Equities
U.S. stock futures were mixed early Wednesday as U.S. bond yields edged back from multiyear highs, easing investor concern about higher borrowing costs. In Canada, Bay Street futures gave up modest early gains as oil prices slipped on a rise in U.S. inventories and gold prices fell. World markets were lower with MSCI’s index of global stocks down about 0.86 per cent overnight.
Early on, the yield on the U.S. 10-year bond held above the key 3-per-cent level but off the highs seen Tuesday when they hit their highest point since July, 2011. Even so, investors appeared on edge with U.S. stock futures wavering around break even through the early hours Wednesday.
“This rise in the U.S. dollar and yields along with reports that North Korea had cancelled a meeting with South Korea over the continuation of military drills with the U.S. that were due to resume today, appears to have prompted this reduction in risk appetite, along with concerns that next month’s nuclear talks with the U.S. in Singapore might also be cancelled in response to this ‘intentional military provocation’,” CMC market analyst Michael Hewson said in an early note.
On Bay Street, shares of auto-parts maker Linamar Corp. will likely get some investor attention after the company posted double-digit increases in both quarterly revenue and operating profit. However, Linamar still fell short of profit forecasts, posting quarterly earnings of $2.37 a share, below the $2.45 analysts had been expecting. The miss was just Linamar’s second in the last eight quarters. Linamar’s revenue came in slightly ahead of forecast at $1.894-billion. Analysts had been expecting $1.887-billion. RBC, meanwhile, has raised its target price on Linamar stock to $86 from $84.
On Wall Street, a day after Home Depot’s same-store sales disappointed the markets, retail earnings continue with results from Macy’s. Macy’s shares jumped more than 8 per cent after the retailer reported profit and revenue ahead of forecasts. The department store operator said adjusted earnings per share in the latest quarter came in at 48 US cents. Analysts had been looking for earnings closer to 36 US cents. Revenue for the period was US$5.54-billion, ahead of the US $5.44-billion analysts had been expecting.
Overseas, the pan-European STOXX 600 was essentially unchanged, slipping 0.01 per cent in morning trading. Britain’s FTSE was up 0.04 per cent. France’s CAC 40 slid 0.09 per cent. Germany’s DAX gained 0.18 per cent.
In Asia, markets were mostly lower on renewed geopolitical concerns on the Korean peninsula after North Korea suspended talks with South Korea and threw doubt on an scheduled meeting with the United States. The shift came after North Korea denounced U.S.-South Korean military exercises as provocation.
Japan’s Nikkei finished down 0.44 per cent while the broader Topix ended off 0.27 per cent with mining and oil and bank shares weighing. The Shanghai Composite Index ended down 0.70 per cent. Hong Kong’s Hang Seng lost 0.13 per cent.
Commodities
Crude prices were slightly lower early on as new U.S. inventory figures hint at slowing demand. Brent crude was had a day range of US$77.61 to US$78.35. West Texas Intermediate had a range of US$70.85 to US$71.34. At last check, the spread between the two was US$6.85, just short of the US$7 high seen in 2015.
On Tuesday, figures released by the American Petroleum Institute showed a surprise increase in weekly crude stocks, adding roughly 4.9 million barrels for the week. New figures from the Energy Information Administration are due later Wednesday morning.
“A draw down of around three quarters of a million barrels is expected to be reported today although API reported their figures on Tuesday and they indicated that stockpiles actually rose by 4.854 million barrels,” OANDA market analyst Craig Erlam said.
“A similar reading from EIA today could relieve some of the upward pressure on prices and trigger some near-term profit taking.”
Mr. Erlam also noted that the latest inventory numbers come after OPEC published figures showing inventories in OECD countries had fallen to nine million barrels above the five-year average from 340 million barrels at the start of last year.
“Clearly the production cuts have been working but with the deal rolling on and Iranian sanctions potentially restricting them further, oil prices could rise further before they stabilize,” he said.
In other commodities, gold prices slid as the U.S. dollar firmed amid rising bond yields. Gold appeared headed for a third straight day of losses with both spot gold and U.S. gold futures for June delivery both trading lower ahead of the North American open.
“The market’s been waiting for the next rate hike by the Fed ... and I think gold prices are going to remain under pressure till we get through that hike,” ANZ analyst Daniel Hynes said in a note.
“We’re seeing little sparks of interest on the back of (rising geopolitical tensions) but at the moment it doesn’t look significant enough to raise concerns over the medium term, which support a more sustained level of safe-haven buying.”
Silver prices were also lower. London three-month copper was up in early trading in Europe after two days of losses.
Currencies and bonds
The Canadian dollar clawed back some of the previous session’s losses against the U.S. dollar. The day range on the loonie so far of 77.66 US cents to 77.88 US cents. The loonie hit a six-day low against the greenback on Tuesday after Mexico’s economy minister cast doubt on the likelihood of a deal on NAFTA before Thursday’s deadline.
For the loonie, the March factory sales report from Statistics Canada was the key event. Statscan said sales for the month rose by 1.4 per cent, well ahead of the 0.9-per-cent increase most economists had been forecasting.
In global currencies, the U.S. dollar the U.S. dollar index rose to 93.516 at last check. Overnight the index managed its best level since December. The U.S. dollar has been rallying in recent weeks, although the gains were sidelined last week by a tame reading on inflation. However, stronger figures on consumer spending this week and rising bond yields have added upward pressure.
In bonds, the yield on the U.S. 10-year note was lower at 3.067 per cent. The yield on the 30-year note was also lower at last check at 3.19 per cent.
Stocks set to see action
Finance Minister Bill Morneau said Wednesday that Ottawa will cover any financial losses suffered by Kinder Morgan as a result of delays to the Trans Mountain pipeline extension caused by the B.C. government. “We are willing to indemnify the Trans Mountain Expansion against unnecessary delays that are politically motivated,” Mr. Morneau said during a press conference early Wednesday.
Home Capital Group Inc said it received a two-year $500-million funding commitment that would replace a $2-billion credit facility offered by Warren Buffett’s Berkshire Hathaway Inc. Last year, Mr. Buffett took a 20-per-cent stake in Home Capital and provided a $2-billion credit facility after investors withdrew more than 90 per cent of funds from its high-interest savings accounts. “This Credit Facility is better aligned with our current liquidity and funding profile and results in a lower aggregate cost than the existing credit facility it is replacing,” chief financial officer Brad Kotush said.
Starbucks Corp is looking to more than triple its revenue and almost double its store count in China over the next five years, doubling down on the market as traffic growth comes under pressure in the United States. The U.S. coffee chain, which recently raised US$7.15-billion in a deal with Néstlé SA, aims to have 6,000 stores in the country by the end of 2022, it said in a statement. It has around 3,300 stores in 141 cities in China currently.
On Wednesday, Whole Foods debuted a much-anticipated loyalty program that offers special discounts to Amazon Prime customers, including 10 per cent off hundreds of sale items and rotating weekly specials. The new loyalty strategy will test whether Amazon’s US$13.7-billion deal for Whole Foods brings much-feared disruption and an intensified price war to the US$800-billion U.S. grocery industry dominated by Walmart Inc and Kroger Co.
More reading:
Wednesday’s small-cap stocks to watch
Economic news
Canadian factory sales jumped 1.4 per cent in March, Statistics Canada says. That’s ahead of the 0.9-per-cent gain most economists had been forecasting. Sales were higher in 13 of 21 industries. As well, February sales were revised higher to 2.7 per cent from 1.9 per cent.
The U.S. Commerce Department said housing starts fell to a seasonally adjusted annual rate of 1.29 million in April, lowest since December. Apartment construction fell 12.6 per cent to 374,000. Construction of single-family homes rose 0.1 per cent to 894,000.
With Reuters and The Canadian Press
Terry Weber