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Inside the Market Before the Bell: U.S. futures turn mixed, TSX treads water as NAFTA uncertainty keeps world stocks in check

U.S. stock futures turned mixed as Wednesday’s open approached with uncertainty over the outcome of current NAFTA talks creeping back into market sentiment. TSX futures were little changed with oil prices holding steady on the combined impact of lower Iran exports and higher U.S. crude inventories. Overnight, MSCI’s all country index was down 0.2 per cent, pulling back from the five-month highs seen after the U.S. and Mexico struck a NAFTA agreement early in the week.

About half an hour before the opening bell, Nasdaq and S&P futures gave back early modest gains to slip into the red. Nasdaq futures remained above water.

Canada’s return to the table has injected some optimism into the markets over the prospect for a three-party agreement, although lingering questions over timing and ultimate outcome continue to weigh, analysts said Wednesday.

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“U.S-Canada talks are under way and a failure for Canada to agree over the new bilateral terms that have been agreed upon between the other two former NAFTA members could mean tariffs going up on exports such as automobiles,” OANDA analyst Dean Popplewell said. “However, there are reports that Canada is ready to make concessions on its dairy market to be included in any North American trade deal.”

However, he also noted that, for the U.S., time constraints remain an issue with the U.S. midterms coming in November and a 90-day period for Congress to be consulted on any decision to disband NAFTA.

In this country, bank earnings continue with National Bank of Canada results. Ahead of the start of trading, National Bank reported adjusted earnings per share of $1.53, topping analysts' forecasts which called for earnings closer to $1.50. On Thursday, Toronto-Dominion Bank reports its earnings for the quarter. On Tuesday, Bank of Montreal and Bank of Nova Scotia reported, with both posting brisk business lending in international markets.

U.S.-listed shares of B.C.-based cannabis producer Tilray Inc. shot up nearly 20 per cent in premarket trading after the company reported its first results since going public. Tilray said second-quarter revenue nearly doubled to US$9.7-million. Analysts had been looking for quarterly revenue of US$9-million. Tilray reported a higher net loss of US$12.8-million on increased operating costs from expansion at home and overseas.

On Wall Street, earnings are due from American Eagle Outfitters, Dick’s Sporting Goods and Guess.

Elsewhere, shares of Google-parent Alphabet were positive after the company rejected charges by U.S. President Donald Trump of biased searches. The U.S. president, without providing supporting evidence, tweeted that the company has rigged searches against him to result in “almost all stories and news is BAD.” In response, Google said: “We never rank search results to manipulate political sentiment.”

Overseas, European markets gave up early gains to turn negative as uncertainty over the final outcome of the current NAFTA talks crept in. The pan-European STOXX 600 was off 0.12 per cent. Britain’s FTSE 100 was down 0.67 per cent. Germany’s DAX fell 0.07 per cent and France’s CAC 40 slipped 0.06 per cent.

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Asia markets finished mixed after both the Nasdaq and the S&P 500 managed record highs on Tuesday. Japan’s Nikkei ended up 0.15 per cent with shipping stocks extending the previous session’s gains. Hong Kong’s Hang Seng rose 0.23 per cent. The Shanghai Composite Index lost 0.31 per cent.

Commodities

Crude prices were steady ahead of the North American open as news of lower Iran exports offset a report showing an increase in U.S. crude inventories. At last check, Brent crude was modestly higher after a chopping night, sitting near the middle of the day range of US$75.67 to US$76.18. West Texas Intermediate followed a similar pattern overnight but saw gains in the predawn hours to sit near the top end of the day’s range of US$68.37 to US$68.80.

Data from Thomson Reuters Eikon show that Iran’s crude oil and condensate exports in August are set to drop below 70 million barrels for the first time since April 2017, ahead of the Nov. 4 start date for the next round of U.S. economic sanctions. Reuters reports that, despite offering steep discounts, Iran’s August crude oil and condensate loadings are estimated at 2.06 million barrels a day, compared to April’s peak of 3.09 million barrels a day.

“U.S. sanctions towards Iran are now increasingly kicking in which will help to dry up the physical crude oil market,” SEB Markets commodities analyst Bjarne Schieldrop said.

However, offsetting factors include the latest figures from the American Petroleum Institute. Those numbers, released late Tuesday, showed U.S. crude inventories rose by 38,000 barrels to 405.7 million barrels last week. Official U.S. figures will be released by the U.S. Energy Information Administration later Wednesday morning and are also expected to show an increase in crude stocks as some refineries went into maintenance.

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OANDA’s Mr. Popplewell also noted that reports of a potential investment in Venezuela’s oil sector could half the plunge in that country’s output. Venezuelan crude exports have fallen by about 50 per cent over 24 months to about a million barrels a day, he said.

Venezuela’s state-run oil firm PDVSA said on Tuesday it had signed a US$430-million investment agreement to increase production by 640,000 barrels a day at 14 oilfields.

In other commodities, gold prices edged higher in early going following sharp declines on Tuesday. A firmer U.S. dollar capped Wednesday’s advance. Spot gold was up 0.3 per cent $1,204.43 an ounce in morning trading in Europe. Bullion prices touched their best levels since Aug. 10 on Tuesday but ultimately finished lower as U.S. Treasuries rose.

Currencies and bonds

The Canadian dollar was mostly flat ahead of the start of but continued to hold close to its best level in three-months against its U.S. counterpart as NAFTA talks continue. The loonie had risen as high as 77.50 US cents overnight but by dawn had returned closer to the low end of the day range of 77.29 cents.

For the Canadian dollar, the week’s key event continues to be the Thursday release of second-quarter GDP figures. In a note this week, Bank of Montreal economist Benjamin Reitzes says he expects a solid 3.3-per-cent annual growth rate in the quarter, although he also noted that indications are that conditions slowed in the third quarter.

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“Trade likely added strongly to growth in Q2, while consumption, business investment and government should be positive as well.,” he said. The current quarter should be more challenging because of the Syncrude shutdown. The latter factor is expected to weigh on June monthly GDP, which we’re forecasting to be flat."

In other currencies, the U.S. dollar was higher as relief over the agreement between the U.S. and Mexico on NAFTA gave way to uncertainty over talks with Canada and outstanding trade issues with China. The U.S. dollar saw its lowest levels in four weeks earlier this week as relieved investors returned to riskier holdings. The U.S. dollar index, which weighs the greenback against a selection of world currencies, was up 0.2 per cent predawn at 94.884. On Tuesday, the index touched its lowest level since July 31.

“This deal [with Mexico] was more about making progress before the mid-term elections in the United States. Trump’s real fight will be with China,” MUFG currency strategist Lee Hardman told Reuters.

“We see reason for caution. The real fight is likely still ahead and it will not be long before investor attention shifts back to the more concerning conflict with China,” he said.

In bonds, yields on the 10-year U.S. note were lower at 2.873 per cent. The yield on the 30-year note was lower at 3.025 per cent.

Stocks set to see action

U.S. listed shares of Ballard Power Systems jumped 15 per cent in premarket trading on news of a deal with China’s auto engine maker Weichai Power. Ballard says says Weichai Power will make an equity investment of $163-million, representing about a 20-per-cent stake in the company and making it the largest holder. The deal also includes establishment of a joint venture to tap into China’s fuel cell electric vehicle market

National Bank of Canada say its third-quarter profit gained 10 per cent compared with a year ago, helped by growth across its business. The lender says it earned $569-million for the quarter ended July 31, up from a profit of $518-million in the same quarter last year. The profit amounted to $1.52 per diluted share for the three-month period, up from $1.37 per diluted share a year ago. On an adjusted basis, National Bank say sit earned $1.53 per diluted share for the quarter, up from an adjusted profit of $1.39 per share in the third quarter last year.Analysts on average had expected a profit of $1.50 per share, according to Thomson Reuters Eikon.

Facebook is rolling out its Watch video service globally one year after it launched in the United States with original entertainment news and sports content to compete with platforms like Alphabet Inc’s YouTube. Facebook’s Head of Video Fidji Simo said Watch was gaining real momentum in a crowded marketplace because it was built on the notion that watching videos could be a social activity. “Every month more than 50 million people in the U.S. come to watch videos for at least a minute on Watch, and total time spent watching video on Facebook Watch has increased by 14 times since the start of 2018,” she told reporters.

American Eagle Outfitters Inc on Wednesday forecast third-quarter profit that was below expectations, partly due to lower-than-expected sales for its popular Aerie line of lingerie, sending its shares down 10 per cent. Same-store sales at its Aerie business rose 27 percent, but was below the analyst average estimate of 30 per cent increase, according to Thomson Reuters I/B/E/S. However, the company’s overall same-store sales beat estimates on strong demand for its namesake apparel in the back-to-school season. American Eagle forecast third quarter earnings of about 45 US cents to 47 US cents per share, below the analyst average estimate of 49 US cents per share.

Fast-food chain operator Yum China Holdings Inc has rejected a $17.6-billion buyout offer from a consortium led by Chinese investment firm Hillhouse Capital Group, quashing what would have been one of Asia’s biggest deals this year, people with direct knowledge of the matter said. The Hillhouse-led consortium, which included regional investment house Baring Private Equity Asia, expressed an interest to offer $46 per share, or nearly 24 per cent above Tuesday’s closing price, for the biggest fast-food chain in China, the people said. Global investment house KKR & Co and Chinese sovereign wealth fund China Investment Corp were also part of the consortium, one of the people added.

Shares of Dick’s Sporting Goods were down about 8 per cent in the premarket after the U.S. retailer reported a 1.9-per-cent drop in quarterly same-store sales and said it expects more declines this year.

More reading:

Wednesday’s small-cap stocks to watch

Wednesday’s analyst upgrades and downgrades

Economic news

U.S. second-quarter GDP growth was revised up to 4.2 per cent, from the previously reported annual rate of 4.1 per cent. Economists had expected the revision to come in around 4 per cent.

(10 a.m. ET) U.S. pending home sales for July. Consensus is for a rise of 0.5 per cent.

With Reuters and The Canadian Press

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