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.
Positive momentum from Tuesday's North American trading continued overnight and into this morning. In Asia, the Hang Seng rallied 2.7 per cent while the Nikkei gained 1.5 per cent. In Europe, the Dax is up 1.2 per cent and the FTSE up 0.6 per cent. In index futures trading, the Dow, S&P 500 and TSX 60 are higher by 0.3 per cent to 0.5 per cent.
Traders continue to view the Fed moving toward an interest rate increase as a positive sign that the U.S. economy is strong and overseas economic risks are fading, setting up a positive environment for corporate earnings growth. Tuesday night, St. Louis Fed President James Bullard indicated he sees the U.S. economy at or past full employment. He also suggested the U.S. economy appears to be growing at a 1.6 per cent pace so far in the second quarter rather than the 2.0 per cent that had been forecast. He also said the Fed doesn't have to have a press conference to raise rates, indicating the possibility of a rate hike this June or July.
Today looks to be a big day for trading in Canada. On Tuesday, the S&P/TSX Composite bumped up against the 14,000, thanks to gains in consumer discretionary and financial stocks. Banks were particularly strong ahead of their earnings season, which kicked off today with the Bank of Montreal. Bank stocks at or near recent highs indicates high expectations, but there's still a question of what their exposure to the struggling oil sector could mean after National Bank warned on credit provisions a couple of weeks ago. Bank of Montreal posted a mixed report, coming in short on earnings but raising its dividend and indicating its core personal and commercial banking business did particularly well. Its U.S.-listed shares are down about 0.5 per cent in the premarket in very light volumes after earlier falling as much as 5 per cent.
Today also brings a Bank of Canada interest rate decision. The Street is expecting the bank to remain on hold again. But we could see the Canadian dollar remain active through the decision.
Action in the Canadian dollar may also be influenced by crude oil trading today. There was a big 5.1 million barrel drop in American Petroleum Institute oil inventories reported late Tuesday, which was double the expectations of analysts polled in a Reuters survey.Traders may look to today's Department of Energy report for confirmation of the inventory drop. West Texas Intermediate and Brent are both up about 1.2 per cent this morning but remain stuck below the key $50 round number barrier. Today's report and the reaction to it could give an idea of whether oil is ready to move higher or if its rally is done for now.
Another deal on Greece reached overnight to free up bailout money and move toward debt relief has also been seen as a positive by traders in Europe, resolving for now one of several flashpoints that could cause turmoil in Europe this summer. Following the passage of new reforms in Greece over the weekend, €10.3 billion in bailout funds will be made available in the coming months, including €7.5 billion in the first round. The European Union stonewalled the IMF's call for immediate debt relief again but the two organizations agreed on a multi-year plan toward debt relief for Greece contingent on more reforms to include debt management, reprofiling, profits from European Central Bank purchases and eventual relief. Although a lot can happen between now and the end of 2018, this has been viewed as a step in the right direction.
The euro is holding steady on the Greek news while the British pound is up slightly on news of a YouGov poll showing the "Leave" the EU camp in a dead heat with the "Remain" side. This action shows that even though the rhetoric and cries of impending doom may ramp up over the next several weeks - particularly around the upcoming G-7 meeting - fears among traders that a "Leave" vote could have a negative impact on the U.K. economy continue to fade. It looks like this race could be really close right to the finish, which may keep trading in the British pound active over the next month.
Now, here is a closer look at what's going on this morning and what is still to come.
MARKET DATA:
Futures
Dow +0.35 per cent; S&P 500 +0.37 per cent; Nasdaq: +0.44 per cent; TSX 60 +0.48 per cent
Equities
Japan's Nikkei +1.57 per cent
Shanghai composite index -0.23 per cent
Hong Kong's Hang Seng +2.71 per cent
Germany's DAX +1.28 per cent
London's FTSE +0.61 per cent
France's CAC 40 +0.91 per cent
Commodities
WTI crude oil (Nymex July) +1.21 per cent at $49.21 (U.S.) a barrel
Gold (Comex June) -0.65 per cent at $1,221.20 (U.S.) an ounce
Copper (Comex July) +0.68 per cent at $2.08 (U.S.) a pound
Currencies
Canadian dollar +0.000811 at 76.25 cents (U.S.)
U.S. dollar index +0.005 at 95.576
Bonds
Canada 10-year bond yield +0.015 at 1.36 per cent
KEY ECONOMIC RELEASES
The U.S. goods deficit in April rose to $57.5 billion from $55.6 billion ion March. The Street estimate was $60-billion.
(9 a.m. ET) U.S. FHFA House Price Index for March. Consensus is an increase of 0.4 per cent from February and 5.6 per cent year over year.
(10 a.m. ET) Bank of Canada policy announcement.
KEY STOCKS TO WATCH
Bank of Montreal said net income for the second quarter ended on April 30 fell 3 per cent to $973-million, or $1.45 per share, from a year earlier. Excluding one-off items, earnings were $1.73 a share. Analysts on average had expected $1.75, according to Thomson Reuters I/B/E/S. The bank said provisions for credit losses rose to $201-million from $161-million, with the increase mainly due to resource-related loans at its capital markets division. The bank also announced a hike in its dividend. Shares in the U.S. premarket were down by 0.5 per cent in light volumes.
Microsoft Corp. said on Wednesday it will trim down its smartphone business by cutting 1,850 jobs, most of them in Finland, and write down $950-million from the operation.
Shares of Computer Sciences soared 24.8 per cent in premarket trading after Hewlett Packard Enterprise said it would spin off and merge its struggling IT services business with the company. Hewlett Packard Enterprise was up 9.8 per cent at $17.85.
Tiffany fell 4.4 per cent after reporting its steepest sales drop in six quarters and forecasting a fall in its full-year profit.
Sarepta Therapeutics jumped 15.2 per cent after the FDA delayed its decision on the company's muscle-wasting drug.
Other earnings today include: Amerco; Copart Inc.; Costco Wholesale Corp; Eaton Vance Corp.; Heroux-Devtek Inc.; HP Inc.; Lions Gate Entertainment Corp.; NetApp Inc.; PVH Corp.; Williams-Sonoma Inc.
With files from wire services