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.
Just as I suspected Wednesday, the fear trade was getting too crowded and today finds risk markets rebounding around a number of significant economic reports.
U.S. index futures are steady this morning, consolidating Wednesday afternoon's gains. UK and European indexes are playing catch up, with the FTSE up 1.2 per cent and the Dax up 1.0 per cent.
Crude oil is up 1 per cent on the back of a big 6.3 million barrel drop in U.S. American Petroleum Institute inventories report, with traders now looking to today's Department of Energy report for confirmation. Falling oil inventories and a recent rise in U.S. Purchasing Managers' Indexes are signs of a robust economy. Meanwhile, Wednesday's FOMC minutes showed a central bank reluctant to raise interest rates due to uncertainty over employment and Brexit. The combination of a solid economy and a neutral Fed creates a sweet spot that could create a Goldilocks scenario and support strong corporate earnings growth - good news for stock prices.
Today's U.S. private-sector ADP payrolls report has given more insight into the health of the U.S. job market and economy. Some 172,000 jobs were created, more than the 159,000 the Street was expecting, and down slightly from last month's 173,000.
Meanwhile, weekly U.S. jobless claims were 254,000, less than the 270,000 expected. Jobless claims over the last month suggest employment remains strong, so the payroll reports of the next two days may give a better feeling of whether slowing job growth reflects a slowing economy or a strong economy nearing full employment.
Despite continued concerns about outflows from UK property funds and potential bailouts of Italian banks, traders have responded to positive economic numbers. UK industrial production for May and house prices came in better than expected while German industrial production came in below expectations. Later today, European Central Bank minutes and the next round of voting in the UK Conservative leadership contest may attract attention from traders.
As an aside, i think traders pulling out of UK property funds have made a colossal error in their expectations. Real estate has quietly become more global with people buying up property all over the world. The plunge in the pound has just put UK properties on deep discount for outside buyers, just as we saw in Toronto and Vancouver where house prices have exploded as the loonie fell, making Canadian property cheap relative to other countries. As the old saying goes, they aren't making any more land, so UK property prices, particularly in prime locations, may end up increasing, not decreasing, due to the lower currency.
Now, here is a closer look at what's going on this morning and what is still to come.
MARKET DATA: (as of about 7 a.m. ET)
Futures
Dow -0.05 per cent; S&P 500 -0.11 per cent; Nasdaq: -0.04 per cent; TSX 60: +0.13 per cent
Equities
Japan's Nikkei -0.67 per cent
Shanghai composite index -0.01 per cent
Hong Kong's Hang Seng +1.03 per cent
Germany's DAX +0.81 per cent
London's FTSE +0.89 per cent
France's CAC 40 +1.25 per cent
Commodities
WTI crude oil (Nymex Aug) +1.03 per cent at $47.92 (U.S.) a barrel
Gold (Comex Aug) -0.23 per cent at $1,363.90 (U.S.) an ounce
Copper (Comex July) -0.30 per cent at $2.147 (U.S.) a pound
Currencies
Canadian dollar +0.18 at 77.26 cents (U.S.)
U.S. dollar index +0.003 at 96.056
Bonds
Canada 10-year bond yield +0.019 at 0.993 per cent
KEY ECONOMIC RELEASES
U.S. ADP employment report. June's private sector jobs rose by 172,000 vs. the 159,000 that was expected.
U.S. initial jobless claims were 254,000 last week, vs. the Street's estimate of 269,000.
Canadian May building permits fell 1.9 per cent month over month vs. an estimated 1.5 per cent gain.
Still to come:
(10 a.m. ET) Canada Ivey PMI for June
(11 a.m. ET) EIA petroleum status report
KEY STOCKS TO WATCH
Paramount Resources is entering into a $1.9-billion deal to sell most of its oil and natural gas producing assets in western Alberta to Calgary rival Seven Generations Energy.
PepsiCo's shares rose 2.2 per cent to $108.20 in premarket trading, after reporting a second-quarter profit that beat analysts' estimate.
Whitewave Foods jumped 19 per cent to $56.45 after Danone said it would buy the organic food maker for $12.5 billion, including debt.
Other earnings today include: Barracuda Networks Inc.; Caldwell Partners International Inc.; Madison Pacific Properties Inc.; Sandvine Corp.
Also see: Thursday's small-cap stocks to watch
With files from Bloomberg and other wire services