Equities
Wall Street futures were higher early Thursday as investors await earnings from Amazon and Microsoft after the close and continue to grapple with rising bond yields. On Bay Street, futures were modestly higher as world markets managed to eke out modest early gains after a string of losses. MSCI’s world equity index was modestly higher after five straight days of declines.
Bond yields also continue to rattle investors’ nerves, with the yield on the key U.S. 10-year note holding above the psychologically important 3-per-cent mark.
“Yields touching 3.03% sent jitters through the markets as investors fear the impact of higher corporate borrowing costs on firms, after years of artificially low rates,” Jasper Lawler, head of research for London Capital Group, said. “And these jitters aren’t budging easily despite the strong earnings season, because investors have set the bar so high following the tax cut.”
Heading into Thursday’s trading day, shares of Facebook were up more than 6 per cent in premarket trading after the embattled social media giant posted strong results. Facebook said profit in the latest quarter rose 63 per cent as the number of users increased, despite the Cambridge Analytica data-sharing scandal. Facebook said the number of active users rose to 2.2 billion, up 13 per cent from a year earlier and matching expectations.
On Bay Street, the energy sector will be back at the forefront as Husky Energy, Precision Drilling and AltaGas all report.
Precision Drilling reported a narrower loss in the first quarter, helped by higher U.S. demand and day rates for its drilling rigs. The company’s net loss fell to $18.1-million, or 6 cents a share, in the quarter, from net loss of $22.6-million, or 8 cents a year earlier. Revenue rose to $401-million, from $368.7-million.
Husky, meanwhile, posted a higher quarterly profit on lower costs. Profit rose to $248-million or 89 cents a share in the latest quarter, from $71-million or 66 cents a year earlier. However, Husky also lowered its production guidance, citing wide Canadian heavy oil differentials. As a result, Husky cut its 2018 production guidance by 10,000 barrels of oil equivalent a day. It now expects to average between 310,000 barrels and 320,000 barrels.
On Wall Street, online retailer Amazon and software giant Microsoft both report results after the bell. Amazon stock was trading up more than 1 per cent in the premarket early Thursday. Microsoft shares were also higher.
Overseas, markets in Europe rallied as earnings rolled in. The pan-European STOXX 600 was up about 0.4 per cent at last check, with most sectors in the black. Auto shares were among the best performers with Volkswagen shares rose on strong vehicle sales numbers in the German auto maker’s latest results. Britain’s FTSE 100 was up 0.18 per cent. Germany’s DAX rose 0.21 per cent and France’s CAC 40 advanced 0.45 per cent.
The day’s key even in Europe will be the latest policy announcement from the European Central Bank, which is widely expected to keep its key rate unchanged. Markets will be watching for clues about the central bank’s plans to unwind its massive stimulus program.
Asia markets were mixed after Wall Street’s modestly higher finish on Wednesday. Japan’s Nikkei advanced 0.47 per cent while the broader Topix rose 0.25 per cent. Hong Kong’s Hang Seng fell 1.29 per cent. The Shanghai Composite Index was off 1.35 per cent.
Commodities
Oil prices were higher Thursday as market expectations grow that the U.S. will exit the Iran nuclear agreement, resulting in renewed sanctions. Brent was higher through most of the predawn period and had a day range of US$74.11 to US$74.70. West Texas Intermediate followed a similar course with a range for the day of US$67.96 to US$68.54.
The U.S. has until May 12 to decide whether to reinstate sanctions against Iran. During a state visit in Washington this week, French President Emmanuel Macron said he expected the U.S. to withdraw from the pact based on U.S. President Donald Trump’s past statements.
“The price rise is due to growing expectations of new U.S. sanctions ... which would doubtless reduce the oil supply from Iran,” Commerzbank said in a note.
“French President Macron appears to have little hope that he would be able to persuade US President Trump to remain in the nuclear agreement ... Since the market is already tight because of the high production outages in Venezuela and the production cuts implemented by OPEC and Russia, any further reduction of supply weighs all the more heavily,” the bank said.
Rising U.S. crude stocks, however, capped some of Thursday’s gains.
On Wednesday, the U.S. Energy Information Administration said U.S. crude inventories rose by 2.2 million barrels last week. Production, meanwhile, rose by 46,000 barrels a day on the previous week. Reuters notes that climbing U.S. output has made WTI about US$6 cheaper a barrel than Brent and drawn exports to recent highs.
In other commodities, gold prices held near five-week lows as rising bond yields pushed the U.S. dollar higher. Spot gold was up slightly in early going after touching its weakest level since March 21 during the previous session. U.S. gold futures were also slightly stronger. Silver prices also posted modest early gains.
Currencies and bonds
The Canadian dollar was up slightly after moving in a narrow day range of 77.78 US cents to 77.95 US cents. There were no major economic releases on the calendar for Thursday to offer direction for the loonie, leaving it at the mercy of broader global currency markets.
The U.S. dollar index was a touch lower at 91.149 at last check but still near its best levels in more than three months, aided by higher Treasury yields.
“USD is consolidating gains in quiet overnight markets as [U.S. 10-year Treasury yields] hold above 3.0 per cent,” RBC chief currency analyst Adam Cole said in an early note. “Tech stocks are higher (Facebook), but broader equities are flat overnight and for April as a whole, suggesting month-end flow will be light this month.”
He added Bank of Canada Governor Stephen Poloz and deputy governor Carolyn Wilkins appeared before the Senate finance committee Wednesday afternoon, but added little to testimony delivered before a Commons committee on Monday.
On broader currency markets, central bank news will move to the forefront with the European Central Bank issuing its latest policy decision.
The ECB kept rates at record lows and said that quantitative easing bond purchases would continue at €30-billion euros a month until at least end-September or until it sees a sustained adjustment in the path of inflation. The euro held near eight-week lows against the greenback after the announcement.
In bonds, the yield on the U.S. 10-year note slipped below 3 per cent just before the North American open and was at 2.996 per cent at last check. The yield on the 30-year note was also lower at 3.182 per cent.
Stocks set to see action
General Motors’ first-quarter net income fell 60 per cent, but the company still topped Wall Street estimates as U.S. sales rose. GM says it made just over US$1-billion from January through March, or 77 US cents per share. A year ago the company made US$2.6-billion, or US$1.70 per share. But excluding one-time costs such as restructuring in South Korea, the company made US$1.43 per share. Analysts polled by FactSet expected US$1.24 per share. Revenue fell 3 per cent to US$36.1-billion. Analysts predicted US$34.5-billion.
PepsiCo Inc reported first-quarter sales that topped analysts’ estimate on Thursday on higher demand for its snacks such as Doritos and Cheetos as well as beverages such as Lipton tea. PepsiCo’s net income rose to US$1.34-billion, or 94 US cents per share, in the first quarter ended March 24, from US$1.32-billion, or 91 cUS ents per share, a year earlier. Total revenue rose 4.3 per cent to US$12.56-billion, topping analysts’ estimate of US$12.40-billion, according to Thomson Reuters I/B/E/S.
Deutsche Bank announced cutbacks to its bond and equities trading on Thursday in a major overhaul of its troubled investment bank, after posting a 79 per cent drop in net profit in the first quarter. The cuts will result in job losses and include a scaling-back of its business with hedge funds. The bulk of the cuts will focus on the United States and Asia. “Deutsche Bank is deeply rooted in Europe – here we want to provide our clients access to global financing and treasury solutions,” said new Chief Executive Officer Christian Sewing. “This is what we will focus on more decisively going forward.”
Royal Dutch Shell reported on Thursday a 42-per-cent rise in first-quarter profit to its highest in more than three years on stronger oil prices and production, but its shares fell as the oil major’s cash flow missed forecasts. Net income attributable to shareholders in the quarter, based on a current cost of supplies (CCS) and excluding identified items, rose to US$5.322-billion from a year ago, compared with a company-provided analysts’ consensus of US$5.277-billion. A year ago, net income was US$3.754-billion. Still, Shell shares were down by more than 2 per cent as cash flow disappointed on higher hedging payments from rising oil and one-time tax payments.
United Parcel Service Inc reported higher first-quarter net profit on Thursday, driven by strong package volumes in its core U.S. domestic segment, but higher costs from Saturday delivery and nasty winter weather weighed on operating results. Revenue increased 10 per cent to US$17.1-billion in the latest quarter, topping analysts’ forecasts of US$16.47-billion. UPS posted first-quarter net income of US$1.35-billion or US$1.55 per share, up from US$1.17-billion or US$1.33 per share a year earlier, a 17-per-cent rise on a per share basis. Analysts expected earnings per share of $1.54.
Time Warner Inc, which is being bought by AT&T Inc, reported a 15.4-per-cent rise in quarterly profit on Thursday as its Home Box Office and Turner channels added subscribers at a brisk pace. The company’s net income attributable to shareholders increased to US$1.64-billion, or US$2.07 per share, in the first quarter ended March 31, from US$1.42-billion, or US$1.80 per share, a year earlier. Revenue rose 3 per cent to US$8-billion.
More reading:
Thursday’s small-cap stocks to watch
Thursday’s Insider Report: Companies insiders are buying and selling
Economic news
U.S. initial claims for state unemployment benefits fell 24,000 to a seasonally adjusted 209,000 for the week ended April 21, the lowest level since December 1969, the U.S. Labor Department said.
The U.S. Commerce Department said orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, slipped 0.1 per cent last month. Economists had expected an increase of about 0.5 per cent. Overall orders for durable goods rose 2.6 per cent in March as demand for transportation equipment increased 7.6 per cent.
The European Central bank held rates at record lows and confirmed that quantitative easing bond purchases would continue at 30 billion euros (US$36.5-billion) a month until at least end-September or until it saw a sustained adjustment in the path of inflation.
With Reuters and The Canadian Press
Terry Weber