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.
It continues to be an active week for trading. A big day Tuesday that saw a number of major rallies and breakouts is currencies ran into a set back Wednesday with a number of corrections. These appear to have run their course with the trends that kicked off Tuesday reasserting themselves.
With the exception of the Nikkei which gained 0.9 per cent on a yen pullback, stock markets are trading lower. U.S. index futures are down 0.1 per cent while the FTSE is down 0.5 per cent. Strong earnings from Netflix have boosted its shares overnight but not the broader Nasdaq, just as positive results from U.S. banks haven't been able to boost the Dow or S&P. This indicates that overall, the late 2016 market rally already priced in strong results so upside looks limited and the potential for downside surprises higher.
Currency action finds the U.S. dollar back in retreat again with Wednesday's dead cat bounce quickly unravelling. Sterling is on fire again basking in the glow of U.K. Prime Minister Theresa May's Brexit speech earlier in the week. The euro, and the Australian and New Zealand dollars are up at a more moderate pace while defensive plays gold and the yen are steady.
The Canadian dollar however, is lagging both the rebound of its resource dollar peers, and today's 1 per cent rally in WTI crude oil. The loonie is stuck between a rock and a hard place following yesterday's Bank of Canada meeting and tomorrow's inauguration of President-elect Donald Trump. Although Canada's economy has been picking up and the central bank kept rates on hold, Governor Stephen Poloz indicated Canada faces high external risks and uncertainty, particularly related to trade and the U.S.
Because of this, Governor Poloz indicated the Bank stands ready to cut rates if needed to offset the impact of outside developments, a more dovish stance than traders were expecting. The concern is that as a trading nation, even though U.S. attempts to change trade flows like renegotiating NAFTA aren't supposed to target Canada, we could get caught in the crossfire or undertow.
There are a number of events coming that could keep markets active through the end of the week. First up is the European Central Bank meeting this morning. With the ECB having expended its QE (quantitative easing) program to December, and a one-time taper coming in April, no changes are expected. Traders are more likely to focus on the press conference by ECB president Mario Draghi where any comments related to rising inflation, Brexit, Greece, elections and other hot topics could attract attention.
Tonight brings China's quarterly GDP report, plus retail sales and industrial production. Earlier this week China President Xi indicated the economy continues to struggle requiring government support. The results could have a significant impact on the outlook for resource demand and could drive trading action in resource stocks, resource currencies and commodity prices.
Friday brings the long-awaited inauguration of Donald Trump as President of the U.S. During the campaign he put together a long list of items he plans to do on his first day so he's going to be a really busy guy. Seriously though, markets built in a lot of expectation that everything would go right. Starting tomorrow markets shift from speculating on what he may do to reacting to what he actually does. The inauguration speech may attract particular attention Friday with traders looking for an indication on where the economy lands on his list of priorities and what changes he is likely to pursue first.
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 8:30 a.m. ET)
Dow -0.12 per cent; S&P 500 -0.11 per cent; Nasdaq: -0.08 per cent; TSX 60 -0.02 per cent
Equities
Japan's Nikkei +0.94 per cent
Shanghai composite index -0.36 per cent
Hong Kong's Hang Seng -0.21 per cent
Germany's DAX -0.09 per cent
London's FTSE -0.51 per cent
France's CAC 40 -0.09 per cent
Commodities
WTI crude oil (Nymex Feb.) +1.10 per cent at $51.64 (U.S.) a barrel
Gold (Comex Feb.) -0.72 per cent at $1,203.40 (U.S.) an ounce
Copper (Comex March) -0.40 per cent at $2.61 (U.S.) a pound
Currencies
Canadian dollar +0.01 at 75.33 cents (U.S.)
U.S. dollar index +0.01 at 101.19
Bonds
Canada 10-year bond yield -0.09 at 1.71 per cent
KEY ECONOMIC RELEASES
ECB monetary policy meeting
The European Central Bank kept its super-easy monetary policy unchanged as expected on Thursday, maintaining extraordinary stimulus to aid a tepid recovery in growth after nearly a decade in the doldrums. With growth slowly picking up pace, the ECB kept rates deep in negative territory and asset buys at a record pace, likely arguing that the recovery is not yet self sustaining and underlying inflation is still too low. Repeating its standard guidance, the bank said rates would stay at their current or lower levels for an extended period and it was also ready to increase or extend it bond purchases if the outlook worsens. European Central Bank President Mario Draghi says inflation pressures in the 19-country eurozone "remain subdued."
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(8:30 a.m. ET) Canada manufacturing sales and new orders for November. Estimates are increases of 1.5 per cent and 0.5 per cent, respectively, from previous month.
Statistics Canada says manufacturing sales climbed 1.5 per cent in November to $51.8 billion. Economists had expected a gain of 1.0 per cent for the month, according to Thomson Reuters. The move higher followed a drop in October which was revised to a move down of 0.6 per cent compared with an initial reading of a drop of 0.8 per cent. In constant dollars, sales climbed 1.2 per cent, indicating a higher volume of manufactured goods was sold. Sales were up in 14 of the 21 industries, boosted by the primary metal, petroleum and coal and chemical sectors.
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(8:30 a.m. ET) Canada international securities transactions for November.
Foreign investment in Canadian securities dropped to an 11-month low in November, with non-residents buying a net $7.24 billion worth of bonds, stocks and money market paper, Statistics Canada said on Thursday. The purchases were the lowest since the $1.78 billion recorded in December 2015. Investment for the first 11 months of the year hit a record $149.53 billion, well above the $104.24 billion amassed from January to November in 2015.
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(8:30 a.m. ET) U.S. initial jobless claims for week of Jan. 14. Estimate is 252,000, up 5,000 from previous week.
The number of Americans filing initial claims for unemployment benefits fell unexpectedly last week back to near the lowest levels in decades. Initial claims for state unemployment benefits declined by 15,000 to a seasonally adjusted 234,000 for the week ended Jan. 14, the Labor Department said on Thursday. Economists polled by Reuters had forecast first-time applications for jobless benefits rising to 254,000 in the latest week. The number of claims for the previous week was revised up by 2,000 to 249,000.
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(8:30 a.m. ET) U.S. housing starts for December. Consensus is an annualized rate increase of 10.1 per cent.
U.S. homebuilding rebounded more than expected in December, suggesting that the housing market contributed to economic growth in the fourth quarter. Housing starts jumped 11.3 percent to a seasonally adjusted annual rate of 1.23 million units last month, the Commerce Department said on Thursday. November's starts were revised up to a 1.10 million-unit rate from the previously reported 1.09 million-unit pace. Economists polled by Reuters had forecast housing starts increasing to a 1.20 million-unit rate in December.
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(8:30 a.m. ET) U.S. building permits for December. Estimate is unchanged.
U.S. builders ramped up home construction in December, led by a surge of apartment building, while single-family houses lagged. The Commerce Department says housing starts jumped 11.3 per cent last month, after a sharp fall in November and big gain in October. Apartment construction, which can be volatile month to month, soared 53.9 per cent. The figures cap a modestly healthy 2016 for home construction, with single-family home building up 3.9 per cent and apartment building 10.3 per cent higher.
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(8:30 a.m. ET) U.S. Philadelphia Fed Index for January. Consensus is 15.1, down from 19.7 in December.
(8:30 a.m. ET) U.S. real GP by industry for Q3.
(11 a.m. ET) EIA petroleum status report
(8 p.m. ET) U.S. Fed chair Janet Yellen speaks to the Stanford Institute for Economic Policy Research.
KEY STOCKS TO WATCH
Also see: Thursday's small-cap stocks to watch
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Hunter Harrison is leaving Canadian Pacific Railway Ltd. more than five months ahead of schedule, and the bombastic 72-year-old executive appears to be vying for a job at a major U.S. railroad. The Wall Street Journal reported that Mr. Harrison is joining forces with an activist investor in a bid to change the management at CSX Corp., a railway based in Jacksonville, Fla.
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Shares in Cameco Corp. were up 2.3 per cent in premarket trading, rebounding a bit a day after the uranium producer plunged on a negative outlook.
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Video streaming service Netflix reported Wednesday quarterly profit of 15 cents per share, 2 cents a share above estimates. On Thursday, its shares were up 7 per cent in premarket trading.
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MDC Partners Inc. has agreed to pay $1.5-million (U.S.) to settle charges it failed to disclose more than $11-million in personal expenses it paid for former CEO Miles Nadal, including perks such as cosmetic surgery, pet care and "yacht-and-sports-car-related expenses."
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Galen G. Weston has been appointed to succeed his father as CEO of George Weston Ltd. The younger Weston will also remain chairman and CEO of the company's largest subsidiary, Loblaw Companies Ltd., which also owns Shoppers Drug Mart.
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Bank of New York Mellon Corp. said on Thursday fourth-quarter profit increased 29.04 percent as expenses fell and net interest revenue rose. The world's largest custodian bank's net income attributable to common shareholders rose to $822 million in the three months ended Dec. 31 from $637 million a year ago. Excluding items, BNY Mellon earned 77 cents per share, in line with the average analyst estimate, according to Thomson Reuters I/B/E/S. Its shares were up 2.6 per cent in premarket trading.
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Tesla rose 3 percent to $245.59 after Panasonic said it aimed to extend its partnership with the electric carmaker into self-driving technology.
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Union Pacific Corp. reported fourth-quarter profit of $1.14 billion. The Omaha, Nebraska-based company said it had profit of $1.39 per share. The results surpassed Wall Street expectations. The average estimate of 12 analysts surveyed by Zacks Investment Research was for earnings of $1.34 per share. Its shares were up 2.6 per cent in premarket trading.
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Aircraft-engine maker Safran SA agreed to buy plane-seat supplier Zodiac Aerospace SA for almost 10 billion euros ($10.5 billion U.S.) in an all-French deal that will unite two of the country's biggest aerospace groups.
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Mondelez International is selling the Vegemite brand, as well as other Australian and New Zealand grocery product brands, to Australian dairy company Bega Cheese for about $345-million.
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Mallinckrodt was up 4.7 percent at $48.70 after agreeing to pay $400 million to settle a U.S. probe on drug pricing.
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Kinder Morgan reported quarterly profit of 18 cents per share, matching estimates, but the pipeline operator's revenue was below forecasts on falling oil and natural gas transportation volumes. Kinder Morgan's quarterly revenue declined for the ninth straight quarter. Its shares were down 1.7 per cent in premarket trading.
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Warehouse retailer Costco was added to the "Conviction Buy" list at Goldman Sachs, which removed Restoration Hardware from that list. Goldman said Costco is poised for earnings acceleration as it continues to enjoy momentum from last year's credit card deal switching to Visa from American Express.
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Wells Fargo downgraded Coca-Cola to "market perform" from "outperform," pointing to both structural and macroeconomic headwinds among other factors. Its shares were down 0.6 per cent in premarket trading.
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UBS downgraded Exxon Mobil to "sell" from "neutral," saying Exxon has sub-par metrics and an expensive valuation. Its shares were down 0.4 per cent in premarket trading.
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UBS upgraded personal computer and printer maker HP Inc. to "buy" from "neutral," saying the company will benefit from having reduced supply and investing in growth opportunities.
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Nike and Lululemon are rated "underperform" in a new report on the athletic apparel sector by CLSA, which also calls Under Armour a "buy." CLSA said it is concerned about a deceleration of Nike's North American sales, and that good news involving Lululemon appears to be already priced into the stock. However, it thinks Under Armour has opportunities for significant sales acceleration.
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Earnings include: American Express Co.; Bank of New York Mellon Corp.; BB&T Corp.; Celanese Corp.; J B Hunt Transport Services Inc.; KeyCorp.; M&T Bank Corp.; PPG Industries Inc.; Union Pacific Corp.
With files from wire services