Equity markets are putting aside fears over conflict in the Middle East this morning and are moving higher, although broad weakness in commodities should limit gains in the resource-heavy TSX. Financials in Canada should rally, as three of our big 5 banks reported earnings that beat Street views - and two announced dividend hikes. Shares in Toronto Dominion Bank are already rising in the thinly traded U.S. premarket.
Although a U.S.-led attack against Syria over its alleged use of chemical weapons still appears likely, there are signs it may not be imminent. President Barack Obama said in a PBS television interview Wednesday that no decision has been made, as he expressed reluctance for the U.S. to get drawn into a lengthy conflict. In the U.K., a parliamentary vote has been delayed until United Nations inspectors' findings on the use of chemical weapons is made public - likely next week.
The geopolitical uncertainly rattled markets earlier this week and sent crude prices to their highest levels in nearly two years over fears that an attack against Syria could lead to a wider conflict in the region and disrupt oil supplies. Gold had entered a new bull market given its appeal as a haven in times of crisis.
But both those commodities, as well as base metals, are trading lower this morning - partly because of a sharp move higher in the U.S. dollar - but also because the immediate knee-jerk reaction of markets to news of a likely military strike against Syria is subsiding.
Emerging markets overnight saw some signs of recovery, as the Indian rupee climbed nearly 3 per cent against the U.S. dollar on news that the central bank will sell dollars to the country's top oil importers in an effort to cool demand for foreign exchange. Turkey's lira also rose and the Philippine Stock Exchange rallied 3.6 per cent as its economy showed unexpected strength in its latest quarter.
There was some negative news for Europe this morning on the economic front, as Germany reported its unemployment rose by 7,000 people in August, defying forecasts for a decline of 5,000. While not a huge disappointment, it underlined the possibility that Europe's biggest economic is slowing just as Chancellor Angela Merkel heads into the Sept. 22 elections.
U.S. economic data this morning saw jobless claims coming in near expectations and a revised reading on second-quarter GDP was a little stronger than economists had anticipated. Stock futures held steady as the data was released but the yield on the U.S. 10-year treasury ticked up. Many still believe that the Fed will ease back on its stimulus measures next month, especially if further economic data show strength - but it's far from a unanimous view.
Now, here's a closer look at what's going on this morning and what's to come.
MARKETS:
Equities:
Futures: S&P 500 +0.36 per cent; Dow +0.33 per cent; Nasdaq +0.50 per cent; S&P Toronto +0.46 per cent
Hong Kong's Hang Seng +0.84 per cent
Shanghai composite index -0.20 per cent
Japan's Nikkei +0.91 per cent
London's FTSE 100 +0.43 per cent
Germany's DAX +0.14 per cent
France's CAC 40 -0.01 per cent
Commodities:
WTI crude oil (Nymex Oct) -0.89 per cent at $109.12 (U.S.) a barrel
Gold (Comex Dec) -0.61 per cent at $1,410.10 (U.S.) an ounce
Copper (Comex Dec) -0.18 per cent at $3.31 (U.S.) a pound
Currencies:
Canadian dollar at 95.13 (U.S.), down 0.0023 from yesterday's North American close.
U.S. dollar index up 0.43 at 81.86
Bonds:
U.S. 10-year Treasury yield 2.78 per cent, up 0.01
ECONOMIC INDICATORS TO WATCH:
Canada's second-quarter current account deficit was $14.58-billion, wider than the first quarter's $13.45-billion. The consensus call was for a $14.8-billion deficit in the period.
Canada's industrial product price index rose 0.3 per cent in July from June, primarily due to higher prices for energy products. Analysts had expected producer prices to rise 0.4 per cent in the month following a 0.3 per cent increase in June.
The U.S. released its latest reading on second-quarter gross domestic product, rising 2.5 per cent from a preliminary reading of 1.7 per cent. That was stronger than the 2.3 per cent that economists were looking for.
U.S. initial jobless claims last week fell by 6,000 to 331,000, which was close to expectations.
STOCKS TO WATCH:
U.K. carrier Vodafone Group PLC said it's in talks with Verizon Communications Inc. to sell its 45 per cent stake in their joint venture company Verizon Wireless. As Boyd Erman explains in Streetwise today, this could explain why Verizon has cooled to the idea of coming to Canada. Shares in Vodafone are up 8 per cent in the premarket and Verizon shares are up 5 per cent. Beaten-down Canadian telecom stocks could see a further relief rally this morning as the odds increase that Verizon won't be coming North anytime soon.
The Wall Street Journal is reporting that sales of BlackBerry Ltd.'s Q10 keyboard phone have been dismal. But shares are up 1.7 per cent in the premarket.
Royal Bank of Canada reported net income in its third quarter of $1.52 a share, handily beating analyst expectations of $1.37. As widely expected, it raised its quarterly dividend by 4 cents to 67 cents.
Canadian Imperial Bank of Commerce reported $2.16 per share in third-quarter profit, slightly beating analysts forecasts. The bank kept its dividend unchanged.
Toronto-Dominion Bank reported earnings per share of $1.58, far surpassing analyst estimates of $1.42, even as profit dropped 11 per cent from a year earlier. TD also hiked its dividend by 4 cents a share. Its U.S.-listed shares are up 0.5 per cent in the premarket.
Campbell Soup Co. reported adjusted quarterly profit of 45 cents a share on revenue of $1.72-billion. EPS beat the Street view of 42 cents but revenues came up short. Shares are up 0.6 per cent.
Other earnings today include: Genesco Inc.; Krispy Kreme Doughnuts Inc.; Mitel Networks Corp.; Qantas Airways Ltd.; and L'Oreal SA.
WestJet said it intends to purchase 65 Boeing 737 Max aircraft and it raised its third-quarter capital expenditure forecast to $210-million to $220-million, about double earlier projections.
ANALYST ACTIONS:
Desjardins raised its price target on National Bank of Canada to $93.50 from $91.50 while BMO Nesbitt Burns hiked its target to $86 from $83 and RBC Dominion Securities raised its to $93 from $86. CIBC raised its target to $85 from $82.
RBC Dominion Securities raised its target on Canadian Western Bank to $34 from $32.
Raymond James cut its price target on Joy Global Inc. to $53.75 (U.S.) from $58.50. Jefferies also cut its target to $47 from $60.
BMO Nesbitt Burns cut its target on Emera to $33 from $36.50.
CIBC World Markets raised its target on Capital Power Corp. to $24.50 from $24 and upgraded its rating to "sector outperformer."
EXPERT VIEWS:
Sam Stovall, chief equity strategist for S&P Capital IQ: "From a technical perspective, we believe that most, if not all, of the pullback (in the S&P 500) is over. While we could see some choppy price action in the weeks ahead, we think the major indices are setting up for the next leg higher. We see bullish momentum divergences from oversold territory on the intraday charts for the first time since the pullback started. In addition, the intraday MACD is close to a bullish crossover. However, we do not rule out the possibility of one more decline to the 1,600-1,625 region before this pullback is complete. We are dismayed that we have not seen a pickup in fear in the CBOE equity-only options data. Whenever and wherever the bottom lies, we think it will be followed by a strong upleg that takes the S&P 500 well into the 1,800s next year."
Krishen Rangasamy, senior economist with National Bank: "The upgrade to Q2 GDP was better than expected, although that's now old news. Data for early Q3 hasn't been great (e.g industrial production, orders, employment) and suggest we may be seeing a deceleration in the current quarter after Q2's rebound. The inventory accumulation seen in the first half of the year and the ongoing sequester may be limiting Q3 growth. The zigzag pattern to US GDP growth continues."
THIS MORNING'S TOP INVESTING READS ON THE WEB:
Four reasons the Fed should start tapering in September.
U.S. firms have been able to put off investment in technology amid pressure on wages - but those days are coming to an end.
There are signs that gold's haven status has been restored.
Charts are suggesting there's reason to be nervous about equity markets.
U.S. corporate bond sales have dropped like a rock.
Wall Street remains a mostly foreign country for black workers.
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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.
Darcy Keith