Equity Markets
Canada's main stock index opened higher on Friday, as gold miners, buoyed by stronger bullion prices, led the climb.
The Toronto Stock Exchange's S&P/TSX composite index rose 35.24 points, or 0.23 per cent, to 15,170.24 shortly after the open.
Nine of the index's 10 main sectors advanced. Materials gained 1.1 per cent and energy stocks were up 0.4 per cent. Gold rose 1 per cent to $1,229.70 (U.S.).
The Canadian dollar rose 0.22 to 78.8 cents (U.S.).
In the U.S., the S&P 500 and the Dow were little changed at the open on Friday as investors parsed earnings reports from big banks, while tepid data dimmed chances of another rate hike this year. A rise in technology stocks boosted the Nasdaq.
The Dow Jones Industrial Average was up 20.70 points, or 0.10 per cent, at 21,573.79, the S&P 500 was up 4.18 points, or 0.17 per cent, at 2,452.01 and the Nasdaq Composite was up 14.01 points, or 0.22 per cent, at 6,288.44.
Shares of JPMorgan was down 1.7 per cent, Citigroup was off 0.8 per cent and Wells Fargo was off 2.3 per cent after the banks released mixed earnings reports.
On Thursday, the S&P composite index finished flat with gains by Manullife Financial Corp. offsetting losses by interest-rate sensitive shares. On Wall Street, markets closed slightly higher with the Dow setting another record.
CMC market analyst Michael Hewson noted that higher interest rates - this week Federal Reserve chair Janet Yellen said the U.S. economy is strong enough to weather higher borrowing costs - have offered a tail wind for the U.S. banks. However, he also noted that banks have also moved to manage expectations ahead of the second-quarter reporting season, with JPMorgan CEO Marianne Lake warning in May that the quarter could be disappointing.
"This may well have been a smart move given how the U.S. yield curve flattened further through May and June which suggests there is a risk that even the lowered guidance may well fall short, particularly since trading volatility wasn't exactly high either, so we may well see a downside surprise," Mr. Hewson said in a morning note.
JPMorgan said Friday that earnings per share rose to $1.82 from $1.55 a year earlier. Analysts had expected earnings of $1.58 per share, according to Thomson Reuters. Citigroup, meanwhile, said net income fell to $3.87-billion from $4-billion a year earlier. Earnings per share, however, rose to $1.28 from $1.24 as the number of shares outstanding declined due to buybacks. Analysts on average had expected earnings of $1.21 per share, according to Thomson Reuters I/B/E/S. Wells Fargo said profit rose by 4.5 per cent on loan growth and higher interest rates. Net income applicable to common shareholders rose to $5.40-billion, or $1.07 per share, in the quarter ended June. 30, from $5.17-billion, or $1.01 per share, a year earlier. Analysts on average had estimated earnings of $1.01 per share. Shares of all three banks were lower in early trading after the release of the latest results.
On the economics front, the biggest news comes out of the United States. Ahead of the opening bell, the U.S. Department of Commerce said June's annual inflation came in at 1.6 per cent, below forecast. Retail sales for the month slipped 0.2 per cent. Economists had been expecting a modest increase.
On Bay Street, forestry stocks could get a bit of extra attention after a CIBC World Markets Inc. report suggested a framework for a 10-year softwood lumber agreement between Canada and the United States could be reached in the coming weeks. The report cited discussions with unnamed trade contacts.
"We now believe there is a greater than 50 per cent probability that the two sides could announce an agreed-upon framework by the end of August," the report said.
Overseas, world stocks were higher on expectations of a gradual path to higher interest rates in the United States. Markets shuddered late last month on concerns of an abrupt end to looser monetary policy. Signals this week from the powerful U.S. central bank that a slower course to higher rates was likely helped ease investor concerns.
The pan-European STOXX 600 index advanced up 0.1 per cent, adding to earlier gains on stock markets in Asia that took MSCI's world stock index to an record high, Reuters reported. AstraZeneca was among the higher profile movers, with the stock losing more than 2 per cent in the wake of reports that CEO Pascal Soriot was in talks to joing join Israel's Teva Pharmaceutical Industries. The stock finished Thursday down 3.5 per cent.
In Europe, the blue-chip FTSE 100 was off 0.04 per cent. Germany's DAX was off 0.2 per cent while Paris' CAC 40 declined 0.03 per cent. In Asia, markets finished the week in positive territory as oil prices steadied. Japan's Nikkei rose 0.09 per cent. The Shanghai composite index rose 0.13 per cent and Hong Kong's Hang Seng rose 0.16 per cent.
Commodities
Oil prices firmed early on and looked set for weekly gains despite volatile trading in recent days. Prices were helped by signals from the International Energy Agency that demand is rising and a report from the U.S. Energy Information Administration showing inventories had declined.
Brent crude and West Texas Intermediate were both higher in early trading. Reuters notes that both are now about 5 per cent above the week's lows.
"Oil prices have also continued to rebound, closing at their highest levels this week despite rising U.S. production, lower compliance from OPEC members on the oil price cap, as well as a downbeat forecast from the IEA," Mr. Hewson said. " The Paris-based International Energy Agency cited lower compliance due to higher output from Libya, Nigeria, Algeria and Iraq, which boosted overall output in June."
On Thursday, the EIA said that U.S. crude inventories last week fell by the most in 10 months, exceeding market expectations. Crude inventories dropped 7.6 million barrels in the week ended July 7, compared with analysts' expectations for a decline of 2.9 million barrels. The weekly decrease was the biggest since early September.
In other commodities, gold prices were steady and remained on course for the first weekly gain in three.
"Most of the downside in gold this morning was largely due to profit-taking, but more importantly, market sentiment is still on the rosy side and in a more positive environment," said OCBC analyst Barnabas Gan told Reuters.
Spot gold was up slightly in early going. U.S. gold futures for August delivery were slightly negative. Silver was also flat. London copper prices held near recent highs on reports out of China showing fiscal spending rose 19.1 per cent in June from a year earlier.
Currencies and bonds
The Canadian dollar was holding in the mid-78 cent range in early action, showing little movement from Thursday's close. The day's range so far is 78.45 cents (U.S.) to 78.60. There were no significant Canadian economic reports on the calendar, leaving oil's gains to help bolster the loonie. Inflation and retail sales reports in the U.S. could move the greenback.
The loonie caught a sharp updraft earlier in the week when the Bank of Canada hiked interest rates for the first time in seven years. At the same time, the Fed suggested a gradual course of rate increases and hinted that borrowing costs may not have to rise that much more. Traders are now looking ahead to the Bank of Canada's next move.
"With the dust having settled on the BoC meeting, markets are 85 per cent priced for a hike at the October 25 (our economists' forecast) and fully priced for a hike by year-end," Adam Cole, RBC Europe's chief currency strategist, said in a morning note. "So, arguably, the upside momentum for (the Canadian dollar) from rate sentiment should start to fade from here."
In other currencies, Reuters notes that the U.S. currency's recent advance, notably against the yen, has stalled towards the end of this week after the Federal Reserve curbed some of the monetary tightening expectations that had supported the greenback. That view was further reinforced by other U.S. policy makers such as Dallas Federal Reserve Bank President Robert Kalpan on Thursday, though analysts were wary of kicking the dollar lower before U.S. inflation data. Signs of a pick-up in U.S. inflation could reinforce views that the Fed would hike interest rates again sooner rather than later, which would lift Treasury yields and the dollar, the news agency said.
Elsewhere, the euro was little changed.
In bonds, Germany's 10-year bond yield rose above 0.50 per cent overnight on speculation that the European Central Bank will likely gradually wind down its asset purchase program next year.
U.S. Treasurys were higher after dovish Fed comments this week. The yield on the 10-year note was down 2.335 per cent while the yield on the 30-year note was down 2.91 per cent.
Stocks set to see action
JPMorgan Chase & Co, the biggest U.S. bank by assets, reported a 13.4-per-cent increase in quarterly profit on Friday as gains from higher interest rates more than offset a drop in bond trading. The bank's net income rose to $7.03-billion in the second quarter ended June 30 from $6.20-billion a year earlier. Earnings per share rose to $1.82 from $1.55. Analysts had expected earnings of $1.58 per share, according to Thomson Reuters. Executives at big banks warned in recent weeks that trading revenue during the quarter would be down from a year earlier, when client trading surged around UK's Brexit vote. The latest quarter, however, benefited from the Federal Reserve more than doubling its overnight interest rate to a target range of 1 percent to 1.25 per cent, compared with 0.25 per cent to 0.50 per cent a year earlier.
Citigroup said net income fell to $3.87-billion from $4-billion a year earlier. Earnings per share, however, rose to $1.28 from $1.24 as the number of shares outstanding declined due to buybacks. Analysts on average had expected earnings of $1.21 per share, according to Thomson Reuters I/B/E/S.
Wells Fargo said profit rose by 4.5 per cent on loan growth and higher interest rates. Net income applicable to common shareholders rose to $5.40-billion, or $1.07 per share, in the quarter ended June. 30, from $5.17-billion, or $1.01 per share, a year earlier. Analysts on average had estimated earnings of $1.01 per share.
Fiat Chrysler Automobiles NV said on Friday it is recalling 1.33 million vehicles worldwide in two separate campaigns for potential fire risks and inadvertent airbag deployments. The Italian-American auto maker said it is recalling about 770,000 sport utility vehicles because of a wiring issue that may lead to inadvertent deployment of the driver-side air bag and is linked to reports of five related minor injuries, but no crashes. The company said wiring could chafe against pieces of steering-wheel trim, potentially causing a short-circuit and ultimately leading to an inadvertent air bag deployment. The issue could also cause unintended windshield wiper operation or inoperable switches.
As Manulife Financial Corp. prepares to welcome a new CEO in the fall, reports have surfaced that the company is flirting with divesting its U.S. operations. The Wall Street Journal said on Thursday that Canada's largest insurer had hired investment bankers from Morgan Stanley to assess strategic options for its Boston-based John Hancock Financial Services Inc. division, adding Manulife was contemplating an initial public offering or other spinoff. The report cited sources familiar with the plans.
Uncertainty over the future of AstraZeneca Chief Executive Pascal Soriot drove the Anglo-Swedish drug maker's shares lower again on Friday, taking the cost of two days of silence to more than $3.9-billion (U.S.). AstraZeneca has repeatedly declined to comment on an Israeli media report on Wednesday that said the well-regarded Soriot was in talks to join Israel's Teva Pharmaceutical Industries, the world's biggest generic drug maker. AstraZeneca shares closed 3.5-per-cent lower on Thursday and were down 2.5 per cent on Friday at a two-month low after the company said it would not comment on rumours or speculation.
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Economic News
U.S. consumer prices were unchanged in June as the cost of gasoline and mobile phone services declined further, pointing to benign inflation that could cast doubts on the Federal Reserve's ability to increase interest rates for a third time this year. The Labor Department said on Friday that the unchanged reading in its Consumer Price Index followed a 0.1 per cent dip in May. The lack of a rebound in the CPI in June could trouble Fed officials who have largely viewed the recent moderation in price pressures as transitory. In the 12 months through June, the CPI increased 1.6 per cent - the smallest gain since October 2016 - after rising 1.9 percent in May. The year-on-year CPI has been softening steadily since February, when it hit 2.7 per cent.
U.S. retail sales unexpectedly fell in June for a second straight month, which could temper expectations of strong acceleration in economic growth in the second quarter. The Commerce Department said on Friday retail sales fell 0.2 per cent last month, weighed down by declines in receipts at service stations, clothing stores and supermarkets. Americans also cut back on spending at restaurants and bars, as well as on hobbies.
(10 a.m. ET) U.S. reports July University of Michigan Consumer Sentiment Index. A reading of 95.0 is expected. Last month the index was at 95.1.
With files from Reuters and Bloomberg