U.S. stock futures signaled a flat start Monday as earnings continue to dominate headlines and investors await the latest interest rate decision from the U.S. Federal Reserve later in the week. Dow, Nasdaq and S&P futures - which had all been in the red in the early hours - pushed above break-even as the opening bell approached. On Bay Street, futures were slightly firmer as oil prices drifted higher. Overnight, world stocks were lower and Japanese government bonds sold off ahead of possible policy tweaks by the Bank of Japan. MSCI’s all-country index, which tracks shares in 47 countries, was down 0.11 per cent in early going.
Market sentiment was soured after U.S. tech heavyweights including Facebook and Twitter disappointed investors with their latest results, triggering a weaker close to the final session of last week. This week, investors will get results from Apple.
“Apple will be reporting on Wednesday, a strong set of results will draw a line in the sand between Facebook, Netflix, and the better performing Amazon, Alphabet and possibly Apple,” Jasper Lawler, head of research for London Capital Group, said. “Under these circumstances we would expect to see Facebook and Netflix fallaway from the rest of the FAANG group.”
In total, 140 S&P 500 companies report results this week. In Europe, 70 companies on the STOXX 600 release results, including earnings from big banks like BNP Paribas and Lloyds.
On Wall Street, investors get results from Caterpillar among others. Caterpillar shares were up more than 3 per cent in premarket trading after the heavy equipment giant reported adjusted earnings per share of US$2.97, topping analysts' forecasts of US$2.73. Caterpillar also hiked its full-year profit forecast, citing strong global demand.
American Express stock could also get some attention following a Wall Street Journal report that AmEx raised currency conversion rates for business clients without notifying its customers. The report, citing sources, said the practice, mainly within the forex department, has been going on since 2004 to early this year. The report said AmEx officials had yet to comment.
On Bay Street, trade issues will continue to play out against a backdrop of corporate earnings. Canadian Press reported Sunday that Canada will join Mexico and other European and Asian auto-producing countries this week to polo a strategy ahead of the possible imposition of tariffs by the United States. Japan and the European Union organized the meeting for Tuesday in Geneva, where vice and deputy ministers from Canada, the EU, Japan and South Korea will gather to talk about the punishing levies threatened by U.S. President Donald Trump, CP reports.
In Canadian earnings, big names in corporate Canada report later in the week with Tim Hortons parent Restaurant Brands releasing results on Wednesday. Telecom giant BCE Inc. reports Thursday. Bombardier also reports the same day.
Overseas, European markets started the day in the red. The pan-European STOXX 600 was off 0.26 per cent just after 6 a.m. ET with more sectors trading lower. Shares of brewer Heineken NV were down more than 4 per cent on weaker-than-expected earnings and lower margin forecast. Britain’s FTSE 100 was down 0.32 per cent. Frances' CAC 40 slid 0.33 per cent and Germany’s DAX fell 0.22 per cent.
In Asia, markets finished Monday’s session lower ahead of the Bank of Japan monetary policy decision later in the week. Japan’s Nikkei slid 0.74 per cent with utilities, energy and pharmaceutical shares among the biggest losers. Hong Kong’s Hang Seng ended down 0.25 per cent. The Shanghai Composite Index slid 0.12 per cent.
Crude prices were higher early on as caution remained over the supply outlook and easing trade tensions helped underpin a two-week rally. Brent crude was higher although off the best levels seen overnight at last check with a range for the day of US$74.14 to US$74.78. West Texas Intermediate was up more than 1 per cent in early going, building on gains through the predawn hours. The range on WTI was US$68.80 to US$69.60.
“There are a myriad of factors to follow at the moment in the oil market but one way or the other we always arrive at the same conclusion. It is the impact of the U.S. sanctions on Iran that will decide the next $15 a barrel,” PVM Oil Associates Tamas Varga said in a note.
“The best case scenario is that the U.S. provides meaningful sanction waivers in the run-up to the mid-term elections and Iran can get away with a loss of around 500-700,000 barrels per day of exports. In case, however, President Trump plays hardball and puts its allies and foes under maximum pressure the loss of barrels could amount to 2 million barrels per day.”
In other commodities, gold prices were steady as markets await Wednesday’s Federal Reserve decision. Spot gold was off slightly at US$1,221.93. That compares with the one-year low of US$1,211.08 seen earlier this month. U.S. gold futures were also slightly weaker ahead of the North American open.
The Fed is expected to hold rates steady in Wednesday’s announcement and markets are betting another two or three rate increases will follow by year’s end.
Silver prices were up a touch while platinum fell in European trading.
The Canadian dollar was trading little changed against its U.S. counterpart after moving in a fairly narrow range of 76.46 US cents to 76.63 US cents overnight. Broader global currency markets were also stuck in narrow ranges as investors await central bank news through the week. Decisions are due this week from the Federal Reserve, the Bank of Japan and the Bank of England.
The U.S. dollar index against a basket of six major currencies stood little changed at 94.717 after dipping slightly on Friday, with a solid reading on second-quarter U.S. GDP failing to spark a rally in the greenback.
For the loonie, one of the week’s bigger events comes Tuesday with the release of May’s gross domestic product reading. RBC is expecting a monthly increase of about 0.4 per cent, building on the 0.1-per-cent gain seen in April.
“Activity in the earlier month was held back by non-energy mining dropping almost 10 per cent in the month though that weakness is likely short-lived and not expected to continue into May,” the bank said in a note. “However, the more significant factor contributing to the bounce back in growth in May is the monthly increase in service-producing industries is expected to rise 0.4% after unchanged activity in April.”
In bonds, the yield on the U.S. 10-year note was higher at 2.977 per cent. The yield on the 30-year note was also higher at 3.102 per cent.
Stocks set to see action
Bombardier’s rail division has received an order for 36 Francilien train sets to be used in the Ile-de-France commuter system serving the Greater Paris region. Bombardier Transportation says the order is valued at US$303 million.
Tyson Foods Inc cut its full year earnings outlook and said the revision was due to the uncertainty in trade policies and increased tariffs, which has negatively impacted domestic and export prices especially for chicken and pork. The No. 1 U.S. meat processor said it now expects to earn adjusted earnings per share of about US$5.70-US$6.00 for fiscal 2018, down from its earlier estimate of US$6.55-US$6.70.
Hyatt Hotels has backed away from launching a takeover of NH Hotels, days after a rival bidder Minor revealed it controlled 44 percent of the Spanish group. In a letter from Hyatt released to the Spanish stock exchange by NH, the U.S. hospitality company, which on Friday said it may launch a cash bid for 100 percent of NH, said it saw pursuing an offer as extremely challenging. “Based on the information we now have, we believe that the path to a successful tender offer by Hyatt under the terms expressed in our letter has narrowed to a point of being impractical,” Hyatt’s President and Chief Executive Officer Mark Hoplamazian said in the letter released on Monday.
Heineken, the world’s second-largest beer maker, cut its full-year margin forecasts due to currency weakness in some more profitable markets and expansion in Brazil, knocking its shares on Monday. The brewer of Heineken lager, Tiger, Sol and Strongbow cider reported first-half earnings below market expectations and said its operating margin would decline by 20 basis points in 2018, compared with a previous forecast of a 25 basis point increase, after it fell sharply in the first six months. Overall, the brewer sold more beer in the first six months of 2018 than expected, with growth rose steepest in its two most profitable markets, Vietnam and Mexico, along with Brazil, Cambodia, South Africa, Ethiopia and Russia.
Food distribution company US Foods Holding Corp said it would buy SGA’s Food Group of Cos for US$1.8-billion in cash to expand into the northwestern part of the United States. With 12 distribution centers and more than 20 private brands, SGA’s Food had 2017 net sales of US$3.2-billion from its five operating units - Food Services of America Inc (FSA), Systems Services of America Inc, Amerifresh Inc, Ameristar Meats Inc and GAMPAC Express Inc.
U.S. pending home sales for June. Consensus is for a 0.2-per-cent increase.
With Reuters and The Canadian Press