Equity Markets
U.S. stocks started lower Wednesday as investors braced for the Federal Reserves latest policy announcement. The powerful U.S. central bank is widely expected to hold rates steady but analysts will be watching for indications of when the next rate hike is likely and how many will follow this year. Ahead of Wednesday's announcement, the probability of a June hike stands at just over 67 per cent.
"The FOMC's accompanying statement will be the major focus as investors will be seeking any hints or details regarding the Fed's interest rate policy outlook, the balance sheet shrinkage plans, and whether the portfolio normalization would interfere with the speed of the rate normalization," LCG senior market analyst Ipek Ozkardeskaya said in a morning note. The Fed is expected to pull the trigger on two or three more interest-rate hikes before the end of 2017. Ahead of the announcement, the markets will also be weighing the latest private-hiring numbers from ADP for signs of how Friday's non-farm payroll figures will hold up. The figures, released early Wednesday, showed private-sector hiring rose by 177,000 new positions in April, roughly in line with the 175,000 economists had been forecasting. But, the numbers could face some skepticism after March's ADP report showed a robust increase of 263,000 positions only to be followed by a weaker-than-expected reading on non-farm payrolls for the same month two days later.
U.S. stock futures also suggested Nasdaq would pull back from record highs after Apple Inc. reported a decline in iPhone sales after the close of trading on Tuesday. Apple shares were down slightly more than 1 per cent ahead of Wednesday's open.
In Canada, the TSX also fell to start the trading day even as oil bounced back from near 2017 lows after preliminary figures showed a bigger-than-expected drop in U.S. crude inventories. Earnings news will continue to dominate as investors digest results from Loblaw Cos Ltd. and Torstar Corp. The Toronto Stock Exchange's S&P/TSX composite index closed up 44.02 points, or 0.28 percent, at 15,619.65.
Overseas, in Europe, London's FTSE 100, Germany's DAX and the Paris CAC 40 were down by between 0.1 and 0.3 per cent early on. Markets in Japan, Hong Kong and South Korea were closed Wednesday for a public holiday. Japan's markets will remain closed for the rest of the week. The Shanghai Composite closed down 0.25 per cent.
Commodities
Oil slipped from session highs after the U.S. Energy Information Administration said U.S. crude stockpiles fell less than expected last week. The agency said crude inventories fell by 930,000 barrels in the week to April 28, less than analysts' expectations for a decrease of 2.3 million barrels. Although crude stocks have steadily declined for the last four weeks, at 527.8 million barrels they still 3 per cent higher from this time a year ago.
Early in the day, crude prices had rebounded after brushing up against 2017 lows on earlier figures indicating lower crude stocks.
"Yesterday (Tuesday) was the fifth time Brent prices have traded under $50 (U.S.) a barrel in the last two months and the fifth time when they promptly bounced, though current spot at $50.24 isn't exactly encouraging," Societe Generale's Kit Juckes said.
raders are still waiting for clear word that OPEC producers will extend production cuts through the second half of the year and assurance that members are complying with current set levels. OPEC members meet later this month.
Russia, contributing the largest production cut outside OPEC, said on Wednesday that as of May 1, it had curbed output by more than 300,000 bpd since October, Reuters reported. That means Russia has achieved its reduction target a month ahead of schedule, just as the latest Reuters survey of OPEC production showed compliance had fallen slightly. More oil from Angola and higher UAE output than originally thought meant OPEC compliance with its production-cutting deal slipped to 90 per cent from a revised 92 per cent in March, the Reuters survey showed.
Meanwhile, gold held near three-week lows as the U.S. dollar firmed. Spot gold prices and U.S. gold futures were largely flat in early trading. Silver was also largely unchanged.
Currencies and bonds
The Canadian dollar started the day down from Tuesday's Bank of Canada closing price, but managed to breach the 73-cent (U.S.) mark by late morning. Overall, it has been a rough stretch for the Canadian dollar. The currency has lost about 2.5 per cent against the greenback over the past month. In a note, RBC Capital markets global head of FX strategy Elsa Lignos said the loonie has been battered by a "perfect storm" of negative factors starting with the recent sell-off in crude and followed up by rising concerns about Canada's housing market and interest-rate differentials between the Fed and the Bank of Canada.
The U.S. dollar edged higher against most major currencies as traders bet on a June rate hike by the Fed. However, economic concerns continue to linger, with weak U.S. auto sales adding to worries.
"If you look at how markets are positioned right now, it feels like hoping for the best but psychologically braced for a not so positive message," said UBS Wealth Management analyst Geoffrey Yu told Reuters. "The data of late probably hasn't been enough to justify any excess buoyancy or excess bullishnesss."
The euro edged lower early on but continued to hold close to five-and-a-half month highs as concerns over the outcome of this weekends French presidential vote continued to abate. Opinion polls continue to show a strong lead by centrist Emmanuel Macron over anti-euro nationalist Marine Le Pen.
French government bond yields fell to their lowest since mid-January, while the spread to German bond yields - often seen as a gauge of political risk - remained near its lowest level since December.
Stocks set to see action
Apple Inc. reported a surprise fall in iPhone sales for its second quarter on Tuesday, indicating that customers may have held back purchases in anticipation of the 10th-anniversary edition of the company's most important product later this year. Under pressure from shareholders to hand over more of its $250-billion-plus hoard of cash and investments, Apple boosted its capital return program by $50-billion, increased its share repurchase authorization by $35-billion and raised its quarterly dividend by 10.5 per cent. Shares fell in early trading.
Mortgage lender Home Capital Group Inc. delayed the release of financial results on Tuesday as the company recruits new board members in a bid to restore its credibility, stem the bleeding of deposits and find a potential buyer or investor. Home Capital is expected to announce as early as this week that it will add members to its board who have experience in restructuring financial companies. The company is the country's largest lender to home owners who typically do not qualify for mortgages from the big banks.
Loblaw Cos Ltd reported a 19.2-per-cent rise in quarterly profit, helped by lower expenses and as discounting attracted more customers to its stores. Net earnings available to common shareholders rose to $230-million, or 57 cents per share, in the first quarter ended March 25, from $193-million, or 47 cents per share, a year earlier. The latest quarter also included a gain of $11-million, or 2 cents per share. Revenue rose marginally to $10.40-billion from $10.38-billion last year.
The owner of the Toronto Star and other media operations said on Wednesday it made provisions to cut 110 jobs in the first quarter after reporting another drop in revenue and continuing losses. Torstar Corp. said it's aiming for $5.3-million of annualized savings from the previously announced downsizing. The Toronto-based newspaper and digital media company says it had a $24.4 million loss in the first quarter, ended March 31 — an improvement from last year when the comparable losses were more than twice as big.
Yum Brands Inc. is reporting first-quarter net income of $280-million or 77 cents per share. Adjusted earnings came to 65 cents per share, which beat Wall Street expectations pf 60 cents. The parent company of KFC, Taco Bell and Pizza Hut posted revenue of $1.42-billion in the period, also exceeding Street forecasts of $1.35-billion. Its shares gained1.9 per cent in early trading.
Sprint Corp. reported a smaller quarterly loss on Wednesday, as the No. 4 U.S. wireless carrier added more postpaid phone subscribers. The company, majority owned by Japan's SoftBank Corp., said net loss narrowed to $283-million, or 7 cents per share in the fourth quarter ended March 31, from $554-million, or 14 cents per share, a year earlier. Net operating revenue rose 5.8 per cent to $8.54-billion.
Time Warner Inc., which is being bought by AT&T, reported a better-than-expected quarterly profit, helped by the success of its movies Kong: Skull Island and The LEGO Batman Movie in the first quarter. Revenue from Warner Bros, which includes the movie business and is the company's biggest unit by revenue, rose 8.2 per cent to $3.37-billion. Excluding items, the company earned $1.66 per share, beating the average analysts' estimate of $1.45 per share, according to Thomson Reuters I/B/E/S.
Reynolds American Inc. reported first-quarter earnings of $780-million or 55 cents per share. Adjusted earnings were 56 cents per share, which fell short of Wall Street expectations of 57 cents per share. The parent of Camel and Pall Mall cigarette maker R.J. Reynolds posted revenue of $2.95-billion in the period.
Cosmetics maker Estee Lauder Cos Inc. reported better-than-expected quarterly sales and profit, helped by strong demand for its makeup brands and recent acquisitions. Net sales rose to $2.86-billion from $2.66-billion a year earlier. Analysts had expected sales of $2.81 billion, according to Thomson Reuters I/B/E/S. Net earnings attributable to Estee Lauder increased to $298-million, or 80 cents per share, from $265-million, or 71 cents per share, a year earlier. Excluding items, the company earned 91 cents per share, handily beating analysts' average estimate of 73 cents.
Automotive supplier Delphi Automotive Plc said that it would spin off its powertrain unit in order to focus on developing technology for autonomous driving systems and electrically powered vehicles. The company also reported a better-than-expected first-quarter net profit as revenue rose in all regions, and it gave a robust full-year earnings outlook.
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Economic News
U.S. ADP National Employment Report for April showed an increase in private hiring of 177,000 new jobs, roughly in line with the 175,000 forecast by analysts but well below March's levels.
(10 a.m. ET) U.S. non-manufacturing ISM for April.
(2 p.m. ET) U.S. Fed announcement.
The U.S. services sector expanded at a greater-than-expected pace last month, according to figures released by the Institute for Supply Management. A measure of new orders rose to the highest level since 2005. The group's non-manufacturing index rose to 57.5 in April. That's the second-highest level since October 2015. A reading above 50 suggests growth in the sector.
Toronto's housing market showed signs of cooling in April as prices for low-rise homes dropped slightly compared to March and a surge of new listings increased the available supply of resale homes. Prices continued gains compared to a year earlier, rising 25 per cent in April for all types of homes compared to April, 2016, according to sales data from the Toronto Real Estate Board. TREB said the average selling price for all homes types hit a new record level of $920,791 in the Greater Toronto Area in April.
The euro zone economy started the year with stronger-than-expected growth. The gross domestic product of the 19-country euro zone bloc grew by 0.5 per cent in the first quarter, which translates to annualized growth of 1.8 per cent in all of 2017, the European statistics agency Eurostat said. The preliminary euro zone figure is much higher than the 0.7-per-cent annualized growth recorded in the United States in the same quarter, the weakest performance since the first quarter of 2014, according to U.S. estimates .
With files from Reuters, The Canadian Press