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.
It's a big day for world markets as U.S. traders return from their long weekend to find markets in turmoil as political uncertainty roars back with a vengeance and the trends of late 2016 unravel.
The late 2016 rally had been built on hopes that incoming U.S. President Donald Trump would usher in a new golden age of growth with no opposition. This dream has smashed into the wall of reality with opposition and unintended consequences emerging and upsetting the apple cart. Markets, which had priced Trump to perfection like stocks and the U.S. dollar, now find themselves standing on quicksand. Meanwhile, with political uncertainty increasing worldwide, defensive markets that had been really hammered, particularly gold and the Japanese yen are roaring back to life.
This morning finds U.S. index futures trading down as much as 0.4 per cent. The U.S. dollar is getting hammered after President-elect Trump indicated he thinks the dollar is too high, which he blamed on China keeping its currency too low. Traders have taken this to suggest that he may not be as open to multiple rate hikes and an elevated dollar through the year. The bottom has fallen out from under U.S. dollar today, which has lost over 1 per cent to gold and many of the major currencies including the euro, yen, Canadian dollar, Australian dollar and others.
The biggest move today is the explosive nearly 2 per cent rally in the British pound around U.K. Prime Minister Theresa May's speech. The Street has applauded her comments indicating that following a full Brexit she intends for Britain to become a strong, outward looking, great trading nation, a magnet for international innovators that also provides a fair deal for everyone at home. PM May indicated plans to work on a customs union trade deal with the EU but no membership, enabling Britain to control its immigration and laws.
She also promised a vote in Parliament on the final Brexit deal. The FTSE is down 0.6 per cent on the pound rally while the Dax is down 0.4 per cent, recovering after falling earlier. Traders are increasingly seeing Brexit as having upside potential for Britain and downside risk for the EU.
China is also in focus today with President Xi Jinping speaking at Davos (a forum that is also looking past its prime). Mr. Xi indicated China's economy continues to struggle but government support is apparently helping. He also promised not to devalue China's currency, blamed the financial crisis on bad regulation rather than globalization and promoted global trade. This sounds like the country which has benefited the most in the last 20 years scrambling to maintain its gains in a changing world.
There have also been economic reports like U.K. inflation, with U.S. Empire Manufacturing later this morning. The main drivers for market action and opportunities for trading this week appear to be coming mainly from changes in political trends and market sentiment surrounding Brexit and Friday's U.S. inauguration.
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 -0.25 per cent; S&P 500 -0.36 per cent; Nasdaq: -0.34 per cent; TSX 60 -0.01 per cent
Equities
Japan's Nikkei -1.48 per cent
Shanghai composite index +0.17 per cent
Hong Kong's Hang Seng +0.54 per cent
Germany's DAX -0.42 per cent
London's FTSE -0.60 per cent
France's CAC 40 -0.28 per cent
Commodities
WTI crude oil (Nymex Feb.) +1.43 per cent at $53.12 (U.S.) a barrel
Gold (Comex Feb.) +1.48 per cent at $1,213.90 (U.S.) an ounce
Copper (Comex March) -1.99 per cent at $2.64 (U.S.) a pound
Currencies
Canadian dollar +0.8 at 76.60 cents (U.S.)
U.S. dollar index +0.01 at 101.19
Bonds
Canada 10-year bond yield +0.29 at 1.66 per cent
KEY ECONOMIC RELEASES
Japan industrial production
Germany ZEW Survey – Expectations
U.K. consumer price index and producer prices
British Prime Minister Theresa May speaks on Brexit plan
(8:30 a.m. ET) U.S. Empire State Manufacturing Survey (with revisions) for January. Consensus is 8.0, down from 9.0 in December.
KEY STOCKS TO WATCH
Also see: Tuesday's small-cap stocks to watch
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British American Tobacco has agreed a $49.4-billion takeover of U.S. rival Reynolds American Inc., creating the world's biggest listed tobacco company after it increased an earlier offer by more than $2-billion.
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Wall Street bank Morgan Stanley's profit doubled in the last quarter of the year, far exceeding expectations, as trading activity surged following the U.S. presidential election.Earnings applicable to the bank's common shareholders soared to $1.51-billion (U.S.) in the three months ended Dec. 31 from $753-million a year earlier, while earnings per share increased to 81 cents from 39 cents. Analysts on average had expected a profit of 65 cents per share, according to Thomson Reuters I/B/E/S.
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Alcobra Ltd. said on Tuesday its experimental attention deficit hyperactivity disorder (ADHD) therapy failed a late-stage study in adult patients and the company's shares plunged about 44 percent in premarket trading.
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Wal-Mart Stores Inc. said it would create about 10,000 jobs in the United States this year, adding to its near 1.5 million workforce in the country, by opening or remodeling stores and investing in its e-commerce business. The number of jobs being created is consistent with previous years, said Lorenzo Lopez, a spokesman for Wal-Mart, the largest U.S. retailer and private employer.
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Upscale jeweler Tiffany & Co. said on Tuesday that its sales during the November-December holiday period were "somewhat lower" than it had expected, hurt by lower consumer spending and a drop in sales at its flagship store in New York. Tiffany said on Tuesday that its worldwide net sales rose 0.5 percent, while worldwide comparable sales fell 2 percent during the holiday season as sales growth in Asia-Pacific and Japan was offset by lower sales in the Americas and Europe.
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Regional bank holding company Comerica Inc. reported a better-than-expected 41.7 percent jump in quarterly profit as it set aside less money for bad loans and reined in expenses. The Dallas-based bank said net income attributable to common shareholders rose to $163 million in the fourth quarter ended Dec. 31, from $115 million a year earlier. Earnings per share rose to 92 cents from 64 cents. Analysts on average had estimated earnings of 87 cents per share, according to Thomson Reuters I/B/E/S.
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Limited Stores LLC, owner of U.S. women's apparel chain The Limited, said on Tuesday it filed for bankruptcy. Limited Stores also said it agreed to sell its intellectual property and some related assets to an affiliate of private equity firm Sycamore Partners.
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UnitedHealth Group Inc. is reporting fourth-quarter net income of $1.9 billion. The Minneapolis-based company said it had net income of $1.96 per share. Earnings, adjusted for amortization costs, came to $2.11 per share. The results topped Wall Street expectations. The average estimate of 10 analysts surveyed by Zacks Investment Research was for earnings of $2.07 per share.
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Shares in Rolls-Royce jumped 6 per cent on Tuesday after the British maker of engines for planes and ships settled a long-running bribery probe and said 2016 profit would beat expectations.
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Sony Entertainment division chief executive Michael Lynton is stepping down to become chairman of Snapchat parent Snap Inc. He'll step down on February 2, but will remain co-CEO for six months to help find a successor.
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General Motors will announce a $1 billion investment in several U.S. factories, according to multiple reports, creating more than 1,000 new jobs.
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Syngenta CEO Erik Fyrwald has told CNBC that he expects regulatory approval for the planned $43 billion takeover of the chemical maker by ChemChina.
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Clayton Williams Energy is going to be bought by Noble Energy in a $2.7-billion cash and stock deal that gives Noble 120,000 acres of oil properties in West Texas.
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UBS downgraded Twitter to "neutral" from "buy," saying the company faces a number of operating challenges.
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Netflix was upgraded to "buy" from "neutral" at Mizuho, with the price target increased to $152 per share from $112. Mizuho points to the possibility of material growth for Netflix in international markets.
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Walt Disney was upgraded to "buy" from "neutral" at Goldman Sachs, citing optimism about Disney's 2018 film offerings among other factors.
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Nordstrom was downgraded to "hold" from "buy" at Stifel Nicolaus, with Stifel expecting weaker-than-anticipated holiday season results for the retailer.
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Chipotle Mexican Grill was downgraded from "overweight" to "neutral," citing labour challenges for Chipotle and other restaurants in the fast-casual category, as well as an oversupplied market.
Earnings include: Advanced Micro Devices Inc.; Comerica Inc.; CSX Corp.; IHS Markit Ltd.; Interactive Brokers Group Inc.; International Business Machines Corp.; Linear Technology Corp.; Morgan Stanley; United Continental Holdings Inc.; Unitedhealth Group Inc.
With files from wire services