Equity Markets
U.S. stock futures were lower Monday as investors brace for a heavy earnings week with key tech companies set to report within days. Midweek focus will also shift to the Federal Reserve, which is set to deliver its next policy announcement on Wednesday. On Bay Street, futures were weaker as oil prices wavered. MSCI's global information technology sector index was 1.4 percent higher at a record high.
"This week the U.S. markets will remain sharply in focus as investors look to see whether the FOMC and U.S. jobs data can lift the dollar and whether U.S. reporting season, which shifts up a gear, will continue to push the U.S. equity indices higher," LCG's Jasper Lawler said in an early note. " The combination of FOMC, (non-farm payrolls) and earnings could make for a volatile week."
This week, earnings are due from 120 S&P stocks, including 10 Dow components, he said. Tech giants including Facebook, Microsoft, Apple, Amazon and Google-parent Alphabet are all set to report. "Expectations are running high with anything up to around 18 per cent increase in (earnings per share) expected," Mr. Lawler said.
So far this year, the S&P 500 has risen 7.5 per cent, managing 12 fresh records in that time.
"If the "January effect" is to be believed, whereby the stock market's performance in January sets the tone for the rest of the year, we are on track for a bumper year," Mr. Lawler said. "So far investors confidence and belief in equities has been unwavering, pullbacks of any significance have been few and far between."
On Bay Street, Bombardier shares could get some attention. The Globe and Mail's Geoffrey York reports that the transportation giant is in a strong position to win more rail business in South Africa. Bombardier's rail division is one of three finalists in the bidding to supply 48 coaches for the high-speed Gautrain rail link between Johannesburg and Pretoria. The contract would be worth an estimated $285-million (U.S.).
Aphria Inc. stock will also be in focus after it said it would buy Nuuvera Inc., a global cannabis company with a strong persence in Europe, Africa and the Middle East. The deal values Nuuvera at $826-million.
South of the border, a key measure of inflation is due before the start of trading with the release of the December core PCE index. The measure showed that inflation ticked higher in December. The PCE (personal consumption expenditure) index excluding food and energy rose 0.2 per cent last month, following December's 0.1-per-cent increase. On an annual basis, the index rose 1.5 per cent. Given the pending Fed decision, the number will be of particular interest to the markets today.
"Overall, growth numbers will have hawks calling for a resumption of rate hikes in Q1, but doves should be able to fend them off, arguing that prices have yet to make material progress toward the 2-per-cent target," CIBC economist Royce Mendes said.
Overseas, stocks in Europe were mixed. The pan-European STOXX 600 was mostly flat. Britain's FTSE 100 was up 0.19 per cent at last check. France's CAC 40 was off 0.04 per cent and Germany's DAX was down 0.17 per cent. AMS AG shares were up more than 25 per cent after the chip maker - a key supplier for Apple - raised its revenue outlook on rising demand for its sensors.
Asian markets also finished mixed. Japan's Nikkei lost early gains to finish mostly flat at 23629.34. Hong Kong's Hang Seng was down 0.56 per cent. The Shanghai composite index was down 0.97 per cent.
Commodities
Oil prices were weaker Monday as rising U.S. production weighs on sentiment. Brent crude trended lower through the overnight period and has a day range so far of $69.84 (U.S.) a barrel to $70.64. Brent crude is up more than 6 per cent so far this month. That's the best January showing since 2013, according to Reuters. West Texas Intermediate followed a similar course overnight and has a day range so far of $65.73 to $66.46.
Rising U.S. production has been widely seen as capping recent gains for crude.
"Baker Hughes reported that 12 oil rigs were added in the U.S. this week, a swift response to the recent strengthening of oil prices which were buoyed by positive commentary from key OPEC players (including the Saudi oil minister at Davos) regarding the future duration of supply cuts," Desjardins Capital Markets said in a note.
"The Permian (Basin) remained in the driver's seat, adding 18 rigs this week — the largest one-week advance in over four years. Meanwhile, another dozen rigs also returned to the field north of the border this week."
Since mid-2016, U.S. oil production has risen more than 17 per cent to 9.88 million barrels a day by the middle of this month. Output is seen breaking through 10 million barrels a day in the near future. U.S. production is now on par with top OPEC producer Saudi Arabia. Reuters notes that only Russia produces more, averaging 10.98 million barrels a day last year.
In other commodities, gold prices fell on a stronger U.S. dollar. Last week, gold marked its six weekly increase in seven and has risen about 3 per cent so far this month. Spot gold and gold futures for February delivery were both lower in early going.
Silver prices were also down early Monday.
Currencies and bonds
The Canadian dollar was lower in early trading, holding just above 81 cents as its U.S. counterpart strengthened on world markets. The loonie's day range so far is 80.93 cents (U.S.) to 81.29 cents.
For the Canadian dollar, the week's highlight will be the release of November's GDP report on Wednesday. Sue Trinh, RBC's head of Asia FX Strategy, says that bank is forecasting a 0.4-per-cent increase after a flat reading the month before.
"While part of the flat reading was attributed to unscheduled maintenance shutdowns at oil sands facilities, a reversal is expected in the mining, oil and gas component in November and the uncertain magnitude could pose an upside risk to our forecast," she said. "Activity reports have been firmer in November, with manufacturing ex-autos volumes up 0.8 per cent month-over-month, wholesale volumes up 0.5 per cent m/m, and retail volumes up 0.3 per cent m/m."
The 0.4-per-cent forecast would be consistent with fourth-quarter growth at an annual rate of about 2 per cent, she said.
In other currencies, the U.S. dollar index, which weighs the greenback against a group of world currencies, was higher, helped by rising bond yields. The dollar index has marked six straight weeks of losses. A busy week for the U.S. dollar sees not only Wednesday's Fed decision but also President Donald Trump's State of the Union address on Tuesday and the release of January jobs figures on Friday.
After a six-week rally, the euro was down against the U.S. dollar early Monday.
In bonds, the yield on the U.S. 10-year note was was higher at 2.71 per cent. The yield on the 30-year note was also higher at 2.952 at last check.
Stocks set to see action
Cannabis producer Aphria Inc said on Monday it would buy rival Nuuvera Inc for $826-million to expand into Europe, Africa and the Middle East. Aphria said it will pay $8.50 per share to Nuuvera shareholders, representing a 21.4 percent premium to the stock's Friday closing price.
Soda maker Dr. Pepper Snapple Group Inc and K-cup maker Keurig Green Mountain Inc. have agreed to merge, creating a company with $11-billion in annual revenue, the companies said on Monday. Dr Pepper Snapple shareholders will be paid a special cash dividend of $103.75 per share in and will retain 13 per cent of the combined company, which will be called Keurig Dr Pepper. Dr. Pepper Snapple rose 41.1 per cent in premarket trading.
A group of shareholders of Avon Products Inc. led by activist investor Shah Capital has called for the cosmetics maker to explore strategic alternatives, including a possible sale. Avon's shares were up more than 17.3 per cent at $2.85 in premarket trading on Monday. The shareholder group, which also includes Barington Capital Group and NuOrion Partners, said it was "extremely disappointed" with falling price performance and leadership of the company.
Ford Motor Co. said its China chief, Jason Luo, has stepped down after only five months at the helm for personal reasons, a sudden resignation that raises questions over how the auto maker will best tackle a sales slump in the world's biggest car market. Luo had been poached from Key Safety Systems, and it had been hoped that he would reprise his work at the auto parts maker where he engineered a significant surge in China revenue. Ford shares fell 1.6 per cent in premarket trading.
French drug maker Sanofi has agreed to buy Belgian biotech company Ablynx for $4.8-billion, beating Novo Nordisk and marking its second big deal this month after buying Bioverativ. The deal is a further sign of accelerating mergers and acquisition (M&A) activity in the global biotech sector. Sanofi shares were down 2 per cent in premarket trading but Ablynx was up nearly 15 per cent.
Volkswagen's supervisory board called on Monday for an immediate inquiry into who ordered scientific tests in which monkeys were exposed to toxic diesel fumes, while the German government said such studies were unjustifiable. "I will do everything possible to ensure that this matter is investigated in detail," Volkswagen supervisory board Chairman Hans Dieter Poetsch said in a statement "Whoever is responsible for this must of course be held accountable," he added.
Lockheed Martin Corp. reported fourth-quarter revenue that beat Wall Street estimates, helped by higher sales from the F-35 fighter jet program, while also forecasting a rise in earnings in 2018. Its shares rose 2.9 per cent in premarket trading.
Shares of KapStone Paper and Packaging jumped 30 per cent after packaging company WestRock said it would buy the company for an enterprise value of about US$4.9-billion.
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Economic News
The Commerce Department said on Monday consumer spending rose 0.4 per cent last month after an upwardly revised 0.8 per cent increase in November. Economists polled by Reuters had forecast consumer spending increasing 0.4 per cent in December.
The Federal Reserve's key inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, advanced 0.2 per cent last month, up from 0.1 per cent in November. On an annual basis, the index rose 1.5 per cent.
With files from Reuters