U.S. markets looked set for heavy losses at the open Thursday with Dow futures signalling triple-digit declines as trade concerns continue to rattle stocks across the globe. On Bay Street, futures were also down as crude prices entered a third day of declines. Global markets were on the back foot overnight on reports that U.S. President Donald Trump had directed U.S. Trade Representative Robert Lighthizer to consider increasing tariffs on US$200-billion in Chinese imports to 25 per cent.
Markets in Asia closed in the red with indexes in China seeing declines of 2 per cent. European markets started the day down with Germany’s DAX - which is particularly vulnerable to shift trade talks - falling 1.78 per cent in morning trading.
“Trade tensions between the U.S. and China rumble on and this has shaken investor confidence in Europe,” CMC Markets U.K. analyst David Madden said. “The tough talk from President Trump has prompted traders to be fearful about global growth.”
On Wednesday, Mr. Lighthizer had said that Mr. Trump directed a higher 25-per-cent tariff, up from the earlier 10 per cent, citing China’s refusal to meet U.S. demands and the decision to impose retaliatory tariffs.
On Bay Street, another heavy earnings day was in store. Ahead of the open, Bombardier Inc. reported adjusted earnings per share of 3 cents in the latest quarter, ahead of analysts forecasts, which called for a loss of about 1 cent a share by that measure. Quarterly revenue rose to $4.26-billion, up 3 per cent. The transportation company also said it was on track to achieve its 2018 guidance.
Elsewhere, Canadian Natural Resources Ltd. also reported better-than-expected quarterly profit as production rose. Excluding items, CNRL earned $1.04 a share, well ahead of the 81 cents analysts had expected. Cash flow, a key indicator of an energy company’s ability to fund future projects, rose 56.8 per cent to $2.71-billion.
Earnings are also due from BCE Inc. before the start of trading.
Outside earnings, TransCanada Corp. said early Thursday that it would sell its 62-per-cent stake in five wind farms in Quebec to Innergex Renewable Energy Inc. for about $630-million. The sale is expected to close in the fourth quarter. In a statement, TransCanada said the deal fits its growth strategy and lets it expand in Quebec, where Innergex “laid its roots.”
On Wall Street, shares in Tesla were up nearly 9 per cent in premaket trading after the company said it would produce its new Model 3 sedan at a profit. On a conference call, CEO Elon Musk also vowed to post net profits in future quarters and apologized to two analysts he cut off in a previous quarterly call. In the latest quarter, Teslat reported a US$717.5-million loss, double that seen a year earlier but just slightly larger than the preceding quarter. Tesla’s cash burn also slowed to US$739.5-million in the latest quarter, from about $1.1-billion in the earlier quarter.
U.S. companies reporting Thursday include DowDuPont, Kellog and Yum Brands. At this point, about two-thirds of companies on the S&P 500 have reported second-quarter results with more than 80 per cent topping Wall Street forecasts. Year-over-year profit growth for the quarter is now headed for 25 per cent, according to Credit Suisse figures.
Overseas, European markets were lower in morning trading. Markets in Europe were also weighing the Bank of England’s decision Thursday to raise interest rates. It was the second time that the central bank has raised rates since the financial crisis.
Just after 6:30 a.m. ET, Britain’s FTSE 100 was off 1.29 per cent. France’s CAC 40 was down 0.88 per cent. Rattled by ongoing trade rows, Germany’s DAX was off 1.73 per cent. The pan-European STOXX 600 was trading down 0.93 per cent.
In Asia, trade concerns were at the forefront. Japan’s Nikkei fell 1.03 per cent while the broader Topix fell 1 per cent. Hong Kong’s Hang Seng fell 2.27 per cent. Shanghai Composite Index lost 2.03 per cent.
Crude prices continued to decline for a third straight session with a surprise increase in U.S. inventories adding to concerns about rising global supply. Brent crude and West Texas Intermediate were both lower at last check after briefly pushing into positive territory overnight. The day range on Brent so far is US$71.90 to US$72.95. The range on WTI is US$66.92 to US$68.15.
The declines follow a report Wednesday from the U.S. Energy Information Administration showing crude stocks rose by 3.8 million barrels last week as imports increased. Analysts had been forecasting a decline of about 2.8 million barrels. A day earlier the American Petroleum Institute had released a similar tally, also showing rising crude inventories despite expectations that the week would see a draw down.
“The surprise midsummer crude build continues the recent theme of trade-induced unpredictability which has plagued recent weekly readings, likely fuelling additional volatility in oil markets more broadly,” Desjardins analysts said in a morning report.
Markets have already been under pressure amid concerns over growing production. Saudi Arabia, Russia, Kuwait and the United Arab Emirates have all increased production following a June OPEC meeting where they agreed to boost output to offset an expected decline in Iran’s supplies after U.S. sanctions kick in later in the year.
In other commodities, gold prices gave up early gains and turned lower as the U.S. dollar strengthened. Spot gold was down slightly at last check at US$1,214.51 an ounce. Gold futures were also weaker.
“I think people are just watching the dollar. The dollar-yen is down and gold is up,” Yuichi Ikemizu, Tokyo branch manager, ICBC Standard Bank told Reuters, adding that the latest headlines on the trade war front between the United States and China had likely induced some buying. The dollar’s shift came after the U.S. Federal Reserve offered few surprises in its Wednesday policy announcement but also gave a positive view of the U.S. economy.
Silver and platinum prices were also higher.
Currencies and bonds
The Canadian dollar was slightly weaker as its U.S. counterpart rallied against a basket of world currencies. The loonie slid steadily through the overnight period and stood near the bottom of the day range of 76.70 US cents to 76.98 US cents at last check. Volatile oil prices and a shifting global trade picture also weighed on the Canadian dollar early on. With no big Canadian releases due Thursday, the loonie will likely be at the mercy of broader trade movements.
The U.S. dollar index, which weighs the greenback against a basket of currencies, was higher at 94.9250. The gains came after the Fed said the U.S. economy is “strong" adding to optimism about the course of future rate hikes.
"The only change even worth highlighting from the statement was a slightly more upbeat view of growth in economic activity, which the Fed now regards as “strong” as opposed to “solid” previously,” Deutsche Bank analysts said.
The markets are now expecting the Fed to raise interest rates two or three times before the end of the year.
On global markets, the U.S. dollar edged lower against the yen as benchmark Japanese government bond yields touched their highest level in a year and a half. Earlier in the week, the yen had lost ground after the Bank of Japan vowed to keep rates low for the foreseeable future.
In bonds, the yield on the U.S. 10-year note was lower at 2.978 per cent. The yield on the 30-year note was also lower at 3.104 per cent. The benchmark 10-year yield earlier broke above the key 3-per-cent level, after the U.S. Treasury said it would boost borrowing in the bond market.
Stocks set to see action
BCE Inc reported an 8-per-cent drop in quarterly profit, hit by higher expenses as the company invested to upgrade its network and expand its customer base. BCE said net income attributable to its shareholders fell to $704-million, or 79 cents per share, in the second quarter, from $765-million, or 85 cents per share, a year earlier. BCE’s operating revenue rose to $5.79-billion from $5.69-billion.
The Globe’s Tim Kiladze reports that Aeroplan’s parent company, Aimia Inc., is in partnership talks with the Oneworld airline alliance as it fends off a hostile takeover bid from Air Canada and three financial partners. The talks, which Aimia confirmed on Wednesday, extend the company’s efforts to reposition Aeroplan once its contract with Air Canada expires in 2020.
Cott Corp. said chairman David Gibbons will retire as chairman. Chief executive Jerry Fowden will move into the newly created position of executive chairman as of the start of fiscal 2019. Thomas Harrington will become Cott’s new CEO.
Starbucks and Chinese e-commerce giant Alibaba Group announced a coffee delivery venture on Thursday, joining the growing competition in China’s booming delivery industry. Starbucks Coffee Co. and Alibaba Group Holding Ltd. said the venture starts next month in Beijing and Shanghai. It will expand to 30 cities by the end of the year.
Yum Brands Inc’s sales at established outlets fell short of Wall Street estimates on Thursday, as fewer customers dined at its Pizza Hut chains. Sales at restaurants open for at least a year rose 1 percent, missing analysts’ average estimate of a 1.92-per-cent increase, according to Thomson Reuters I/B/E/S. Net income rose to US$321-million, or 97 US cents per share, in the second quarter ended June 30 from US$206-million, or 58 US cents per share, a year earlier.
U.S. chemicals producer DowDuPont Inc reported better-than-expected profit for the fourth straight quarter, driven by higher prices and strong demand for its products including paints and packaging materials. Adjusted earnings came in at US$1.37 per share, an increase of 41 per cent. Analysts on average were expecting the company to report a profit of US$1.30 per share on revenue of $23.6-billion, according to Thomson Reuters I/B/E/S.
Kellogg Co topped Wall Street estimates for sales on Thursday, helped by its acquisition of RXBAR and consolidation of Nigerian distributor Multipro. Net income rose to US$596-million, or US$1.71 per share, in the second quarter ended June 30, from US$283-million, or 80 US cents per share, a year earlier. Net sales rose to US$3.36-billion from US$3.18-billion. Analysts had estimated revenue of US$3.30-billion, according to Thomson Reuters I/B/E/S.
U.S. weekly jobless claims totaled 218,000, slightly below economists' forecasts, which put the number closer to 220,000
With Reuters and The Canadian Press