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.
There's a lot going on this morning that could see markets heading for an active finish to the week. Stock markets are trading down modestly so far, with London's FTSE down 0.4 per cent, Germany's Dax down 0.6 per cent, and U.S. index futures for the Dow and S&P 500 down about 0.3 per cent.
The main focus of trading early this morning has been on the U.K. The second day of the European Union summit is underway on trying to work out a deal to keep the U.K. in the union ahead of a Brexit referendum. It appears talks have been more contentious than some expected, and uncertainty over whether a deal may be reached and what it could contain appears to be overhanging sentiment toward the British pound today, particularly in the last few hours where the pound has given back over half a cent against the U.S. dollar. This decline appears to be more than just a correction of Thursday's big rally, as it has come despite otherwise positive news.
U.K. retail sales were a lot stronger than expected, indicating a robust economy and adding credence to overnight reports that Bank of England Monetary Policy Committee member Martin Weale thinks U.K. interest rates could rise sooner than expected. I don't think Governor Mark Carney is going to do anything before the Brexit vote, which is still expected for June, but all bets are off after that. The strong retail sales do appear to be helping U.K. stocks, offsetting concerns about falling oil prices, with the FTSE down less than its continental peers. U.K. markets may remain active through the day depending on what does or does not come out of today's EU summit meeting.
Crude oil is trading lower again this morning. The nearby West Texas intermediate contract has dropped back to retest $30.00. This along with news of more dividend cuts out of the oilpatch (Enerplus this time) could drag on energy stocks. We could see some activity in oil this afternoon around the Baker Hughes weekly drill rig count report.
The Canadian dollar is trading lower this morning along with other oil-sensitive currencies. The loonie came under pressure upon the release of data announcements on both sides of the border at 830 a.m. (ET). Canadian retail sales came in much weaker than expected, while inflation picked up more than consensus forecasts. The U.S. dollar rose against major currencies as core inflation numbers in that country came in hotter than anticipated. Many FOMC members leaning more dovishly lately have been blaming low inflation, in addition to market volatility and overseas economic weakness. Today's report may diminish the low inflation argument somewhat, although it wasn't far off expectations. The 10-year U.S. Treasury yield rose modestly on the news.
Meanwhile, the Fed watch continues. Cleveland Fed President Loretta Mester is speaking this morning. She has been firmly in the hawkish camp, indicating in recent weeks that she thinks recent volatility is part of the transition to rising rates (I think she's completely correct on this). A number of Federal Open Market Committee members have dialled down their hawkishness lately, preferring to keep their options open, with some suggesting further rate hikes could be delayed. We'll see soon if she has changed her mind at all.
How U.S. markets close today may also give an indication of whether markets have really turned the corner or if the recent rebound was a dead cat bounce. Last Friday, markets rallied into the weekend but two weeks ago, markets sold off into a weekend. With more U.S. party votes on presidential candidates scheduled for Saturday, the willingness of traders to hold stocks into the weekend may present a firm test of traders' convictions.
Now, here is a closer look at key market data, and corporate and economic news.
MARKET DATA:
Futures
S&P 500 -0.3 per cent; Dow -0.3 per cent; Nasdaq:-0.3 per cent; TSX 60 -0.4 per cent
Equities
Hong Kong's Hang Seng -0.40 per cent
Shanghai composite index -0.10 per cent
Japan's Nikkei 225 -1.42 per cent
London's FTSE -0.45 per cent
Germany's DAX -0.61 per cent
France's CAC 40 -0.63 per cent
Commodities
WTI crude oil (Nymex March) -1.95 per cent at $30.19 (U.S.) a barrel
Gold (Comex April) +0.29 per cent at $1,229.90 (U.S.) an ounce
Copper (Comex May) +0.12 per cent at $2.08 (U.S.) a pound
Currencies
Canadian dollar -0.0050 at 72.30 cents (U.S.)
U.S. dollar index +0.097 at 97.048
Bonds
U.S. 10-year Treasury yield +0.03 at 1.77 per cent
KEY ECONOMIC RELEASES
Canada's inflation rate quickened by the most since November 2014 last month, stoked by rising prices for food, transportation and gasoline. The consumer price index rose 2 per cent in January from a year earlier. That followed the rate of 1.6 per cent in the prior month. Bank of Canada Governor Stephen Poloz kept his benchmark interest at 0.5 percent last month, saying a rapid depreciation in the currency may lead to higher inflation, and today's report seems to bear him out. Both total CPI and the core rate, which was also 2 per cent, exceeded median economist forecasts.
Canadian retail sales fell at the fastest pace in more than five years in December, on reduced holiday shopping and as a late start to winter snowfall curbed vehicle purchases. Sales decreased 2.2 per cent. The decline exceeded all 20 forecasts in a Bloomberg News survey that had a median estimate of a 0.9 per cent fall.
U.S. core consumer-price measure climbed 0.3 per cent in January, more than forecast and the most since August 2011, after a 0.2 per cent gain the month before. Total prices were little changed, depressed by the continued plunge in energy costs. Analysts were expecting a core inflation uptick of 0.2 per cent.
KEY CORPORATE NEWS
Fairfax Financial Holdings Ltd. reported a lower-than-expected quarterly profit late Thursday, hurt by higher losses on its investments. Net investment losses increased to $200.1-million (U.S.) in the fourth quarter from $172.6-million a year earlier. The company, led by well-known contrarian investor Prem Watsa, maintained its defensive equity hedges on concerns about the global economic outlook. Fairfax's net income rose to $133.1-million, or $4.10 per share, in the quarter, from $23.7-million, or 49 cents per share, a year earlier. Analysts on average had expected earnings of $5.49 per share, according to Thomson Reuters I/B/E/S.
Enbridge Inc. said profit rose in the fourth quarter as record oil shipments on its main pipeline system shielded the country's largest pipeline company from the collapse in prices. Net income was $378 million, or 44 cents a share, compared with $88 million, or 10 cents, a year earlier. Excluding one-time items, per-share profit exceeded the 53-cent average of 13 analysts' estimates compiled by Bloomberg.
Dream Office REIT says it's taking a number of measures to reduce costs, as part of a three-year strategic plan, including reducing its distribution and the sale of non-core assets.
Deere & Co., the world's largest agricultural equipment maker, cut its fiscal full-year profit and sales forecasts amid a weaker outlook for farmers as they face lower commodity prices and declining incomes. Net income in the 12 months through October will be about $1.3 billion, down from a November projection of about $1.4 billion. The company now sees equipment sales falling about 10 per cent, compared with an earlier prediction they would drop about 7 percent. The shares fell 1.6 percent in premarket trading.
Yahoo Inc said its board formed an independent committee to explore strategic alternatives, alongside the pursuit of the reverse spinoff of its Internet business. The stock is up 3 per cent in the premarket on the news.
Earnings include: Ameren Corp.; Cabot Oil & Gas Corp.; Deere & Co.; Enbridge Inc.; Enbridge Income Fund Holdings Inc.; Enerplus Corp.; VF Corp.
Also see: Friday's small-cap stocks to watch
With files from wire services