Jennifer Dowty
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 Thursday morning to you. Markets are likely to remain in neutral territory as investors sit on the sidelines ahead of the important U.S. non-farm payroll report out tomorrow morning. While there is an overall calmness in the markets, a commodity correction continues.
On Wednesday, the S&P/TSX composite index was relatively flat, up less than 0.1 per cent. There were 107 stocks in the S&P/TSX composite index that were up, 134 were down, and six were unchanged. Energy and the materials sectors lead the declines. Today, it looks like it may be a carbon copy of yesterday's trading action. We may see a continuation of inactivity in the TSX index as S&P/TSX 60 Index Futures are relatively flat this morning, and the price of WTI crude continues to slide lower and is below $45 (U.S.) this morning. Gold is holding steady near the $1,085 (U.S.) per ounce. U.S. futures are also relatively flat this morning, though are trending into positive territory as the opening bell approaches.
On the earnings front, it has been an uninspiring second-quarter earnings season. Since July 20, 117 companies in the S&P/TSX composite index have reported earnings with 33 more companies set to report today. Among those companies reporting are BCE, Canadian Natural Resource, Stantec, SmartREIT, SNC-Lavalin, Finning, Dorel, Martinrea, and Paramount Resources. See more details below in our Stocks to Watch section.
The earnings scorecard is weak and helps to explain the lack of momentum in the markets. In terms of positive surprises, according to Bloomberg, only 43 per cent of companies have beat sales expectations, and 50 per cent have beat earnings expectations. In terms of growth, sales, on average, are down 15 per cent year-over-year, and earnings, on average, are down 29 per cent year-over-year. Sectors with positive earnings momentum are the consumer sectors, health care, technology, industrials, and utilities.
Major European markets are relatively flat this morning. The London, French, and German markets are all making moves of less than half a per cent. However, the Athens Stock Exchange General Index is up over 3 per cent after declining sharply since it reopened on Monday.
In corporate news, London-based Rio Tinto, the world's second-largest miner, reported financial results today and the numbers were ugly, as expected. First-half profits were down over 40 per cent. Chinese demand is moderating and more supply is coming on-line – the fundamentals are weak and may remain challenging in the near-term.
Calmness in the markets also extended to Asia. The Nikkei gained just 0.2 per cent and there is some stability in the Chinese markets as stocks there declined less than a per cent. The Shanghai Stock Exchange composite index was down 0.9 per cent and the Shenzhen was off 0.7 per cent.
Here's the bottom line: The S&P/TSX composite index is down approximately one per cent year-to-date. The index has been in a decline since April and I think there is further downside risk. At the end of July, the 50-day moving average crossed the 200-day moving average – a bearish signal. Seasonally, we are heading into the weakest months. China's slowing economy is not going away or soon to bounce back. Oversupply conditions in commodities, such as oil, are not going away as demand is not strong enough. The U.S. Federal Reserve is set to raise interest rates. The S&P/TSX composite index could retest the 14,000 level in the near-term. Investors should take some profits off the table on stocks trading at lofty valuations, stay defensive, and wait for better entry points in beaten down commodity stocks.
Now, here is a closer look at major markets and news.
MARKET DATA:
Futures
S&P 500 +0.2 per cent; Dow -0.2 per cent; Nasdaq: +0.2 per cent
Equities
Hong Kong's Hang Seng -0.57 per cent
Shanghai composite index -0.88 per cent
Japan's Nikkei +0.24 per cent
London's FTSE 100 -0.21 per cent
Germany's DAX +0.05 per cent
France's CAC 40 +0.10 per cent
Stoxx 600 -0.48 per cent
Commodities
WTI crude oil (Nymex Sep) -0.91 per cent at $44.74 (U.S.) a barrel
Gold (Comex Dec) -0.06 per cent at $1,084.90 (U.S.) an ounce
Copper (Comex Sep) +0.13 per cent at $2.35 (U.S.) a pound
Currencies
Canadian dollar at 75.93 (U.S.), +0.0005
U.S. dollar index -0.0240 at 97.93
Bonds
U.S. 10-year Treasury yield 2.25 per cent, -0.02
ECONOMIC INDICATORS:
U.S. initial jobless claims for the week of Aug. 1 were 270,000, just under the expected 273,000.
STOCKS TO WATCH:
Manulife Financial Corp. said second-quarter profit fell 36 percent as changes to interest rates tempered growth and investment income. Profit excluding some items was 44 cents a share, matching the average estimate of 13 analysts surveyed by Bloomberg.
Canadian Natural Resources Ltd. reported a second-quarter loss as cost cuts failed to make up for a crude slump weighing on returns across the industry. The net loss was $405-million, or 37 cents a share, compared with a profit of $1.07-billion, or 97 cents, a year earlier.
BCE Inc. reported second-quarter earnings that matched analysts' estimates as Canada's largest telecommunications company added new wireless subscribers. Earnings, excluding certain items, were 87 Canadian cents. BCE gained 61,033 new wireless users, compared with an average prediction of 59,600 from eight analysts. BCE's revenue rose 2 per cent to $5.33 billion, compared with the $5.31 billion average of analysts' estimates compiled by Bloomberg.
Profits climbed during Sun Life Financial Inc.'s second quarter as the insurer's Asian business continued to grow and sales of wealth and insurance products increased in Canada. The Toronto-based insurer said net profits rose to $726-million, or $1.18 a share, in its second quarter, from $425-million, or 69 cents a share, a year earlier.
Barrick Gold Corp. after the bell Wednesday posted second-quarter earnings that missed analysts' estimates as efforts to reduce costs and streamline operations failed to counter falling metal prices. The net loss was $9 million, or 1 cent a share, compared with a loss of $269 million, or 23 cents, a year earlier. Earnings excluding one-time items were 5 cents a share, trailing the 6- cent average of 21 analysts tracked by Bloomberg. Barrick also announced a dividend cut and reduced its gold production forecast. It said it is preparing to start a formal process to sell assets including Bald Mountain as it targets $2 billion in reduced expenditures. Shares are up 1.6 per cent in the premarket today.
SNC-Lavalin reported Q2 EPS of 17 cents vs. the Street estimated 48 cents.
Molson Coors reported Q2 EPS of $1.14 vs. the Street estimated $1.32. Revenue matched consensus.
North American nitrogen fertilizer producers Agrium Inc and CF Industries reported higher second-quarter profits on Wednesday after markets closed Agrium's quarterly profit beat expectations for the Canadian company, while earnings for Illinois-based CF matched the average estimate. Agrium lowered the top end of its 2015 profit forecast to a range of $7.00 to $7.50 from $7.00 to $8.25 per share, due to the impact of low crop prices on farmers and second-half potash and phosphate prices that are expected to be lower than previous guidance.CF Industries Holdings Inc also announced it will buy Netherlands-based rival OCI NV's North American and global distribution businesses in a deal valued at about $8-billion (U.S.), including debt.
Keurig Green Mountain Inc. plummeted 30 per cent in the premarket after the maker of single-serve coffee systems cut sales and profit forecasts, hurt by sluggish demand for its K-Cups and the slow rollout of a new cold-beverage machine.
Other earnings include: 3D Systems Corp.; AMC Networks Inc.; Apache Corp.; AutoCanada Inc; Brookfield Renewable Energy Partners LP; Calian Technologies Ltd; Canam Group Inc; Celladon Corp.; CI Financial Corp; Cinemark Hldgs Inc.; Conifex Timber Inc; Endeavour Silver Corp; Enerflex Ltd; Energen Corp.; Extendicare Inc; Freehold Royalties Ltd; Great-West Lifeco Inc; IGM Financial; Kinaxis Inc; Lions Gate Entertain Corp.; Magellan Midstream Partners L.P.; Michael Kors Hldgs Ltd; Monster Beverage Corp.; New York Times Company; Newalta Corp; Pembina Pipeline Corp.; Pengrowth Energy Corp.; Premium Brands Holdings Corp; RE/MAX Hldgs Inc.; Richmont Mines Inc; Sierra Wireless Inc.; Stantec Inc.; Tesco Corp.; Whistler Blackcomb Holdings Inc; Whitecap Resources Inc; Viacom Inc.; Zynga Inc.
Activist investor William Ackman's hedge fund has built a stake worth about $5.5 billion in Mondelez International Inc, the maker of Cadbury chocolate and Oreo cookies, in what is seen as an attempt to push the company to grow faster or sell itself.
ANALYST ACTIONS:
Canaccord Genuity upgraded HudBay Minerals to "buy" from "hold" and cut its price target to $11 (Canadian) from $12.
Canaccord Genuity upgraded Iamgold to "hold" from "sell" and cut its price target to $2 (Canadian) from $2.10.
Canaccord Genuity upgraded Royal Gold to "buy" from "hold" and maintained a $71 (U.S.) price target.
Canaccord Genuity downgraded Keurig Green Mountain to "hold" from "buy" and slashed its price target to $65 (U.S.) from $120.
BMO Nesbitt Burns downgraded Allied Properties REIT to "market perform" from "outperform" and cut its price target to $40 (Canadian).
RBC Dominion Securities downgraded High Liner Foods to "sector perform" from "outperform" and cut its price target to $21 (Canadian) from $27.
QUOTE OF THE DAY:
"The best way to predict the future is to create it." - Peter Drucker
Jennifer Dowty