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.
The U.S. dollar continues its big post-election drive higher with traders pricing a December interest rate hike followed by expectations of more increases in 2017.
These gains are starting to present a problem for stock traders. Markets have priced in expectations of significant fiscal stimulus from a Trump administration. The problem is that the new U.S. government doesn't take over until January and it takes time for new policies and programs to be implemented so it could be a year before the benefits show up in earnings. Meanwhile, the negative impact of a higher dollar on exports, travel and earnings may hit a lot sooner as we saw a year ago when the U.S. Dollar Index last went over 100 ahead of the December, 2015, interest rate increase.
This headwind is starting to impact U.S. indexes with the S&P struggling to clear 2,190 to reach new highs and the Dow struggling with 19,000. Today U.S. index futures and the Dax are trading down 0.1 per cent to 0.3 per cent while the FTSE is down 0.5 per cent. Italy's FTSEMIB is down 1.6 per cent on concerns of rising political risk heading toward the Dec. 4 Italian referendum where the Euroskeptics are leading and which could lead to PM Matteo Renzi's resignation if he loses. Asia Pacific indices fared a bit better with the Nikkei up 0.6 per cent on the back of a weaker yen while the Hang Seng and Australia rose 0.4 per cent.
The higher U.S. dollar also continues to dragon other markets. Bonds, gold and the yen all continue to be impacted by capital leaving defensive havens. The euro continues to slide relative to U.S. dollar and the pound on concerns about its struggling economy. President Barack Obama's call for Greek debt relief fell on deaf ears in Germany. Continued refusal to provide real solutions to problems provides another sign of how the Euro project is failing and could fuel drives for change building on the Brexit and Trump wins heading into key referendums in Italy, Austria, Netherlands, France and Germany over the next year. Apparently, we may hear soon if German Chancellor Angela Merkel plans to run for a fourth term in office.
The biggest thing traders need to watch out for is that some market moves can look unstoppable until the suddenly stop and then swiftly correct in the other direction. For example, a week ago copper started Friday morning screaming higher then suddenly the bottom fell out as traders started to take profits only to find out that the buyers had all piled in already and there was nobody left to sell to until prices came down significantly.
The big move straight up in the greenback increases the potential for a significant downward correction that could spark moves across a number of markets, particularly those that have been really beaten down lately. There are a number of Fed speakers on again today but profit taking could play a larger role either ahead of this weekend or early next week ahead of the U.S. Thanksgiving holiday.
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 7:30 a.m. ET)
Dow -0.02 per cent; S&P 500 -0.06 per cent; Nasdaq: +0.04 per cent; TSX 60 -0.06 per cent
Equities
Japan's Nikkei +0.59 per cent
Shanghai composite index -0.47 per cent
Hong Kong's Hang Seng +0.37 per cent
Germany's DAX -0.13 per cent
London's FTSE -0.43 per cent
France's CAC 40 -0.40 per cent
Commodities
WTI crude oil (Nymex Dec.) +0.18 per cent at $45.50 (U.S.) a barrel
Gold (Comex Dec.) -0.45 per cent at $1,211.40 (U.S.) an ounce
Copper (Comex Dec.) -0.62 per cent at $2.49 (U.S.) a pound
Currencies
Canadian dollar +0.17 at 74.08 cents (U.S.)
U.S. dollar index +0.07 at 100.96
Bonds
Canada 10-year bond yield -1.02 at 1.55 per cent
KEY ECONOMIC RELEASES
Germany Producer Price Index
(8:30 a.m. ET) Canada CPI for October. Consensus is an increase of 0.2 per cent from September and 1.5 per cent year over year. For core CPI, the consensus projections are increases of 0.3 per cent and 1.8 per cent, respectively.
Statistics Canada says the consumer price index in October was up 1.5 per cent compared with a year ago. That compared with an increase of 1.3 per cent in September. The October result matched the expectations of economists, according to Thomson Reuters.
(10 a.m. ET) U.S. leading indicator for October. Estimate is an increase of 0.1 per cent from September.
(10 a.m. ET) U.S. Kansas City Fed Manufacturing Activity for November.
(1 p.m. ET) Baker-Hughes rig count
KEY STOCKS TO WATCH
Also see: Friday's small-cap stocks to watch
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Gap fell 8.6 percent to $28.05 in premarket trading after the apparel chain said it would shut more stores than forecast previously and that it expected a further drop in traffic during the crucial holiday shopping season.
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Salesforce.com rose 6.2 percent to $79.87, a day after it forecast current-quarter revenue above analysts' estimates.
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SolarCity was up 2.8 percent at $20.97 after Tesla CEO Elon Musk won approval from the electric luxury automaker's shareholders for an acquisition of the solar energy system installer in which he is the largest shareholder. Tesla edged up 0.7 percent to $189.90.
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Foot Locker earned an adjusted $1.13 per share for the third quarter, three cents a share above estimates. Revenue was in line with forecasts, but its same-store sales increase of 4.7 percent was slightly shy of the consensus forecast for a 4.9 percent increase.
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Abercrombie & Fitch fell well short of estimates on both the top and bottom lines for its latest quarter, with same-store sales falling more than expected. The company pointed to weak traffic, poor performance in seasonal categories, and the overall challenges of the company's rebranding effort.
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Citi named American Airlines Group as its top pick in the airline industry, citing post-merger efficiency opportunities stemming from its American's combination with US Airways. Other buy-rated airline stocks in Citi's latest report are Delta, Southwest, and Allegiant.
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Earnings include: Abercrombie & Fitch Co.; Foot Locker Inc.
With files from wire services, cnbc.com, marketwatch.com