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Before the bell: Hints of budget progress halt stock slide

The Before the Bell report is constantly updated to reflect the latest news developments and market moves in the premarket. Check back later for updates.

The fiscal mess in Washington continues to dominate attention in global markets this morning, and a hint of progress appears to have halted the slide in stocks for now. U.S. and Canadian stock futures are nearly unchanged and European markets are down modestly, while Asian stocks rose overnight.

In Canada, the focus is on Talisman Energy, which is up about 7 per cent in the U.S. premarket after Carl Icahn disclosed a nearly 6 per cent stake in the oil and gas producer late Monday.

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According to Bloomberg News, Senate Democrats are planning a test vote before the end of this week on a measure that would allow President Barack Obama the authority to increase the $16.7-trillion debt limit for a year, unless two-thirds of both chambers of Congress disapprove. Meanwhile, Republican Senator Rob Portman has been circulating a plan to cut federal spending and reform the U.S. tax code in an effort to reopen government agencies and provide the Treasury Department with more borrowing authority. Closed-door meetings today are planned with various members of the two U.S. political parties.

It's not clear if either of these proposals will gain traction. But markets are likely to continue to trade off of word of progress, or lack thereof, in resolving the budget stalemate that has furloughed thousands of workers and sparked concern of a debt default. The Treasury has said that it will exhaust measures to avoid exceeding the borrowing limit on Oct. 17. That said, the U.S. treasury would have several manoeuvres it can use to conserve depleted cash after that point.

Markets in recent days have sold off on fears the U.S. will breach the debt limit - even though that still seems like a remote possibility. That means the market is likely poised for a relief rally for whenever there are clear signals that a resolution is nearing. For now, however, there are worries the selling pressure isn't over yet as the Oct. 17 deadline approaches.

Today also marks the unofficial start of the third-quarter earnings season, with Alcoa set to report results after market close. Even though the aluminum maker is no longer part of the Dow Jones industrial average, its reading on the global demand picture should be interesting.

According to Bloomberg, earnings for S&P 500 companies increased 1.7 per cent in the third quarter while sales rose 2.2 per cent.

But ominously, 89 companies - or 82 per cent of companies that have made early statements on earnings - have already said that they're likely to report earnings per share that are worse than they expected, according to Factset - a record high.

Now, here's a closer look at what's going on this morning and what is to come.

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MARKETS:

Equities:

Futures: S&P 500 +0.15 per cent; Dow +0.10 per cent; Nasdaq +0.18 per cent; S&P Toronto +0.11 per cent

Hong Kong's Hang Seng +0.89 per cent

Shanghai composite index +1.07 per cent

Japan's Nikkei +0.30 per cent

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London's FTSE 100 -0.72 per cent

Germany's DAX -0.09 per cent

France's CAC 40 -0.37 per cent

Commodities:

WTI crude oil (Nymex Dec) +0.70 per cent at $103.55 (U.S.) a barrel

Gold (Comex Dec) -0.47 per cent at $1,318.90 (U.S.) an ounce

Copper (Comex Dec) +0.46 per cent at $3.31 (U.S.) a pound

Currencies:

Canadian dollar at 96.90 (U.S.), down 0.0005 from Monday's North American close.

U.S. dollar index up 0.05 at 79.99

Bonds:

U.S. 10-year Treasury yield 2.65 per cent, up 0.02

ECONOMIC INDICATORS TO WATCH:

Canada housing starts rose 5.3 per cent in September from August to a 193,637 annualized rate, beating Street forecasts.

Canada trade deficit widened to a higher-than-expected $1.31-billion in August from $1.19-billion in July.

STOCKS TO WATCH:

Talisman Energy Inc. shares are up about 7 per cent in the U.S. premarket after activist investor Carl Icahn said late Monday in a tweet that he has acquired a nearly 6 per cent stake in the company. Mr. Icahn is expected to talk to management about board seats and strategic alternatives for the oil and gas producer.

The Canadian government has rejected an Egyptian bullionaire's bid to buy Manitoba Telecom Services Inc's Allstream division because of unspecified national security concerns about the $520-million deal.

Saputo has entered into a $378-million (Canadian) deal to buy Warrnambool Cheese and Butter Factory Company Holdings Ltd. in Australia.

J.C. Penney reported a rise in same-store sales for September compared with August and said it was seeing positive signs in many areas of its business. Shares are up 7 per cent in the premarket.

Earnings today include Exfo Inc.; Firan Technology; Alcoa Inc.; and YUM! Brands Inc.

ANALYST ACTIONS:

Canaccord Genuity downgraded Manitoba Telecom Services to "sell" from "hold" and cut its price target to $30 (Canadian) from $34. Desjardins Securities maintained a "hold" rating but cut its target to $32 (Canadian) from $36.

M Partners upgraded Mainstreet Equity to "buy" from "hold" and maintained a $35.50 (Canadian) price target.

Stonecap Securities initiated coverage on Canacol Energy with an "outperform" rating and $6.20 (Canadian) price target.

Stonecap Securities cut its price target on Exchange Income Corp. to $27 (Canadian) from $31 but reiterated an "outperform" rating.

Raymond James cut its price target on HudBay Minerals to $8.25 (Canadian) from $9 and reiterated a "market perform" rating.

Northland Capital Markets initiated coverage on Canadian Solar with an "outperform" rating and a price target of $26 (Canadian).

Sterne Agee downgraded J.C. Penney to "neutral" from "buy" and cut its price target to $9 (U.S.) from $18.

Canaccord Genuity raised its price target on EnteroMedics Inc. to $3 (U.S.) from $1.50 and reiterated a "buy" rating.

Stifel Nicolaus raised its price target on Yahoo to $41 (U.S.) from $33 and maintained a "buy" rating.

Jefferies initiated coverage on Walgreen with a "hold" rating and $62 (U.S.) price target.

Jefferies initiated coverage on Safeway with a "hold" rating and $32 price target.

Deutsche Bank downgraded Alaska Air Group to "hold from "buy" and kept its price target at $70 (U.S.)

THIS MORNING'S TOP INVESTING READS ON THE WEB:

The biggest DIY investing challenges.

Why Warren Buffett is richer than George Soros.

Don't believe the saying that the market is always right.

While the market may be setting up nicely for a relief rally, you may want to curb your enthusiasm.

Why Twitter is the best IPO opportunity since Tesla. Meanwhile, here are three ways Twitter's IPO won't be like Facebook's.

Why the U.S. budget deficit decline hasn't hurt corporate profits more.

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For instant headlines on breaking economic and corporate news in the premarket, follow Darcy Keith on Twitter at @eyeonequities.

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About the Author
Investment Editor

Darcy Keith is The Globe and Mail's Investment Editor. He has been a business journalist since 1992 and joined the Report on Business in 2010 from Yahoo! Canada, where he was the senior editor of finance. More

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