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.
Donald Trump's big election win rocked world markets overnight, surprising many traders, especially those who had been sucked in by Monday's false relief rally. His victory speech took a much more Presidential tone and helped to calm the markets somewhat, helping U.S. indexes to reverse about half their overnight losses. We're still waiting to hear from Hillary Clinton.
Overnight market moves were as I expected in a Trump victory situation with U.S. stock markets and the Mexican Peso plunging, the U.S. dollar falling and defensive havens like gold and the yen soaring.
This morning finds U.S. index futures still sharply lower with Dow futures down 2 per cent, S&P futures down 2.1 per cent and Nasdaq futures down 2.5 per cent. TSX futures are down 1.1 per cent. Overseas, the Nikkei fell 5.4 per cent, the Dax is down 1.5 per cent and the FTSE is down 0.7 per cent. Don't be surprised to see a second wave of action in stocks this morning around 9:30 am EST when U.S. exchanges reopen and the broader U.S. investing public gets a chance to react to the big overnight developments.
The Mexican Peso took the brunt of the currency action taking a double-digit percentage plunge -- it fell as much as 12 per cent -- and is currently down about 8.4 per cent, trading near 20.00 per U.S. dollar. The iShares MSCI Mexico ETF was down 10.7 per cent in premarket trading. The Canadian dollar is also trading lower, down nearly a full cent, likely on concerns that Canada could get caught in the crossfire of a NAFTA renegotiation which could create economic uncertainty for America's largest trading partner even though Trump's sights have mainly been on Mexico.
Other major currencies have been taking advantage of a weaker U.S. dollar particularly defensive havens like the Japanese yen which soared 3 per cent at one point overnight, and gold, which is currently up 2.2 per cent. Speculation of a December interest rate hike has faded a bit but even with the future of Fed Chair Janet Yellen in question and the influence of dovish Governor Lael Brainard in free fall, a rate hike remains favoured by president-elect Trump. I still think we will see three rate hikes between now and December, 2017, even if the first one is delayed until after the inauguration.
Donald Trump was polling about 3 to 5 per cent below his actual support and the high level of anger at the establishment personified by the Clintons and Obamas helped propel him to victory, as I had forecast. I was also right about the markets being almost totally unprepared for his victory even with the Brexit experience still fresh in traders' minds. A 5-per-cent decline in the stock market is not unusual as a new U.S. President comes into office but I admit even I was surprised to see it all happen in 3 to 4 hours rather than 3 to 4 weeks.
I also had forecast a Trump win would be a Brexit-level surprise -- for some markets this has been even bigger than Brexit. The main difference has been that in the U.K. the currency -- the pound -- took the brunt of the reaction relative to stocks. In the U.S., stocks have taken the brunt of the reaction with the currency reaction taking place in the Mexican peso.
It's not unusual to see volatility in the markets when the party controlling the White House switches. With the Republicans also holding on to their majorities in both houses of Congress, the public has given Donald Trump and the Grand Old Party a clear mandate for change. Until we learn what forms that change could take, we could see continued volatility in stock markets and higher interest in defensive havens.
Due to our proximity to the U.S. and sensitivity to the U.S. economy, the changes likely to come may also impact trading in the loonie and Canadian stocks. The impact may differ between sectors, however. Gold producers could rally today along with the metal and energy stocks, particularly pipelines, could benefit from the Republicans friendlier energy and climate policies.
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 8:30 a.m. ET)
Dow -1.38 per cent; S&P 500 -1.40 per cent; Nasdaq: -1.91 per cent; TSX 60 -0.46 per cent
Equities
Japan's Nikkei -5.36 per cent
Shanghai composite index -0.61 per cent
Hong Kong's Hang Seng -2.16 per cent
Germany's DAX -0.67 per cent
London's FTSE -0.05 per cent
France's CAC 40 -0.74 per cent
Commodities
WTI crude oil (Nymex Dec.) -0.64 per cent at $44.69 (U.S.) a barrel
Gold (Comex Dec.) +2.13 per cent at $1,301.70 (U.S.) an ounce
Copper (Comex Dec.) +1.83 per cent at $2.42 (U.S.) a pound
Currencies
Canadian dollar -0.79 at 74.45 cents (U.S.)
U.S. dollar index -0.30 at 97.57
Bonds
Canada 10-year bond yield +0.027 at 1.27 per cent
KEY ECONOMIC RELEASES
Japan bank lending
China CPI, PPI, aggregate yuan financing, new yuan loans and money supply
(10 a.m. ET) U.S. wholesale inventories for September. Estimate is an increase of 0.2 per cent from August.
(10:30 a.m. ET) EIA petroleum status report
KEY STOCKS TO WATCH
See also: Wednesday's small-cap stocks to watch
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Overseas, Healthcare was the biggest sector gainer in Europe following Trump's win, with the Stoxx 600 healthcare index up 3.5 percent.
Danish insulin maker Novo Nordisk, whose diabetes drug prices have been under fire recently in the United States, saw some of the largest gains, rising 6 percent.
Shares in other major drugmakers like Roche, Novartis, Sanofi, AstraZeneca and GlaxoSmithKline rose between 2 and 4.5 percent.
U.S. drugmaker Mylan, which has come under fire in recent months for hiking the price of its two-pack EpiPen allergy shot to more than $600, leapt 8 percent in Tel Aviv .
Pfizer Inc., AbbVie Inc. and Eli Lilly & Co. gained at least 4.6 percent.
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Hospital chain HCA Holdings Inc. and health insurer UnitedHealth Group Inc. tumbled at least 4.2 percent on concern the win for Republicans will jeopardize the Affordable Care Act.
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Companies reliant on Mexico for revenue declined as the peso slumped the most in eight years. Constellation Brands Inc., which sells Mexican beers, slid 6.3 percent.
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Copper surged to a 15-month high on Wednesday, pulling most other metals up too on technical buying and as some investors speculated that a Donald Trump presidency could herald a period of significant fiscal stimulus and boost demand for metals.
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Canadian aerospace supplier Cormer Group Industries Inc. is suing Bombardier Inc. for $25-million in damages, saying it was blindsided by the plane maker's sudden decision to suspend its Learjet 85 luxury-jet development program. Winnipeg-based Cormer says it was harmed by Bombardier's decision, which came without warning, adding that it has received no subsequent compensation. Bombardier denies any wrongdoing and says the lawsuit has no merit.
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Hudbay Minerals Inc. has suspended operations at its Constancia copper mine in Peru after "trespassers" from a nearby highland town occupied the open pit area, the Canadian mining company said.
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Media company Viacom reported adjusted quarterly profit of 69 cents per share, four cents above estimates, although revenue missed forecasts. Its shares were down 4.6 per cent in premarket trading.
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Norwegian Cruise Line beat estimates by three cents with adjusted quarterly profit of $1.62 per share, with revenue essentially in line. Revenue set a record as the company added new ships, and it issued an outlook mostly above current Street consensus. Its shares were down 3.4 per cent in premarket trading.
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Baird downgraded JPMorgan Chase's stock to "neutral" from "outperform," saying the bank is still a great company and should still be considered a core holding, but that the stock is near fair value. Its shares were up 0.27 per cent in premarket trading.
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Investor Carl Icahn more than doubled his stake in Hertz, in the wake of the stock getting battered in the wake of a disappointing quarter and cutting its outlook. Icahn now holds a nearly 34 per cent stake in the car rental company, compared to an earlier stake of about 15.2 per cent. Its shares were down 4.1 per cent in premarket trading.
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Carl Icahn also raised his stake in Herbalife, now holding about 24.2 percent of the nutritional products maker compared to the prior 23.1 percent.
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TripAdvisor earned an adjusted 53 cents per share for its latest quarter, one cent above estimate, while revenue fell short of forecasts. Its shares were down 14.4 per cent in premarket trading.
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US Steel was upgraded to "buy" from "hold" at Jefferies, which said the steel industry may benefit from heightened protectionism and increased infrastructure spending in a Trump presidency.
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Dish Network fell four cents short of estimates with quarterly earnings of 64 cents per share, though revenue was very slightly above forecasts. Its shares were down 3 per cent in premarket trading.
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Wendy's beat estimates by eight cents with quarterly profit of 18 cents per share, and revenue also beat forecasts as North American same-restaurant sales rose 1.4 percent. Wendy's also raised its full-year forecast. Its shares were up 1 per cent in premarket trading.
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Earnings include: AGT Food and Ingredients Inc.; Alexco Resource Corp.; ATS Automation Tooling Systems Inc.; Banro Corp.; Bellatrix Exploration Ltd.; Brookfield Real Estate Services Inc.; Cara Operations Ltd.; Chorus Aviation Inc.; Conifex Timber Inc.; Crown Capital Partners Inc.; DIRTT Environmental Solutions Ltd.; Dish Network Corp.; Enerflex Ltd.; Exchange Income Corp.; First Capital Realty Inc.; First Majestic Silver Corp.; High Liner Foods Inc.; Innergex Renewable Energy Inc.; Just Energy Group Inc.; Mogo Finance Technology Inc.; Newalta Corp.; Northland Power Inc.; Norwegian Cruise Line Holdings Ltd.; Oryx Petroleum Corporation Ltd.; Osisko gold royalties Ltd.; Paramount Resources Ltd.; Pason Systems Inc.; Peyto Exploration & Development Corp.; Pizza Pizza Royalty Corp.; Primero Mining Corp.; Ritchie Bros. Auctioneers Inc.; Semafo Inc.; Sienna Senior Living Inc.; Silver Wheaton Corp.; Street Capital Group Inc.; Sun Life Financial Inc.; SunOpta Inc.; Trican Well Service Ltd.; Westport Fuel Systems Inc.; WhiteWave Foods Co.; Zargon Oil & Gas Ltd.
With files from wire services, cnbc.com