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.
A very good Tuesday morning to you. All eyes remain on the upcoming U.S. interest rate decision this Thursday, and in the meantime, North American equity markets are anticipated to open relatively flat, with U.S. and Canadian equity futures this morning little changed.
In the Pacific Rim, major Asian markets were down slightly with the exception of Chinese markets, which fell sharply today amid persistent worries about the health of the China economy. The Shanghai Stock Exchange composite index declined 3.5 per cent, and the Shenzhen Stock Exchange composite index dropped 5 per cent. The Hong Kong's Hang Seng fell by 0.5 per cent.
In Japan, the Nikkei 225 inched higher, closing up by 0.3 per cent. The Bank of Japan made no change to its current stimulus program and will continue to purchase Japanese government bonds at an annual pace of approximately 80 trillion yen. The Statement on Monetary Policy released today said that Japan's economy was expected to recover moderately, but noted that exports and products would be negatively impacted by slowing conditions in emerging economies, raising speculation that more easing could come next month to support the economy.
In Australia, a new Prime Minister, Malcolm Turnbull, was sworn into office. Australia's S&P/ASX 200 index declined 1.5 per cent, along with the weakness seen in Asian markets.
Turning to Europe, caution in the equity markets is seen broadly across all major markets ahead of the U.S. Federal Open Market Committee meeting. The German DAX, France's CAC, and U.K.'s FTSE are currently up 0.2 per cent, up 0.6 per cent, and down 0.1 per cent, respectively. U.K. inflation data was relatively uninspiring. August consumer price index was flat year-over-year, and up 0.2 per cent month-over-month, in-line with expectations.
In Germany, the Frankfurt Motor Show is underway and commentary on the European markets is insightful for Canadian automaker, Magna, given that over a quarter of its production sales stems from Europe.
The European Automobile Manufacturers Association released positive August car registration data today. In August, car registrations increased 11.2 per cent year-over-year, surpassing the 9.5 per cent gain last month. Registrations in Spain and Italy saw the highest increases of 23.3 per cent and 10.6 per cent, respectively. Registrations in France, the U.K, and Germany rose by 10 per cent, 9.6 per cent, and 6.2 per cent, respectively. Among the manufacturers, Ford, Opel - General Motor's European division - and Fiat Chysler's registrations increased by 8.3 per cent, 14.1 per cent, and 13.9 per cent, respectively in the European Union and European Free Trade Association countries.
In commodities, gold is stable, just above the $1,100 (U.S.) level, and the price of West Texas Intermediate oil futures are relatively flat. The price of oil is currently near the $44 (U.S.) level, and declined 63 cents on Monday. The price of oil remains locked in the $42 to $47 range.
Here's the bottom line. Until there is clarity on what the U.S. Federal Reserve is going to do, which investors will have on Thursday at 2 p.m. (EST), equity markets are likely to remain relatively neutral with a downward bias, as buyers are simply unwilling to step into the markets ahead of this announcement. The S&P/TSX composite index fell 0.8 per cent yesterday, all 10 sectors were down, and 77 per cent of stocks in the index closed lower. But this was not panic selling – it simply reflected a lack of buyers in the market. There were 161 million shares that traded yesterday, well below the average 205 million. The VIX Index, which measures fear in the markets, is stable with a reading of 24 and holding steady in the 20's. Investors are simply sitting on the sidelines.
Now, here is a closer look at major markets, and corporate and economic news.
MARKET DATA:
Futures
S&P 500 +0.1 per cent; Dow +0.1 per cent; Nasdaq: +0.1 per cent
Equities
Hong Kong's Hang Seng -0.50 per cent
Shanghai composite index -3.53 per cent
Japan's Nikkei +0.34 per cent
London's FTSE 100 -0.12 per cent
Germany's DAX +0.31 per cent
France's CAC 40 +0.01 per cent
Stoxx 600 +0.10 per cent
Commodities
WTI crude oil (Nymex Nov) +0.74 per cent at $44.76 (U.S.) a barrel
Gold (Comex Dec) -0.36 per cent at $1,103.70 (U.S.) an ounce
Copper (Comex Dec) -0.06 per cent at $2.40 (U.S.) a pound
Currencies
Canadian dollar +0.004 at 75.47 cents (U.S.).
U.S. dollar index +0.003 at 95.24
Bonds
U.S. 10-year Treasury yield 2.18 per cent, -0.0071
ECONOMIC INDICATORS:
U.S. August retail sales were up 0.2 per cent month over month. Economists, on average, were expecting a rise of 0.3 per cent. Excluding automobiles, gasoline, building materials and food services increased 0.4 per cent after an upwardly revised 0.6 per cent increase in July.
(9 a.m. ET) Canada existing home sales and average prices for August. Estimate is an increase of 4.0 per cent and 7.0 per cent, respectively, year over year
(9 a.m. ET) Canada MLS home price index for August. Estimate is an increase of 6.0 per cent year over year.
(9:15 a.m. ET) U.S. industrial production and capacity utilization for August. Consensus is a decline of 0.2 per cent from July and 77.8 per cent (down from 78.0 per cent in the previous month), respectively.
CORPORATE NEWS:
Silver Wheaton Corp. announced that it intends to make a normal course issuer bid to buy back up to 20,229,671 common shares.
Canadian oil producer Penn West Petroleum Ltd said it would sell its assets in Mitsue in Central Alberta for C$192.5 million ($145.4 million) in cash to reduce debt. The company said it would have raised C$605 million this year by divesting its non-core assets upon the closing of the Mitsue deal.
ANALYST ACTIONS:
Canaccord Genuity upgraded Linamar to "buy" from "hold" due to share price depreciation. The price target is $84.
QUOTE OF THE DAY:
"Faith is to believe what you do not see; the reward of this faith is to see what you believe." - Saint Augustine
Jennifer Dowty