The Before the Bell report is constantly updated to reflect the latest news developments and market moves in the premarket. Check back later for updates.
The seemingly unstoppable plunge in the price of crude oil and a surprisingly big hike in interest rates in what was already an economically challenged Russia are setting an unnerving backdrop as trading in North American markets nears. S&P 500 stock futures are down about 0.6 per cent and TSX futures are down 0.5 per cent, pointing to broad losses for equity markets.
U.S. crude prices are off by about 3 per cent this morning - which comes after a 3.3 per cent drop on Monday - at fresh five-year lows. Brent is down by a similar amount, plunging below the $60 (U.S.) per barrel level.
There is no obvious floor for the price of crude, amid few signs that producers are preparing to cut output to reduce an overabundance of supply. A Bloomberg survey of analysts released Monday didn't provide much of a glimmer of hope for a rebound; those surveyed suggested Brent may fall to $50 next year.
While crude's 45 per cent plunge this year has largely been blamed on market suppliers refusing to cut back production, there are also growing concerns about the demand side of the equation. That was on full display overnight in China, as its flash HSBC/Markit manufacturing purchasing managers' index slipped to 49.5 from a final reading of 50 in November. That's the first time in seven months the reading was below 50, which separates contraction and expansion. The disappointment couldn't be seen in the performance of mainland Chinese stocks, however. The Shanghai composite index closed up 2.3 per cent overnight, getting some support from Beijing approving infrastructure projects worth $31-billion.
Major oil exporter Russia hiked its key interest rate to 17 per cent from 10.5 per cent late Monday in an effort to stem losses in the ruble, which saw its biggest drop Monday against the dollar since 1998. But a monetary tightening of that magnitude is a risky play, threatening to contract the economy further and ignite financial instability through its banking system. As such, U.S. ETFs that track the country's stock market are seeing losses of 5 per cent or more this morning. And the rate hike hasn't accomplished its goal: despite an initial rally against the U.S. dollar on news of the rate hike, the ruble this morning is back to trading around all-time lows at 80 a dollar, down 20 per cent on the day.
Data this morning out of Europe provided some minor-league support to markets there. The euro zone December flash composite purchasing manager's index from Markit came in at 51.7, just above analyst forecasts of 51.5 and November's final reading of 51.1. In Germany, the ZEW Institute's economic sentiment index for December shot up to 34.9 points, from 11.5 in November and above market expectations of 20.
The big corporate news this morning: Talisman Energy shares are soaring on a deal that would see Spain's Repsol SA buy the energy company for $8.3-billion plus debt.
More on that and what else is going on this morning below.
MARKETS:
Futures:
S&P 500 -0.33 per cent; Dow -0.21 per cent; Nasdaq -0.58 per cent; S&P/TSX -0.30 per cent
Equities:
Hong Kong's Hang Seng -1.55 per cent
Shanghai composite index +2.32 per cent
Japan's Nikkei -2.01 per cent
London's FTSE 100 +0.64 per cent
Germany's DAX +0.18 per cent
France's CAC 40 -0.46 per cent
Stoxx 600 -0.09 per cent
Commodities:
WTI crude oil (Nymex Jan) -3.36 per cent at $54.01 (U.S.) a barrel
Natural gas (Nymex Mar) +1.05 at $3.74.
Gold (Comex Feb) +0.23 per cent at $1,210.50 (U.S.) an ounce.
Copper (Comex Mar) -0.63 per cent at $2.86 (U.S.) a pound
Currencies:
Canadian dollar at 85.85 (U.S.), up 0.0011
U.S. dollar index down 0.63 at 87.82
Bonds:
U.S. 10-year Treasury yield 2.07 per cent, down 0.05
ECONOMIC INDICATORS:
Canada manufacturing sales for October fell 0.6 per cent from September; the Street forecast was for a fall of 0.5 per cent.
U.S. housing starts for November came in at an annualized rate of 1.028 million, down 1.6 per cent, and below the expected rate of 1.040 million. U.S. building permits dropped 5.2 per cent to a 1.035 million-unit pace after two straight months of gains. That was the biggest drop since January.
(945 a.m. ET) Markit U.S. flash manufacturing PMI for December.
STOCKS TO WATCH:
Shares in Talisman Energy are up 49 per cent in the premarket after Spain's Repsol SA said it would buy the energy company in a deal worth $8.3-billion plus debt.
Both Long Run Exploration and Lightstream Resources cut their monthly dividends amid the oil price plunge. Read our Small-cap stocks to watch post for more details.
Earnings include: Darden Restaurants, Navistar International.
ANALYST ACTIONS:
RBC Dominion Securities downgraded General Motors to "sector perform" from "outperform" and cut its price target to $35 (U.S.) from $41. RBC predicts a more negative backdrop for automakers over the coming years.
Macquarie downgraded Caterpillar to "underperform" from "neutral" with a price target of $78 (U.S.).
Industrial Alliance downgraded Dollarama to "sell" from "hold" on share price appreciation. It kept its price target at $54.50 (Canadian).
CIBC World Markets slashed its price target on Canadian Oil Sands to $8.50 (Canadian) from $15 and reiterated a "sector underperformer" rating. It said an unplanned outage in a sour water treater at the Syncrude oil sands operation will cut into the company's production, and weakening oil prices and rising payout ratios means another dividend cut is on the horizon.
FirstEnergy Capital downgraded Cenovus Energy to "market perform" from "outperform" with a price target of $25 (Canadian).
TD Securities upgraded Methanex to "buy" from "hold" with a price target of $60 (U.S.).
BMO Nesbitt Burns initiated coverage on AGF Management with an "underperform" rating and $8.05 (Canadian) price target.
BMO Nesbitt Burns initiated coverage on CI Financial with an "outperform" rating and $37 (Canadian) price target.
BMO Nesbitt Burns initiated coverage on IGM Financial with a "market perform" rating and $47 (Canadian) price target.
THIS MORNING'S TOP INVESTING READS ON THE WEB:
One of the best things you could've done was own companies with the highest short interest and the lowest analyst rankings.
Goldman Sachs and Morgan Stanley say now's the time to consider energy stocks. High-yield energy companies unlikely to cut their dividends even if oil prices stay low.
The limits of limit orders when it comes to ETFs.
The role of advertising in financial markets.
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Have feedback on our daily Before the Bell report and suggestions on how to make it more useful in your investing day? Please contact Inside the Market Editor Darcy Keith at dakeith@globeandmail.com.
Darcy Keith