Equity Markets
Escalating political tensions in the United States continued to grip the markets Thursday, and U.S. stocks traded lower as a series of scandals cast a shadow over Donald Trump's presidency and the future of his ambitious pro-growth agenda. Stocks sold off sharply on Wednesday.
The Dow Jones industrial average was off 52.42 points, or 0.25 per cent, at 20,554.51, the S&P 500 was off 2.42 points, or 0.10 per cent, at 2,354.38 and the Nasdaq composite added 7.50 points, or 0.12 per cent, at 6,019.21.
On Wednesday, the Dow closed down more than 300 points, its lowest close in nearly five months on reports that U.S. President Donald Trump asked former FBI director James Comey to end a probe into alleged Russian interference in the U.S. presidential election. A special counsel has now been appointed to lead the investigation. The VIX index, which has hit the lowest level since 1993 a week ago, jumped 35 per cent to 15.69 per cent on Wednesday.
"The row between Mr Trump and the FBI is still on traders' minds and while this is hanging over the market I can't see sentiment changing anytime soon," CMC Markets analyst David Madden said.
"Traders will be reluctant to open up new long positions while there is talk of Trump being impeached. I would classify today as a risk-off session as traders appear to be in wait-and-see mode. There are bargains to be had out there but dealers would be taking on excessive risk by buying in now."
Outside the political arena, traders will again have an eye on the retail sector with Wal-Mart Stores Inc. reporting earnings of a $1 a share before the bell. Analysts had been expecting earnings of about 96 cents a share in the latest quarter.
In Toronto, the S&P/TSX composite was off 81.81 points, or 0.54 per cent, at 15,191.87 as oil and gold prices fell. The index was led lower by utilities and materials stocks. In addition to negative sentiment affecting global markets, traders in Canada are also contending with volatile oil markets which saw crude prices slip Thursday morning.
Overseas, Asian stocks were sharply lower, while European markets were also down.
Japan's benchmark Nikkei 225 index slid 1.3 per cent. Hong Kong's Hang Seng shed 0.6 per cent and the Shanghai Composite index slid 0.45 per cent. In Europe, the blue-chip FTSE 100 was down 1.14 while Germany's DAX was off 0.42 per cent and France's CAC 40 lost 0.71 per cent.
Commodities
Crude prices were down but off early lows as traders weighed the latest inventory figures showing a lower-than-expected drawdown in U.S. crude inventories. On Wednesday, the U.S. Energy Information Administration said inventories fell 1.8 million barrels in the week to May 12, lower than market forecasts. Attention now turns to OPEC's meeting in Vienna next week. Key members have already indicated the cartel and non-OPEC members will extend production cuts until the middle of next year.
"Could the Saudis bring the 'bazooka' to Vienna and surprise the market with larger supply cuts?," Desjardins Capital Markets analysts asked in a morning note. "The negative tail risk ahead of the OPEC meeting appears fairly minimal at this point following a series of endorsements to extend supply cuts—not only from cartel oil ministers but also from several non-OPEC players, most importantly the Russian Federation."
They noted that Saudi Arabia has successfully built support for extending supply cuts, which begs the questions could a move to expand cuts in addition to extending them be afoot?
"The odds are fairly low, particularly with key geopolitical rivals Iraq and Iran pushing the limits of current quotas while Libya and Nigeria (which are not subject to quotas) have been steadily ramping up production following past above-ground disruptions," they said.
Despite the OPEC cuts, Reuters also points out that other producers have been quick to fill supply gaps.
But other producers have been quick to fill any supply gaps. The wire service noted that shipping data in Thomson Reuters Eikon shows that U.S. crude exports to Asia have soared from a handful of tankers a quarter throughout 2015 and 2016 to 10 tankers in the first quarter of 2017 and that figure is expected to rise. North Sea oil shipments to Asia have also been at record highs this year, with 19 tankers delivering in the first quarter and a similar amount expected to go to Asia in the second.
Gold prices eased as the U.S. dollar found its footing, prompting some profit-taking among investors. On Wednesday, gold prices jumped 2 per cent, the biggest single-day jump since Britain voted to leave the EU last June. In morning trading, spot gold prices were down slightly while U.S. gold futures were mostly flat.
"We are likely to see profit taking weigh upon the metal over the short term, however the current political climate in the U.S. should see underlying interest continue to support the metal around $1,250," MKS trader Sam Laughlin said in a note.
Silver prices were also lower while copper prices touched a one-week low in London early on.
Currencies and bonds
The Canadian dollar shed early losses and was trading around the break-even mark as Thursday's trading day got underway. The U.S. dollar also reversed course as economic reports showed a tightening labour market and a growing manufacturing sector. Earlier in the day, the greenback had been near a six-month low against a basket of global currencies.
For the loonie, the day's range 73.16 cents (U.S.) to 73.63 cents. Wednesday's Bank of Canada closing price was 73.45 cents. The next major economic report that could offer direction for the currency comes Friday when Statistics Canada releases its latest reading on inflation. The country's annual rate of inflation for April is expected to be 1.8 per cent, according to economists.
RBC Capital Markets chief currency strategist Adam Cole noted that the U.S. dollar had rebounded from lows late yesterday but the gains remained small in context of the week's losses.
"There have been no further negative political developments overnight and we note the prices quoted by U.K. bookmakers imply a 55 per cent probability that President Trump will leave before the end of his first term – little changed from yesterday, but up from around 40 per cent two weeks ago," he said in a morning note.
Some traders also suggested that at least part of the U.S. dollars recent declines could be linked as much to weaker recent economic reports as political turmoil in Washington. Reuters reports that expectations for a move the Federal Reserve next month fell back to about 60 per cent on Wednesday, from 90 per cent last week.
In bonds, U.S. debt prices moved lower as investors sought safe-haven holdings. The yield on the 10-year Treasury notes was 2.186 per cent. The yield on the 30-year notes 2.878 per
Stocks set to see action
Cisco Systems Inc. could be in for a rough day after it posted a disappointing outlook alongside its fiscal third-quarter results on Wednesday evening. Cisco, a blue-chip technology company that designs networking equipment, reported a profit of $2.5-billion (U.S.) or 60 cents a share after making some one-time adjustments, up 5 per cent from the same period last year. The result was about 2 cents better than analysts' expectations. However, Cisco's revenue fell 1 per cent during the quarter, and the company forecast a further decline of as much as 6 per cent in the fourth quarter, as it adjusts to a shift from networking hardware to software-based products. Its shares fell 7.5 per cent in premarket trading.
Home Capital Group Inc. named a new director and said one of its initial investors would step down from the board. Home Capital named James Lisson, who has worked with law firms and with the Canadian Department of Justice as a consultant on commercial law, to its board of directors. The company said John Marsh would step down from the board.
Wal-Mart Stores Inc. reported earnings per share of $1, beating analysts forecasts of 96 cents. Revenue was a bit shy of expectations but comparable store sales rose 1.3 per cent, meeting forecasts. Its shares rose 1.8 per cent in premarket trading.
General Motors Co. plans to quit selling vehicles in India by the end of this year and will sell operations in South Africa, the latest steps in a strategy of focusing cash and engineering effort on fewer, more profitable markets. The Detroit auto maker said on Thursday it will take a $500-million charge in the second quarter to restructure operations in India, Africa and Singapore. It will cancel most of a planned $1-billion investment to build a new line of low-cost vehicles in India. GM shares fell 1.3 per cent in premarket trading.
Alibaba Group Holding Ltd. reported fourth-quarter revenue above analysts' expectations on Thursday, helped by strength in the Chinese e-commerce market. China's top e-commerce firm also announced a two-year share repurchase program of up to $6 billion. Alibaba's total revenue rose about 60 percent to 38.58 billion yuan ($5.60 billion) in the quarter ended March 31, versus an average forecast of 36 billion yuan according to Thomson Reuters I/B/E/S. Net income attributable to shareholders rose to 10.65 billion yuan, or 60 cents per share, from 5.37 billion yuan in the year-earlier quarter. Its U.S.-listed shares were off 1.7 per cent in premarket trading.
U.S. government officials on Thursday are set to begin investigating Boeing Co.'s unfair trade claims against Canadian rival Bombardier, a two-track action that could lead to U.S. duties on Bombardier's new jetliner and also pits Boeing against Delta Air Lines Inc. The U.S. Commerce Department is poised to announce the launch of its investigation. U.S. International Trade Commission (USITC) staff will hear testimony from both companies and from Bombardier customer Delta in the case.
Halliburton Co. said on Wednesday that Chief Executive Officer Dave Lesar will retire on June 1 and be replaced by Jeff Miller, Lesar's longtime deputy and fellow board member. Mr. Lesar will stay on as executive chairman of the world's second-largest oilfield service provider until December, 2018, when he reaches the company's mandatory retirement age of 65.
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Economic News
Statistics Canada says foreign investment in Canadian securities totalled $15.1-billion in March. At the same time, Canadian investors added $15.4 billion of foreign securities to their holdings, led by acquisitions of U.S. equities.
The U.S. Labor Department says applications for weekly unemployment aid fell 4,000 to 232,000, the lowest level in nearly three months. The four-week average, a less volatile figure, declined 2,750 to 240,750. Applications are a proxy for layoffs. They have been below 300,000, a historically low figure, for 115 weeks. That's the longest such streak since 1970.
The Philadelphia Fed manufacturing index rose to a reading of 38.8 in May from a reading of 22 in April. Economists had been expecting a reading of about 19.6.
"While the headline was a massive beat and hit the second highest level behind February of this year all the way back to 1993, the details are much less impressive," Scotiabank's Derek Holt said in a note. " They point toward upside for current production activity, but with few legs to it. "
Japan's economy grew in the first quarter at its fastest pace in a year to mark the longest period of expansion in a decade, thanks to robust exports and a helpful boost from private consumption. Positive data issued on Thursday should offer some relief to Bank of Japan policy makers, who hope the economy is now gathering enough momentum to drive up inflation that remains stubbornly below their 2-per-cent target.
With files from Reuters and The Associated Press