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Equity Markets

U.S. stock futures were positive early Wednesday after a downward revision to U.S. GDP eased investor concerns that the Federal Reserve could move more aggressively than previously expected on interest rates. Earlier, futures were near the break-even mark after markets interpreted Federal Reserve chair Jerome Powell's economic optimism as a signal that there could be as many as four rate hikes this year. On Bay Street, futures were slightly higher with earnings from Valeant Pharmaceutical, Laurentian Bank and National Bank in focus. Overnight, world shares fell with MSCI's all-country index sliding 0.3 per cent at last check.

On Tuesday, Mr. Powell offered a mildly hawkish reading on the U.S. economic outlook, noting inflation has risen since December and vowing to keep the economy from overheating. Markets saw those comments as an indication that the Fed, which has been expected to raise rates three times in 2018, could add an addition increase into the mix. Also weighing on sentiment Wednesday was a report showing China's manufaturing sector slowed to its weakest in more than a year.

"On his hawkish tone, when asked the million-dollar question about three hikes or four, Powell was quick to point out the improvements in the economy and his optimism that inflation will reach the bank's 2-per-cent target, in what can only be described as a hawkish response, which to many signalled four hikes could be on the cards in 2018," LCG's Jasper Lawler said in a note. "Powell's comments unleashed a wave of anxiety among equity traders, who rushed to sell out of holdings."

On Bay Street, Valeant shares will be the focus of attention for investors after the drug maker's revenue forecast failed to impress. Valeant's U.S.-listed shares were down more than 9 per cent in premarket trading after the drug maker said it expects 2018 revenue of $8.10-billion to $8.30-billion. Analysts on average had been looking for $8.34-billion, according to Thomson Reuters I/B/E/S. Valeant also reported a fourth-quarter profit, helped by a one-time benefit from new U.S. tax laws. The company posted net income of $513-million or $1.45 a share in the quarter, compared with a loss of $515-million or $1.47 per share a year earlier. It recorded a one-time benefit from income taxes of $1.32-billion.

Ahead of the open, results are also due from Laurentian and National Bank. Markets have already seen estimate-beating results from CIBC, Bank of Montreal and Bank of Nova Scotia. The remainder of Canada's big banks report later in the week. National Bank reported adjusted earnings of $1.48 a share, topping analysts forecasts of $1.42. Laurentian reported earnings per share of $1.41 and adjusted earnings per share of $1.49.

On Wall Street, Lowes Cos. Inc. shares were down more than 7 per cent in premarket trading after the home-improvement retailer reported earnings that fell short of forecasts. Lowe's posted adjusted earnings of 74 US  cents. Analysts were expecting earnings closer to 87 US cents. Both revenue and same-store sales rose in the latest quarter.

Overseas, shares in Europe were lower as investor nervousness about Mr. Powell's remarks spread through world markets. Britain's FTSE 100 was down 0.29 per cent. Germany's DAX fell 0.20 per cent. France's CAC 40 was off 0.35 per cent.

In Asia, Japan's Nikkei lost1.44 per cent with manufacturers, technology companies and financials all trading lower. A report Wednesday showing Japan's industrial output fell the most since March 2011 also weighed on sentiment. Hong Kong's Hang Seng fell 1.36 per cent. The Shanghai Composite Index was off 0.99 per cent.

Commodities

Oil prices wavered early on with rising U.S. stock piles and weaker-than-expected readings on China's factory growth and Japan's industrial production - both big crude consuming countries - weighed on the markets. Brent crude was lower at last check and had a day range of US$66.23 a barrel to US$66.81. West Texas Intermediate was also in the red with a range for the day of US$62.53 to US$63.10.

On Tuesday, the American Petroleum Institute's weekly supply figures showed that inventories rose by 933,000 barrels. Gasoline stockpiles rose 1.9 million barrels. More official figures are to be released later Wednesday by the Energy Information Association and are expected to also show another increase in crude stocks for the week. Right now the market is expecting an increase in inventories of about 2.1 million barrels.

Economic reports from China and Japan also weighted on sentiment. China reported that February factory activity was the weakest since July 2016.  Meanwhile, Japan's January industrial production fell the most since a devastating earthquake struck in March 2011.

"The latest Chinese manufacturing and non-manufacturing PMI numbers for February came in lower than expected at 50.3 and 54.5 respectively, though it's questionable how representative these are given the skew that has likely taken place as a result of the lunar New Year holidays," CMC chief market analyst Michael Hewson said.

In other commodities, gold prices were little changed after falling more than 1 per cent on Tuesday in the wake of the latest Fed comments. Spot gold was unchanged at last check. Gold futures were up slightly.

"We might be entering a short-term period in the gold market where we could see more dollar strength, higher bond rates and a return to equity weakness, a familiar backdrop that could pressure gold lower," INTL FCStone analyst Edward Meir said in a note.

Silver prices were also lower as the U.S. dollar rose against world currencies.

Currencies and bonds

The Canadian dollar mostly steady after struggling in the previous session as the U.S. dollar touched a three-week high on world currency markets. The day range on the loonie so far is 78.19 US cents to 78.36 US cents.

Sue Trinh, RBC's head of Asia FX strategy, said the key data point for the loonie Wednesday will be Statistics Canada's release of annual planned capital and repair expenditures, which should offer a glimpse of business spending plans for the year.

The report said private and public expenditures on non-residential construction and machinery and equipment are expected to rise 0.8 per cent to $238.7-billion in 2018, following a 3.0-per-cent increase in 2017. The loonie slid to the low end of the day's range after the release of the report.

In other currencies, the U.S. dollar index, which weighs the greenback against a basket of currencies, held most of its post-Fed gains, lingering around 90.46 at last check.  Earlier, the index hit 90.539, its highest since Feb. 9.

"Fed funds are pricing in a probability of 99 per cent for three hikes in 2018, up from around 60 per cent previously, and 74 per cent probability of four hikes," Ms. Trinh said. "If there is a concerted effort to shift expectations about the (Fed funds) dot profile, our economists think it should be pretty obvious over various Fed speeches in coming weeks."

In bonds,  the yield on the 10-year U.S. note was down at 2.886 per cent. The yield on the 30-year note was also lower at 3.142 per cent.

Stocks set to see action

National Bank beat market expectations as it reported a first-quarter profit of $550-million, up 11 per cent from $497-million a year ago. The Montreal-based lender said the profit amounted to $1.46 per diluted share for the quarter ended Jan. 31, up from $1.34 per share in the same quarter a year earlier. On an adjusted basis, National Bank earned $1.48 per diluted share for the quarter, up from $1.35 per diluted share in the same quarter in 2017. Analysts had expected adjusted diluted earnings per share of $1.42, according to Thomson Reuters.

Valeant Pharmaceuticals on Wednesday reported a profit in the fourth quarter compared to a year-earlier loss, as it booked a one-time benefit because of new U.S. tax laws. The Canada-based drug maker reported a net income of $513-million or $1.45 per share in the quarter ended Dec. 31, compared to a loss of $515-million or $1.47 per share a year earlier. It recorded a one-time benefit from income taxes of $1.32-billion.

Torstar Corp. had $8.65-million of net income attributable to its shareholders in the fourth quarter, as it benefited from cost-cutting efforts that offset a 10 per cent decline in revenue compared with the year-earlier period. The profit amounted to 11 cents per share for the three months ended Dec. 31, up from a profit attributable to shareholders of $1.26-million or a penny per share in the fourth quarter of 2016. Operating revenue for the Toronto-based publishing company was $169.34-million in the three months ended Dec. 31, down from $188.4-million in the fourth quarter of 2016. On an adjusted basis, Torstar says its adjusted earnings amounted to 32 cents per share, up from 16 cents per share a year earlier.

Dick's Sporting Goods Inc will not sell assault-style firearms or high-capacity magazines, and will not sell any guns to those under age 21, its chief executive said on Wednesday, citing the recently massacre at a high school in Florida. Dick's CEO Ed Stack, in an interview on ABC News, said the current systems in place are not effective enough to prevent gun sales to people who are potential threats and urged Congress to act.

Riding a wave of new users, improved advertising options and an embrace of video content by users and advertisers alike, Twitter Inc's revenue has leaped in Japan, helping lead the company to its first quarterly profit. Earlier this month Twitter reported that sales in Japan jumped 34 per cent in the last three months of 2017, compared with a year earlier, to $106-million. In Japan, Twitter's success in converting users into revenue – a problem that has vexed the social network since its founding – has raised hopes it might lead to broader growth across the company. Investors and analysts, however, point to Japan-specific factors that may not be replicable elsewhere.

Lowe's Companies Inc's quarterly profit missed analysts' estimates as the No.2 U.S. home improvement chain's margins fell, sending its shares down nearly 8 percent in premarket trading on Wednesday. Lowe's net income fell to US$554-million, or 67 US cents per share, in the fourth quarter ended Feb. 2, from US$663-million, or 74 US cents per share, a year earlier that included an extra week. Excluding one time items the company earned 74 US cents. Analysts on average had expected earnings of 87 US cents per share, according to Thomson Reuters I/B/E/S.

Laurentian Bank of Canada said on Wednesday it was continuing to review problematic mortgages sold to an unnamed third party last year and may need to repurchase more of the loans. Laurentian said in December that it might have to buy back about $304-million in mortgages sold to an unnamed third-party purchaser after an audit found "documentation issues and client misrepresentations". In January, it said it had so far repurchased $180-million of the problem mortgages and might have to buy back mortgages worth $392-million in total.

More reading: Wednesday's small-cap stocks to watch
More reading: Why troubles at Tim Hortons could be a buying opportunity

Economic News

U.S. GDP was revised down to 2.5 per cent for the final three months of last year, from the previously reported 2.6 per cent rate of annual growth. Growth in the fourth quarter compares to 3.2 per cent in the third quarter.

Statistics Canada said prices for prices for products sold by Canadian manufacturers rose 0.3 per cent in January, mainly due to higher prices for energy and petroleum products. Prices for raw materials purchased by Canadian manufacturers increased 3.3 per cent, mostly because of higher prices for crude energy products, the agency said.

(9:45 a.m. ET) U.S. Chicago PMI for February. Consensus is 65.0, down from 65.7 in January.

(10 a.m. ET) U.S. pending home sales for January. Consensus is an increase of 0.4 per cent from December.

With files from Reuters and The Canadian Press

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