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 wave of fear that rocked markets around the world continued to impact Asia Pacific trading overnight, but has faded this morning. European markets are on the rebound, with the major indexes like the Dax, FTSE, IBEX and FTSEMIB all rising in the 1.0 per cent to 2.5 per cent range. U.S. index futures are also pointing higher, with Dow and S&P 500 futures up just over 1 per cent while Nasdaq 100 futures have confirmed 3,900 support after taking a run at the 4,000 level.
Today's big turnaround is being driven by an easing of fears about the health of banks in Germany. Commerzbank's profits and lower loan provisions were a breath of fresh air for bulls, sending its shares soaring 16 per cent and pulling Deutsche Bank (which had been under pressure lately) to an 8 per cent gain.
Currency markets have stabilized overnight following a volatile day of central bank and trading action Thursday. The Japanese yen remained the big focus, with a number of meetings between senior officials including Bank of Japan Governor Haruhiko Kuroda and Prime Minister Shinzo Abe over what to do about the yen's big surge going in the opposite direction of what would have been expected following the Bank of Japan's move to negative interest rates last month. A rumoured additional rate cut didn't materialize, although it's still possible the Bank of Japan may have intervened in forex trading Thursday.
Their reluctance to act may have had something to do with Fed Chair Janet Yellen's comments from Thursday. Usually, the second day of Fed testimony is a rehash of the first day and a non-event. This time was different. Wednesday, Ms. Yellen took a very neutral stance, trying to keep her options open and avoid crashing the stock market by going too dovish or igniting a dollar rally by going too hawkish. Thursday, traders focused on her refusal to rule out negative interest rates in the U.S. even though she also suggested a reversal of last month's rate hike is unlikely.
So what changed? After Sweden's Riksbank cut its rate even deeper into negative territory, and threatened to intervene to keep the Swedish Krona down if needed, I think the Fed felt the need to send a signal to the other central banks that it won't stand idly by while other countries devalue their currencies at the Americans' expense. U.S. companies, particularly multinationals, have already been struggling with the effects of a higher dollar.
Gold has pulled back a bit today but considering how high it had soared Thursday, today's declines have been pretty moderate so far. That being said, gold remains vulnerable to a correction of recent gains. Copper, on the other hand, is staging a nice bounce up off of $2.00 (U.S.) a pound - another sign of improving sentiment toward the global economy.
Crude oil also appears to be finally starting to build a base. Considering how gold soared Thursday after clearing $1,200, I would have expected the nearby contract of West Texas intermediate to plunge way under $25 (U.S.) a barrel after breaking its January low near $26.60. Instead, oil has been bouncing back, with WTI above $27.00 and Brent above $30.00, indicating selling may be washed out.
While there have been more rumours of potential co-operation overnight, the most encouraging sign has been reports of a truce agreement for Syria. I've always had trouble seeing how major producers could possibly reach an agreement on anything while fighting proxy wars against each other, so this could be an early step in the right direction. There also have been rumours of a meeting between Saudi Arabian and Russian energy officials.
Today's rebounds in stocks and crude oil appear particularly encouraging coming ahead of a long weekend in the U.S. and most of Canada. Last month before the Martin Luther King holiday, U.S. stocks plunged as traders feared holding stocks over the weekend. Continued gains today would suggest that bearishness has become exhausted and is subsiding and confidence improving.
The key economic report today was U.S. retail sales, and it came in on the strong side versus Street expectations, demonstrating the U.S. economy continues on its growth track. Stock futures held onto their gains after the data.
Action in video game producer Activision Blizzard could also be interesting today. The big theme of the earnings season has been companies posting strong fourth-quarter earnings and guiding lower for 2016 and seeing their stocks hammered. Activision missed Street expectations for fourth quarter results, but guided way above street for 2016 and raised its dividend. Let's see if the Street is ready to respond positively to good news yet or not. So far, shares are down 12 per cent in thin premarket trading.
Now, here is a closer look at key market data, and corporate and economic news.
MARKET DATA:
Futures
S&P 500 +1.2 per cent; Dow +1.1 per cent; Nasdaq:+1.3 per cent; TSX 60 +0.8 per cent
Equities
Hong Kong's Hang Seng -1.22 per cent
Shanghai composite index Closed for holiday
Japan's Nikkei 225 -4.84 per cent
London's FTSE +1.90 per cent
Germany's DAX +1.86 per cent
France's CAC 40 +1.47 per cent
Commodities
WTI crude oil (Nymex March) +5.11 per cent at $26.68 (U.S.) a barrel
Gold (Comex April) -0.79 per cent at $1,237.90 (U.S.) an ounce
Copper (Comex March) +1.40 per cent at $2.03 (U.S.) a pound
Currencies
Canadian dollar +0.0007 at 71.92 cents (U.S.)
U.S. dollar index +0.15 at 95.76
Bonds
U.S. 10-year Treasury yield +0.049 at 1.69 per cent
KEY ECONOMIC RELEASES
U.S. retail sales increased for a third straight month in January as Americans kicked off 2016 by spending freely on cars, clothing and online merchandise. The 0.2 per cent increase matched the previous month's advance that was initially reported as a decline, Commerce Department data showed Friday. The median forecast in a Bloomberg survey called for a 0.1 per cent gain in January. Excluding cheaper gasoline, which depressed service-station receipts, purchases climbed 0.4 per cent.
U.S. import prices fell in January for a seventh straight month as the cost of petroleum products continued to decline and a strong dollar undercut prices for a range of goods, pointing to weak inflation in the near term. The Labor Department said on Friday import prices dropped 1.1 per cent last month after a revised 1.1 per cent decrease in December. Import prices have decreased in 17 of the last 19 months, reflecting a robust dollar and plunging oil prices. Economists had forecast import prices tumbling 1.4 per cent after a previously reported 1.2 per cent fall in December.
(10 a.m. ET) University of Michigan Consumer Sentiment survey. Consensus is for a reading of 92.5.
KEY CORPORATE NEWS
Hydro One reported Q4 adjusted EPS of 24 cents vs. a Street estimated 20 cents.
Cenovus Energy Inc said it may sell up to $5 billion of stock, debt or other securities, a day after it announced a dividend cut, as the company shores up its balance sheet amid a slump in oil prices.
TMX Group Ltd. reported a fall in fourth-quarter adjusted profit that missed analyst estimates, as sustained low commodity prices hurt a large portion of its resource-based issuers. Excluding impairment charges, TMX Group earned 87 Canadian cents per share for the quarter ended Dec. 31, compared with 93 Canadian cents a year earlier. Revenue fell 3 percent to $177.1 million. Analysts on average expected TMX to earn 88 Canadian cents a share on revenue of $177.05 million, according to Thomson Reuters I/B/E/S.
Canaccord Genuity Group Inc. said late Thursday that revenue rose 9 per cent year-over-year in the third quarter to $181.8 million, which missed analysts' expectations of $199.6 million, according to Thomson Reuters. Excluding "significant items," the company recorded a net loss of $19.1 million or 25 cents per share in the quarter, compared to an adjusted loss of $14.3 million or 19 cents per share a year earlier.
Shares of JPMorgan were up 3.3 per cent in the premarket on Friday after the bank's chief executive, Jamie Dimon, bought more than $25 million of the company's stock, taking his ownership to 7.79 percent.
Activision Blizzard sank 12.2 per cent to $26.81 after the videogame maker reported lower-than-expected quarterly revenue and profit.
Other earnings today include: Brookfield Asset Management; Buckeye Partners LP; Calpine Corp.; Emera Inc.; IGM Financial Inc.; Valener Inc.; Ventas Inc.; Zayo Group Holdings Inc.
With files from wire services