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Before the bell: Oil jumps to 8-month high on Iraq

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.

A surge in crude oil prices to an eight-month high is taking centre-stage this morning in global markets, as an offshoot of al-Qaeda is rapidly on the move and taking control over northern areas of Iraq, creating new fears about Middle East oil supplies.

With the rise of U.S. shale oil production, Canada's oil sands, and other new sources of supply, global energy markets aren't as sensitive as they once were to tensions in the region. But risks of extremists being the dominant political force in parts of Iraq, and the threat it imposes on democracy on the rest of the country, is already sparking questions about whether the U.S. will continue to refrain from further involvement. The conflict is spreading in Iraq this morning, with the Iraqi military, backed by air power, attacking the fighters of the Islamic State in Iraq and the Levant, including in Saddam Hussein's former hometown of Tikrit, about 130 kilometres north of Baghdad.

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The latest development is that the northern oil city of Kirkuk has been seized by the militants. That may threaten the Kirkuk-Ceyhan oil pipeline that runs through the region. Even though it's been shut since March, there are now questions whether the pipeline will ever be reopened.

Crude oil is also finding support from statistics Wednesday from the Energy Information Administration showing U.S. crude stockpiles falling for a second week.

Crude oil futures for July delivery are up 1.7 per cent to just above $106 (U.S.) a barrel.

It's a different case for U.S. and Canadian stocks futures, which are nearly flat this morning amid slight equity gains in Europe and modest losses in Asia. Futures weakened slightly as the U.S. reported weaker-than-expected retail sales and jobless claims at 830 a.m. (ET).

The Dow and S&P 500 inched to fresh record highs earlier this week, and the TSX came less than 200 points of an all-time record. But buying momentum has run out of steam. Some speculate that the low volumes and volatility of late, when combined with concerns that valuations are looking stretched, may mean a protracted period of profit taking.

On the corporate earnings side, Transat, BRP, Dollarama and Lululemon - which now only trades in the U.S. - have all reported results this morning. Lululemon shares are down 15 per cent in the premarket as the company lowered its full-year outlook.

There have also been at least two analyst upgrades this morning for Industrial Alliance Insurance, which should provide lift for that Canadian stock. And Desjardins Securities is advising investors to buy shares in Canada's two big railways ahead of their second-quarter results, as it lifted price targets on both.

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We detail all this, and much more, below.

MARKETS:

Equities:

Futures: S&P 500 +0.05 per cent; Dow +0.05 per cent; Nasdaq +0.04; S&P/TSX +0.05 per cent

Hong Kong's Hang Seng -0.35 per cent

Shanghai composite index -0.14 per cent

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Japan's Nikkei -0.63 per cent

London's FTSE 100 +0.03 per cent

Germany's DAX +0.04 per cent

France's CAC 40 +0.13 per cent

Commodities:

WTI crude oil (Nymex Jly) +1.77 per cent at $106.25 (U.S.) a barrel

Gold (Comex Aug) +0.36 per cent at $1,265.60 (U.S.) an ounce

Copper (Comex Jly) -0.02 per cent at $3.04 (U.S.) a pound

Currencies:

Canadian dollar at 92.09 (U.S.), up 0.0007

U.S. dollar index down 0.003 at 80.78

Bonds:

U.S. 10-year Treasury yield 2.65 per cent, up 0.01

ECONOMIC INDICATORS:

Canada's capacity utilization for the first quarter came in at a near seven-year high of 82.5 per cent, a bit above the consensus call for 82.3 per cent and up from 82.0 per cent in the fourth quarter.

Canada's new housing price index for April rose 0.2 per cent month over month, in line with Street estimates.

U.S. initial jobless claims for last week came in at 317,000, above the Street's forecast of 310,000 and the previous week's 312,000.

U.S. retail sales for May rose 0.3 per cent, below the rise of 0.6 per cent expected by the Street. Excluding the auto sectors, sales were flat, whereas the market was looking for a rise of 0.4 per cent.

U.S. import prices for May rose 0.1 per cent from April, versus the expectation for a 0.2 per cent rise.

(10 a.m. ET) U.S. releases business inventories for April, forecast by BMO to rise 0.4 per cent.

(1030 a.m. ET) Bank of Canada releases its financial system review, followed by a press conference.

STOCKS TO WATCH:

Lululemon Athletica shares are down about 15 per cent in the premarket after reporting adjusted earnings of 34 cents, 2 cents better than analysts' estimates, but also lowered its forecasts for the year. The company also said its CFO will be retiring and it will be buying back more shares.

Dollarama reported Q1 EPS of 78 cents vs. the Street estimated 77 cents.

Transat AT reported a Q2 adjusted loss of 19 cents a share vs. the Street estimated loss of 32 cents.

Ski-doo maker BRP reported a 6 per cent fall of first quarter profit but said its results were in-line with its earlier expectations.

ANALYST ACTIONS:

Desjardins Securities hiked its price target on Canadian National Railway to $73 (Canadian) from $67 and on Canadian Pacific Railway to $215 (Canadian) from $182. It says investors should buy shares in both ahead of their second-quarter earnings.

Canaccord Genuity upgraded Industrial Alliance Insurance & Financial Services to "buy" from "hold" and raised its price target to $48 (Canadian) from $45. Desjardins Securities also upgraded the insurer to "buy" from "hold" while reiterating its $51 (Canadian) price target.

Canaccord Genuity upgraded Evertz Technologies to "buy" from "hold" and raised its price target to $19.50 (Canadian) from $17.50.

Goldman Sachs upgraded Hewlett-Packard to "neutral" from "sell" and raised its price target to $32 (U.S.) from $25.

Macquarie downgraded DIRECTV to "neutral" from "outperform" and cut its price target to $95 (U.S.) from $100.

THIS MORNING'S TOP INVESTING LINKS:

A unique dataset has concluded that there are plenty of high-quality, dividend-paying U.S. blue-chip stocks that are not overvalued.

For long-term investors, Russian stocks may be a cheap buy right now.

Never invest with a hedge fund manager going through a divorce.

A head scratcher: Bond yields in Ireland are below the U.S.

U.S. corporate and government bond spreads are the most narrow since 2007.

You do not need a recession for a meaningful correction in stocks.

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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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