A sense of calm has descended on global markets this morning after Thursday's drubbing, as traders regain a bit more appetite for risk, thinking that the Fed-induced selloff was overdone and has left bargains in its wake.
U.S. and Canadian stock futures suggest major indexes in North America could open with gains - although the premarket indicators are off their highs from earlier this morning, and European markets are also retracing some of their early day gains.
The Canadian dollar, however, is heading in the other direction versus the greenback after softer-than-expected Canadian inflation and retail sales data. It's down nearly a cent to $0.9547 (U.S.), its weakest level since November 2011.
Most Asian markets ended with relatively small losses - and Japan's Nikkei managed a healthy gain as the yen continued to weaken against the U.S. dollar, a supportive factor for the country's key export sector. Commodities are pretty steady, encouraged by a bit of softness in the American currency. The U.S. dollar index, which pits the greenback against a basket of six other major currencies, is down 0.13 per cent to 81.80. U.S. and Canadian bond yields are hovering just below 22-month highs reached Thursday afternoon.
There isn't a lot of fresh news scheduled for today that should ignite the kind of trading frenzy seen earlier this week. No major U.S. economic reports are due out. But it is quadruple witching day, which happens when index futures, options on index futures, single-stock futures and stock options all expire. It's an event that happens four times a year, and it can significantly increase volumes and volatility, especially near the end of the trading day.
The S&P 500 plunged 2.5 per cent on Thursday and the TSX 2.4 per cent. The Dow has lost 560 points in the last two trading days alone, and Thursday marked its biggest loss since November 2011. The selling was ignited by Federal Reserve Chairman Ben Bernanke's plans to start withdrawing bond-buying stimulus to the economy later this year, providing economic numbers continue to suggest a sustained recovery. A Bloomberg survey of economists Thursday suggested the Fed may trim its monthly bond purchases by $20-billion (U.S.) to $65-billion in September.
But China was also a factor in the mayhem, with a manufacturing index Thursday coming in weaker than expected and, importantly, Chinese money-market rates hit record highs - pointing to a possible liquidity squeeze for the country's banks. There was some relief on that front this morning as well. China's overnight repurchase rate dropped 4.42 percentage points, to 8.43 per cent today, according to a daily fixing compiled by the National Interbank Funding Center. This was the biggest drop since October 2007 and followed a record 527 basis point jump on Thursday, Bloomberg data suggest.
Now, here's a closer look at what's going on this morning and what's to come.
Futures: S&P 500 +0.4 per cent; Dow +0.3 per cent; Nasdaq +0.4 per cent; TSX Toronto +0.6 per cent
Hong Kong's Hang Seng -0.59 per cent
Shanghai composite index -0.53 per cent
Japan's Nikkei +1.66 per cent
London's FTSE 100 +0.35 per cent
Germany's DAX -0.18 per cent
France's CAC 40 +0.43 per cent
WTI crude oil (Nymex Aug) +0.4 per cent at $95.58 (U.S.) a barrel
Gold (Comex Aug) +0.61 per cent at $1,294.00 (U.S.) an ounce
Silver (Comex July) -0.37 per cent at $19.75 (U.S.) an ounce.
Copper (Comex Sep) +0.41 per cent at $3.08 (U.S.) a pound
Canadian dollar down 0.0087, or 0.90 per cent, at $0.9546 (U.S.)
U.S. 10-year Treasury yield 2.41 per cent, up 0.10
Canada 10-year government bond yield 2.33 per cent, up 0.07
ECONOMIC INDICATORS TO WATCH:
Statistics Canada said May inflation rose 0.7 per cent from a year ago, below economists' forecasts for 0.9 per cent. Core inflation was up 1.1 per cent from a year ago.
Canadian retail sales rose 0.1 per cent in April from March, less than the 0.2 per cent that was forecast.
STOCKS TO WATCH:
Oracle Corp. shares are down about 8 per cent after it reported late Thursday revenues that came up short of Street forecasts, even as it doubled its quarterly dividend.
New Flyer Industries Inc. has announced the acquisition of North American Bus Industries for $80-million from an affiliate of Cerberus Capital Management.
THIS MORNING'S TOP INVESTING READS ON THE WEB:
Why you shouldn't count on the Fed tapering their bond purchases in September.
Noted contrarian Marc Faber sees more downside for the S&P 500, but is feeling upbeat on gold.
Gary Shilling thinks that reports of the death of the bond bull markets have been greatly exaggerated.
How China's liquidity squeeze creates enormous global risks.
It's just getting worse for Apple bond holders.
How Bernanke has hurt Fed credibility.
The premarket report is constantly updated to reflect the latest news developments and market moves. For instant headlines on breaking economic and corporate news in the premarket, follow Darcy Keith on Twitter at @eyeonequities.