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Before the Bell: Futures climb as earnings pull focus; TSX eyes firmer start

U.S. stock futures were sharply higher early Tuesday as investors braced for another raft of corporate results. On Bay Street, futures were also positive with oil prices holding steady. Overseas, markets in Europe were trading north of break even in early going while Asian indexes finished mixed.

“Sentiment naturally remains quite fragile but in the absence of an escalation after the U.S., U.K. and French strikes in Syria over the weekend and assuming no more trade war threats – both of which are far from guaranteed – indices could continue to gradually pare the losses made since late January,” OANDA market analyst Craig Erlam said. “Earnings season could provide a welcome good news distraction in the meantime, with 13 S&P 500 companies due to report.”

S&P 500 companies are expected to post an 18.6-per-cent increase in first-quarter profits during the current reporting season, according to Thomson Reuters data.

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On Tuesday, results are due from Goldman Sachs and Johnson & Johnson. Goldman follows JPMorgan, which released its results last week which came in just shy of forecasts. JPMorgan cited weak investment-banking revenue for the as a sore point. Other big U.S. banks Wells Fargo & Co., Citigroup Inc. and Bank of America Corp. all beat expectations by about 4 per cent to 5 per cent, according to Thomson Reuters’ Eikon. Morgan Stanley reports follows Goldman, reporting its results on Wednesday.

Ahead of the open, Goldman said profit rose 27 per cent in the latest quarter, with earnings per share climbing to US$6.95. Analysts had been looking for earnings by that measure of US$5.58. Higher trading revenue as a result of volatile markets bolstered the results. Trading revenue was up 30.5 per cent from last year’s quarter. Goldman shares were higher in premarket trading.

On Bay Street, the energy sector will likely continue to draw focus as the battle between Alberta and British Columbia over the Trans Mountain pipeline extension continues to rage. On Monday, Alberta threatened to restrict oil exports to B.C. over the dispute. Alberta Premier Rachel Notely says that province could take legislative measures if Kinder Morgan kills the project.

Kinder Morgan, incidentally, releases its latest results on Wednesday. Eight analysts polled by Zacks Investment Research are expecting earnings of 21 cents a share for the quarter, up from 17 cents in the same three-month period a year earlier.

On Wall Street, Netflix shares were up 7 per cent in premarket trading after the streaming company posted subscriber growth far ahead of forecasts. Analysts had expected Netflix to add 6.5 million new subscribers in the quarter. The company exceeded that figure and said it expects to add 6.2 million subscribers between April and June, 1 million more than analysts had been forecasting for that period.

Overseas, markets in Europe solidified early gains with the pan-European STOXX 600 climbing 0.41 per cent. Resource stocks were performing well. The sector has a heavy exposure to China and got a boost from figures showing that the Chinese economy grew by 6.8 per cent in the first quarter of the year, beating economists’ forecasts. Britain’s FTSE was up 0.28 per cent in morning trading. Germany’s DAX added 0.92 per cent and France’s CAC 40 rose 0.51 per cent.

In Asia, markets were mixed. Japan’s Nikkei edged up 0.06 per cent. Hong Kong’s Hang Seng slid 0.83 per cent and the Shanghai Composite Index dropped 1.39 per cent.

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Commodities

Crude prices were steady to slightly higher in early going as investors look ahead to fresh U.S. inventory figures. Brent crude was unchanged at last check and had a day range of US$71.22 to US$71.89. West Texas Intermediate was a touch higher at last check and had a range for the day of US$66.07 to US$66.75.

Weekly inventory numbers are due from the American Petroleum Institute Tuesday afternoon. Those are followed Wednesday by weekly figures from the U.S. Energy Information Administration. Forecasts suggest the EIA report will show a decline in U.S. crude stocks by about 1.9 million barrels.

Crude prices, which saw sharp gains last week, finished Monday’s session lower as markets digested the fallout from weekend missile strikes on Syria and the apparent indication that the move was a one-off measure rather than an escalating conflict. However, analyst suggested Tuesday that market sentiment continues to be underpinned by concern for possible disruptions in the crude supply, especially in the Middle East.

“With so many potential supply disruptors in play and few signs that the current market upheaval will end any time soon, traders continue to pay the geopolitical risk premium,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage OANDA in Singapore.

“Oil prices should remain bid ... at least through the Iran nuclear deal deadline (May 12) if not for the remainder of 2018,” he added.

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Among concerns in the Middle East is the potential for renewed U.S. sanctions against Iran. President Donald Trump has said that country could pull out of a nuclear deal between Tehran and six major powers by May 12 unless a follow-up agreement is in the offing.

In other commodities, gold prices slid as risk appetite rose as tensions over Syria eased. Spot gold and U.S. gold futures were both lower in early going.

“All this noise we’ve been witnessing as of late, whether it is trade disputes or Syria, has not really moved gold on a sustainable basis,” Julius Baer analyst Carsten Menke, told Reuters.

“The story would be different if these disputes prevailed and we got a significant slowdown in leading indicators. But it doesn’t seem to me that anybody is really afraid of a material deterioration in the economic backdrop.”

Silver prices were up a touch.

Currencies and bonds

The Canadian dollar was modestly higher as investors await Wednesday’s Bank of Canada interest rate announcement. Overnight, the loonie traded in a narrow band with a range for the day of 79.50 US cents to 79.65 US cents.

Ahead of the opening bell, markets got a reading on Canada’s factory sector. Statistics Canada said factory sales rose 1.9 per cent in February after two months of declines. Economists had been expecting a gain of about 0.9 per cent. The report is the last piece of data before the Bank of Canada decision, although the report is unlikely to have an impact on the policy move. The bank is widely seen holding rates steady.

“After a cool start to the year, factories were humming again in February,” CIBC senior economist Royce Mendes said in a note.

In other currencies, the U.S. dollar index was slightly higher at 89.480 at last check after spending much of the predawn period underwater. Comments from Mr. Trump accusing China and Russia of trying to devalue their currencies have weighed on the U.S. dollar this week, with investors seeing the comments as a suggestion that the administration would like to see a weaker greenback.

The euro managed a three-week high against the U.S. dollar on a solid reading on Chinese economic growth and easing worries over Syria tensions.

In Bonds, U.S. Treasury yields were higher ahead of a number of Fed speakers on Tuesday. San Francisco Fed president John Williams, Philadelphia Fed president Patrick Harker, Chicago Fed president Charles Evans and Fed Governor Randal Quarles are all set to speak at different points during the day. The yield on the 10-year note was higher at 2.836 per cent. The yield on the 30-year note was higher at 3.033 per cent.

Stocks set to see action

Johnson & Johnson reported a better-than-expected first-quarter profit and raised its full-year sales forecast, helped by growing demand for its cancer drugs. J&J’s pharmaceuticals sales rose 19.4 per cent to US$9.84-billion, driven by sales of its cancer drugs such as Darzalex, Imbruvica and Zytiga that rose 45 per cent to US$2.31-billion in the quarter. J&J raised its full-year sales forecast to US$81.0-billion to US$81.8-billion from its previous forecast of US$80.6-billion to US$81.4-billion. Excluding items, the company earned US$2.06 per share. Analysts on average were expecting earnings of US$2.02 per share, according to Thomson Reuters I/B/E/S.

Amazon.com Inc is in talks with Brazilian airline Aon shipping goods in the country, two sources with knowledge of the matter told Reuters, in the latest sign of the retailer’s big plans in Latin America’s largest economy. The talks with Azul, which serves over 50 per cent more Brazilian airports than its nearest rival, are the strongest signal yet that Amazon is lining up distribution to sell products directly to consumers throughout the country.

Tesla Inc has temporarily suspended its Model 3 assembly line in what the company said on Monday was a planned production pause, as the automaker continues to face challenges ramping up its new sedan. It was the second time since February that Tesla has temporarily shut down its production line for the Model 3 at its Fremont, California plant. Tesla shares were trading lower in the premarket.

UnitedHealth Group Inc, the largest U.S. health insurer, raised its earnings forecast for the year and posted a quarterly profit that beat Wall Street estimates, helped by strength across its businesses. The company raised its full-year adjusted earnings forecast to a range of US$12.40 to US$12.65 per share from a range of US$12.30 to US$12.60 per share. Net earnings attributable to shareholders rose to US$2.84-billion, or US$2.87 per share, in the first quarter ended March 31 from US$2.17-billion, or US$2.23 per share, a year earlier.

Swi ss food group Nestlé and retailers including German grocer Edeka are approaching a compromise in their months-long price fight but the outcome of talks remains open, a source close to the negotiations said on Tuesday. Edeka, Germany’s largest supermarket group, had written to its stores this month recommending they expand a boycott of some Nestlé products, an escalation of a pricing row between the world’s biggest packaged food maker and European retailers. Nestle and Edeka-led AgeCore -- the Geneva-based group of six European retailers that also includes Switzerland’s Coop -- have not yet reached a breakthrough and the discussions could still fail, the source said on condition of anonymity.

More reading:

Tuesday’s small-cap stocks to watch

Tuesday’s Insider Report: Companies insiders are buying and selling

Economic news

Canadian factory sales jumped 1.9 per cent in February after two consecutive months of declines. Economists had been expecting a rise of about 0.9 per cent. Statistics Canada says sales were up in 14 of 21 industries.

Statscan says foreign investment in Canadian securities totaled $4-billion in February, down from $5.6-billion in January. At the same time, Canadian investment in foreign securities slowed to $6.3-billion.

Housing starts rose 1.9 per cent to a seasonally adjusted annual rate of 1.319 million units in March, the Commerce Department says. February were revised up starts declined to a 1.295 million-unit pace instead of the previously reported 1.236 million units.

With Reuters and The Canadian Press

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