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. Positive market momentum is set to continue its run today, with equity markets to open higher at the opening bell. In the U.S., Dow futures are up 25 points, S&P 500 futures are higher by 2 points, and Nasdaq futures are up 9 points. In Canada, S&P/TSX 60 index futures are up 1 point.
Overseas in the Pacific Rim, it was generally a positive day on the back solid Chinese Caixin October Purchasing Managers' Index (PMI) Services data, which came in at 52 compared to 50.5 reported last month. In China, the Shanghai composite and Shenzhen composite advanced 4.3 per cent and 5.1 per cent, respectively. In Hong Kong, the Hang Seng gained 2.2 per cent. In Japan, the Nikkei 225 climbed 1.3 per cent, led higher by both the positive economic data of China and well as positive sentiment as the world's largest initial public offering in 2015, Japan Post, rallied 26 per cent in its debut on the Tokyo Stock Exchange.
Rating agency Moody's Investors Services released its 2016 global sovereign outlook today. The credit agency's credit outlook for global sovereign debt is stable with expectations that the U.S. and China will continue to perform well.
Turning to major European markets, they are all well in the green today driven by positive economic data. In the U.K., October Services PMI was 54.9, ahead of expectations of 54.4 and the prior reading of 53.3. The London FTSE is up 1.1 per cent. Turning to France, October Services PMI was 52.7, ahead of forecasts of 52.3 and the prior month's reading of 52.3. In France, the CAC 40 is up 0.9 per cent. However, in Germany, the October Services PMI showed a slight declined to 54.5 from 55.2 reported last month, and below expectations of 55.2. The German Xetra DAX is relatively flat, down 0.3 per cent on the softer PMI report as well as further negative developments surrounding Volkswagen, as emission issues expands from diesel engine cars to 800,000 petrol engine cars in Europe. Shares of Volkswagen and Porsche are down 9 per cent and 8 per cent, respectively, in German trading today.
Other stocks moving in European markets are U.K. retailer Marks & Spenser. Shares are up 3 per cent after management announced a 6 per cent dividend increase and optimism for the upcoming holiday season.
On the commodities front, the price of oil jumped 4 per cent on Tuesday, closing at $47.90 (U.S.). This morning, West Texas Intermediate oil futures are up another $0.15 to over $48 (U.S.). Eight of the 10 top performers in the S&P/TSX composite index on Tuesday were energy stocks such as NuVista Energy and Penn West Petroleum, which experienced double-digit one day gains. Watch for the weekly oil inventory report from the U.S. Energy Information Administration this morning at 10:30 a.m. (EST), which could create some intra-day volatility for the price of oil. Natural gas futures are firming, up 3 cents to $2.28 as colder-than-seasonal temperatures are forecast for the U.S. northeast in mid-November.
Here is the bottom line. Major equity markets remain in a rally mode; however, this positive momentum could come to a halt on Friday with the release of U.S. non-farm payroll data. If the report is strong and markets decline as expectations rise that the U.S. Federal Reserve may raise interest rates in December, volatility could return to the markets. If so, don't panic.
Now, here's a closer look at what's happening this morning and what is still to come.
MARKET DATA:
Futures
S&P 500 +0.2 per cent; Dow +0.2 per cent; Nasdaq: +0.2 per cent
Equities
Hong Kong's Hang Seng +2.15 per cent
Shanghai composite index +4.32 per cent
Japan's Nikkei +1.30 per cent
London's FTSE 100 +1.02 per cent
Germany's DAX -0.17 per cent
France's CAC 40 +0.97 per cent
Stoxx 600 +0.96 per cent
Commodities
WTI crude oil (Nymex Dec) +0.52 per cent at $48.15 (U.S.) a barrel
Gold (Comex Dec) +0.31 per cent at $1,117.60 (U.S.) an ounce
Copper (Comex Dec) +0.43 per cent at $2.34 (U.S.) a pound
Currencies
Canadian dollar +0.02 at 76.56 cents (U.S.).
U.S. dollar index +0.20 at 97.36
Bonds
U.S. 10-year Treasury yield 2.21 per cent, -0.0017
ECONOMIC INDICATORS:
The U.S. trade deficit narrowed sharply in September to its lowest level in seven months as exports rebounded, a tentative sign that the worst of the drag from a stronger dollar may be over. The Commerce Department said on Wednesday the trade gap fell 15 percent to $40.8 billion, the smallest deficit since February. Lower crude oil prices also helped to curb the import bill. The drop in the trade deficit reversed the widening seen in August, though the prior month's figure was revised slightly down to $48 billion from the previously reported $48.3 billion. Economists had forecast the trade gap shrinking to $41.1 billion. When adjusted for inflation, the deficit fell to $57.2 billion in September from $63.0 billion in the prior month.
Canada's merchandise trade deficit narrowed in September as imports fell for the first time in five months, while exports of energy and consumer goods increased. The deficit of $1.73 billion (Canadian) followed a revised $2.66 billion shortfall in August. Imports declined by 1.3 per cent to C$46.2 billion, on a 14.3 per cent drop in metal and non-metallic minerals and a 12.3 per cent fall in energy products. Exports rebounded in September with a 0.7 per cent rise to $44.5 billion following a 2.9 per cent decline in August.
CORPORATE NEWS:
There are 26 companies in the S&P 500 reporting financial results today. Among them are Facebook, Time Warner, Michael Kors, Twenty-First Century Fox, Qualcomm, Whole Foods Market, Chesapeake Energy and Allergan. In Canada, there are 16 companies in the S&P/TSX composite index reporting today: ATS Automation Tooling Systems, Intact Financial, Industrial Alliance, Linamar, Home Capital Group, Sun Life Financial, Great Canadian Gaming, Pason Systems, Manitoba Telecom Services, Newalta, Granite REIT, Canaccord Genuity, Enerflex, Athabasca Oil, Smart REIT, and Northern Property REIT.
Shopify Inc., the Canadian e-commerce software maker that sold shares in an initial public offering in May, raised its revenue forecast after beating analysts' estimates in its second quarter as a listed company. The company increased its full-year revenue guidance to a range of $194 million to $196 million, after third-quarter sales soared 93 percent to $52.8 million, topping the $47.6 million average of predictions compiled by Bloomberg. The net loss was 6 cents a share, Ottawa-based Shopify said Wednesday in a statement, in line with estimates.
WiLAN says it will be restructuring the business by the end of this year and slashing the company's dividend by 76 per cent starting in January in response to a difficult environment for patent licensing companies. It says the restructuring will reduce cash operating expenses by between US$8 million and $10 million per year. WiLAN also says it will cut what it pays in dividends to five cents per share annually from 21 cents per share. The restructuring and dividend cut were announced Wednesday with WiLAN's third-quarter financial report, which showed its revenue from licensing patents was down 12 per cent from a year ago and its adjusted earnings fell about seven per cent.
Trinidad Drilling reported third-quarter earnings and said it will cut its quarterly dividend by 4 cents a share.
Shares of Groupon are down over 20 per cent in German markets after management issued weak guidance for the fourth-quarter along with news that the co-founder and Chief Executive Office, Eric Lefkofsky, is stepping down as CEO and returning to the role as the chairman.
Wendy's Co reported better-than-expected same-restaurant sales for the third quarter, sending its shares up more than 5 per cent in the premarket. Total same-restaurant sales in North America, the company's biggest market, rose 3.1 per cent in the quarter ended Sept. 27. Analysts on average had expected a rise of 2.2 per cent, according to Consensus Metrix. Wendy's also said its full-year profit would be toward "the high end" of its previously issued range of 31-33 cents per share. Excluding items, the company earned 9 cents per share in the third quarter, beating the average analyst estimate by a cent.
Shares of global nutrition supplement and weight management company, Herbalife, are down 4 per cent in German markets after management provided 2016 earnings guidance below the Street's expectations.
Tesla's shares are up about 8 per cent in premarket trading after the company promised to speed up production of its electric cars.
Oil and gas producer Chesapeake Energy Corp cut its 2015 capital budget for the second time this year to cope with a slump in oil and gas prices, but raised its production forecast. The company also wrote down the value of some oil and gas assets by $5.42 billion in the latest quarter, adding to the $10 billion in impairment charges it has already booked this year. Chesapeake's shares were up 4.7 per cent in premarket trading.
Handbag and accessories maker Michael Kors Holdings Ltd reported better-than-expected quarterly sales and profit, and raised its share buyback program. The company's shares rose 6.4 per cent in premarket trading.
Struggling hardwood flooring retailer Lumber Liquidators Holdings Inc appointed board member John Presley chief executive to replace founder and acting CEO Thomas Sullivan. Sullivan will stay on as a special adviser to the CEO and remain on the board, the company said. The company also reported an 11.3 percent drop in third-quarter net sales as demand continued to be hurt by allegations that its laminates from China contained excessive levels of cancer-causing formaldehyde.
Mining and trading company Glencore said on Wednesday it was on track to reduce its debt thanks to asset sales and was making deeper cuts in copper output to support weak prices, sending its shares 6 per cent higher.
ANALYST ACTIONS:
North West Co. was downgraded today to a "hold" recommendation from a "buy" recommendation at TD Securities. The price target was maintained at $30. On Tuesday, the analyst at RBC Dominion Securities also downgraded the stock to a sector perform from an outperform recommendation and reduced his price target to $24 from $32.
QUOTE OF THE DAY:
"The only place success comes before work is in the dictionary." - Vince Lombardi
Jennifer Dowty