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 Friday morning to you. Stock futures have turned south on a much better-than-expected U.S. nonfarm payrolls report, setting up for a negative start to the trading day. S&P 500 futures, flat ahead of the 830 a.m. (ET) data, are now down about 0.3 per cent. Stocks in Europe are also weaker, albeit modestly.
U.S. employment in October surged by the most this year, wage growth accelerated and the jobless rate fell to 5 per cent, signs of labour-market durability. The addition of 271,000 jobs exceeded all estimates in a Bloomberg survey of economists and followed a revised 137,000 gain in September. The median forecast called for a 185,000 advance. Average hourly earnings climbed from a year earlier by the most since July 2009. Wages increased 0.4 per cent month-over-month, or by 2.5 per cent year-over-year. Employment was solid across the board with gains in professional and business services of 78,000, in health care 45,000 jobs were added, and retail jobs rose by 44,000. Bond prices collapsed on the news, with the U.S. 2-year treasury yield climbing to 0.918 per cent from 0.828 per cent yesterday. The Canadian dollar declined to 75.26 cents per U.S. dollar from 75.93 yesterday. The data increases the likelihood of a December rate hike. Fed fund futures are pricing in a 70 per cent chance of a rate hike by the Federal Reserve in December.
In the U.S, Dow futures are down 47 points, S&P 500 futures are down 7 points, and Nasdaq futures are lower by 12 points, implying a modestly down opening.
The U.S. Federal Reserve Chair, Janet Yellen, has clearly articulated that the Federal Reserve is ready to raise rates should economic data warrant such a move. However, any weakness is a buying opportunity as I believe the Federal Reserve will likely take a "one and done" approach to raising rates, and a strengthening U.S. economy is positive.
Overseas in the Pacific Rim, it was a mixed day with strength in China and Japan. In China, the Shanghai composite and Shenzhen composite advanced 1.9 per cent and 2.8 per cent, respectively. Chinese markets continue to steadily recover. Since the beginning of October, the Shanghai composite is up 18 per cent. As we see continued market and economic stability, expect speculation to increase that China's mainland stocks may be added to the MSCI Emerging Markets Index, which would drive Chinese stock markets even higher. Turning to Japan, the Nikkei 225 gained 0.8 per cent as the lower Yen relative to the strengthening U.S. dollar continues to boost the Japanese benchmark. As well, the Bank of Japan Governor, Haruhiko Kuroda, was upbeat at a meeting held by the Research Institute of Japan in Tokyo on Friday, stating that, "Japan's economy is likely to continue growing at a pace above its potential, and the price stability target of 2 per cent certainly would be achieved." The Governor went on to say, "the Bank will continue to steadily pursue QQE (quantitative and qualitative monetary easing) and solidly maintain accommodative financial conditions." The Bank sees Chinese economic activity as the most important risk factor but is optimistic about China, stating, "With regard to short-term developments, the pace of increase in spending by local governments, whose deceleration was one of the sources of sluggishness in the Chinese economy in the first half of this year, has accelerated recently, due partly to instructions by the central government and the measures taken to facilitate the financing of local governments. It therefore is expected that the growth rate in China will accelerate toward next year." Modest moves were seen in the Korean KOSPI, which fell 0.4 per cent. On the flip side, in Australia, the S&P/ASX 200 gained 0.4 per cent. Over the weekend, Chinese trade data will be released and may impact the markets.
On the commodities front, natural gas futures surged 4.5 per cent to $2.36 (U.S.) on Thursday as weekly U.S. natural gas inventory levels increased less than expected. As well, investors are forward looking and below normal temperatures are expected to hit the U.S. Northeast, a high demand region, in mid-November. Shares of Encana advanced 0.5 per cent on Thursday, outperforming the broader market with the TSX composite index declining 0.8 per cent. While I am not bullish on natural gas stocks given the high inventory levels, the bottom may be limited; however, weather and weekly inventory levels will be major factors to monitor in order to determine if the worst is behind us. Natural gas futures are holding steady this morning at $2.36.
The strengthening U.S. dollar, with rising expectations of a December interest rate hike by the Federal Reserve, has put downward pressure on the price of oil and gold. West Texas Intermediate (WTI) oil futures continue to see intra-day volatility and declined 2.4 per cent on Thursday. The price of oil remains largely in the $42.50 (U.S.) to $47 price range, closing in the middle of that range at $45.20 on Thursday. WTI prices are up to the mid $45 level this morning. As well, watch for Baker Hughes rig count data released at 1 p.m. (ET). Gold prices dropped to $1,103.87 (U.S.) on Thursday and are currently up a few dollars.
On the earnings front, it is a relatively quiet day with just six companies in the S&P/TSX composite index slated to report third-quarter results today, those being: Bankers Petroleum, Baytex Energy, Brookfield Asset Management, Enerplus, Fortis and Stella-Jones.
Now, here is a closer look at major markets, and corporate and economic news.
MARKET DATA:
Futures
S&P 500 -0.4 per cent; Dow -0.3 per cent; Nasdaq: -0.2 per cent
Equities
Hong Kong's Hang Seng -0.80 per cent
Shanghai composite index +1.91 per cent
Japan's Nikkei +0.78 per cent
London's FTSE 100 -0.14 per cent
Germany's DAX -0.04 per cent
France's CAC 40 -0.64 per cent
Stoxx 600 -0.46 per cent
Commodities
WTI crude oil (Nymex Dec) -0.07 per cent at $45.19 (U.S.) a barrel
Gold (Comex Dec) -1.01 per cent at $1,093.60 (U.S.) an ounce
Copper (Comex Dec) -0.27 per cent at $2.25 (U.S.) a pound
Currencies
Canadian dollar -0.61 at 75.34 cents (U.S.).
U.S. dollar index +0.247 at 98.183
Bonds
U.S. 10-year Treasury yield 2.30 per cent, +0.06
ECONOMIC INDICATORS:
The U.S. added 271,000 jobs last month vs. an estimated 180,000. The unemployment rate slipped to 5 per cent.
Canada added 44,000 net new jobs last month, much higher than the 10,000 expected.
CORPORATE NEWS:
Baytex Energy reported a Q3 loss of $2.49 a share vs. a Street estimated loss of 16 cents.
TransCanada Corp. announced it has entered into an agreement to sell a 49.9 per cent interest in Portland Natural Gas Limited Partnership to its master limited partnership, TC PipeLines, LP, for a purchase price of $223 million (U.S.).
Health insurer Humana Inc, which agreed to be bought by Aetna Inc for $37 billion in July, reported a better-than-expected quarterly profit as it added more members to its individual Medicare Advantage business.
Health insurer Cigna Corp reported a better-than-expected quarterly profit, helped by higher enrollments in its government plans and favorable medical costs. Cigna, which agreed to be bought by larger rival Anthem Inc in July, also raised the low end of its forecast for full-year adjusted earnings to $8.40 per share from $8.30. The company kept the top end of the guidance unchanged at $8.60.
Nvidia's shares rose 10 per cent in the premarket after the chipmaker's third-quarter results beat expectations.
TripAdvisor fell 9.2 per cent in the premarket after quarterly results missed estimates.
Youku Tudou rose 9.2 per cent in the premarket after Alibaba said it would buy the company for $27.60 per ADS, $1 higher than its previous offer. Alibaba was up 0.3 percent.
Weight Watchers rose 15.8 per cent in the premarket after it raised its 2015 adjusted profit forecast,
ZS Pharma soared 40.2 per cent after AstraZeneca said it would buy the biotech company for $2.7-billion (U.S.).
Other earnings today include: Alliant Energy Corp; Ameren Corp; ARC Resources Ltd; Bankers Petroleum Ltd; Black Diamond Group Ltd; Cigna Corp;Fortis Inc; GMP Capital Inc; Humana Inc; Pulse Seismic Inc; Stella-Jones Inc; Supremex Inc.
ANALYST ACTIONS:
Air Canada was upgraded to action list buy from a buy at TD Securities. The price target was increased to $23 from $21
BCE was upgraded to a buy recommendation from a hold at Canaccord Genuity. The price target was lifted to $59 from $56.
Bonavista Energy was downgraded to a sector perform from an outperform recommendation at National Bank Financial. The price target was lowered to $6 from $4.
Magna was upgraded to an overweight from a neutral recommendation at J.P. Morgan.
TMX Group was upgraded to a sector perform from an underperform recommendation at National Bank Financial. The price target was bumped up to $50 from $49.
QUOTE OF THE DAY:
"Settle for a choice that meets your core requirements rather than searching for the elusive best." - Barry Schwartz
With files from Bloomberg
Jennifer Dowty