Before the Bell: U.S. futures turn higher on economic data; Bay Street eyes stronger start

Equities

U.S. stock futures turned higher ahead of Thursday’s opening bell as solid readings on employment and retail sales bolstered sentiment. In the early hours, futures had struggled for direction. But with less than an hour to go, markets caught an updraft with Dow futures rising more than 100 points. On Bay Street, futures were just above break even with oil prices little changed but trade issues continuing to weigh. Overseas, European markets turned higher after the European Central Bank outlined plans to end its bond-buying program at the end of the year. Asian markets finished lower with weaker-than-expected economic figures out of China.

Early on world markets had struggled for direction after a hawkish statement from the Federal Reserve pointed to two more interest rate increases this year.

“Four rate hikes for 2018 does not necessarily suggest that the end of the great bull market is at hand, but it has been enough to knock equities back this morning,” IG chief market analyst Chris Beauchamp said.

“After years of stasis in central banks, the developments are coming positively thick and fast.”

On Wednesday, the Fed raised rates for a second time this year and pointed to another pair of increases before the close of 2018. The central bank also dropped crisis-era language which pledged to keep rates low enough to stimulate the economy “for some time.” More central bank news followed early Thursday when the ECB left its key rate unchanged and said it would end its massive bond-buying program by the end of the year. The central bank also said it would hold interest rates at current levels until summer of 2019.

On Bay Street, earnings are due from Transat AT. Retailer DavidsTea will also hold its annual meeting. Investors are being asked to decide between a slate of directors put forward by the company’s management and one being recommended by c o-founder and dissident shareholder Herschel Segal.

On Wall Street, Comcast shares were lower in premarket trading after it offered US$65-billion for Twenty-First Century Fox, countering a US$52-billion bid by Walt Disney Co. Comcast’s move came a day after a U.S. federal judge cleared the way for AT&T’s bid for Time Warner. That ruling was seen as likely sparking a wave of consolidation in the sector. Fox shares jumped 7 per cent on Wednesday in anticipation of the bid and were higher again in premarket trading Thursday.

Overseas, European markets turned higher on the ECB statement. Britain’s FTSE 100 was up 0.17 per cent. Germany’s DAX advanced 0.38 per cent and France’s CAC 40 rose 0.69 per cent. The pan-European STOXX 600 rose 0.2 per cent, shrugging off early losses.

Asian markets finished sharply lower after the Fed signaled two more likely rate hikes this year. Japan’s Nikkei feel nearly 1 per cent with auto makers trading lower. Hong Kong’s Hang Seng fell 0.93 per cent and the Shanghai Composite Index lost 0.17 per cent. Sentiment in Asia was also hit by weaker-than-expected economic figures out of China which showed fixed-asset investment growth cooling to 6.1 per cent in the January-to-May period. As well, China’s retail sales grew by 8.5 per cent, the weakest pace since early 2003.

Commodities

Crude prices were little changed in early going as concerns over rising supply continue to weigh ahead of OPEC’s meeting later in the month. Brent crude was slightly lower ahead of the start of trading in North America and had a range for the day of US$76.30 to US$76.90. West Texas Intermediate, meanwhile, was trading in the black and had a range of US$66.51 to US$66.83.

“At OPEC’s meeting in a good week’s time, Saudi Arabia apparently plans to make several proposals that all boil down to increasing production on a one-off or gradual basis by between 500,000 and 1 million barrels per day,” Commerzbank analysts said in a note.

“Iran has already signaled that it will resist any such attempts and blames the U.S. for the price rise. According to sources close to OPEC, Venezuela and Iraq are also not in favour of raising production.”

OPEC members meet June 22 in Vienna. Meanwhile, rising U.S. crude output has also been tempering recent prices. Production has risen roughly 30 per cent over the past two years and the United States now sits just behind Russia, the world’s top oil producer.

However, inventory figures out of the U.S. this week have helped underpin prices. On Wednesday, the U.S. Energy Information Administration reported that crude inventories fell by 4.1 million barrels last week to 432.4 million barrels. The IEA also said U.S. gasoline consumption rose to a record 9.88 million barrels a day last week.

In other commodities, gold prices dipped on the Fed announcement but worries over global trade tensions helped limit losses. Spot gold was down slightly in early going after touching a one-week low of US$1,292.15 on Wednesday. U.S. gold futures for August delivery were a touch higher.

Currencies and bonds

The Canadian dollar was firmer in early going as a U.S. dollar rally in the wake of a hawkish Fed statement faded as traders turned their attention to the European Central Bank’s next move.

The day range on the loonie so far is 76.97 US cents to 77.22 US cents. On Wednesday, the U.S. dollar saw an initial rally on the Fed announcement but quickly lost altitude, finishing the day lower, RBC global head of FX strategy Elsa Lignos said in a note. Early Thursday, the U.S. dollar index was lower at 93.285. Ms. Lignos said part of the greenback’s turn downward on Wednesday may have been due to headlines signalling U.S. tariffs on Chinese imports coming as early as Friday. However, she also noted that that should “be a surprise to no one”

“The White House publicly stated last month the deadline for tariffs on the first US$50-billion of China imports was tomorrow,” she said.

For the loonie, the day’s biggest economic report is the first-quarter national balance sheet accounts data. Ms. Lignos said that report is expected to show a modest improvement in Canadian household finances “ as an increase in benchmark home prices on a quarter-over-quarter basis in Q1 is accompanied by slower growth in both residential mortgage and consumer credit.”

In bonds, the yield on the U.S. 10-year note fell to a session low of 2.937 per cent in the wake of the ECB statement. On Wednesday, the two-year yield touched its highest level since 2008 after the Fed announcement. The yield on the 10-year Treasury also rose to 3 per cent on that news.

Stocks set to see action

Iron Bridge Resources Inc. is urging its shareholders to reject a $116-million hostile offer from privately held Velvet Energy Ltd., saying the suitor aims to wrest potentially big production from its key property on the cheap, The Globe’s Jeffrey Jones reports. In a formal response to the bid, launched last month, Iron Bridge said it is evaluating offers from lenders to fund development of the Gold Creek property in Alberta, which is in an oil-rich part of the Montney formation. Velvet has been assembling a land position in the area for a number of years.

Renault SA’s Carlos Ghosn is likely to step down as chief executive of the French carmaker before the end of his term in 2022, the Financial Times reported on Thursday. Mr. Ghosn would remain the chairman of Renault and also continue as chief executive and chairman of the Renault-Nissan-Mitsubishi alliance responsible for driving the three groups closer towards being a single global entity, the FT reported.

Apple Inc says it will change its iPhone settings to undercut the most popular means for law enforcement to break into the devices. The company told Reuters it was aiming to protect all customers, especially in countries where phones are readily obtained by police or by criminals with extensive resources, and to head off further spread of the attack technique.

Consumer goods group Unilever said it is “extremely unlikely” to stay in Britain’s blue-chip FTSE 100 index after ending its dual-headed structure and moving its headquarters to the Netherlands. Speaking at a conference on Thursday hosted by Deutsche Bank, Chief Financial Officer Graeme Pitkethly said that after deep engagement with FTSE Russell, the company’s shares were unlikely to be listed in the U.K. index.

Royal Caribbean Cruises Ltd said it would buy a 66.7-per-cent stake in privately owned Silversea Cruises for about US$1-billion, to add a premium luxury brand to its portfolio. Including debt, the deal is valued at US$2-billion. Royal Caribbean said it plans to finance the purchase through debt. Silversea Cruises, which is chaired by Manfredi Lefebvre d’Ovidio, is a privately owned luxury cruise line founded in 1994 and has nine ships.

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Economic news

Statistics Canada says the ratio of debt to disposable income fell to 168.0 per cent from 169.7 per cent in the fourth quarter, hitting its lowest since 165.4 perc ent recorded in the first quarter of 2016. Disposable income rose by 1.3 per cent while credit market debt edged up by 0.3 per cent, the agency said.

In the U.S., weekly jobless claims totaled 218,000. The market had been expecting a number closer to 224,000.

U.S. retail sales rose 0.8 per cent in May, the biggest increase since late 2017. April’s increase was revised higher to 0.4 per cent. Economists had been expecting May’s gain to come in around 0.4 per cent.

(10 a.m. ET) U.S. business inventories for April. Estimate is an increase of 0.3 per cent from March.

With Reuters and The Canadian Press