The TSX is heading toward a sizeable rally at the open after Federal Reserve chairman Ben Bernanke offered soothing words late Wednesday that suggested monetary policy won't be tightened through higher interest rates anytime soon.
Global equity markets are higher nearly across the board this morning in the wake of Mr. Bernanke's comments. Metals prices, including gold and copper, are up sharply, ensuring that the resource-heavy TSX won't be left out of the action.
The U.S. dollar is down considerably this morning in reaction to Mr. Bernanke's hints that record low interest rates aren't going away; that's giving a shot in the arm to commodities priced in the U.S. currency. U.S. long-term bond yields are easing, helping to take the pressure off income-producing securities such as real estate investment trusts and dividend stocks that have been struggling of late.
While markets had little reaction during the trading day Wednesday to the release of minutes from the Fed's June policy meeting, it was a different case later when Mr. Bernanke took questions following a speech to a group on economists. Mr. Bernanke said there would not be an "automatic increase in interest rates when unemployment hits 6.5 per cent" and suggested "it may be well sometime after we hit 6.5 per cent before rates reach any significant level."
The remarks appeared intended to calm market concerns that interest rates could soon go up shortly after the Fed starts tapering its $85-billion-a-month in bond buying. While there is growing consensus that economic data will be strong enough by this fall to justify cutting back on quantitative easing, Mr. Bernanke's comments suggest the decision to do so is flexible and dependent on data. Mr. Bernanke said low inflation and high unemployment mean the Fed needs to continue with its stimulus measures.
The earlier Fed minutes showed about half of the Federal Open Market Committee members wanted to see more signs that the job market is improving before agreeing to the bond tapering.
In overseas markets, Chinese stocks soared thanks to Mr. Bernanke's comments, but the Nikkei in Japan only saw a minor gain as the yen surged against the greenback. Aiding the yen's move was the Bank of Japan overnight cutting its inflation and economic forecasts from its April projections as it left its monetary policy intact..
One commodity struggling to join in on today's rally is oil, which rose to a 15-month high on Wednesday. Sentiment for crude overnight took a hit after the International Energy Agency forecast production from countries outside of OPEC will rise by 1.3 million barrels a day next year.
Now, here's a closer look at what's going on this morning and what's to come.
Futures: S&P 500 +1.0 per cent; Dow +0.8 per cent; Nasdaq +0.9 per cent; TSX Toronto +0.7 per cent
Hong Kong's Hang Seng +2.5 per cent
Shanghai composite index +3.2 per cent
Japan's Nikkei +0.3 per cent
London’s FTSE 100 +0.6 per cent
Germany’s DAX +1.1 per cent
France's CAC 40 +0.7 per cent
WTI crude oil (Nymex Sep) -0.3 per cent at $105.25 (U.S.) a barrel
Gold (Comex Aug) +2.9 per cent at $1,284.00 (U.S.) an ounce
Copper (Comex Sep) +3.0 per cent at $3.18 (U.S.) a pound
Canadian dollar up 0.0041, or 0.42 per cent, at $0.9625 (U.S.)
U.S. dollar index down 1.15 at 82.88
U.S. 10-year Treasury yield 2.56 per cent, down 0.07
ECONOMIC INDICATORS TO WATCH:
U.S. jobless claims last week rose 16,000 to 360,000 - above the 337,000 forecast by economists.
U.S. import prices fell 0.2 per cent in June, a sign of subdued levels of inflation. Economists were looking for a rise of 0.1 per cent.
Canada's new home price index rose 0.1 per cent in May, with the year-over pace slowing to 1.8 per cent from 2.0 per cent previously. Economists were looking for prices to rise 0.2 per cent month-over-month and 1.9 per cent from a year ago.
STOCKS TO WATCH:
Microsoft Corp. has announced a major shakeup of its organization, dissolving eight existing product divisions and creating four new ones arranged around broader themes. The responsibilities of numerous executives have been shuffled. The changes are aimed at improving collaboration. Shares are up 1.2 per cent in the premarket.
The Wall Street Journal is reporting that two more key senior executives have left BlackBerry in recent weeks. They are a vice-president in charge of social networks and an executive in charge of retooling the calendar and contracts applications for BlackBerry 10. Shares are up nearly 2 per cent in the premarket.
Yum Brands Inc. said its second-quarter earnings fell 15 per cent, but adjusted earnings of 56 cents beat economists forecast for 54 cents. Shares are up 1.2 per cent in the premarket.
Other earnings today include Corus Entertainment Inc.; Cogeco Inc. and Cogeco Cable Inc.; and Gap Inc.
THIS MORNING'S TOP INVESTING READS ON THE WEB:
Why it's a mistake to look at the VIX "fear" index as an indicator of market risk.
The stronger U.S. dollar is having a significant impact on U.S. corporate earnings.
The volatility index for gold in the options market suggests bullion has bottomed.
Why the Fed is more hawkish than the minutes suggest.
Investors are making a big bet by buying shares in Fannie Mae and Freddie Mac.
The premarket report is constantly updated to reflect the latest news developments and market moves. For instant headlines on breaking economic and corporate news in the premarket, follow Darcy Keith on Twitter at @eyeonequities. You can also be notified using our dashboard feature when new articles appear from this author. Read more on using this feature here.