The TSX has kept its strong momentum following Fed Chair Janet Yellen’s rate hike remarks, but can the rally continue? BNN talks to Tim Regan, Managing Director at Kingwest & Co for his take on this and more.
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.
May and June have historically been two of the weaker months of the year for stocks but have been acting better than usual through the spring so far this year. But trading over the last couple of days suggests that we may be heading into a seasonal correction after all.
The Hang Seng fell 1.1 per cent overnight but downward pressure has really increased in Europe where the Dax and IBEX are down 2.3 per cent, the CAC is down 1.9 per cent and the FTSE is down 1.6 per cent. U.S. index futures for the Dow, S&P and NASDAQ are down 0.4 to 0.7 per cent. WTI crude oil is down 1.1 per cen, retesting $50 (U.S.) as support now.
Some may blame uncertainty over upcoming big events including U.S. Federal Reserve and Bank of japan meetings next week plus the U.K. Brexit vote and Spanish election later in the month for sending capital to the sidelines and back into defensive havens like gold and the Japanese yen. S&P suggested today that there could be a run on U.K. financial assets should the "Leave" vote win. This sounds like another desperate cry for attention as people increasingly dismiss and tune out the Chorus of Brexit Doom as noise and propaganda.
Actual economic data shows that the U.K. economy continues to accelerate heading into the big vote with U.K. construction output rising in the most recent month more than expected and the Bank of England raising an inflation forecast. Industrial production in France and Italy also beat the street.
Overall, it looks like while there is some uncertainty and the potential for volatility which could create trading opportunities in the coming weeks, current weakness may also be related to technical exhaustion and seasonal trends reasserting themselves.
Today brings May employment data for Canada, one of the first reports that could really measure the impact of the Alberta wildfires on the Canadian economy. The fires forced the temporary shutdown of over 1 million barrels per day of oil sands production and forced 90,000 people to evacuate the City of Fort McMurray. With thousands of people temporarily displaced during the month, but with the city now reopen and people returning to work, the job reports for the next two months could be substantially distorted. For May, I'm going to guess a 10,000 decrease in jobs mainly due to the wildfire impact.
Now, here is a closer look at what's going on this morning and what is still to come.
MARKET DATA:
Futures (as of approx. 8:05 a.m. ET)
Dow -0.54 per cent; S&P 500 -0.59 per cent; Nasdaq: -0.70 per cent; TSX 60 -0.65 per cent
Equities
Japan's Nikkei -0.40 per cent
Shanghai composite index -0.32 per cent
Hong Kong's Hang Seng -1.20 per cent
Germany's DAX -2.27 per cent
London's FTSE -1.71 per cent
France's CAC 40 -2.01 per cent
Commodities
WTI crude oil (Nymex July) -1.35 per cent at $49.87 (U.S.) a barrel
Gold (Comex Aug) -0.25 per cent at $1,269.50 (U.S.) an ounce
Copper (Comex July) -0.49 per cent at $2.03 (U.S.) a pound
Currencies
Canadian dollar -0.12 at 78.47 cents (U.S.)
U.S. dollar index +0.26 at 94.21
Bonds
Canada 10-year bond yield -2.73 at 1.15 per cent
KEY ECONOMIC RELEASES
Canada added far more jobs than expected in May, and the unemployment rate fell to a 10-month low, although that was due to fewer people looking for work, data from Statistics Canada showed on Friday.
The increase of 13,800 positions last month topped economists' forecasts for a gain of just 3,800 jobs.
The unemployment rate fell to 6.9 per cent, exceeding expectations for it to hold at 7.1 per cent. It was the lowest rate since July.
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Russia's central bank cut its main lending rate on Friday for the first time in almost a year, signaling confidence that inflation risks are declining and describing an economic recovery as "imminent."
The rate cut comes at a time when Russia's economy, plagued in the past few years by plunging oil prices and Western sanctions over the Ukraine crisis, is now showing signs that the worst is behind it.
The bank cut the rate by a half-point to 10.5 per cent, the first cut since July, 2015, an outcome predicted by a majority of analysts although some had expected no change.
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(8:30 a.m. ET) Canada average hourly wages for May. Estimate is an increase of 2.6 per cent year over year.
(10 a.m. ET) U.S. University of Michigan consumer sentiment for June (preliminary). Consensus is 94.0, down from 94.7 in May.
(1 p.m. ET) Baker-Hughes rig count
(2 p.m. ET) U.S. budget deficit for May. Estimate is $56-billion, down from $84.1-billion in previous year.
KEY STOCKS TO WATCH
Top U.S. weapons maker Lockheed Martin Corp is studying whether to shift work on its multibillion-dollar F-35 fighter jet away from Canadian firms given uncertainty about Ottawa's plans to buy the jet.
Jack Crisler, Lockheed's vice president of business development for the F-35 programme, told Reuters Lockheed was under pressure from other partner countries that had placed firm orders or accelerated orders to shift more work to them.
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The Transcontinental printing and publishing business is reporting a big drop in profit, which fell by 93 per cent to $5.4 million due to a combination of unusual items that included its writedown of newspapers in Atlantic provinces.
Excluding those items, Transcontinental's adjusted earnings fell by 12.5 per cent to $34.2 million while its revenue edged up to $497.2 million from $490.5 million.
The Montreal-based company (TSX:TCL.A) says the second half of the year should be better for its printing division thanks to the addition of some new customers in recent months.
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Norwegian holding company Aker ASA and London-based BP say they have reached a deal to combine their offshore oil and gas assets in Norway.
The new joint venture, Aker BP, will merge oil company Det norske oljeselskap, in which Aker is the biggest owner, and BP's Norwegian unit.
Aker will own a 40 per cent stake and BP a 30 per cent stake in the new company. The remaining shares will be held by other Det norske shareholders.
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The tax-preparation firm H&R Block reported adjusted quarterly profit of $3.16 (U.S.) per share, 1 cent above estimates. Revenue was very slightly above estimates, and the company also announced a 10-percent dividend increase to 22 cents per share. Block also said it was intensifying its focus on stemming client losses and lowering its costs.
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Urban Outfitters said current quarter comparable-store sales are falling by a "mid single-digit" percentage. That projection — coming in an SEC filing — compares to consensus analyst forecasts for a 1.1-per cent increase in comparable sales.
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Tesla is under scrutiny on news that the National Highway Traffic Safety Administration is examining suspension issues related to Tesla's Model S. For its part, Tesla said NHTSA had not opened any investigation. The electric-car maker maintains that there are no safety defects in either the Model S or Model X.
Earnings include: Diagnocure Inc.
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Analyst actions:
William Blair began coverage on online retailer Amazon.com with an "outperform" rating, based in large part on the potential growth of the company's Amazon Web Services business.
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Piper Jaffray initiated coverage on Ford (F-N) with an Overweight rating and a price target of $17.00, citing a fair outlook, big balance sheet and 4.5% dividend yield.
Also see: Friday's small-cap stocks to watch
With files from wire services