Equities
U.S. stock futures hovered around break even early Thursday as concerns over Italy’s political situation eased but the spectre of hefty tariffs on steel and aluminum imports from Canada, Mexico and the European Union cast a long shadow. On Bay Street, futures were weaker as oil prices slipped on a surprise increase in U.S. crude stocks. Overseas, world stocks posted their second day of gains as geopolitical tensions abated somewhat.
“While events in Italy appear to be in pause investors still have to contend with the looming deadline of the U.S. tariffs waiver for the EU on steel and aluminium tariffs, which expires tomorrow, as well as the ongoing negotiations with respect to NAFTA and China trade,” CMC Markets analyst Michael Hewson said.
Reports say the Trump administration is planning to impose major tariffs on Canadian steel and aluminum imports as well as those from Mexico and the EU as soon as today. The Globe and Mail reports that Canada has crafted a retaliation plan that would involve U.S. steel and aluminum and other politically sensitive products.
Overseas, Italy was awaiting word Thursday from League leader Matteo Salvini on whether to join an effort to form a government and avoid a snap election. Mr. Salvini has said he would “seriously consider” an offer from 5-Star leader Luigi Di Maio for another shot at governing after a previous effort collapsed on the weekend.
In corporate news, BRP Inc. reported first-quarter revenue of $1.137-billion, topping analysts’ expectations for revenue of $1.02-billion. Earnings per share in the latest quarter totaled 13 cents while adjusted earnings per share came in at 52 cents. The Ski-Doo and Sea-Doo maker also said it sees normalized earnings per share for the year rising 17 per cent to 19 per cent. Annual revenue is expected to climb 6 per cent to 10 per cent.
In other earnings, Brick Brewing reported first-quarter revenue of $10.6-million, short of the $11.7-million analysts had been expecting. The brewer reported a quarterly loss per share of 5 cents.
After markets close, investors also get results from athletic-wear maker Lululemon Athletica Inc. reports its latest results. Analyst polled by Zacks Investment Research expect earnings per share of 46 US cents, up from 32 US cents a year earlier. Lululemon’s U.S.-listed shares were up slightly in premarket trading. Costco is also set to report after the bell.
On Wall Street, Tesla shares were down slightly ahead of the North American open after a report that the driver of a Tesla vehicle that crashed into an unoccupied, parked police vehicle on California on Tuesday told investigators that the car was in ‘autopilot’ mode at the time. Separately, influential consumer magazine Consumer Reports changed its review of the Model 3 after new tests showed a firmware update improved braking performance. A week earlier, the magazine had flagged ‘big flaws’ with the vehicle’s braking system.
Overseas, markets in Europe were modestly higher as concern over the political situation in Italy eased. The pan-European STOXX 600 was up 0.03 per cent in morning trading with most sectors in positive territory. Britain’s FTSE 100 rose 0.11 per cent and France’s CAC 40 advanced 0.09 per cent. Germany’s DAX fell 0.50 per cent after a German magazine reported that U.S. President Donald Trump could move to block German vehicles from the U.S. market.
Asian stocks, meanwhile, finished the day higher with Japany’s Nikkei adding 0.83 per cent and the broader Topix rising 0.65 per cent. Hong Kong’s Hang Seng rose 1.37 per cent and the Shanghai Composite Index was up 1.86 per cent.
Commodities
Crude prices were lower early on ahead of a reading on U.S. crude inventories and the prospect of increased production by OPEC.
Brent crude was lower ahead of the North American open and had a day range of US$77.04 to US$7740. West Texas Intermediate was also in the red and had a range for day of US$67.66 to US$68.30.
Brent crude touched a multiyear high last week, cracking US$80 a barrel. However, it dropped below US$75 a barrel on reports that Saudi Arabia and Russia have discussed hiking production. OPEC”s next meeting is slated for June.
Figures from the U.S. Energy Information Administration are due around 11 a.m. ET. The report is a day later than normal because U.S. markets were closed Monday for the memorial day holiday. On Wednesday, the American Petroleum Institute reported a surprise build in inventories for last week of 1 million barrels.
In other commodities, gold prices advanced as the rally in the U.S. dollar pulled back. Spot gold was higher in early going but still down about 0.7 per cent for the month. Spot gold now appeared headed for its second straight monthly decline. U.S. gold futures were also higher.
“The dollar should remain in the driving seat for gold,” Carsten Menke, analyst at Julius Baer, told Reuters.
“We have a euro dollar target of US$1.10 in three months time which should keep a lid on gold, assuming this political uncertainty doesn’t escalate into a wider discussion about the existence of the euro zone or the euro.”
Silver prices were modestly higher.
Currencies and bonds
The Canadian dollar turned negative after Statistics Canada said GDP grew at an annual rate of 1.3 per cent in the first quarter. Markets had been expecting a stronger reading of about 1.8 per cent. Thursday’s figure is in line with earlier Bank of Canada’s forecasts for the quarter.
The day range on the loonie so far is 77.55 US cents to 78.01 US cents.
The report took some of the shine off the previous session’s gains, when the loonie spiked after the Bank of Canada interest rates steady but offered a shift in tone in its statement and said it will need to act soon to keep interest rates from pushing past its 2-per-cent target.
“While the quarter was a miss, the final month of the period showed signs of strength. March GDP rose 0.3 per cent, signaling a healthy handoff for Q2,” CIBC economist Royce Mendes said. “That, however, was largely based a on rise in the volatile mining oil and gas sector. Overall, the Q1 undershoot versus expecations will weigh on the loonie today, as traders size up the pace of hikes after a likely July move.”
The loonie could face further headwinds Thursday as reports suggest that the Trump administration could move to slap Canadian steel and aluminum imports with heft tariffs.
Bank of Canada Deputy Governor Sylvain Leduc will also offer an economic progress report in remarks in Quebec City on Thursday afternoon. Although Sue Trinh, RBC’s head of Asia FX strategy, notes that this week’s rate statement “may have stolen the thunder.”
In other currencies, the euro continued to rally against the U.S. dollar on relief that Italy could avoid a snap election. Early on, the euro rose to a three-day high of US$1.1725, building on the previous session’s 1.1-per-cent gain. The euro touched a 10-month low on Tuesday as concern over the situation in Italy sideswiped global markets.
The U.S. dollar index, which weighs the greenback against a group of world currencies, was lower at 93.965 at last check.
In bonds, the yield on the U.S. 10-year note was higher at 2.869 per cent. The yield on the 30-year note was also higher at 3.028 per cent.
Stocks set to see action
Shares of Sears Holdings Corp. were down about 3 per cent in premarket trading after the U.S. retailer said it will close another 72 stores. The announcement came after Sears posted a loss of US$424-million, or US$3.93 per share, in its first quarter. It earned US$245-million, or US$2.29 per share, a year earlier, a quarter that included a US$492-million gain tied to the sale of the Craftsman brand. Revenue fell more than 30 per cent to US$2.89-billion.
General Motors Corp. shares were up 8 per cent in premarket trading after the auto maker said Japan’s SoftBank Group Corp will invest US$2.25-billion through its Vision Fund in GM Cruise Holdings LLC, GM’s autonomous vehicle unit. GM will also invest US$1.1-billion in the unit after the deal closes, the company said. SoftBank Vision Fund will own a 19.6 per cent stake in GM Cruise once the transaction is completed.
Dollar General Corp reported first-quarter same-store sales below analysts’ forecasts, as the discount store chain faced weaker demand for apparel and home products because of cold weather. Same-store sales rose 2.1 per cent in the three months ended May 4, less than the 3.24-per-cent increase expected by analysts on average, according to Thomson Reuters I/B/E/S.
The Globe’s Marina Strauss reports that Canada Goose is accelerating its push into China with the launch of two bricks-and-mortar stores and an e-commerce site this fall, betting on a growing market for its pricey made-in-Canada parkas. Canada Goose Holdings Inc. is teaming with China-based e-commerce powerhouse Alibaba Group and another Asian retailer to roll out its first flagship stores in Beijing and Hong Kong, joining other high-end brands in trying to cash in on the world’s largest luxury market.
The Globe’s Brent Jang reports that Malaysia’s state-owned Petronas will buy a 25-per-cent stake in a B.C. liquefied natural project led by Royal Dutch Shell PLC, a move designed to strengthen the $40-billion proposal and bolster Canadian energy exports. Petronas will become the second-largest partner in LNG Canada after striking a combination of deals with Shell, PetroChina and South Korea’s Kogas.
More reading:
Thursday’s small-cap stocks to watch
Economics news:
The Canadian economy grew at an annual rate of 1.3 per cent in the first quarter of the year, in line with Bank of Canada predictions but below the 1.8-per-cent growth the market had been expecting.
Initial claims for U.S. state unemployment benefits fell by 13,000 to a seasonally adjusted 221,000 for the week ended May 26, the U.S. Labor Department said.
(9:45 a.m. ET) U.S. Chicago PMI for May.
(10 a.m. ET) U.S. pending home sales index for April.
(11 a.m. ET) EIA Petroleum Status Report
With Reuters and The Canadian Press
Terry Weber