Colin Cieszynski
The Before the Bell report is compiled by editors of The Globe and Mail and is updated throughout the morning to reflect latest developments. Colin Cieszynski, Chartered Financial Analyst and Chartered Market Technician, is chief market strategist with CMC Markets.
Stock markets around the world have been teetering on the brink of collapse for the last week and overnight it looks like a later than usual seasonal selloff has started in earnest. U.S. index futures are down 0.6 per cent while the Dax is down 1.3 per cent, the FTSE down 0.8 per cent, and the Hang Seng down 1.6 per cent. The U.S. dollar has levelled off following yesterday's gains, enabling gold to rebound 0.6 per cent while WTI crude is sitting steady at $50 (U.S.).
A number of factors have combined to knock the bottom out from under equities. First, headwinds from the higher U.S. dollar on U.S. corporate earnings and the prospects for a U.S. rate hike this year remain in place following yesterday's as expected Federal Reserve minutes. Second, a big 10-per-cent drop in Chinese exports and a 1.9-per-cent drop in Chinese imports were both much worse than Street expectations and that has raised concerns about the health of the global economy. Third, sentiment toward earnings season remains sour with the Street ignoring an earnings beat from U.S. railroad CSX overnight while awaiting three big banks on Friday: JPMorgan, Citigroup and Wells Fargo.
Meanwhile, the Brexit dispute between the U.K. and the European Union has started to spill over from the national to the corporate level. A dispute over pricing has popped up between U.K. grocer Tesco and consumer products giant Unilever. I think most of us who fill up our cars with gasoline regularly are familiar with corporations who are quick to raise prices and slow to lower prices. In this case, Unilever wants to raise its U.K. prices due to the plunge in the pound over the last few months while Tesco is saying that Unilever benefitted for years from a higher pound and now needs to reduce its margins. Unilever products made wholly in the U.K. have become a particular source of dispute. This has put Brexit back front and centre and could cause traders to re-evaluate the earnings prospects for continental companies and their access to the U.K. market on Brexit considering that the U.K. economy has been one of the few bright spots in Europe of late. This explains why the Dax is underperforming the FTSE even though the currencies are steady today.
Crude oil remains in focus today on mixed news. American Petroleum Institute inventories rose 2.7 million barrels (mmbbls) last week but this was offset by the successful completion of the first U.S. oil and gas IPO in over two years. Oil, natural gas and gasoline, along with energy stocks and currencies, could all be active later this morning around inventory reports.
Canada may also be in the spotlight today around house price announcements with traders looking for indications of whether new government policies to cool hot markets, particularly in Vancouver, have had any impact. This may give an indication of how much pressure Toronto and Ontario may be under to follow B.C.'s lead, particularly related to foreign purchasers. In addition, house prices may influence Bank of Canada decisions on whether to cut interest rates this year or not, which could impact trading in the loonie.
Now, here is a closer look at what's going on this morning and what is still to come.
MARKET DATA:
Futures (as of about 8:25 a.m. ET)
Dow -0.54 per cent; S&P 500 -0.56 per cent; Nasdaq: -0.60 per cent; TSX 60 -0.29 per cent
Equities
Japan's Nikkei -0.39 per cent
Shanghai composite index +0.09 per cent
Hong Kong's Hang Seng -1.61 per cent
Germany's DAX -1.21 per cent
London's FTSE -0.93 per cent
France's CAC 40 -1.42 per cent
Commodities
WTI crude oil (Nymex Nov.) -0.02 per cent at $50.17 (U.S.) a barrel
Gold (Comex Dec.) +0.58 per cent at $1,261.10 (U.S.) an ounce
Copper (Comex Dec.) -0.74 per cent at $2.16 (U.S.) a pound
Currencies
Canadian dollar +0.07 at 75.42 cents (U.S.)
U.S. dollar index -0.15 at 97.82
Bonds
Canada 10-year bond yield -1.19 at 1.18 per cent
KEY ECONOMIC RELEASES
Japan bank lending and tertiary industry index
Germany CPI
Bank of England governor Mark Carney speaks at the Future Forum
(8:30 a.m. ET) Canada new housing price index for August . Estimate is an increase of 0.3 per cent from July and 2.8 per cent year over year.
Canadian home prices rose in September from a month earlier as prices continued to soar in Toronto, the nation's largest market, and inched up in Vancouver, the Teranet-National Bank Composite House Price Index showed on Thursday. The index, which measures price changes for repeat sales of single-family homes, showed national home prices rose 0.8 percent last month from August. Prices were up 11.7 percent from a year earlier.
(8:30 a.m. ET) U.S. initial jobless claims for week of Oct. 8. Estimate is 253,000, an increase of 4,000 from previous week.
The number of Americans filing for unemployment benefits held at a 43-year low last week, pointing to sustained labor market strength that could pave the way for the Federal Reserve to raise interest rates in December. Initial claims for state unemployment benefits were unchanged at a seasonally adjusted 246,000 for the week ended Oct. 8, the lowest reading since November 1973, the Labor Department said on Thursday.
(8:30 a.m. ET) U.S. import prices for September. Estimate is unchanged from August and down 1.1 per cent year over year.
U.S. import prices rose in September as the cost of petroleum and a range of other goods increased, suggesting import deflation was starting to ebb. The Labor Department said on Thursday import prices gained 0.1 percent last month after an unrevised 0.2 percent decline in August. Economists polled by Reuters had forecast import prices rising 0.2 percent last month. In the 12 months through September, import prices fell 1.1 percent, the smallest decrease since August 2014, after declining 2.2 percent in August. A strong dollar has resulted in the country importing deflation, helping to hold inflation persistently below the Federal Reserve's 2 percent target.
(11 a.m. ET) EIA petroleum status report.
(2 p.m. ET) U.S. budget surplus for September.
KEY STOCKS TO WATCH
The scandal engulfing Wells Fargo toppled its chief executive late Wednesday, as John G. Stumpf announced his departure from the company, effective immediately. He's being replaced by Timothy J. Sloan, its president and chief operating officer. Its shares were up 1.28 per cent in premarket trading.
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Delta Air Lines Inc. on Thursday reported a third-quarter profit that topped expectations and said moves to curb its growth in flight capacity will help halt the decline of a closely watched revenue measure. The Atlanta-based airline said its profit fell about 4 per cent to $1.3 billion in the quarter. On an adjusted basis, Delta earned $1.70 per share, compared with analysts' average estimate of $1.65 per share, according to Thomson Reuters I/B/E/S. Its shares fell 0.66 per cent in premarket trading.
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Corn Flakes maker Kellogg Co. said on Thursday it would buy Ritmo Investimentos, the controlling shareholder of Brazilian biscuit maker Parati Group, for about 1.38 billion reais ($428.44-million U.S.) to expand its presence in emerging markets.
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Jefferies downgraded drugmaker Pfizer to "hold" from "buy," due to a lack of catalysts and drivers for a higher stock price.
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CSX reported quarterly profit of 48 cents per share, three cents a share above estimates. Revenue for the railroad operator was slightly ahead of forecasts. CSX's results were hurt by a drop in freight volumes, but it still managed to beat expectations. Its shares were up 0.79 per cent in premarket trading.
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Wireless technology company Nokia was removed from the "Conviction Buy" list at Goldman Sachs, although the firm retained a "buy" rating. Goldman said the move reflects further declines in global capital expenditures by the wireless industry.
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Dollar Tree and Five Below were both rated "overweight" in a new report on discount retailers at KeyBanc. Dollar General was rated "sector weight."
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Health-care provider HCA was upgraded to "overweight" from "sector weight" at KeyBanc.
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Susquehanna Financial downgraded footwear maker Deckers Outdoor to "negative" from "neutral," saying the health of its UGG brand is at risk due to an increase in promotional activity.
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Also see: Thursday's small-cap stocks to watch
Earnings include: Delta Air Lines Inc.; First Republic Bank; Marriott Vacations Worldwide Corp.; Progressive Corp.; Rockwell Diamonds Inc.; Winnebago Industries Inc.; Wynn Resorts Ltd.
With files from wire services