Colin Cieszynski
The Before the Bell report is compiled by editors of The Globe and Mail and is updated throughout the morning to reflect latest developments. Colin Cieszynski, Chartered Financial Analyst and Chartered Market Technician, is chief market strategist with CMC Markets.
Last Friday, U.S. stocks shrugged off an early trading correction and finished the week strong, a sign of renewed accumulation. This positive momentum has carried into the new trading week, particularly overseas. Overnight the Nikkei soared 1.7 per cent while this morning the Dax and FTSE are both up about 0.3 per cent or more. U.S. index futures are mixed with the Dow and S&P are up slightly while the Nasdaq is down slightly.
Mid-October through April has historically been the strongest time of the year for stock markets. This year's seasonal rebound got off to a slow start but since the election has increasingly been gaining traction.
Last week, the U.S. was the main driver of trading action but today, the positive fundamental support has broadened following the announcement of very strong GDP and industrial production reports for Japan, plus in-line retail sales and industrial production reports for China.
Capital continues to move out of defensive havens back into stocks and commodities. Gold, the yen, and bonds are all sinking again today. The U.S. dollar continues to rally on anticipation of higher inflation and interest rates going forward. The U.S. dollar gains suggest that traders are expecting the pace of rate hikes to accelerate from once a year to at least twice, maybe more.
Commodity action has been mixed this morning. Crude oil is under pressure again amid ongoing uncertainty about and OPEC production deal. Countries continue to stake out positions with the Nov. 30 meeting now just over two weeks away. The issue impacting the market more today is reports that Iranian production continues to increase, a possible sticking point. U.S. drill rig increases should be taken with a grain of salt as exploration seasonally ramps up in the winter when its easier to gain access to drill locations. The lower oil price is dragging on the Canadian dollar and could impact trading in energy stocks today.
Copper, meanwhile, appears to be getting over Friday's big trading correction and resuming its advance as trades related to the Street sorting out the potential winners and losers in a Trump America continues. The announcement over the weekend that Steve Bannon, the head of Trump's campaign and of the far-right website Breitbart, and Republican Chair Reince Prebius will both have high level roles have boosted confidence from the market that Trump will try to find a balance between making necessary changes that benefit the country without going too radical, which could be disruptive. Protests continued over the weekend but Trump's first big interview last night on 60 Minutes showed his pivot from campaign to governing stance is underway.
Some of the splits and emerging trends we have seen in the market lately may continue, including traders taking profits out of high value new economy sectors like technology to fund moves into areas that benefit from manufacturing and construction. Interest sensitive areas like telecom and utilities may underperform. Areas that could benefit from less regulation like financials and biotech may attract attention. In mining, we could see a growing divergence between base and precious metal miners as prices diverge.
Now, here is a closer look at what's going on this morning and what is still to come.
MARKET DATA:
Futures (as of about 9:00 a.m. ET)
Dow +0.32 per cent; S&P 500 +0.20 per cent; Nasdaq: -0.06 per cent; TSX 60 -0.38 per cent
Equities
Japan's Nikkei +1.71 per cent
Shanghai composite index +0.44 per cent
Hong Kong's Hang Seng -1.37 per cent
Germany's DAX +0.52 per cent
London's FTSE +0.30 per cent
France's CAC 40 +0.36 per cent
Commodities
WTI crude oil (Nymex Dec.) -1.34 per cent at $42.83 (U.S.) a barrel
Gold (Comex Dec.) -0.15 per cent at $1,222.50 (U.S.) an ounce
Copper (Comex Dec.) +1.81 per cent at $2.55 (U.S.) a pound
Currencies
Canadian dollar -0.16 at 73.72 cents (U.S.)
U.S. dollar index +0.70 at 99.76
Bonds
Canada 10-year bond yield +13.47 at 1.56 per cent
KEY ECONOMIC RELEASES
Japan real GDP and industrial production
China foreign direct investment, industrial production, retail sales and fixed asset investment
Euro Area industrial production
Also: Ontario fall economic statement
KEY STOCKS TO WATCH
Also see: Monday's small-cap stocks to watch
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David Baazov, the former chief executive of global online poker company Amaya Inc., has made a $3.48-billion offer to buy the company. The $24-per-share offer – a premium of 30.9 per cent to Amaya's Friday closing price of $18.34 – comes more than nine months after Mr. Baazov first announced his intention to take the company private with a group of investors. Amaya did not immediately respond to the offer on Monday. It announced adjusted net earnings of 42 cents (U.S.) per share for the third quarter, compared with 35 cents in the year-earlier period, on revenue of $270.8-million, up from $247.3-million. Its shares on the Nasdaq were up 14 per cent in premarket trading.
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Canadian apparel maker Gildan Activewear Inc. said it agreed to buy intellectual property rights related to the American Apparel brand and certain assets from American Apparel for about $66-million in cash. Gildan will not be purchasing any retail store assets, it said in a statement. This comes as American Apparel LLC filed for its second bankruptcy protection in just over a year on Monday, weighed down by intense competitive pressures facing U.S. teen retailers and a rocky relationship with its founder.
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Mentor Graphics surged 19 percent to $37 after Siemens agreed to buy the company in a $4.5 billion deal.
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Pfizer was up 1.6 percent at $32.90 after a study showed that the drugmaker's arthritis drug was shown to be at least as safe as the widely used prescription-strength versions of painkillers ibuprofen and naproxen.
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Samsung is buying U.S.-based automobile technology company Harman International for $8-billion in all-cash transaction. It is the biggest-ever overseas acquisition for a South Korean company. Harman was up 26 per cent in premarket trading.
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Novartis is considering the sale of its Alcon eye care products division, according to the drugmaker's chairman Joerg Reinhardt. He told a Swiss weekly newspaper that the division has not done as well as the company had expected. Its stock fell 2 per cent in premarket trading.
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Toyota has agreed to settle a case involving truck rust for up to $3.4 billion. The settlement involves various Tacoma, Tundra, and Sequoia models that were alleged to have poor rust protection.
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Johnson & Johnson saw mixed results for an experimental drug designed to treat rheumatoid arthritis when compared to Abbvie's best-selling Humira treatment. Its stocks was up 0.45 per cent in premarket trading.
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Duke Energy will pay $27 million to settle a lawsuit over its firing of William Johnson in 2012. Johnson had been head of Progress Energy when it was acquired by Duke, and was set to be CEO of the combined company. However, he was fired within hours of the deal's closing. Its stocks was up 0.45 per cent in premarket trading.
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Coca-Cola may become a takeover target of beer brewing giant Anheuser-Busch InBev, according to a story in the Sunday Telegraph. People close to Ab InBev CEO Carlos Brito told the paper that following consolidation in the beer industry, Brito is looking at different beverage targets Its stocks was up 0.9 per cent in premarket trading while Anheuser's stock on the NYSE was off 3.2 per cent.
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Retailers Chico's FAS, L Brands, Kohl's were upgraded by Citi to "buy" from "neutral," on the thesis that likely tax reform under a Donald Trump administration will provide a bump for retail in general and these companies in particular.
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Shareholder GL Management has offered to acquire drugmaker SciClone Pharmaceuticals for $11.18 per share in cash, compared to Friday's close of $9.85. GL already holds a 9.3 percent stake.
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Morgan Stanley upgraded Citigroup to "overweight from "equal weight" based on the idea that tax cuts coupled with stronger economic growth under the Trump administration will benefit banks in general, while pointing to Citi as particularly undervalued. Its stocks was up 0.42 per cent in premarket trading.
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Viacom was downgraded to "hold" from "buy" at Brean Capital, which questions the value of a possible combination between Viacom and CBS.
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Stifel upgraded the defense contractor Lockheed Martin to "buy" from "hold," based on expectations for defense spending under a Trump administration. Its stocks was up 0.28 per cent in premarket trading.
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Mobile payments company Square was upgraded to "overweight" from "sector weight" at Pacific Crest, based on the firm's bullish stance on mobile payments. Its stocks was up 2.3 per cent in premarket trading.
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Earnings include: Advance Auto Parts Inc.; Africa Oil Corp.; Amaya Inc.; Avigilon Corp.; Element Financial Corp.; Enerplus Corp.; Fortress Paper Ltd.; Intertain Group Ltd.; Northern Blizzard Resources Inc.; Pan American Silver Corp.; Roxgold Inc.; Trevali Mining Corp.;
With files from wire services