewellery use since 2009 has averaged 18.5 per cent less than in the preceding five years. Consumer demand probably won’t return to its past heights until gold falls to triple digits.

Bullion tumbled overnight and is hovering just above 1,270 USD/oz this morning.

ON THE HOMEFRONT

TSX 60 futures are flat ahead of the open after the composite index ended last week at a record high.

 

The loonie moved sharply lower while North America slept to trade at 0.916 against the greenback this morning.

 

High-profile Sino-Forest tribunal hearing begins today. In 2011, Carson Block’s research firm Muddy Waters initiated the downfall of Sino-Forest, a Chinese timber company formerly listed on the Toronto Stock Exchange, by asserting that the company was “a multi-billion-dollar Ponzi scheme” and “massively exaggerates its assets.” Less than a year later, Sino-Forest filed for bankruptcy. Now, more than three years following the publication of Block’s report, the Ontario Securities Commission will begin a tribunal hearing to judge the merits of these allegations of fraud. As the Financial Post‘s Peter Koven and Barbara Shecter note, this forum does not offer the possibility of jail time for Sino-Forest executives, though it may provide an avenue to accrue financial remedies for shareholders who saw the value of their holdings deteriorate.

 

A spot check on the health of the Canadian manufacturing sector. At 9:30am (EDT), August’s reading of the RBC Canadian Manufacturing Purchasing Managers’ Index (PMI) is slated to be released. In July, this index increased to 54.3, its highest level since November 2013, buoyed by an acceleration in output, new orders, new export orders, and hiring. Any reading above 50 points to expansion in the sector, while those below 50 suggest contraction. Manufacturing sales have also gained traction in 2014, rising in five of six readings. A softer loonie and firming U.S. demand are expected to provide further support for this long-struggling sector going forward.

 

More controversy over the use of temporary foreign workers. CBC has learned that Alliance Energy, an electrical contractor, is alleged to have retained the services of temporary foreign workers while reducing its number of Canadian employees in May, and, as such, is under investigation by the federal government. As CBC’s Geoff Leo observes, it is unclear whether Alliance actually broke any rules. New measures outlined by Employment Minister Jason Kenney in June — after this incident is said to have occurred — stipulated that employers adding TFWs would have to promise (in writing) that this new hire would “not lead to job loss or reduction in work hours for any Canadian or permanent resident during the period of employment for which the work permit is issued.”

DAILY DISPATCHES

The weakening yen, considered a key driver of the S&P 500’s robust gains in 2013, may serve as the impetus for North American equities to advance on Tuesday. “USD/JPY traded through August highs and seems to be heading towards January highs,” writes IG market strategist Stan Shamu. “The pair topped out at 105.44 in January and traders are likely to be eyeing this level in the near term.”

 

Two underwhelming reports on the state of the Chinese manufacturing sector were released over the long weekend. The “official’ purchasing managers” index published by the National Bureau of Statistics was a shade below economists’ expectations at 51.1, while the HSBC PMI came in at 50.2, also a tick lower than the consensus estimate. Both indices fell from July to August. “Although external demand showed improvement, domestic demand looked more subdued,” writes Hongbin Qu, chief China economist and co-head of Asian economic research at HSBC.

 

Meanwhile, the eurozone manufacturing PMI tumbled to 50.7 in August from 51.8 in July, its lowest reading in 13 months. Notably, Italy’s PMI unexpectedly dipped into contractionary territory at 49.8, while France’s sank to a 15-month low of 46.9. “Although some growth is better than no growth at all, the braking effect of rising economic and geopolitical uncertainties on manufacturers is becoming more visible,” writes Rob Dobson, senior economist at Markit.

 

As expected, the Reserve Bank of Australia held the cash rate steady at 2.5 per cent, noting that the exchange rate “remains above most estimates of its fundamental value.” However, this statement did not elicit much of a reaction from currency markets.

 

Scotland’s independence movement appears to be gaining momentum heading into the Sept. 18 referendum. A poll conducted by YouGov found that, among those who expressed an opinion, 47 per cent of respondents were in favour of Scottish autonomy. According to The Telegraph, those who wanted Scotland to remain a part of the United Kingdom led by 22 percentage points at the beginning of August; now, that lead has narrowed to just six percentage points.

 

Two readings on the state of the American manufacturing sector are scheduled to be published this morning. Both the Markit Manufacturing PMI and ISM Manufacturing PMI are expected to indicate that the sector’s solid performance continued in August with the consensus estimates sitting at 57.9 and 57, respectively.