Colin Cieszynski
The Before the Bell report is compiled by editors of The Globe and Mail and is updated throughout the morning to reflect latest developments. Colin Cieszynski, Chartered Financial Analyst and Chartered Market Technician, is chief market strategist with CMC Markets.
The retrenchment in stocks and crude oil that we saw accelerate in the U.S. Tuesday afternoon weighed on overseas trading overnight and early this morning, but now appears to have run its course. U.S. index futures are trading in positive territory this morning and crude oil has also been on the rebound, with West Texas intermediate up 2.5 per cent.
The main undercurrent to this week's volatility so far appears to be traders recognizing that last week's surprise interest rate cut in Japan was likely the end of the recent monetary stimulus cycle, and that in general, governments are less likely to come to the rescue of the markets going forward.
For example, crude oil has been bouncing up and down along with the rise and fall of rumours surrounding meetings about potential production cuts. Tuesday's denials sent crude oil lower but signs that Russia still may be willing to talk if others can agree shored up support. Oil may remain active through today's Department of Energy stockpile reports.
Hopes for more stimulus out of the European Central Bank next month also appear to be fading. Continental employment figures released Tuesday indicated improving job markets, thus less need for more stimulus. In addition, ECB Executive Board member Yves Mersch apparently cautioned traders that a review of quantitative easing may not necessarily lead to another increase in stimulus.
Meanwhile in the U.S., Kansas City President Esther George, a known hawk and a voter this year suggested Tuesday that recent volatility is neither unexpected nor worrisome and that the Fed should continue its gradual rate hike plan.
We are moving through a common mid-cycle transition that has been drawn out by latecomers to the stimulus party which now appears to be coming to an end. We may see continued bumpiness in markets creating short-term trading opportunities but it's important for traders to recognize that not needing stimulus is a sign of underlying strength.
For example, despite all the recent market worries, China, Japan, Australia and India all posted improving Service PMI reports last night. Europe has been a bit more mixed this morning but shortfalls were small while the U.K. and Sweden came in well above expectations. The U.K. improvement along with continued gains in the British pound today indicates that recent concerns about the Brexit referendum were overblown.
Employment has also been big factor driving trading today. Better than expected headline New Zealand quarterly job figures out Tuesday afternoon sparked a pop, drop and then a big rally in the New Zealand dollar while also pulling the Australian dollar higher. Meanwhile, the rebound in crude oil has boosted the Canadian dollar.
A rally in oil heavy Norwegian stocks this morning bodes well for trading on the S&P/TSX. On top of this, big news in the retail sector with Lowes agreeing to purchase Rona for $24 per share suggests that the lower loonie has made Canadian retailers attractive takeover targets. This could spark additional takeover speculation in Canadian retailer stocks today.
Now, here is a closer look at key market data, and corporate and economic news.
MARKET DATA:
Futures
S&P 500 +0.2 per cent; Dow +0.2 per cent; Nasdaq: +0.1 per cent; TSX 60: +0.5 per cent
Equities
Hong Kong's Hang Seng -2.34 per cent
Shanghai composite index -0.38 per cent
Japan's Nikkei 225 -3.15 per cent
London's FTSE -0.59 per cent
Germany's DAX -1.07 per cent
France's CAC 40 -0.23 per cent
Commodities
WTI crude oil (Nymex March) +1.91 per cent at $30.45 (U.S.) a barrel
Gold (Comex April) +0.13 per cent at $1,128.70 (U.S.) an ounce
Copper (Comex March) +0.90 per cent at $2.07 (U.S.) a pound
Currencies
Canadian dollar +0.0067 at 71.84 cents (U.S.)
U.S. dollar index -0.257 at 98.615
Bonds
U.S. 10-year Treasury yield +0.02 at 1.88 per cent
KEY ECONOMIC RELEASES
A report today from ADP Research Institute showed companies in the U.S. added 205,000 workers to payrolls in January after a 267,000 increase a month earlier. The median forecast of 45 economists surveyed by Bloomberg called for a 195,000 advance.
(10 a.m. ET) The ISM is expected to report that its U.S. non-manufacturing sector index slipped to 55.1 in January from 55.3 in December.
(10:30 a.m. ET) EIA Petroleum Status Report
KEY CORPORATE NEWS
U.S. home improvement retailer Lowe's Companies Inc said it agreed to buy Canada's Rona Inc in a deal valued at $3.2 billion (Canadian), after its previous bid ran into opposition from the company, dealers and politicians in Quebec. Lowe's will pay $24 per share in cash for Rona's common shares, more than double the stock's closing on Tuesday. The deal also include a $20 per share cash payment for Rona's preferred shares. Lowe's shares are up 0.9 per cent in premarket trading.
General Motors Co. reported fourth-quarter profit that beat analysts' estimates as strong light-truck sales in the U.S. and China helped boost margins in both regions. Adjusted earnings per share improved to $1.39 from $1.19 a year earlier, GM said in a statement Wednesday. The average of 14 estimates compiled by Bloomberg was $1.20. Shares are up nearly 1 per cent in the premarket.
Merck & Co. posted an 87 per cent drop in fourth-quarter profit compared with last year when the drugmaker had a huge gain from the sale of consumer health business. It beat Wall Street profit forecasts, but came up short of revenue. Shares were down 3.4 per cent in premarket trading.
Comcast Corp. on Wednesday reported fourth-quarter earnings, adjusted for non-recurring costs, of 81 cents per share, a penny shy of Street expectations. The cable provider posted revenue of $19.25 billion in the period, topping Street forecasts.
Chipotle Mexican Grill was down 6.5 per cent in premarket trading, a day after the burrito chain said a criminal probe linked to a food-safety incident at a California restaurant has widened into a national investigation.
Yahoo was down 2.3 per cent in premarket trading after the company said it would consider "strategic alternatives" for its core Internet business and cut about 15 per cent of its workforce. Its quarterly adjusted earnings and revenue topped analyst recommendations.
Other earnings today include: Alexion Pharmaceuticals Inc.; Allstate Corp.; ATS Automation Tooling Systems Inc.; Becton Dickinson and Co.; Boston Properties Inc.; Exco Technologies Ltd; Exelon Corp.; Franklin Resources Inc.; General Motors Co.; Gluskin Sheff + Associates Inc.; GoPro Inc.; Heroux-Devtek Inc.; International Paper Co.; Macerich Co.; Marathon Petroleum Corp.; MEG Energy Corp.; Metlife Inc.; Suncor Energy Inc.; Taiga Building Products Ltd.; Vantiv, Inc.; Yum! Brands Inc.
Also see: Wednesday's small-cap stocks to watch
With files from wire services