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.
The big story in overnight trading was how quickly the speculation on Iran potentially ready to join a deal among suppliers was trumped by weak fundamentals. A surprise 4.4-million-barrels increase knocked the wind out of oil markets sending West Texas Intermediate down 1.6 per cent and Brent down 1 per cent. Oil may remain active Wednesday particularly around U.S. Department of Energy inventories with traders looking for confirmation of the BOE report.
Global equity market trading remains subdued with U.S. indices flat this morning and the Dax up 0.4 per cent. A seasonally quieter period with many players on holiday, limited news combined with investors waiting to see what U.S. Federal Reserve Chair Janet Yellen has to say on Friday has many traders sitting on their hands at the moment. The FTSE is down 0.1 per cent, held back by the continuing recovery in British pound as Brexit fears fade.
Canadian banks are in the spotlight Wednesday. Banks rallied yesterday on a positive kickoff to earnings week by Bank of Montreal, and Wednesday's report from the Royal Bank of Canada was even better. RBC reported record earnings of $1.72 per share up 7 per cent over year and above the $1.70 Street estimate. RBC raised its dividend by 2 per cent, a sign management remains encouraged about its future prospects.
Most importantly, RBC cut its credit loss provision by 31 per cent from last quarter on reduced provisions to the oil and gas sector. Questions about oil patch exposure has dragged on sentiment toward the banks and improved confidence in the oil patch could provide a general boost to banks and energy companies.
On Tuesday, new home sales nearing levels last seen nine years ago provided more evidence of a robust U.S. economy. On Wednesday, traders may look to house prices and sales of existing homes for more indication regarding on the strength of consumer spending.
Now, here is a closer look at what's going on this morning and what is still to come.
MARKET DATA:
Futures (as of about 7:15 a.m. ET)
Dow +0.02 per cent; S&P 500 +0.05 per cent; Nasdaq: +0.06 per cent; TSX 60 +0.12 per cent
Equities
Japan's Nikkei +0.61 per cent
Shanghai composite index -0.13 per cent
Hong Kong's Hang Seng -0.77 per cent
Germany's DAX +0.44 per cent
London's FTSE -0.08 per cent
France's CAC 40 +0.64 per cent
Commodities
WTI crude oil (Nymex Oct.) -1.87 per cent at $47.19 (U.S.) a barrel
Gold (Comex Dec.) -0.33 per cent at $1,341.70 (U.S.) an ounce
Copper (Comex Dec.) -0.63 per cent at $2.11 (U.S.) a pound
Currencies
Canadian dollar -0.12 at 77.24 cents (U.S.)
U.S. dollar index +0.11 at 94.65
Bonds
Canada 10-year bond yield -0.2167 at 1.02 per cent
KEY ECONOMIC RELEASES
Japan releases its June leading index.
(9 a.m. ET) The U.S. reports its June FHFA June house price index. Estimates is for 5.7 per cent year over year increase.
(10 a.m. ET) The U.S. reports its July existing home sales. Estimates are for a 0.5 per cent decrease to a 5.54 million annual rate.
Earnings include: Heico Corp.; HP Inc.; Performance Sports Group Ltd.; Royal Bank of Canada;
KEY STOCKS TO WATCH
Royal Bank of Canada said fiscal third-quarter profit rose 17 per cent on gains in capital markets, wealth management and the sale of an insurance business. The lender raised its quarterly dividend 2.5 percent to 83 cents a share. Net income for the period ended July 31 climbed to $2.9-billion (Canadian), or $1.88 a share, from $2.48 billion, or $1.66, a year earlier, the Toronto-based bank said Wednesday in a statement. Adjusted profit, which excludes some items, was $1.76 a share, beating the $1.71 average estimate of 14 analysts surveyed by Bloomberg.
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Canada's largest pension fund could be seeking a toehold in the historic Lloyd's of London insurance marketplace. Canada Pension Plan Investment Board is reportedly in early talks to buy a division of U.S. insurer American International Group Inc., according to The Wall Street Journal. Although a deal is far from certain, New York-based AIG is in the process of restructuring and selling assets.
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Debt-laden oil companies are not out of the woods yet, Moody's Investors Service says. The credit-rating agency said key leverage metrics at some of North America's biggest energy companies are likely to deteriorate further this year, despite a slight improvement in commodity prices and efforts to shore up finances with asset sales and deep cuts to spending levels.
Moody's assessed debt levels at 35 companies, including Husky Energy Inc., Cenovus Energy Inc., Encana Corp., Suncor Energy Inc. and Canadian Natural Resources Ltd. It found that leverage has more than quadrupled since 2011, and that it will get worse even if U.S. crude trades at $50 (U.S.) a barrel.
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Shares of Express Inc plunged 19 per cent in premarket trading after the apparel maker slashed its full-year earnings outlook.
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Intuit fell 4.9 per cent after the tax-preparation software maker gave a dismal profit and revenue forecast for the current quarter.
With files from wire services