Briefing highlights
* Global stock markets tumble
* Canadian dollar well below 78 cents
* U.S. 10-year Treasury yield hits 3%
* What to watch for from Facebook
* Cenovus posts hefty loss
* Twitter up as results beat estimates
* Ottawa plans ‘patent troll’ crackdown
Three words for today: Stocks, loonie, Facebook
Markets are a mess. The Canadian dollar is sinking. And we haven’t even heard from Facebook Inc. yet.
Welcome to Hump Day.
“Wall Street tanked on Tuesday, and Asian stocks tumbled overnight, whilst the [U.S.] dollar rallied to a four-month high after the U.S. 10-year Treasury yields hit 3 per cent, the highest level since 2014,” London Capital Group analysts said in their morning note.
“The rally in yields was in part due to rising inflation concerns and expectations of a more aggressive Federal Reserve this year.”
Here’s how things look so far:
STOCKS
Global markets are sinking, with Asia and Europe following Tuesday’s North American action down.
Attention is “firmly focused on the prospect that despite improved profits, potentially higher interest rates, as well as higher costs, could be prompting investors to conclude that this could be the high water mark for returns this year,” said CMC Markets chief analyst Michael Hewson.
CURRENCIES
The U.S. dollar is at about a four-month high, which is why the loonie is well below 78 US cents, trading in a range so far of 77.5 to just shy of the 78-cent mark.
“Declining geopolitical tension, particularly decreasing trade war fears, have enabled traders to focus their full attention on dollar-boosting fundamentals such as higher yields, causing the dollar to rally hard across the week,” London Capital Group said.
And expect it to continue, Adam Cole, Royal Bank of Canada’s chief currency strategist in London, added in an interview.
“Generally, we have a view that the [U.S.] dollar will remain relatively firm going forward,” Mr. Cole said, noting how the currency had been pulled higher by the U.S. 10-year Treasury yield hitting 3 per cent.
“Typically, the Canadian dollar tends to do well against other currencies when the U.S. dollar is doing well,” he added.
But against the greenback, obviously it’s the other way around.
YIELDS
That 3 per cent mark has been key for some time now, and investors have been watching closely. So it was big news when that level was hit Tuesday.
Why does it matter?
“Three per cent is a closely watched psychological level for U.S. Treasury yields, and the fact it has been breached dampened demand for U.S. equities,” said London Capital Group.
“Higher interest rate expectations mean higher corporate borrowing costs, in turn making investments more expensive,” the analysts added.
“There is also the added concern that the Fed could decide to hike rates more quickly, or even too quickly, which could slam the brakes on economic growth.”
OIL
Crude prices have been rising over the past couple of weeks, pushing higher Tuesday before easing after a meeting between U.S. President Donald Trump and his French counterpart, Emmanuel Macron, suggested there might not be renewed sanctions against Iran.
That brought down West Texas intermediate, the U.S. crude benchmark, and Brent, which fell below US$75 a barrel.
But hold that thought.
“The US$80-a-barrel level still looks a real possibility, and while central banks may well welcome this new inflationary tailwind, it is also the wrong kind of inflation in that it hits consumers directly and, as such, could prompt a change in consumer spending away from the more discretionary items,” said CMC’s Mr. Hewson.
Facebook reports quarterly results after markets close. But, of course, this isn’t just any quarter, it’s the quarter of the Cambridge Analytica controversy, and the social network has been scrambling to secure the data of its users.
This comes, too, as the so-called FAANG stocks of Facebook, Apple, Amazon.com, Netflix Inc. and Google parent Alphabet Inc., have been in focus over fears of tighter regulation, among other things.
“Facebook users are waking up to the idea that they are the product Facebook is selling to its advertiser clients,” London Capital Group said in a separate report.
“These partnerships are integral to Facebook because they add the functionality that keep users interested,” it added.
“The political fallout from the data scandal is likely to perpetuate for a few quarters at a minimum. How long it lasts beyond that may depend on how well management wrestles with changes that allow users to protect their personal information.”
Some analysts suggest this won’t be a long-term threat to the stock.
Facebook CEO Mark Zuckerberg arrives to testify before a Senate Judiciary and Commerce Committees joint hearing regarding the company’s use and protection of user data, on Capitol Hill, April 10, 2018Aaron Bernstein/Reuters
Indeed, in an earnings preview, Credit Suisse said it has checked with Facebook advertisers, and has found no big exodus.
Having said that, it lowered its target price on the shares to US$230 from US$240, though raised its earnings-per-share estimate for the year to US$7.87 from US$7.83.
“While ad checks for [the first quarter] have taken a back seat given the recent controversy, advertiser feedback continued to suggest ongoing budget share gains for Facebook – Instagram, in particular, now seems to be 20 per cent of total ad budgets versus 5 per cent [a year earlier] and 15 per cent by [the fourth quarter of 2017],” Credit Suisse said.
As for today, London Capital Group pointed out that the average estimate of 36 analysts puts earnings per share at US$1.36, with a range of US$1.04 to US$1.58. The revenue range is US$10.59-billion to US$11.83-billion.
“Earnings estimates increased by approximately 9 per cent over the past 90 days, but are down slightly by less than 1 per cent over the past 60 days,” it added.
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Cenovus swings to loss
Cenovus Energy Inc.’s chief executive officer is urging investors to see its challenges as temporary as it posts a hefty quarterly loss.
The Canadian energy giant today reported a first-quarter loss from continuing operations of $914-million, or 74 cents a share, diluted, slumping from a profit of $211-million or 25 cents a year earlier.
Its results, the company said were hurt by risk management losses, oil price differentials and refinery maintenance.
“As previously announced, Cenovus responded to the wider price differentials and transportation constraints by temporarily slowing oil sands production in February and March, and storing excess barrels in its reservoirs,” it said, adding it did bring oil sands production back to normal when prices for Western Canada Select perked up.
“The challenges we experienced in the first quarter had a significant impact on our financial results, but the underlying performance of our assets remains very strong,” CEO Alex Pourbaix said in releasing the results.
“I want to stress that these financial challenges are temporary and don’t reflect Cenovus’s significant potential for funds flow and earnings growth.”
Read more
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