Equities
Stock futures signalled a higher start for Wall Street with earnings taking the spotlight after weekend missile strikes by the U.S., Britain and France on government sites in Syria. On Bay Street, futures were also higher even as oil prices fell. Overnight, MSCI’s all-world index, which tracks stocks in 47 countries, was largely unchanged with European markets opening flat and Asia finishing the first session of the week mixed.
“For now, investors appear at ease with the situation and as long as no further escalation occurs, attention may now switch to other matters such as first quarter earnings season,” OANDA analyst Craig Erlam said.
“It was feared that a Western response could trigger an escalation in the region, further damaging relations with Russia in the process due to its backing of the Assad regime.”
Instead, he noted, the weekend move was an apparent one-off limited strike “in an attempt to prevent further attacks in the future has not yet stoked such fears and instead, investors appear relatively at ease.”
Geopolitics aside, earnings will be the market’s main focus this week.
On Bay Street, cannabis company Aphria reported third-quarter results ahead of the market open, posting earnings per share of 8 cents up from 4 cents last year. Analysts polled by Thomson Reuters I/B/E/S had been forecasting earnings of 1 cent. Aphria’s revenue for the quarter of $10.3-million, up from $5.1-million.
As well, Kinder Morgan Canada shares will also be in the spotlight after Prime Minister Justin Trudeau promised financial backing and legislation to ensure that the Trans Mountain pipeline expansion is completed. Mr. Truduea met with Alberta Premier Rachel Notely and B.C. Premier John Horgan on Sunday. B.C. has opposed the expansion and gave no ground during Sunday’s talks. Mr. Trudeau called the expansion “a vital strategic interest to Canada.”
On Wall Street, bank earnings continue with Bank of America posting a 34-per-cent increase in first-quarter profit on loan growth and rising interest rates. The bank reported net income of US$6.49-billion for the quarter, up from US$4.84-billion a year earlier. Earnings per share rose to 62 US cents from 45 US cents. Analysts had been expecting earnings of 59 US cents in the most recent quarter. Bank of America shares were up by nearly 1 per cent in premarket trading.
On Friday, JPMorgan, Wells Fargo and Citigroup. Analyst Michael Hewson notes that, although JPMorgan and Citi both posted some “decent headline numbers” markets still finished Friday lower. He said concerns persist for the U.S. banks as concerns about loan growth to businesses raised concerns about future trading potential. Bond trading, he said, was also a weak spot for JPMorgan and “looks unlikely to improve any time soon with a flattening yield curve potentially hitting margins.”
After the close, Netflix reports its latest results. Analysts will be closely watching subscriber growth after the company topped market expectations in the preceding quarter, adding more than 8 million users. This time out, analysts are expecting about 5 million new subscribers globally and 1.5 million in the United States, according to FactSet. Netflix shares were up more than 1 per cent in premarket trading on Monday.
Overseas, European markets wavered around break even early on. The pan-European STOXX 600 was off 0.06 per cent. Britain’s FTSE was down 0.41 per cent. Shares of advertising giant were down more than 5 per cent after CEO Martin Sorell stepped down on the weekend amid allegations of personal misconduct. France’s CAC 40 was off 0.01 per cent in early going. Germany’s DAX lost 0.15 per cent.
In Asia, stocks finished mixed as markets in China struggled. Japan’s Nikkei advanced 0.26 per cent while the broader Topix rose 0.4 per cent with utilities and pharmaceutical stocks seeing strength.Hong Kong’s Hang Seng ended down 1.6 per cent. The Shanghai Composite Index lost 1.53 per cent.
Commodities
Oil prices fell on rising U.S. drilling activity and easing concerns over tensions in the Middle East following weekend missile strikes in Syria. Brent crude was down by more than 1 per cent but off early lows with a day range so far of US$71.11 to US$72.85. (Brent is still up more than 16 per cent from February lows) West Texas Intermediate was also more than 1-per-cent lower and had a day range of US$66.14 to US$67.74.
“The strike on Syrian chemical locations over the weekend marks the end of the recent standoff which saw oil prices hit a three-year high in anticipation of a greater Western presence in the Syrian conflict,” CMC market analyst Joshua Mahoney said. “Market realization that this attack largely draws the line under the issue has brought about a sharp decline in oil prices in early trade, hitting BP shares in particular.”
U.S. rig count figures also weighed on sentiment Monday. Energy services firm Baker Hughes said companies added seven rigs last week, bringing the total to 815. That’s the highest level since March 2015. It’s also up roughly 20 per cent from levels seen a year earlier.
In other commodities, gold prices were mostly unchanged in early going, having given back gains in the wake of the weekend missile strikes. Spot gold was little changed ahead of the North American open. Gold futures were off slightly.
“Some of the risk (premium) has come down following the air strikes,” Capital Economics analyst Simona Gambarini told Reuters. “Some market participants were thinking that maybe there could be an escalation of the tensions, but that has not happened and therefore prices have come down a bit.”
Silver prices were also off slightly.
Currencies and bonds
The Canadian dollar was higher early Monday as its U.S. counterpart slipped as investors weighed the implications of weekend actions in Syria. The loonie traded in a fairly narrow band through the night with a day range so far of 79.22 US cents to 79.40 US cents.
The key event for the loonie this week is Wednesday’s Bank of Canada decision on interest rates. The markets expect the central bank to hold steady as economic growth falls short of the bank’s forecasts in the last monetary policy report. Elsa Lignos, global head of FX strategy for RBC, says first-quarter growth is now looking like it will come in about 1 per cent below the 2.5 per cent forecast in the January report. At the same time, she said, measures of core inflation have risen and the bank’s April business outlook survey was relatively upbeat.
“Markets have very little priced in for this meeting and a May hike is (about) 50-per-cent discounted – so if we get rates on hold with a hawkish signal or even a shock hike, CAD stands to gain further,” she said. “We’ll be watching any comments on inflation in particular, which some put down to temporary measures but our rates team argue reflects eroding slack.”
In other currencies, the U.S. dollar index, which weighs the greenback against a basket of its world counterparts, was lower at 89.549. The index is down more than 2 per cent since the start of the year.
“The military strikes were well telegraphed and we are seeing a continuation in the broad market theme from last week of a weaker dollar and favourable conditions for risk taking,” said Credit Agricole currency strategist Manuel Oliveri.
In bonds, short-dated U.S. Treasury yields rose early Monday to their highest levels in almost 10 years. Investors sidelined safe-haven investments as geopolitical tensions eased. The two-year U.S. Treasury yield popped to 2.386 per cent in early trading in Europe, it’s highest level since August, 2008.
Ten-year U.S. Treasury yields rose to 2.86 per cent, a three-week high.
Stocks set to see action
Vermilion Energy Inc. said it will buy Saskatchew’s Spartan Energy Corp. for $1.23-billion in Vermilion shares. Vermilion will also assume $175-million in debt as part of the deal. Under the terms of the agree,emt, Spartan shareholders will get 0.1476 of a Vermilion share for each Spartan common share. Based on Vermilion’s closing price of $44.04 on Friday, the exchange ratio translates to $6.50 per Spartan common share, representing a 5-per-cent premium to Spartan’s closing price, the companies said.
Advertising giant WPP saw shares drop on Monday after founder Martin Sorrell’s weekend departure from the company. Shares in the group fell 4 per cent after Sorrell, the driving force behind 33 years of deal making and expansion, stepped down on Saturday after the board investigated an allegation of misconduct. The sudden departure of Sorrell, the face of the company since he founded it in 1985, has sparked questions as to whether the holding group can remain in its current form of employing 200,000 people in more than 400 agencies across 112 countries.
U.S. casino operator Eldorado Resorts Inc said on Monday it agreed to buy Tropicana Entertainment Inc in a deal valued at US$1.85-billion in cash under which six casino properties will be sold to real estate firm Gaming and Leisure Properties. GLPI, which leases real estate to casino operators, will pay US$1.21-billion, excluding taxes and expenses, for substantially all of Tropicana’s real estate and enter into a master lease with an initial 15-year term with Eldorado. Eldorado will fund the remaining US$640-million of cash consideration payable in the deal, the company said.
Bank of America reported a 34 per cent rise in first-quarter profit on Monday on higher interest rates and loan growth. The second-largest U.S. bank by assets said net income attributable to shareholders rose to $6.49-billion in the three months ended March 31 from $4.84-billion a year earlier. Earnings per share rose to 62 cents from 45 cents. Analysts on average had expected 59 cents per share, according to Thomson Reuters I/B/E/S.
Shire, the London-listed rare diseases specialist that is a potential takeover target for Japan’s Takeda Pharmaceutical, is selling its oncology business to unlisted French drug maker Servier for US$2.4-billion. The deal suggests there is value locked up within Shire’s portfolio - despite a dismal share price performance in the past two years - as its management braces for a possible US$50-billion bid battle with Japan’s biggest drugmaker. Shire said on Monday it would consider returning proceeds from the sale to shareholders through a buyback and that further selective disposals of non-strategic assets were possible.
Domino’s will now deliver to the great outdoors in the United States. The pizza chain said Monday its drivers can meet customers at U.S. beaches, parks and landmarks to hand over pizza, cheesy bread and other food. Among the 150,000 outdoor locations: Under the Gateway Arch in St. Louis, or by the Las Vegas welcome sign. The locations show up in the company’s app or website as “Domino’s Hotspots.”
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Economic news
(8:30 a.m. ET) U.S. retail sales for March rose 0.6 per cent. Economists had been expecting an increase closer to 0.4 per cent. The March increase came after three consecutive months of declines.
(10 a.m. ET) U.S. housing market index for April. Consensus is 70.0, unchanged from March.
Terry Weber