Jennifer Dowty
Jennifer Dowty, Chartered Financial Analyst, writes exclusively for Globe Unlimited subscribers. The Before the Bell report is updated throughout the premarket to reflect latest developments.
Good Monday morning to you. North American Futures are negative and have been declining throughout the morning and are currently suggesting that markets will open lower this morning.
Last week, the S&P and Nasdaq both experienced thier worst week since March, while the S&P/TSX composite index experienced its worst weekly decline of the year – falling over 3 per cent – driven lower by the commodity sell-off.
The materials and energy sectors led the decline in the S&P/TSX composite index last week and the negative momentum is continuing as we head into a new trading week. This morning, gold and crude oil are both down slightly and this will put additional pressure on the S&P/TSX composite index. Gold is just under the $1,100 (U.S.) an ounce level, and crude oil has broken below the $48 (U.S.) level.
While falling commodity prices puts pressure on resource stocks, we could see some bright spots in the market from companies that report better-than-expected earnings. This will be an active reporting week in the S&P/TSX composite index with 66 confirmed companies reporting. Today, four companies kick off the earnings week with Restaurant Brands International and Capital Power both reporting before the bell, and Alacer Gold and Prairie Sky reporting after the markets close. Restaurant Brands reported better-than-expected quarterly results once again. The company reported adjusted earnings per share of 30 cents (U.S.) versus the Street's expectations of 25 cents and raised the quarterly dividend for the second time this year to 12 cents per common share and partnership exchangeable unit from 10 cents per share. In the U.S., 166 companies in the S&P 500 Index have confirmed that they will be reporting earnings this week.
Major European markets are down today. The German and French indices opened down about 1 per cent but the declines are accelerating as the trading session goes on. The London stock market is down by less than half a per cent. The Athens Stock Exchange remains closed but it is speculated that it could reopen this week. The Greek stock market has been closed since June 29.
Chinese markets tumbled overnight. The recent rally in the Chinese markets came to an abrupt halt today with the Shanghai Stock Exchange composite index tumbling 8.5 per cent, the Shenzhen Stock Exchange composite index collapsing by 7 per cent, and the Hong Kong Hang Seng Index closed down 3.1 per cent. The Shanghai composite is down 28 per cent from its 2015 high reached on June 12. The sharp selloff in Chinese markets is speculated to be caused by two factors: the government easing its purchases of securities and stepping away from the markets, and a weak economic report out of China. China released its June industrial profits report, which showed profits declined 0.3 per cent year-over-year, turning negative after being up for the previous two months.
The Bottom Line: On Friday's Before the Bell, I recommended investors use positive earnings surprises and subsequent rallies in individual stocks as an opportunity to take some profits off the table believing that a Chinese market meltdown could resurface. Well, it did today and I do not believe the volatility and negative momentum are over. Don't discount the importance of China. I continue to recommend taking some profits off the table on positive earnings reports as equity markets may be in for a shaky ride in the weeks ahead once the second-quarter earnings season wraps up and investors turn their focus to economic data and a potential rate hike in the United States. Wednesday, the U.S. Federal Reserve statement may provide some insights to whether or not the Fed will hike rates in September. Investors should also watch for U.S. second quarter GDP released on Thursday and Canada's May GDP report released on Friday.
Now here is a look at the major markets and news.
MARKET DATA:
Futures
S&P 500 -0.55 per cent; Dow -0.66 per cent; Nasdaq: -0.72 per cent
Equities
Hong Kong's Hang Seng -3.09 per cent
Shanghai composite index -8.47 per cent
Japan's Nikkei -0.95 per cent
London's FTSE 100 -0.62 per cent
Germany's DAX -1.98 per cent
France's CAC 40 -1.94 per cent
Stoxx 600 -1.68 per cent
Commodities
WTI crude oil (Nymex Sep) -1.10 per cent at $47.61 (U.S.) a barrel
Gold (Comex Dec.) +0.59 per cent at $1,092.40 (U.S.) an ounce
Copper (Comex Sep) -0.90 per cent at $2.36 (U.S.) a pound
Currencies
Canadian dollar at 76.82 (U.S.), +0.19
U.S. dollar index -0.53 at 96.71
Bonds
U.S. 10-year Treasury yield 2.2710 per cent, -0.0060
ECONOMIC INDICATORS:
(8:30 a.m. ET) U.S. durable goods orders for June. Consensus estimate is an increase of 3.3 per cent from May. Excluding transport, consensus is an increase of 0.4 per cent.
STOCKS TO WATCH:
Teva Pharmaceutical Industries has agreed to buy Allergan Plc's generic drugs business for $40.5-billion (U.S.) in a cash and stock deal that will turn the Israeli company into one of the world's largest pharmaceutical firms.
McGraw Hill Financial, the parent company of Standard and Poor's, announced a deal to buy SNL Financial for $2.225-billion (U.S.) in cash. SNL specializes in data and analytic services for the financial industry.
UBS posted a better than expected second quarter profit, up 53 pe rcent compared to a year earlier. The bank posted its numbers a day earlier than scheduled, to correct what it called "misleading information" that had appeared in a Swiss weekly newspaper over the weekend.
Delta says it will take a 3.55-per-cent stake in China Eastern Airlines for $450-million (U.S.).
ANALYST ACTIONS:
Morgan Stanley upgraded the chip maker to "overweight," saying the market has become too pessimistic and that Qualcomm's recent cost cutting moves and new product releases are sources of momentum for the company and the stock.
Cowen cut its rating on GrubHub, the online menu service, to "market perform" from "outperform." Cowen points to an influx of capital for GrubHub competitors that it said will ultimately erode GrubHub's "first mover" advantage.
Quote of the Day: "The meaning of life is to find your gift. The purpose in life is to give it away." Pablo Picasso
Jennifer Dowty