Jennifer Dowty
Jennifer Dowty, Chartered Financial Analyst, writes exclusively for Globe Unlimited subscribers. The Before the Bell report is updated throughout the premarket to reflect latest developments.
Good Wednesday morning to you. While it is only Wednesday, it already feels like a long week, given the large intraday swings in the markets.
North American futures are in negative territory this morning, indicating that U.S. and Canadian markets will give back the gains experienced late in the day on Tuesday. S&P 500 futures are down about 0.7 per cent.
But major European markets are in positive territory this morning, continuing to trade higher as the trading day wears on. The German, French, and London markets are all up approximately 1 per cent.
There is optimism that a deal for Greece will be reached in the coming days. European political leaders will be meeting again on Sunday. Greek Prime Minister Alexis Tsipras, in a speech before the European Parliament, stated that he plans to bring forward, "concrete proposals in detail" within the next two or three days.
Macro events have dominated market action; however, the second-quarter earnings season kicks off today in the U.S. with Alcoa reporting after the close. Indeed, investors may soon shift their focus to earnings. According to FactSet, S&P 500 profits are forecast to grow 2.2 per cent, excluding energy. However, including energy, profits are anticipated to decline by 4.5 per cent.
On Tuesday, the International Monetary Fund in its annual review on the U.S. economy forecast GDP to grow by 2.5 per cent in 2015, and 3 per cent in 2016. The IMF re-iterated its position for the Federal Reserve to keep interest rate increases on hold until 2016 unless there were clear signs of wage or price inflation.
The improving U.S. labour market is putting some pressure on the Federal Reserve to consider hiking interest rates this year. On Tuesday, the U.S. Bureau of Labor Statistics reported the Job Openings and Labor Turnover Survey, commonly referred to as the JOLTS report. Job openings came in at 5.4 million, the highest level since the series began in December 2000, providing further evidence of an steadily improving U.S. labour market. The U.S. housing market is also showing signs of improvement.
Overseas, Asian markets declined sharply overnight. Chinese markets tumbled once again despite actions taken to restore stability and investor confidence. Measures designed to shore up investor confidence such as the central bank cutting rates, IPOs being suspended by regulators, and a Stock Stabilization Fund being created, have failed to halt the slide.
Over half of the listed shares in China have reportedly been suspended from trading in an attempt to stabilize the markets and calm investor sentiment. This action seems to have had the opposite effect. Investors are panicking and scrambling to sell positions while stocks are still trading, placing even more instability into Chinese equity markets. The Shanghai Stock Exchange composite index fell 5.9 per cent, ad the Shenzhen Stock Exchange composite index declined 2.5 per cent. Fears spilled over into Japan, with the Nikkei shedding 3.1 per cent. The uncertainty surrounding Chinese markets is putting pressure on North American markets this morning.
On the commodity front, oil stabilized yesterday, but experienced extreme volatility during the day, touching nearly U.S. $50.50 at one point but ended the day down just U.S. $0.20 to U.S. $52.33. Oil may see more volatility at 10:30 a.m., when the U.S. Energy Information Administration releases its weekly inventory data.
The Bottom Line: Equity markets have held up relatively well considering the inundation of Greek and China fear headlines. Putting this into perspective, since the Greek referendum was announced, the S&P/TSX composite index has declined 1.2 per cent, and the S&P 500 and Dow Jones Industrial Average have both declined 0.95 per cent. While intraday volatility has intensified, the overall market levels have experienced rather small changes. I continue to see no need for investors to panic.
Now, here's a closer look at the market numbers and what else is going on this morning.
MARKET DATA:
Futures
S&P 500 -0.7 per cent; Dow -0.6 per cent; Nasdaq: -0.6 per cent
Equities
Hong Kong's Hang Seng -5.84 per cent
Shanghai composite index -5.91 per cent
Japan's Nikkei -3.13 per cent
London's FTSE 100 +0.79 per cent
Germany's DAX +0.76 per cent
France's CAC 40 +0.92 per cent
Stoxx 600 +0.34 per cent
Commodities
WTI crude oil (Nymex Aug) +0.75 per cent at $52.71 (U.S.) a barrel
Gold (Comex Aug) +0.14 per cent at $1,154.10 (U.S.) an ounce
Copper (Comex Sep) -0.18 per cent at $2.44 (U.S.) a pound
Currencies
Canadian dollar at 78.68 (U.S.), +0.0004
U.S. dollar index -0.182 at 96.683
Bonds
U.S. 10-year Treasury yield 2.22 per cent, -0.04
ECONOMIC INDICATORS:
The value of Canadian building permits tumbled in May. The value of permits fell 14.5 per cent to $6.7 billion, far worse than economists' expectations for a decline of 5 per cent. The drop more than erased April's upwardly revised 12.1 per cent gain.
(10 a.m. ET) U.S. Conference Board CEO confidence index.
(2 p.m. ET) FOMC minutes from June 16-17 meeting.
STOCKS TO WATCH:
Earnings include: DragonWave; Firan Technology; Tecsys; Alcoa; Family Dollar Stores.
ANALYST ACTIONS:
Pacific Crest downgraded Tesla Motors to "sector weight" from "overweight" with a fair value target of $293 (U.S.).
QUOTE OF THE DAY:
"What lies behind us and what lies before us are tiny matters compared to what lies within us." - Ralph Waldo Emerson
Jennifer Dowty