Before the Bell: TSX to struggle as commodities turn south

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 Monday morning to you.

North American markets look to open to the downside this morning, with the strengthening U.S. dollar putting pressure on commodity stocks. In the U.S., futures are down slightly across the board, with declines of 0.1 per cent for all three major indexes. Dow futures are lower by 16 points, S&P 500 futures are down 2 points, and Nasdaq futures are down 4 points. The S&P/TSX 60 index futures are lower by 3 points.

Turning to the Pacific Rim, in Japan, the Nikkei 225 was closed for the Labor Thanksgiving day holiday. In China, the Shanghai composite and Shenzhen composite both declined by 0.6 per cent and 0.8 per cent, respectively. The Hang Seng dropped 0.4 per cent. Meanwhile, the Australian S&P/ASX 200 bucked the negative trend, climbing 0.4 per cent as financial stocks offset weakness from commodity stocks.

Major European markets are in the red today despite better-than-expected economic data out of the euro zone. The London FTSE is down 0.3 per cent. The German DAX is down 0.2 per cent and France's CAC is lower by 0.6 per cent. Euro zone November composite purchasing managers' index (PMI) climbed to 54.4, the highest level since 2011, and surpassed forecasts of 54. Euro zone November manufacturing PMI data was 52.8, ahead of expectations of 52.3 and the prior month's reading of 52.3. Euro zone November services PMI was 54.6, ahead of expectations and the prior month's reading of 54.1. German economic data was better-than-expected. Manufacturing and services PMI data were both ahead of expectations. November manufacturing PMI was 52.6, compared to expectations of 52 and the prior reading of 52.1. November services PMI was 55.6, above forecasts of 54.4 and last month's reading of 54.5. In France, November PMI was in-line with forecasts at 50.8; however, services PMI fell short of expectations at 51.3 compared to economists' forecasts of 52.5.

Meanwhile, the strengthening U.S. dollar due to expectations of a December rate hike continues to put pressure on commodities. The price of gold fell to a 52-week low earlier this morning, and is now at $1,069.70 (U.S.), down $6.50. The price of oil is down this morning to $41.27 (U.S.), still holding above $40. Natural gas prices lower by 7 cents to $2.07 (U.S.).

In currency markets, the Canadian dollar, which is closely tied to the price of oil, is under pressure, falling back to the September low to 74.5 cents per U.S. dollar. The Canadian dollar is at 70.13 cents per euro. The euro relative to the U.S. dollar is down to 1.0625.

On the earnings front, GameStop and Tyson Food are among the companies reporting in the U.S. today. There are no companies in the S&P/TSX composite index reporting today. On Tuesday, Alimentation Couche-Tarde and George Weston report quarterly earnings before the opening bell.

Here is the bottom line. Pressure from slumping commodity prices is squeezing out last week's gains. Last week, the S&P 500 index climbed 3.3 per cent, posting the best weekly performance in all of 2015. We should start off a new week by giving back some of these gains, but it is nothing to panic about. Resource stocks remain under pressure with slowing global demand, and building inventory levels. There were 39 stocks touching new 55-day lows on the TSX Friday, and nearly half of those stocks - 46 per cent - were energy stocks. Two sectors, energy and materials, accounted for 69 per cent of the stocks breaking down. I would still be avoiding these sectors.

It will be a quiet week with U.S. markets closed on Thursday for the Thanksgiving holiday and closing early at 1 p.m. (EST) on Friday. A lack of buyers in the markets may cause equity indexes to drift lower. In addition, it is a quiet week for economic releases out of China, so no major releases to shock the markets.

Now, here is a closer look at major markets, and corporate and economic news.

MARKET DATA:

Futures

S&P 500 -0.1 per cent; Dow -0.1 per cent; Nasdaq: -0.04 per cent

Equities
Hong Kong's Hang Seng -0.39 per cent
Shanghai composite index -0.56 per cent
Japan's Nikkei Closed for holiday
London's FTSE 100 -0.34 per cent
Germany's DAX -0.19 per cent
France's CAC 40 -0.55 per cent
Stoxx 600 -0.47 per cent

Commodities
WTI crude oil (Nymex Jan) -0.26 per cent at $41.77 (U.S.) a barrel
Gold (Comex Feb) -0.54 per cent at $1,070.50 (U.S.) an ounce
Copper (Comex Mar) -1.68 per cent at $2.03 (U.S.) a pound

Currencies
Canadian dollar -0.07 at 74.88 cents (U.S.).
U.S. dollar index +0.299 at 99.864

Bonds
U.S. 10-year Treasury yield 2.29 per cent, +0.04

ECONOMIC INDICATORS:

(10 a.m. ET) U.S. existing home sales for October. Consensus is an annualized rate decline of 2.7 per cent.

CORPORATE NEWS:

Allergan's shares were down 2.4 percent at $305 in premarket trading, after agreeing to be bought by Pfizer in a deal valued at about $160 billion. Pfizer was down 1.7 percent at $31.62.

Manitoba Telecom Services Inc. says it has signed a deal to sell its Allstream business to Zayo Group Holdings Inc. for $465 million in cash.

Chipotle Mexican Grill fell 2.8 percent to $521.01 after an E.coli outbreak linked to its restaurants spread to six U.S. states.

Earnings include: Advanced Drainage Systems Inc; GameStop Corp; Post Holdings Inc; Tyson Foods Inc; YY Inc

QUOTE OF THE DAY:

"To love and be loved is to feel the sun from both sides." David Viscott