Equity Markets
U.S. stock futures signalled a stronger start to Wednesday's session after two down days with investors awaiting the outcome of the Federal Reserve's latest policy meeting. On Bay Street, futures were modestly higher even as oil prices fell. World stocks ended a two-day retreat as U.S. President Donald Trump's struck what some traders called a broadly conciliatory tone. The U.S. dollar got a small bump from the speech but remains under pressure.
"Today's Fed meeting isn't likely to contain too much in the way of surprises, though it will be significant in that it will Janet Yellen's last as Fed chair," Michael Hewson, CMC Markets U.K. chief market analyst, said in a note.
"She will pass the reins to Jerome Powell with markets pricing an over 90-per-cent probability that we will see another 25 basis point hike at the March meeting."
With no policy change likely, he said, investors will likely be watching the accompanying statement for signals about the course of inflation given recent tax reform measures "along with recent announcements of U.S. dollar repatriation, inward investment, bonus payments and pay rises."
The Fed announcement is due at 2 p.m. (ET).
On Bay Street, investors got the latest reading on the health of Canada's economy. In a report released ahead of the open, Statistics Canada said GDP grew by 0.4 per cent in November, matching economists' forecasts and marking a rebound after a flat reading the month before. The agency also noted that Canada's factory sector grew by 1.8 per cent for the month. That's the biggest increase since 2014 with bulk of subsectors advancing.
"The strong pace to November growth only keeps us in the 2 per cent or so range for (the fourth quarter), slightly under the unchanged 2.5-per-cent forecast from the BoC," CIBC economist Nick Exarhos noted. "All told, not much to move markets, although broadbased (U.S. dollar) weakness ahead of the Fed this afternoon could see the loonie gain some ground during this morning's trading session."
On the corporate front, investors on both sides of the border will be watching Boeing earnings. Boeing shares were 6.3 per cent higher in premarket after the plane maker said it expects to deliver between 810 and 815 commercial aircraft. That would be up from 763 deliveries last year. It also forecast operating cash flow of about $15-billion in 2018, up from $13.34-billion in 2017. For the quarter, Boeing reported core earnings of $4.80 a share, up from $2.47 a year earlier, helped by changes to the U.S. tax code. Excluding one-time gains, Boeing reported earnings of $3.06 a share, topping forecasts of $2.89 a share. Investors on Bay Street will now be watching for comments during Boeing's analyst call that could affect Canada's Bombardier as the two companies duke it out in a contentious trade row. Last week, Bombardier won a surprise victory when the top U.S. trade agency struck down duties of almost 300 per cent on imports of Bombardier C Series airliners into the United States.
On Wall Street, tech earnings start in earnest after the bell with the release of results from Microsoft, Facebook and eBay after the close of trading. On Thursday, Apple releases its quarterly results.
In total, Wednesday's earnings include 34 companies from the S&P 500 and two from the Dow.
"With it being the final trading day of the month, equity markets may not move entirely rationally today," OANDA senior market analyst Craig Erlam said.
Overseas, the pan-European STOXX 600 was modestly higher. The MSCI's 47-country index also saw early gains.
Britain's FTSE 100 was trading off 0.9 per cent at last check. Germay's DAX was up 0.21 per cent and France's CAC 40 was 0.25 per cent higher.
In Asia, markets finished lower, spooked by Wall Street's losses during the previous session. Japan's Nikkei ended lower for the sixth consecutive session, falling 0.83 per cent. The Shanghai composite index slid 0.19 per cent. Hong Kong's Hang Seng managed to finish in the black, ending up 0.86 per cent. Financial stocks helped lift the Hong Kong index.
Commodities
Oil prices were lower for the third straight day after fresh figures showed U.S. crude inventories rose more than expected last week. Still, even with the latest declines, crude prices appear set to put in their best gain in January in five years. Brent crude was lower and had a day range of $68.33 (U.S.) a barrel to $68.80. West Texas Intermediate was also lower and had a range for the day so far of $63.67 to $64.25.
On Tuesday, the American Petroleum Institute said crude inventories rose by 3.2 million last week, more than expected. Official U.S. government figures from the Energy Information Administration are due later Wednesday morning and are expected to show an increase for the first time in 11 weeks. A Reuters poll of analysts suggests most are expecting to see an average 100,000 barrel increase in crude stocks for the week.
"Dealers are keen to trim their long positions in oil so concerns about U.S. supply ticking up are still doing the rounds," CMC markets analyst David Madden said in a note earlier this week. "When recent three year high in the price of oil has prompted increasing output from shale producers in the U.S."
A separate Reuters survey released Wednesday also suggested that Brent prices are unlikely to climb much higher than $70 a barrel this year, with the market struggling between OPEC-led production caps and rising U.S. output. A survey of 34 economists and analysts forecast that Brent crude will average $62.37 a barrel in 2018. That's up from the agency's previous monthly poll, with put the average for the year at $59.88.
Brent crude looks set for a fifth straight monthly gain, having averaged about $69 so far in January.
In other commodities, gold prices rebounded as the U.S. dollar continued to slide after an early bump off Mr. Trump's remarks. Spot gold and U.S. gold futures were both higher. During Tuesday's session, gold hit its $1,334.10 an ounce, its lowest level since Jan. 23.
Silver prices were also higher.
Currencies and bonds
The Canadian dollar moved toward the mid-81-cent mark in early trading as its U.S. counterpart fell against world currencies with the State of the Union address failing to give the greenback any lasting lift. The day range on the loonie so far is 80.98 cents (U.S.) to 81.48 cents.
"(The U.S. dollar) is weaker again overnight and is unlikely to get much relief today as month end looms," Elsa Lignos, RBC's global head of FX strategy, said. "Trump's SOTU speech had little detail on infrastructure (he "is calling on the Congress to produce a bill that generates at least USD1.5-trillion for…investment"). He pledged a vote on immigration reform "over the next few weeks". He referred to "rivals like China and Russia that challenge our interests" but the rhetoric on trade was modest."
For the loonie, the day's big event is the release of the November GDP report. Statscan said GDP grew by 0.4 per cent for the month, in line with market expectations. The loonie held onto morning gains after the release of the report.
Overnight, the U.S. dollar lost a quarter of a per cent, leaving it heading for it's biggest monthly decline in nearly two years. The dollar index, which weighs the greenback against a selection of world currencies, fell by 0.25 per cent in early trading in London, putting its monthly losses at more than 3 per cent. At last check, the U.S. dollar index was still lower.
In bonds, U.S. government debt prices were higher ahead of the Fed's policy announcement. The yield on the 10-year note was lower at 2.703 per cent. The yield on the 30-year note was also lower at 2.949 per cent.
Elsewhere, bitcoin is heading for its worst monthly decline since early 2014. So far, the digital currency is down about 29 per cent for the month. It was trading at $10,172 in London early Wednesday, according to composite pricing compiled by Bloomberg. The declines came after Reuters reported that the U.S. Commodity Futures Trading Commission sent subpoenas last month to cryptocurrency trading venue Bitfinex and Tether, a company that issues a widely traded coin it claims to be pegged to the dollar.
Stocks set to see action
Japan's Fujifilm Holdings is set to take over Xerox Corp. in a $6.1-billion deal, combining the U.S. company into their existing joint venture to gain scale and cut costs amid declining demand for office printing. The acquisition announced on Wednesday comes as Xerox has been under pressure to find new sources of growth as it struggles to reinvent its legacy business amid waning demand for office printing. Fujifilm is also trying to streamline its copier business with a larger focus on document solutions services. Consolidation of R&D, procurement and other operations would enable Fuji Xerox to deliver at least $1.7-billion in total cost savings by 2022, the two companies said.
Rio Tinto Group has been accused by a Dutch non-profit group of avoiding about $700-million in taxes related to its Oyu Tolgoi copper mine in Mongolia. The company denied the allegations. Rio and its Canadian subsidiary Turquoise Hill Resources Ltd. used so-called mailbox companies in Luxembourg and the Netherlands to fund the development of the mine in Mongolia, the Centre for Research on Multinational Corporations said in a report Wednesday. The company avoided $470-million in Canadian taxes through the vehicles and $230-million in Mongolian taxes, the group known as SOMO said.
Eli Lilly and Co. reported a bigger-than-expected quarterly profit on Wednesday, helped by demand for new diabetes and psoriasis treatments, while raising its adjusted earnings forecast for 2018 due to U.S. tax changes. The U.S. drug maker raised its 2018 adjusted earnings per share forecast to $4.81 to $4.91 from $4.60-$4.70. However, the company incurred $1.94-billion in charges in the fourth quarter related to the overhaul of the U.S. tax code. The company also recognized asset impairment, restructuring and other charges of $1 billion in the quarter, primarily due to its cost-reduction efforts, including the U.S. voluntary early retirement program. Its shares rose 1 per cent in premarket trading.
D.R. Horton Inc. reported first-quarter profit and revenue on Wednesday above Wall Street estimates as the largest U.S. homebuilder sold more homes in a robust housing market. Orders, an indicator of future revenue for homebuilders, rose 16.4 percent to 10,753 homes in the quarter, a reflection of how job growth is powering demand despite high construction costs keeping prices up. The company said it expects fiscal 2018 gross margin to be around 20-21 per cent, with some fluctuations in the quarters ahead, compared with its prior forecast of around 20 per cent. Its shares gained 5 per cent in premarket trading.
Payroll and tax services provider Automatic Data Processing Inc. raised its full-year profit and revenue forecasts as the company expects to benefit from the U.S. corporate tax reform. The company said it expects revenue growth of 7 per cent to 8 per cent in fiscal 2018, compared with its earlier forecast of 6 per cent to 8 per cent. The company's net income fell to $467.5 million, or $1.05 per share, in the second quarter ended Dec. 31 from $510.9 million, or $1.13 per share, a year earlier. Excluding one-time items the company earned 99 cents per share. Total revenue rose to $3.24 billion from $2.99 billion. Analysts on average were expecting a profit of 90 cents per share on a revenue of $3.18 billion, according to Thomson Reuters I/B/E/S. Its shares rose nearly 2 per cent in premarket trading.
Advanced Micro Devices was up 3.2 per cent a day after the chipmaker's fourth-quarter results handily topped forecasts.
Electronic Arts jumped 7.3 per cent after the videogame maker forecast fourth-quarter revenue above analysts' estimates.
More reading: Wednesday's Insider Report
More reading: Why bond yields suddenly have stock investors running for the exit
Economic News
Statistics Canada said GDP grew by 0.4 per cent in November, matching economists' forecasts. The manufacturing sector grew by 1.8 per cent, marking the best monthly gain since early 2014.
U.S. private hiring rose by 234,000, according to ADP. Markets had been expecting an increase close to 185,000.
(10 a.m. ET) U.S. pending home sales for December. Consensus is an increase of 0.5 per cent from November.
(10:30 a.m. ET) EIA Petroleum Status Report
(2 p.m. ET) U.S. Federal Open Market Committee meeting announcement.
With files from Reuters