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Equity Markets

U.S. stock markets rose slightly higher in early trading Thursday as investors took a wait-and-see attitude to U.S. President Donald Trump's tax cut plans. In Toronto, the TSX fell as oil prices continued to struggle. Earnings continue to flood in. In Canada, trade continues to be a central issue after the Trump administration changed course on a threat to back out of NAFTA.

"Trump's tax reform announcement did little to lift the spirits yesterday, with markets clearly deciding to 'buy the rumour and sell the fact',"  Chris Beauchamp, senior analysts at IC, said in a morning note. "European markets, much like their Asian counterparts, appear to have followed the negative precedent set by the U.S., with many disappointed that yesterday's tax announcement shed very little additional light apart from the information already leaked ahead of the announcement."

World stocks, meanwhile, pulled back as a record-setting rally fell by the wayside. Like their North American counterparts, investors appeared wary of the U.S. tax plan. Markets were also exercising caution ahead of the European Central Bank meeting.

The ECB ultimately left its stimulative monetary policy position unchanged as inflation continues to undershoot targets. The central bank also left the door open to further rate cuts or asset purchases if necessary. The position matched market forecasts but was at odds with calls from some euro zone members to signal a gradual reduction of stimulus. At a news conference later, ECB chief Mario Draghi said risks to the euro-zone economy had diminished, but inflation is still short of the central bank's target.

Early on, Stoxx Europe 600 Index was off 0.4 per cent after six straight sessions of gains with most sectors trading in the red. In Europe, London's FTSE 100, Germany's DAX and the Paris CAC 40 were down by between 0.3 and 0.6 per cent by about 6:25 a.m. (ET). In Asia, Tokyo's Nikkei lost 0.2 per cent, though Hong Kong's Hang Seng gained 0.5 per cent, and the Shanghai composite 0.4 per cent.

Looking at the earnings scorecard so far, profits of S&P 500 companies are estimated to have risen 11.8 per cent in the first quarter, the most since 2011, according to Thomson Reuters I/B/E/S.

Commodities

Oil price declines accelerated on news that two key Libyan oilfields had restarted, exporting to an already oversupplied market. Reuters reported that Libya's Sharara oilfield, with a production capacity of almost 300,000 barrels per day (bpd), has restarted after the end of protests that had blocked pipelines there.The El Feel oilfield, with a capacity of about 90,000 bpd, had also reportedly restarted. Both Benchmark Brent and U.S. West Texas Intermediate were down sharply Thursday morning. Market overhang continues to weigh on crude prices although some optimism remained over the potential impact of an extension of production cuts by key exporters. The latest U.S. figures released Wednesday showed a drop in crude oil stocks, but gasoline inventories jumped as refiners' production exceeded market demands. Reuters reports that U.S. crude oil production is also rising, up 10 per cent since the middle of last year.

"It is clear that the world has plenty of oil in stock, making OPEC's life that much harder," said Jeffrey Halley, senior market analyst at futures brokerage OANDA in Singapore told the news agency.

Gold prices were down modestly as risk sentiment eased, but skepticism over the Trump administration's tax reforms kept investors from straying too far from the safe-haven metal. Spot gold prices were down slightly. U.S. gold futures were mostly flat.

"At the moment, Trump's tax reforms aren't solid enough to convince investors to cut their gold allocations and rush into the stocks," Ipek Ozkardeskaya, senior market analyst, London Capital Group, said in a morning note. "Though, the topside appetite remains limited due to the rising Fed rate hike probability."

Silver prices were just below break-even. In London, copper prices were also down slightly.

 

Currencies and bonds

The Canadian dollar and the Mexican peso both got a slight boost overnight on news that the U.S. had backed off on its threat to start the process to withdraw from NAFTA, instead opting to renegotiate the deal. Both currencies had taken a hit earlier this week on early reports that the U.S. was planning to withdraw from the trade pact. In early trading, the loonie was trading up from Wednesday's closing price, but still remained well below the 74 cent (U.S.) mark. Early in the session, the Canadian dollar had fallen to its weakest level since Feb. 25, 2016. Mr. Trump's indication Thursday that a deal on NAFTA is "very possibly" helped stabilize the loonie, offset somewhat by a share decline in oil prices.

The U.S. dollar had jumped to a four-week high against the yen on Wednesday ahead of the tax-cut plan, but lost some altitude as details failed spark much enthusiasm among investors. Early on Thursday, the U.S. dollar was up about 0.2 per cent against the yen. The U.S. dollar was also lower against a basket of major currencies.

"It (the plan) was kind of as we expected really. The dollar generally has come off on the view that the announcement of the so-called plan reads more like a wish list than a firm plan," said Adam Cole, currency strategist with RBC Capital Markets in London.

Euro zone government bond yields gave up earlier increases and headed lower after Draghi's comments. Germany's benchmark 10-year Bund yield fell more than 2 basis points to a two-day low at 0.325 per cent, while money market rates fell as investors scaled back ECB rate-hike expectations. The euro fell on Draghi's remarks.

 

Stocks set to see action

Home Capital Group Inc. said Thursday it secured an emergency $2-billion loan from a "major Canadian institutional investor", which it says provides it with access to $3.5-billion in total funding. The company's shares rose almost 17 per cent in early trading.

Potash Corp of Saskatchewan posted a higher-than-expected rise in quarterly profit as lower costs and increased potash sales volumes more than made up for weak phosphate prices.Potash prices have rebounded modestly since last year, but still remain low due to bloated capacity and weakening farm incomes. The company raised its forecast for full-year profit to 45-65 cents per share, from the 35-55 cents it previously forecast.

Ford Motor Co.'s net income fell by 35 per cent to $1.6-billion in the first quarter as results were hit by costly recalls, lower sales and rising prices for steel and other materials. Without one-time items, including a gain from the closure of a planned plant in Mexico, Ford earned 39 cents per share. Wall Street expected earnings of 35 cents per share, according to analysts polled by FactSet The Dearborn-based automaker told investors and analysts last month that it expected weaker first-quarter results. Last year's first quarter was an all-time record for the company.

United Airlines says it will raise the limit – to $10,000 – on payments to customers who give up seats on oversold flights and will increase training for employees as it deals with fallout from the video of a passenger being violently dragged from his seat. United is also vowing to reduce, but not eliminate, overbooking – the selling of more tickets than there are seats on the plane.

Dow Chemical Co., which is merging with DuPont, reported a stronger-than-expected quarterly profit as the seeds and chemical maker benefited from its transformation into a consumer markets focused company. Net income available to Dow's shareholders rose to $888-million, or 72 cents per share. Excluding a $386-million arbitration-related charge in the latest quarter, operating profit was $1.04 per share, topping the analysts' average estimate of 99 cents per share, according to Thomson Reuters I/B/E/S. Net sales rose 23.6 percent to $13.23-billion, slightly above analysts' estimate of $13.21-billion. /p>

Deutsche Bank more than doubled its profit in the first quarter, but its shares fell on Thursday after the German lender's earnings showed declining revenues and its securities trading business lagging U.S. rivals. Shares in Germany's biggest bank were 3-per-cent lower in early trading, with analysts pointing to the 9-per-cent revenue fall, putting pressure on chief executive John Cryan to deliver on his pledge last month to focus on growth.

Trading in Takata Corp. shares was suspended on Thursday after a report that the Japanese airbag maker at the heart of the car industry's biggest-ever recall is considering a bankruptcy plan that will create a new company and ringfence its liabilities. The Nikkei business daily reported Chinese-owned car parts maker Key Safety Systems (KSS), the company's preferred bidder, would sponsor the turnaround plan by injecting 200 billion yen ($1.8-billion) and helping create a new operating company.

Goldcorp Inc. reported net income that more than doubled -- despite producing less gold -- as the company surprised analysts with lower costs.All-in sustaining costs were $800 an ounce in the first quarter compared with the $840 average estimate and $836 a year earlier, Vancouver-based Goldcorp said in the statement.  First-quarter net income rose to $170 million, or 20 cents a share, from $80 million, or 10 cents, a year earlier. That beat the 9-cent per-share average of four estimates compiled by Bloomberg. First-quarter output trailed analysts' estimates. The company produced 655,000 ounces of gold, compared with 784,000 a year earlier and the average estimate for 659,500.

Suncor Energy Inc. plans to buy back up to $2-billion worth of shares and said it would repay some debt ahead of schedule after selling assets to shore up finances bruised by falling oil prices. The Calgary-based oil sands producer said late on Wednesday it would repurchase the shares over the next year starting on May 2. The company also said it redeemed $1.25-billion (U.S.) of senior unsecured notes that were originally due in 2018.

Jean Coutu Group says its store sales and revenue were up in the final quarter of its 2017 financial year but its profit declined due to weak generic drug prices and costs associated with setting up a new head office. Net income was $47.8-million or 26 cents per share for the fourth quarter, down 7 per cent from a year ago. Revenue was up 11.7 per cent at $789-million.Same-store sales grew by 4.0 per cent overall, although pharmacy sales grew less than front-of-store sales. It raised its dividend by 8.3 per cent to 13 cents per share.

Southwest Airlines' first-quarter earnings fell 32 per cent as it flew more passengers but took in less revenue on average from each one. Rising costs for fuel and labour weighed on the airline. Earnings came in at $351-million, down from $513 million a year ago. Per-share earnings fell to 57 cents from 79 cents. Earnings adjusted for non-recurring costs came to 61 cents per share, a penny shy of Wall Street expectations. The airline posted revenue of $4.88-billion, up 1 per cent but also shy of Street forecasts for $4.89-billion.

PayPal Holdings Inc. raised its earnings outlook late Wednesday after reporting higher-than-expected quarterly profit resulting from an increase in payment processing volumes and user growth. The company raised its full-year profit forecast to $1.28-$1.33 per share from $1.26-$1.31, and said its board authorized a $5-billion share buyback program. Revenue rose 17 per cent to $2.98-billion, beating analysts' average estimate of $2.94-billion. The company's net income rose to $384-million, or 32 cents per share, in the first quarter, from $365-million, or 30 cents per share, a year earlier. On an adjusted basis, PayPal earned 44 cents per share, above the average analyst estimate of 41 cents, according to Thomson Reuters I/B/E/S.

After the bell, earnings are due from: Amazon.com Inc., Alphabet Inc., Microsoft Corp. and Starbucks.

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More reading: Thursday's small-cap stocks to watch

Economic News

Overseas, the European Central Bank kept its benchmark interest rate unchanged at zero per cent and also left monetary policy unchanged as well. Investors will be listening to ECB President Mario Draghi for any change in tone from the bank when he addresses the media later Thursday amid improving economic data and the upcoming French election.

The number of Americans filing for unemployment benefits rose more than  expected last week, but the four-week average of claims fell to a two-month low,  indicating that labour market conditions continue to tighten, Reuters reports. Initial claims for state unemployment benefits increased 14,000 to a seasonally adjusted 257,000 for the week ended April 22, the Labor Department said on Thursday. Data for the prior week was revised to show 1,000 fewer applications received than previously reported. Claims have now been below 300,000, a threshold associated with a healthy labor market, for 112 straight weeks.

Orders for long-lasting manufactured goods posted a slight gain in March as a key category that tracks business investment plans remained weak, according to The Associated Press. The Commerce Department says orders for durable goods rose 0.7 per cent in March, the weakest showing since a 0.9-per-cent decline in December. The strength came from big increases in the volatile categories of commercial aircraft and military aircraft which offset a drop in demand for motor vehicles.

Contracts to buy previously owned U.S. homes fell in March as a lack of properties for sale curbed activity, the National Association of Realtors said on Thursday. Its Pending Home Sales Index, based on contracts signed last month, declined 0.8 percent to 111.4, following a surge in February. Economists polled by Reuters had forecast pending home sales falling 1.0 percent last month. Pending home sales were still up 0.8 percent from a year ago.

Overnight, the Bank of Japan kept its policy unchanged but offered its most optimistic shapshot of the economy in nearly a decade. It also said recent weakness in inflation is temporary.

Ontario releases its latest budget Thursday afternoon with nine years of consecutive deficits set to come to an end. Finance Minister Charles Sousa has pledged to balance the books, giving the Liberals a bit of room to move before residents of the province head to the polls next June.

With files from Reuters

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