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, particularly in the United States, have staged major rallies in recent weeks. Gains were driven by speculation that U.S. president Donald Trump would bring in sweeping pro-business change. Traders are starting to find out, however, that the speed of government is a lot slower than the speed of business, let alone the speed of markets.
Although some indexes have managed to reach new all-time highs this week, the pace of gains has slowed suggesting markets may be getting priced for perfection, and it wouldn't take much to spark a correction.
Overnight action suggests that profit-taking may be getting underway. The Nasdaq turned down Thursday and this morning, US index futures are trading down 0.3 per cent to 0.5 per cent, while the FTSE is down 0.6 per cent and the Dax is down 1.0 per cent.
On Thursday, U.S. Treasury Secretary Steven Mnuchin indicated he hopes to pass tax reform by the end of August, but that this could slip to late in the year. Meanwhile, other reports suggested Congress may not get to infrastructure funding until 2018.
Action in indexes and in sectors that have benefited from "Trump trade" anticipation, like industrials and construction, could indicate if ttired of waiting. Next Tuesday, Mr. Trump is scheduled to address a joint session of Congress. The street may be looking for something big and could be disappointed if he doesn't deliver.
Currency trading finds gold and yen rallying overnight and building on Thursday's gains as political risk concerns return for the U.S. and Europe. GBP continues to attract support with Cable holding above $1.2500. Last night, the Brexit cause got a big boost from a by-election that saw a big swing to the Conservatives enabling them to take a seat that Labour had held for about 80 years. Meanwhile, on the continent, France and Italy apparently have come out in support of taking a tough stance, but at this early stage that is to be expected and both countries could have new leadership within six months anyway.
Canadian markets could attract attention today, especially with U.S. news flow light. Consumer price inflation is unexpectedly jumped to 2.1 per cent in January, its highest for more than two years, on a surge in gasoline prices, Statistics Canada data indicated on Friday. Analysts had projected an annual rate of 1.6 per cent.
It's also another big day for Canada earnings. Royal Bank has picked up where CIBC left off, beating the street by a wide margin and raising its dividend. Husky Energy had a positive report while Magna International disappointed badly.
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 8:45 a.m. ET)
Dow -0.37 per cent; S&P 500 -0.43 per cent; Nasdaq: -0.55 per cent; TSX 60 -0.45 per cent
Equities
Japan's Nikkei -0.45 per cent
Shanghai composite index +0.06 per cent
Hong Kong's Hang Seng -0.62 per cent
Germany's DAX -1.61 per cent
London's FTSE -0.89 per cent
France's CAC 40 -1.47 per cent
Commodities
WTI crude oil (Nymex April) -0.66 per cent at $54.09 (U.S.) a barrel
Gold (Comex Feb.) +0.48 per cent at $1,257.40 (U.S.) an ounce
Copper (Comex March) +0.64 per cent at $2.66 (U.S.) a pound
Currencies
Canadian dollar +0.12 at 76.42 cents (U.S.)
U.S. dollar index -0.27 at 100.71
Bonds
Canada 10-year bond yield +0.21 at 1.64 per cent
KEY ECONOMIC RELEASES
(8:30 a.m. ET) Canada consumer price index for January. The consensus estimate is an increase of 0.3 per cent from December and 1.6 per cent year over year.
(10 a.m. ET) U.S. new home sales for January. Consensus is an annualized rate increase of 7.3 per cent.
(10 a.m. ET) U.S. University of Michigan Consumer Sentiment for February (final). Consensus is 96.0, down from 98.5 in January.
(1 p.m. ET) Baker-Hughes rig count
Also: Canada budget balance for December of 2016.
Earnings include: Cabot Oil & Gas Corp.; Foot Locker Inc.; GDI Integrated Facility Services Inc.; Husky Energy Inc.; J C Penney Company Inc.; Magna International Inc.; Morguard Corp.; Royal Bank of Canada; Royal Nickel Corp.; Ur-Energy Inc.
KEY STOCKS TO WATCH
Also see: Friday's small-cap stocks to watch
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Royal Bank of Canada (RY-T) reported a 24-per-cent rise in first-quarter net income to more than $3-billion, beating analysts expectations. Canada's biggest bank said it benefited from strong performances by its personal and commercial banking and capital markets businesses. Net income in the quarter to Jan. 31 rose to $3.03-billion, from $2.45-billion a year ago with earnings per share rising to $1.97 per share, compared with $1.58 a year earlier.
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MacDonald Dettwiler and Associates Ltd (MDA-T) said on Friday it had agreed to buy U.S.-based DigitalGlobe Inc for about $3.10-billion to strengthen its position in the lucrative satellite imagery market. Under the deal, MacDonald Dettwiler and Associates will offer $17.50 in cash and 0.3132 of its share for each DigitalGlobe share held.
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Canadian oil producer Husky Energy Inc. (HSE-T) reported a smaller-than-expected quarterly loss, helped by lower production costs and higher margins in its refining operations. Husky, controlled by Hong Kong billionaire Li Ka-Shing, said overall exploration and production operating costs fell 4 per cent to $13.92 per barrel in the fourth quarter. Average realized U.S. refining margins more than doubled to $9.86 per barrel from a year earlier.
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Canadian auto parts maker Magna International Inc. (MG-T) reported a lower-than-expected quarterly profit as costs rose. Aurora, Ont.-based Magna said the cost of goods sold jumped 7.7 per cent to $7.90-billion in the fourth quarter ended Dec. 31. Magna, which is primarily an auto parts supplier, also assembles cars under contract from motor vehicle manufacturers. Its biggest customers include General Motors Co, Volkswagen AG, BMW and Ford Motor Co .
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Department store operator J.C. Penney Co Inc. (JCP-N) said on Friday it would close about 130-140 stores over the next few months, and reported a 0.7 percent drop in same-store sales for the holiday quarter. The company will also initiate a voluntary early retirement program for about 6,000 eligible employees and close two distribution facilities. The stores being closed represent about 13-14 percent of the company's store base and account for less than 5 percent of annual sales, the company said on Friday.
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Hilton Worldwide Holdings Inc. (HLT-N), owner of the Waldorf Astoria hotel chain, said on Friday it would buy back up to $1-billion of its shares, and that it would change its corporate name to 'Hilton Inc', effective March 6. Last week, Hilton reaffirmed its 2017 forecast for a key revenue metric and said it felt more confident about achieving it, as U.S. economic growth gains steam.
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Germany's BASF, the world's largest chemicals group by sales, forecast a rebound in earnings this year after higher petrochemical prices boosted profits in the final three months of 2016. The company, whose products include catalytic converters for car engine exhausts, insulation foams, vitamins and plastics, said it was targeting a gain in operating profit before one-offs of up to 10 per cent in 2017 after a 6-per-cent decline last year.
With files from wire services