Equity Markets
Stock futures erased earlier losses as the opening bell approached Thursday after the U.S. released inflation and jobless claims data. Data showed consumer spending in January notched its smallest increase in five months and core inflation rose less than expected.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, gained 0.2 percent in January, while core PCE price index, the Federal Reserve's favored gauge on inflation, rose 0.2 percent compared with economists' expectation of a 0.3 percent rise. Rising inflation and bond yields were the main concerns as Wall Street ended a turbulent month on Wednesday, with the S&P 500 down for the first time in 11 months.
Investors are turning their attention to the latest economic and earnings reports a day after North American markets finished deep in the red after U.S. Federal Reserve Chair Jerome Powell indicated that the central bank could raise interest rates sharply this year.
Mr. Powell continues with further testimony on Thursday. The testimony comes two days after his hawkish comments ignited fears the Fed could deliver four U.S. rate rises this year instead of the three already priced in, triggering an equity sell-off and pushing up bond yields.
Wall Street ended February with its worst monthly performance in two years.
TD Bank reported first-quarter results which were ahead of market expectations, helped by a strong performance in the United States and Canada. Canada's second biggest bank by market value said earnings per share, excluding one-off items, rose to $1.56 in the quarter to Jan. 31 from $1.33 a year earlier. Analysts had on average forecast earnings of $1.46, Thomson Reuters I/B/E/S data showed. TD also hiked its dividend 11.7 per cent to 67 cents.
Fed chief Powell will deliver the second leg of his semi-annual testimony on Thursday, an opportunity to clarify comments made on Tuesday that rekindled speculation over U.S. monetary tightening this year happening faster than expected.
Mr. Powell on Tuesday vowed to prevent the economy from overheating while sticking with a plan to gradually raise interest rates.
For equity markets, the fear is that a pick-up in the pace of rate rises could crimp corporate activity and cool economic growth.
Philip Shaw, chief economist at Investec in London said Mr. Powell's testimony was unlikely to change from the one he delivered on Tuesday, putting the focus on the question and answer session.
"He (Powell) appears to have got an easy ride from lawmakers in the sense that the technical questioning on Tuesday wasn't too heavy," Shaw said. "He may not have such an easy time today with the Senate Banking Committee."
Overseas, MSCI's all-country equity benchmark fell 0.4 per cent after snapping a record 15-month long winning streak in February, while European stocks lost almost 1 per cent.
Britain's FTSE was off 0.85 per cent, Germany's DAX was down 1.6 per cent and France's CAC declined 1.16 per cent.
Emerging Asian and Japanese shares also fell. The Nikkei was off 1.56 per cent while the Shanghai index was up 0.44 per cent and the Hang Seng gained 0.65 per cent.
Commodities
Oil fell for a third day on Thursday, trading further below US$65 a barrel as rising U.S. inventories, record output and a stronger dollar outweighed high OPEC compliance with its supply-cutting deal.
A U.S. government report on Wednesday showed a larger-than-expected increase in U.S. crude inventories and a rise in gasoline stocks. U.S. crude output reached a record in November, although it slipped in the last month of 2017.
"Weekly figures suggest the upward trend will resume in January and February and the old records are likely to be smashed," said Tamas Varga of oil broker PVM.
Oil also fell due to a stronger U.S. dollar, which makes commodities denominated in the U.S. currency more expensive for other currency holders. The dollar index hit a six-week high on Thursday.
Gold fell half a per cent on Monday, extending losses for a third day after comments from Federal Reserve Chairman Jerome Powell this week shored up expectations for further increases to U.S. interest rates and held the dollar near a five-week peak.
In his debut testimony before Congress on Tuesday, Powell gave an upbeat assessment of the U.S. economic outlook and indicated that the central bank would press ahead with further rate rises after three last year.
Tightening monetary policy tends to weigh on gold because it increases the opportunity cost of holding non-yielding assets while boosting the dollar, in which the metal is priced.
"We still expect the Fed to continue to hike interest rates, as economic growth is doing quite well in the United States and fiscal stimulus should help to boost growth further," said Capital Economics analyst Simona Gambarini.
"As inflationary pressures build, the Fed will hike by more to prevent inflation from getting our of control. That doesn't bode well for gold prices. We expect real rates to increase, and that should see the gold price pull back a little."
Gold is on track for a second straight week of losses, having fallen 1.3 per cent since Friday, while the metal ended February down 2 per cent to snap three months of gains.
Among other precious metals, silver was down 0.7 per cent at US$16.29 an ounce, while platinum fell 1.3 per cent to US$970.70 and palladium retreated by 2.1 per cent to US$1,020.
Palladium was the best-performing precious metal last month, posting a 1.4-per-cent gain. Silver registered the biggest monthly loss, slipping by more than 5 per cent.
Currencies and bonds
The Canadian dollar was down under 78 US cents after Mr. Powell's comments and a slide in oil prices.
On Wednesday, the Canadian dollar weakened to a nearly 10-week low against its U.S. counterpart on Wednesday and posted its biggest monthly decline since the Alberta wildfire, one day after Ottawa balked at a response to U.S. tax reform.
The U.S. dollar meanwhile has taken heart from the Fed chair's comments. The dollar index rose to 90.776, a six-week high.
It has clawed back from the three-year trough of 88.253 set in mid-February, as fears of a ballooning U.S. budget deficit and worries of a possible weak-dollar policy from Washington took a toll.
The gap between short-dated borrowing costs in the United States and Germany was at its widest in over 20 years as the monetary policy outlooks for the two regions diverge.
The U.S./Germany two-year bond yield spread widened to 281 basis points.
In contrast to rising rate-hike speculation in the United States, data on Wednesday showing euro zone inflation slowed to a 14-month low in February highlighted that a rate rise from the European Central Bank remains some way off.
"In the U.S. we have at least three rate hikes this year, but in the euro zone, there was some exaggeration about where the inflation was heading so that is now being priced out and yields are moving to the downside," said DZ Bank strategist Daniel Lenz.
That divergence in rate outlooks also weighed on the euro, which hovered at a six-week low at around $1.2182.
The dollar was little changed at 106.73 yen, having slipped from the week's peak of 107.680 as broader risk aversion favoured its Japanese peer.
On Thursday, the U.S. 10-year Treasury was at 2.833, down 0.035.
On Wednesday, the two-year Treasury yield, which is sensitive to traders' view on Fed policy, hit 2.286 per cent, the highest since September, 2008. Longer-dated yields slipped on expectations that a faster pace of Fed rate increases would cool U.S. inflation and economic growth. The benchmark 10-year Treasury yield was 2.870 percent, down nearly 4 basis points on the day.
The Canadian 10-year bond was at 2.206.
Stocks set to see action
Oil producer Canadian Natural Resources Ltd. said on Thursday its fourth-quarter profit beat estimates, boosted by higher oil production and higher prices. Canada's largest independent petroleum producer's overall daily production rose 18.7 per cent to 1.02 million barrels of oil equivalent per day (boe/d). The company's net income fell to $396-million, or 32 cents per share, in the fourth quarter ended Dec. 31, from $566-million, or 51 cents per share, a year earlier. Excluding items, the company earned 46 cents per share, beating analysts' average estimate of 36 cents, according to Thomson Reuters I/B/E/S.
The chairman and another director of Maricann Group Inc. have resigned, with a third facing a probe of his stock sales, after the Ontario Securities Commission inquired about trading activity at the marijuana producer. The company also confirmed that chief executive Ben Ward is the subject of an OSC investigation into his activities as CEO of Canadian Cannabis Corp. – prior to leading Maricann.
Canadian oil and gas producer Husky Energy Inc. reported a higher quarterly profit on Thursday, led by corporate tax cuts in the United States. Net earnings rose to $672-million in the three months ended Dec. 31 from $186-million, a year earlier. The U.S. tax reform gave Husky a $436-million deferred tax benefit.
Magna International Inc. is forecasting steady increases in vehicle production globally until 2024, but the growth of ride-sharing services and autonomous vehicles and the decisions cities make about traffic and pollution could begin to affect output by the following year.The world's auto makers cranked out 95 million vehicles last year, and production is expected to grow to 109 million by 2024, Magna officials said Wednesday at an investor day presentation in New York.
Canada's Crescent Point Energy Corp. reported a smaller loss in the fourth quarter thanks to higher oil prices and production. The oil and gas producer said on Thursday net loss narrowed to $56.4-million or 10 cents per share in the quarter ended Dec. 31, from $510.6-million or 94 cents per share, a year earlier. The prior-year quarter included a one-time loss on derivatives of $138.7-million. Fourth-quarter average production rose 8.4 per cent to 178,975 barrels of oil equivalent per day.
Earnings include: Algonquin Power & Utilities Corp.; AltaGas Ltd.; Artis Real Estate Investment Trust; Atlantic Power Corp.; Calfrac Well Services Ltd.; Canadian Natural Resources Ltd.; Crescent Point Energy Corp.; Granite REIT; Husky Energy Inc.; Kinaxis Inc.; Melcor REIT; TORC Oil & Gas Ltd.; Toronto-Dominion Bank; TransAlta Corp.; Transcontinental Inc.; Tricon Capital Group Inc.; Vermilion Energy Inc.
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Economic News
U.S. consumer spending in January notched its smallest increase in five months and core inflation rose less than expected. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, gained 0.2 percent in January, while core PCE price index, the Federal Reserve's favored gauge on inflation, rose 0.2 percent compared with economists' expectation of a 0.3 percent rise.
U.S. filings for unemployment benefits fell last week to the lowest level in almost five decades, indicating the job market remains tight, Labor Department figures showed Thursday. Jobless claims decreased by 10,000 to 210,000, the lowest since Dec. 1969. The Street was expecting jobless claims of 225,000.
Still to come
(9:30 a.m. ET) Canadian Markit Manufacturing PMI for February.
(10 a.m. ET) U.S. manufacturing ISM (PMI) for February. Consensus is 59.0, down from 59.1 in previous month.
(10 a.m. ET) U.S. construction spending for January. The Street expects a rise of 0.2 per cent from December.
(10 a.m. ET) U.S. Fed Chair Jerome Powell testifies to Senate Banking Committee.
Also: U.S. and Canadian auto sales for February.
Earnings include: Algonquin Power & Utilities Corp.; A
With files from Reuters and Bloomberg