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.
U.S. and European markets have been trading close to flat this morning after mixed performance overnight in Asia. U.S. stock index futures have rallied toward positive territory since 6 a.m. (ET), when Home Depot reported stronger-than-expected sales and earnings and raised its dividend by 16 per cent. Retailers are a key focus in U.S. trading today, with Macy's also out with its quarterly results, and its shares in the premarket are rallying nearly 6 per cent.
Overnight, Asia Pacific markets sold off in reaction to news of a big loss and a 75 per cent dividend cut at BHP Billiton. This brought a recent rally in mining stocks to a screeching halt for now.
Today's trading in mining stocks in both the U.S. and Canada could be active once again as it may give an indication of how sustainable recent gains may be. The recent rally in mining has been driven by improving gold and copper prices and expectations of improving fundamentals. The BHP results, however, were based on past prices and its 3.8 per cent decline in London today appears moderate relative to its recent gains - let alone the 10 per cent rallies seen by Alcoa, Teck and others on Monday. Copper is trading slightly lower while gold is slightly higher, so we could see some rotation within the mining group.
Canadian bank stocks could also be active as Bank of Montreal and National Bank kicked off earnings week by beating Street forecasts. CIBC, RBC and TD are all due to report later in the week.
Bank results this quarter may give a better indication of how the rebalancing of the Canadian economy is progressing. The banks' exposure to the oil sector, through both direct lending to energy companies and to real estate in oil producing regions, may remain a key focus. The big question is whether other industries and regions that can benefit from the lower loonie have bounced back enough to offset the energy sector's struggles and reduce the banks' exposure to the sector. Remember, the negative effects of the oil crash have been front ended, while the benefits and rebalancing of lower oil prices and the lower Canadian dollar can take longer to materialize.
Speaking of oil, prices have stabilized overnight with the nearby West Texas intermediate contract near $31.00 and Brent near $34.50. The Canadian dollar is down marginally against the greenback as it consolidates recent gains.
We have seen somewhat of a reversal of capital flows in currency markets overnight, with defensive havens like gold, the Japanese yen and the Swiss franc outperforming again. Overnight, Bank of Japan Governor Haruhiko Kuroda was talking about keeping negative interest rates until inflation rises, in what appears to be an attempt to talk down or at least cap the rise of the yen.
European currencies like the British pound and euro are down again today, but at a more moderate pace than Monday. Bank of England Governor Mark Carney commented today that the bank is treating the Brexit debate just like any other event (uh-huh) while he and Deputy Governor Nemat Shafik both indicated they expect the bank's next move to be a rate hike eventually. Meanwhile, Monetary Policy Committee member Martin Weale suggested recent strength in demand could generate slightly more inflation. In other words, it seems like the Bank of England is trying to stay out of the debate, but at the same time trying to stop recent vote-related weakness in the pound from snowballing into a free fall. Meanwhile, in Europe, soft German exports and a weak expectations component of a Germany business climate survey is keeping the pressure on the European Central Bank to do something at its March meetings.
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 -0.1 per cent; Nasdaq: -0.3 per cent
Equities
Hong Kong's Hang Seng -0.25 per cent
Shanghai composite index -0.83 per cent
Japan's Nikkei 225 -0.37 per cent
London's FTSE -0.61 per cent
Germany's DAX -0.86 per cent
France's CAC 40 -0.48 per cent
Commodities
WTI crude oil (Nymex April) -0.42 per cent at $33.26 (U.S.) a barrel
Gold (Comex April) +0.59 per cent at $1,217.30 (U.S.) an ounce
Copper (Comex May) -0.33 per cent at $2.11 (U.S.) a pound
Currencies
Canadian dollar -0.0006 at 72.85 cents (U.S.)
U.S. dollar index +0.107 at 97.486
Bonds
U.S. 10-year Treasury yield +0.017 at 1.78 per cent
KEY ECONOMIC RELEASES
Annualized U.S. single-family home prices rose less than expected in December. The S&P/Case Shiller composite index of 20 metropolitan areas rose 5.7 percent in December on a year-over-year basis, matching the increase the month before. That was just below the 5.8 percent estimate from a Reuters poll of economists.
(10 a.m. ET) U.S. existing home sales for January. Consensus is an annualized rate decline of 0.2 per cent.
KEY CORPORATE NEWS
Bank of Montreal said fiscal first-quarter profit rose 6.8 per cent as contributions from its purchase of General Electric Co.'s transportation-finance business added to U.S. earnings. Net income for the period ended Jan. 31 climbed to $1.07 billion, or $1.58 a share, from $1 billion, or $1.46, a year earlier. Profit excluding some items was $1.75 a share, beating the $1.72 average estimate of 15 analysts surveyed by Bloomberg.
National Bank reported first-quarter Q1 adjusted EPS of $1.17 vs. a Street estimated $1.14.
Valeant Pharmaceuticals says it will restate its financial results for 2014 and 2015 after a review found about $58 million (U.S.) of sales to Philidor were recognized at the wrong time. Valeant estimates that its 2014 earnings will be reduced by 10 cents per share, in U.S. currency, and 2015 earnings will be increased by nine cents per share. In premarket trading, Valeant shares made up some of Monday's losses of 11 per cent, gaining nearly 5 per cent.
Shares of Home Depot were up 2.2 per cent in the premarket after the home improvement chain reported better-than-expected quarterly sales.
Macy's Inc said quarterly sales at stores open at least a year fell less than it had expected and that it has started contacting potentially interested parties for partnerships or joint ventures for its flagship and mall-based properties. The department store operator's shares were up 5.7 percent at $43.40 in premarket trading on Tuesday. Activist investor Starboard Value LP has been pressing the retailer, which operates the Bloomingdale's and Macy's store chains, since last July to spin off its highly prized real estate assets, which it values at $21 billion.
MKS Instruments Inc, which makes instruments used in semiconductor manufacturing processes, said it agreed to buy Newport Corp, a manufacturer of laser-based products, for $980 million in an all-cash deal. MKS' offer of $23 per share represents a premium of about 53 percent to Newport's Monday's close. Newport's shares were trading at $22.60 before the opening bell on Monday.
Fitbit sank 16.2 per cent in the premarket after the wearable fitness device maker forecast profit below estimates.
Magazine publisher Time Inc is considering a deal to merge with struggling Internet company Yahoo, Bloomberg reported, citing people familiar with the matter. Time Inc, the publisher of Sports Illustrated, People and namesake Time has heard a presentation from Citigroup Inc bankers on pursuing a deal with Yahoo, the Bloomberg report said. Last week Yahoo officially launched the sale of its core business, which includes search, mail and news sites.
Other earnings today include: Alleghany Corp.; Altus Group Ltd.; Clearwater Seafoods Inc.; DH Corp.; Dollar Tree Inc.; DreamWorks Animation SKG Inc.; Edison International; Exchange Income Corp.; First National Financial Corp.; First Solar Inc.; J M Smucker Co.; Jazz Pharmaceuticals PLC; Lucara Diamond Corp.; Macys Inc.; Office Depot Inc.; Strad Energy Services Ltd.
Also see: Tuesday's small-cap stocks to watch
With files from wire services