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Before the Bell: U.S. futures cautious on Trump woes, trade talks; RBC kicks off bank earnings

Equities

U.S. stock futures turned cautious early Wednesday as legal woes for former associates of Donald Trump and the prospect of a low-level trade meeting weighed on investor sentiment. On Bay Street, futures were little changed with Royal Bank kicking off quarterly bank earnings season with record profit and a dividend hike.

Overseas, world stocks held relatively steady, with MSCI’s all-country index edging higher after the S&P 500 hit an intraday record during Tuesday’s session. That index is now within striking distance of the longest bull run in its history, depending on the measure used. To hit that mark, the S&P has to finish the session in the black. U.S. stock futures were negative with just over an hour to the opening bell but off their early morning lows. Europe started the day weaker but steadied as trading continued and Asian markets finished mixed.

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At the forefront Wednesday is the start of a trade meeting between American and Chinese officials. Mr. Trump has already said he doesn’t expect big developments out of the session.

“With expectations sitting so low, just the slightest hint of good news could be enough to ignite risk appetite,” Jasper Lawler, head of research for London Capital Group, said. "At the bare minimum the two sides will need to be walking away from this meeting agreeing to more talks. "

That, he said, would boost hopes that the trade tariffs due to be applied a the end of the month could be put on hold. “Under this scenario we would expect to see the U.S. dollar gain versus the Japanese Yen and the broader U.S. equity market to resume its charge higher, on its way to a record bull run,” Mr. Lawler said.

“Should the two sides fail to even agree to further talks, we could see the S&P drop sharply away from its record high and flows into safe haven currencies such as the yen increase.”

Also tempering market sentiment are developments in the U.S. where former Trump campaign chairman Paul Manafort was found guild of eight charges of financial wrongdoing. Mr. Trump’s former lawyer, meanwhile, pleaded guilty to campaign-finance violations and other charges.

In this country, Royal Bank of Canada posted record net income of $3.109-billion or $2.10 a share in the third quarter. As expected, the bank also hiked its dividend to 98 cents from 94 cents. Canada’s big banks are expected to see another solid reporting season with analysts projecting earnings growth of about 9 per cent of the latest quarter. Canadian Imperial Bank of Commerce is up next with its results before the start of trading on Thursday.

On Wall Street, retailers continue to report earnings with Lowes Cos. and Target Corp. both releasing results. Lowes shares were down more than 3 per cent in premarket trading early Wednesday after the home improvement retailer missed on same-store sales. Lowes profit topped forecasts with adjusted earnings per share coming in at US$2.07. Wall Street had been looking for earnings by that measure of about US$2.02. However, same store sales growth advanced 5.2 per cent in the three-month period, short of the 5.3-per-cent increase analysts had been forecasting.

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Later in the session, markets will also get a window into the Fed’s machinations with the release of the central bank’s latest minutes. The bank has raised rates twice already this year and economists are expecting two more hikes before the end of 2018. However, earlier this week, Mr. Trump said in an interview that he wasn’t “thrilled” with the central bank’s march toward hiring borrowing costs. Economists have said the comments are unlikely to alter the bank’s course but could raise issues around the market’s perception of its motives if a shift in the nation’s economic course results in the Fed holding off on a December rate hike.

Overseas, European markets changed course to trade slightly higher after starting the session on the back foot. The pan-European STOXX 600 was up 0.06 per cent at last check. Britain’s FTSE 100 rose 0.32 per cent. Germany’s DAX rose 0.06 per cent and France’s CAC 40 rose 0.28 per cent.

In Asia, Japan’s Nikkei finished up 0.64 per cent. Hong Kong’s Hang Seng clawed back early losses to finish up 0.63 per cent. The Shanghai Composite Index finished down 0.70 per cent.

Commodities

Oil prices prices were higher with Brent crude topping US$74 a barrel to hit its best level in two weeks on the combined impact of a report showing a decline in U.S. inventories and continued market concern over U.S. sanctions against Iran. Brent crude was near the top of the day range of US$72.70 to US$74.19 at last check. West Texas Intermediate was also up more than 2 per cent and hovered near the top end of the day’s range of US$65.98 to US$67.28.

“Oil prices are a tad higher overnight on a drop in U.S crude inventories and a weaker [U.S.] dollar, while concerns about a potential shortfall in future Iranian supply due to U.S sanctions is also providing underlying support,” OAMDA analyst Dean Popplewell said in an early note.

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Figures released late Tuesday by the American Petroleum Institute said U.S. crude inventories fell by 5.2 million barrels last month. The market had been expecting a decline closer to 1.5 million barrels. Traders will now turn their attention to the morning release of more official figures from the U.S. Energy Information Administration. Analysts are also expecting those numbers to show a marked decrease in inventories.

Gold prices, meanwhile, held close to their highest level in a week ahead of the release of the Fed minutes. Spot gold was relatively steady at last check. Earlier in the session, prices hit US$1,197.98, its highest since Aug. 14. Gold futures were also higher. A slightly weaker U.S. dollar also lent support to bullion prices ahead of the North American open.

Silver prices were higher. Platinum prices were mostly flat.

Currencies and bonds

The Canadian dollar was trading higher against its U.S. counterpart, supported by higher oil prices and a slightly weaker performance by the greenback against its world counterparts. Just before 7 a.m. ET, the dollar was sitting close to the top end of its day range of 76.66 US cents to 76.86 US cents.

The U.S. dollar index, which took a hit earlier this week on Mr. Trump’s criticism of the Fed, was down about 0.1 per cent at 95.138. Investors are awaiting the afternoon release of Fed minutes which are expected to show the central bank is on course for another pair of rate increases before the end of the year.

The Canadian dollar held most of Wednesday’s early gains even after Statistics Canada reported that retail sales fell 0.2 per cent in June. The decline matched economists' forecasts. Some economists had cautioned that a weaker-than-expected report could be in the offing thanks to declines in auto sales and gas station receipts for the month. The sales numbers mark the last major economic reading before the Aug. 30 release of Canada’s second-quarter GDP report. The Bank of Canada has forecast annual growth for the quarter of 2.8 per cent, although some economists have suggested a reading closer to 3 per cent isn’t out of the question.

“Sales were dragged lower by both autos and gasoline, but even outside of those two volatile categories retailing only gained a modest 0.3%.That, however, does come after a particularly strong May reading which was revised two ticks higher to 2.2% on the headline,” CIBC economist Royce Mendes said. “The on consensus reading will leave GDP still tracking flat for the month and roughly 3 per cent for the quarter, and as result won’t do much to settle the debate between a September or October hike from the Bank of Canada.”

The Bank of Canada makes its next policy announcement on Sept. 5 and the markets have priced in just a 40-per-cent chance of a rate hike.

In other currencies, the euro rose for the sixth straight day against the U.S. dollar with markets awaiting the Fed minutes and the outcome of the U.S.-China trade meeting.

In bonds, the yield on the U.S. 10-year note was lower at 2.833 per cent. The yield on the 30-year note was also lower at 2.997 per cent.

Stocks set to see action

Target Corp reported a better-than-expected 4.9-per-cent rise in comparable sales in the second quarter, as more customers visited its stores and made purchases online. Target shares were up about 4 per cent in premarket trading on the results. Analysts on average had expected sales at stores open at least a year to increase by 3.99 per cent, according to Thomson Reuters I/B/E/S. Excluding items, Target earned a profit of US$1.47 per share in the quarter ended Aug. 4, higher than the average estimate of US$1.40 per share.

Newly appointed Air France-KLM chief executive Ben Smith held talks with French Transport Minister Elisabeth Borne, a government spokesman said on Wednesday, as the airline group’s unions prepare to decide on further strike action over pay. The minster met Smith on Tuesday for a “a first discussion of the main issues” facing the group, the spokesman said. The former Air Canada executive was named last week as Air France’s first non-French CEO, three months after his predecessor quit amid crippling wage strikes.

Shares of Urban Outfitters Inc. were up more than 5 per cent in the premarket after the clothing retailer topped Wall Street forecasts with its latest results. Sales at the company’s stores open for at least a year rose 13 per cent in the second quarter, with Anthropologie and Free People posting growth of 15 per cent and 17 per cent, respectively. Net income jumped 86 per cent to US$92.8-million, or 84 US cents per share, in the quarter ended July 31. Net sales rose 13.7 per cent to US$992.5-million. Analysts on average had expected a profit of 77 US cents per share on sales of US $979.9-million, according to Thomson Reuters I/B/E/S.

Facebook has identified and banned hundreds of accounts, groups and pages engaged in misleading political behaviour, a far larger discovery than a “sophisticated” effort it reported three weeks ago with great fanfare, The Associated Press reports. The social network said Tuesday that it had removed 652 pages, groups, and accounts linked to Russia and, unexpectedly, Iran, for “co-ordinated inauthentic behaviour” that included the sharing of political material.

American Airlines, the largest U.S. carrier by passengers, said it would drop a route between Chicago and Shanghai, cancelling the second direct flight from the U.S. city to China in four months. It had cancelled a flight to Beijing in May, although it still operates daily flights to the capital from Los Angeles and Dallas-Fort Worth, Tex.

Shares of La-Z-Boy Inc. rose more than 18 per cent in premarket trading after the company beat forecasts for profit and sales in the latest quarter. After the close on Tuesday, the company reported earnings per share of 39 US cents in the latest quarter, topping forecasts which called for earnings closer to 25 US cents. The furniture maker posted revenue of US$384.7-million. Analysts had been expecting a number closer to US$367.1-million.

More reading:

As S&P 500 nears record bull run, investors torn between celebrating or cowering

Wednesday’s small-cap stocks to watch

Economic news

Canadian retail sales fell 0.2 per cent in June, matching market forecasts. Sales were down in six of 11 subsectors, representing 52 per cent of retail trade for the month, Statistics Canada said.

(10 a.m. ET) U.S. existing home sales for July. Consensus on the Street is an annualized rate rise of 0.7 per cent.

(2 p.m. ET) U.S. Federal Open Market Committee minutes from July 31-Aug. 1 meeting are released.

With Reuters and The Canadian Press

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