Jennifer Dowty, Chartered Financial Analyst, writes exclusively for Globe Unlimited subscribers. The Before the Bell report is updated throughout the premarket to reflect latest developments.
Good Wednesday morning to you. North American futures are in the green this morning as equity markets look to open solidly higher at the opening bell. S&P 500 futures are rallying nearing 1 per cent, extending gains from earlier this morning, after a reading on private job sector growth in the U.S. by ADP showed that employers hired the fewest workers in July since April.
The jobs reading reduced expectations of a strong U.S. nonfarm payrolls report on Friday, causing traders to ratchet down expectations of a Federal Reserve rate hike this September.
Meanwhile, look for earnings reports to primarily move markets today, and also keep a close eye on the U.S. Energy Information Administration (EIA) weekly oil inventory report at 10:30 a.m. (ET).
On Tuesday, the American Petroleum Institute (API) gave us a glimpse into what we may expect from the EIA today. The API reported that crude oil inventories fell by 2.4 million barrels, a larger decline than expected. Crude oil is currently sitting around the $46 (U.S.) per barrel level as investors await the more important and closely watched EIA report. A larger-than-expected drawdown could move the price of oil back above $46.
On the earnings front, since July 20, according to Bloomberg, 95 companies in the S&P/TSX composite index have reported earnings results. In terms of surprises, 53 per cent have missed revenue expectations and 52 per cent have missed earnings expectations. The earnings picture doesn't look any better when you look at year-over-year growth as there isn't any growth. Sales, on average, have declined 9 per cent year-over-year, and earnings, on average, have fallen 27 per cent year-over-year. Just five of the ten sectors in the S&P/TSX composite index are showing positive year-over-year earnings growth, those being health care, consumer staples, consumer discretionary, technology and industrials. If you look at Tuesday's sector leadership, the sectors with the positive year-over-year earnings growth, the health-care and consumer sectors, rallied the most. It's a further signal that investors should stick with stocks that deliver positive earnings growth.
Among the Canadian stocks reporting today are: Bellatrix Exploration, SEMAFO, WSP Global, Sun Life Financial, Barrick Gold, Linamar, Agrium, IAMGOLD, Keyera, Primero Mining, Colliers International, Turquoise Hill Resources, Veresen, Gran Tierra Energy, TMX Group, Innergex Renewable Energy, and Dream Global REIT. See a more detailed rundown below in our Stocks to Watch section.
On Tuesday, Atlanta Fed President, Dennis Lockhart, made hawkish comments, stating, "It will take a significant deterioration in the economic picture for me to be disinclined to move ahead" with an interest rate hike in September. His comments sent U.S. stocks lower, with all major U.S. indexes closing down on Tuesday as the U.S. dollar moved higher.
Meanwhile on Tuesday, investment guru, Lazlo Birinyi, expressed his bullish views on the S&P 500 Index stating, "Most people don't realize that we are now in the second greatest S&P rally in history." He goes on to predict that the S&P 500 Index will rally: "If the market continues to gain 11 basis points a day, as it has for the last six years, that two years out or so, we are going to be over 3,000." The S&P 500 Index closed at 2093 on Tuesday.
Major European markets are up solidly today with the notable exception of the Athens Stock Exchange General Index, which is down over 3 per cent today. Since reopening on Monday, the Greek index has collapsed over 20 per cent. German and French indexes are up over 1 per cent after the nations' released in-line to slightly positive purchasing managers index (PMI) reports. European economies showed slow but steady economic improvements. In France, services PMI for July was 52.0, in-line with expectations, and the French composite PMI for July was 51.5, again, in-line with expectations. In Germany, services PMI was 53.8, slightly ahead of 53.7 expected by economists. Composite PMI was 53.7, ahead of expectations of 53.4. In Spain, services PMI for July jumped to 59.7, ahead of expectations of 55.8 and the prior month's reading of 56.1, and the composite PMI was 58.3, well above expectations of 55.9 and the June reading of 55.8.
Major Asian markets were mixed overnight. Japan's Nikkei gained half a percent, while the Chinese markets pulled back. The Shanghai Stock Exchange composite index retreated 1.7 per cent, and the Shenzhen Stock Exchange composite index declined 1.1 per cent. The Chinese July composite PMI was 50.2, down from 50.6 last month.
The Bottom Line: Markets look set to move higher today. We may see additional volatility in energy stocks upon the release of the 1030 a.m. weekly inventory report out by the U.S. Energy Information Administration.
Now, here is a look at major markets and news.
S&P 500 +0.7 per cent; Dow +0.4 per cent; Nasdaq: +0.7 per cent
Hong Kong's Hang Seng +0.44 per cent
Shanghai composite index -1.64 per cent
Japan's Nikkei +0.46 per cent
London's FTSE 100 +0.49 per cent
Germany's DAX +1.29 per cent
France's CAC 40 +1.27 per cent
Stoxx 600 +1.07 per cent
WTI crude oil (Nymex Sep) +0.50 per cent at $45.97 (U.S.) a barrel
Gold (Comex Dec) -0.35 per cent at $1,086.80 (U.S.) an ounce
Copper (Comex Sep) -0.83 per cent at $2.34 (U.S.) a pound
Canadian dollar at 76.12 (U.S.), +0.0029
U.S. dollar index -0.1390 at 97.79
U.S. 10-year Treasury yield 2.25 per cent, +0.02
U.S. private employers hired 185,000 workers in July, which was the smallest increase since April and reduced expectations of a strong jobs reading in the government's payrolls report due Friday, according to a payrolls processor on Wednesday. Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 215,000 private jobs in July.
Canada June international trade deficit was $480 million vs. a Street estimated $2.9 billion shortfall.
U.S. goods and services trade deficit for June was $43.8-billion vs. the consensus estimate of $42.6-billion.
STOCKS TO WATCH:
Motorola Solutions Inc, a maker of walkie-talkies and radio systems, said private equity firm Silver Lake would invest $1 billion in the company. The company also said it plans to buy back up to $2 billion of shares. Silver Lake is buying $1 billion of convertible senior notes due 2020 with an initial conversion price of $68.50 per share.
The results of a two-week vote on whether WestJet pilots will form the company's first union are expected today. The airline's roughly 1,300 pilots have been voting by secret ballot on whether to recognize the WestJet Professional Pilots Association as their official bargaining unit.
Dow component Walt Disney's shares fell 6.5 per cent in premarket trading after the media company lowered profit guidance for its cable networks unit and reported quarterly revenue slightly below expectations.
Activision Blizzard jumped 7.5 per cent in premarket trading after the videogame maker's results beat expectations and it raised its 2015 forecast.
WSP Global reported Q2 adjusted EPS of 51 cents vs. a Street estimated 47 cents.
Earnings today include: Agrium Inc.; Arsenal Energy Inc; Avnet Inc.; Barrick Gold; Bellatrix Exploration Ltd; Boralex Inc; Brookfield Real Estate; Canadian Natural Resources Ltd; Canexus Corp; Cardiome; Ceres Global Ag Corp; Chesapeake Energy Corp; Cognizant Tech Solutions; Colliers International Group Inc; Discovery Commun Inc.; DISH Network Corp.; Essential Energy Services Ltd; Fidelity & Guaranty Life; Fiera Capital Corp; Fitbit Inc; High Liner Foods Inc; IAMGOLD Corp; Information Services Corp; J.G. Wentworth Company; Keurig Green Mountain Inc.; Keyera Corp; Killam Properties Inc; Kronos Worldwide Inc.; Liberty Broadband Corp.; Lightstream Resources Ltd; Linamar Corp; Marathon Oil Corp.; Melcor Developments Ltd; Motorola Solutions Inc.; North American Energy Partners Inc.; Perrigo Co. Plc; Points International Ltd; Priceline Grp Inc; Prudential Fincl Inc.; Pure Technologies Ltd; Redknee Solutions Inc; Redline Communications Group Inc; Sabina Gold & Silver Corp; Semafo Inc; Sleep Country of Canada; Spectra Energy Corp; Strad Energy Services Ltd; Sun Life Fincl Inc.; Sunoco LP; Tesla Motors Inc.; Time Warner Inc.; TMX Group Ltd; Turquoise Hill Resources Ltd.; Twenty-First Century Fox Inc.; Valero Energy Partners LP; Veresen Inc; Weight Watchers Intl Inc.; Wendy's Company.
Merrill Lynch downgraded Apple to "neutral" from "buy".
Raymond James upgraded Savanna Energy Services to "strong buy" from "outperform" and maintained a $2.75 (Canadian) price target.
RBC Dominion Securities upgraded Brookfield Property Partners to "outperform" from "sector perform" but lowered its price target to $26 (U.S.) from $27.
BMO Nesbitt Burns downgraded Walt Disney to "market perform" from "outperform" and cut its price target to $110 (U.S.) from $125.
QUOTE OF THE DAY:
"When you cease to dream, you cease to live." - Malcolm Forbes