U.S. stock futures were modestly higher Tuesday with Nasdaq futures indicating a slightly better start after three-days of tech selling with Apple earnings due after the close. On Bay Street, futures were higher with a stronger-than-expected reading on Canadian economic growth helping underpin sentiment. Overnight, European shares were mixed in morning trading and Asian shares weakened while the Bank of Japan’s assurance that it would keep stimulus in place for an extended period pushed the yen and global bond yields lower.
The day’s big event comes after the close of trading with the release of Apple results amid a mixed field for the FAANG stocks (Facebook, Apple, Amazon, Netlix and Google-parent Alphabet), all of which posted losses during the previous session. All stocks in the group bounced in premarket trading, shifting higher ahead of the North American open.With the exception of Facebook.
“Apple shares managed to outperform, only declining 0.5 per cent, but only because investors are looking ahead to tonight’s Q3 earnings announcement, but even here there may be cause for concern,” Michael Hewson, chief markets analyst for CMC Markets U.K., said. “Lower average selling prices at its Q2 update suggested that buyers were opting for cheaper models, perhaps indicating that iPhone X sales may have peaked.”
However, he noted, Apple’s third quarter tends to be a weaker period regardless as it tends to be the precursor to new product launches which often follow in the fourth quarter. Apple shares were slightly higher in premarket trading Tuesday.
On Bay Street, earnings started early with results from Loblaw parent George Weston. The company posted adjusted earnings per share in the latest quarter of $1.63, falling short of the $1.68 expected by analysts polled by Thomson Reuters. The company also said it expected adjusted earnings for the year to be lower compared with the preceding year. Also releasing results on Tuesday were WestJet Airlines Ltd. and Fortis Inc. and Shopify Inc.
Outside earnings, investors also got a above-forecast reading on economic growth in May.
Statistics Canada said gross domestic product grew by 0.5 per cent for the month, after a reading of 0.1 per cent the month before. Economists had been looking for May growth closer to 0.4 per cent. Statscan says May growth was widespread with 19 or 20 industrial sectors showing gains.
“For the Bank of Canada, it is unlikely that today’s data alters their narrative – they, like us, had already penciled in a robust [second quarter],” TD senior economist Brian DePratto said. “Clearly then, while it may not be right around the corner, so long as the Canadian economy continues to evolve in line with their expectations, more monetary tightening will be forthcoming.”
Overseas, European markets were mixed with the pan-European STOXX 600 trading up 0.06 per cent around 6:30 ET. Britain’s FTSE 100 was up 0.31 per cent and France’s CAC 40 gained 0.08 per cent. Germany’s DAX slipped 0.06 per cent. Shares of Credit Suisse and BP were both higher on strong earnings reports.
In Asia, shares also finished mixed in the wake of the Bank of Japan’s decision to keep policy largely unchanged. Japan’s Nikkei shifted higher following the announcement, ending up 0.04 per cent. The Shanghai Composite Index was up 0.26 per cent. Hong Kong’s Hang Seng lost 0.52 per cent.
Crude prices were weaker Tuesday. Supply worries were among market concerns after a Reuters survey showed that OPEC output rose to its highest level of the year. Brent crude was down with a day range of US$74.50 to US$74.96. For the month, Brent futures were set to drop about 6 per cent. That would be the biggest monthly decline since July 2016. West Texas Intermediate was also weaker in morning trading with a range for the day of US$69.55 to US$70.22. WTI looks to be headed for a monthly drop of 5.8 per cent, the biggest since October 2017.
A Reuters survey on Monday indicated that OPEC increased production in July by 70,000 barrels per day to 32.64 million bpd, a high for the year.
“Oil prices fell overnight, with Brent futures set for their biggest monthly loss in two-years, as oversupply concerns rose on reports that OPEC’s output rose in July to its highest for 2018,” OANDA analyst Dean Popplewell said in a note.
A separate Reuters survey, meanwhile, forecast Brent crude to average US$72.87 a barrel in 2018, 29 US cents higher than the US$72.58 seen in the previous month’s poll and above the US$71.68 average so far this year. U.S. crude futures were seen averaging US$67.32 a barrel in 2018. WTI prices have averaged US$66.15 so far this year.
Later in the day, markets will also get an initial reading on U.S. crude stocks with the release of weekly figures by the American Petroleum Institute. That report will be followed on Wednesday by more official numbers from the U.S. Energy Information Administration. Forecasts expected the EIA report to show a decline in weekly inventories by more than 3 million barrels.
In other commodities, gold prices were steady ahead of the Federal Reserve kicking off it’s two-day monetary policy meeting. The meeting is expected to conclude Wednesday with no change in interest rates. Spot gold was higher 0.1 per cent early on while U.S. gold futures were down about the same amount.
Currencies and bonds
The Canadian dollar got a lift after Statscan reported better-than-expected growth in May. The loonie spiked after the release of the figures, nearing the 77 US cent level. The day range on the Canadian dollar so far is 76.37 US cents to 76.94 US cents. The top end of that scale registered following the release of the GDP report.
Statscan said the economy grew by 0.5 per cent in May, topping economists' forecasts of 0.4-per-cent growth. Gains were seen across 19 of 20 sectors.
“Just about every sector was up, so there’s little point in listing the winners and losers this month,” CIBC World Markets chief economist Avery Shenfeld said. "June will be affected by a disruption in energy. The Bank of Canada already hiked once in anticipation of a strong [second quarter], and will likely want to see at least the first readings on Q3 to ensure this isnt just a blip quarter after three quarters averaging only 1.5 per cent."
He says that suggests, barring any bad trade-related news, the Bank of Canada is likely to raise rates again in October.
On the broader currency markets, the yen lost against the U.S. dollar and looked headed for its biggest daily decline in three weeks after the Bank of Japan held policy largely unchanged. The Japanese yen fell 0.4 per cent to the day’s low against the U.S. dollar at 111.595 and about 0.8 per cent above an intraday low of 110.75 hit in Asian trade.
"As expected, Japanese policy makers tweaked some policies, but signalled rates to stay low for an “extended period of time,” Mr. Popplewell noted. “In respect to the long-term rates, the Bank of Japan reiterated that it would continue to buy [Japan government bonds]’s to keep their 10-year yield at about +0%, but added that ‘while doing so, the yields may move upward and downward to some extent mainly depending on developments in economic activity and prices.’”
In bonds, the yield on the U.S. 10-year note was lower at 2.949 per cent ahead of the start of the Fed meeting. The yield on the 30-year note was also lower at 3.073 per cent.
Stocks set to see action
Pfizer Inc reported a 26-per-cent rise in quarterly profit on Tuesday, driven by higher sales of its drugs, including breast cancer treatment Ibrance. The U.S. drug maker said net income rose to US$3.87-billion, or 65 US cents per share, in the second quarter, from US$3.07-billion, or 51 US cents per share, a year earlier. Revenue rose 4.4-per-cent to US$13.47-billion.
WestJet Airlines Ltd posted a quarterly loss. The carrier reported net loss of $20.8-million, or 18 cents per share, for the second quarter ended June 30, compared with a profit of $48.4-million, or 41 cents per share, a year earlier. WestJet revenue rose to $1.09-billion from $1.06-billion.
Manulife Financial insurance company says it will launch the first medical marijuana program in Canada this fall in conjunction with Shoppers Drug Mart. Manulife says the program will be available as an option for participating group and individual health insurance plans. Under the partnership, Shoppers Drug Mart pharmacists at an Ontario-based patient care centre will help approved customers navigate the different strains of medical marijuana and the different ways to take it.
BP reported a US$2.8-billion in second-quarter profit, four times the amount it reached last year, boosted by higher oil prices. BP’s underlying replacement cost profit, the company’s definition of net income, exceeded forecasts of $2.7-billion, according to a company-provided survey of analysts. It earned US$0.7-billion a year earlier and US$2.6-billion in the first quarter. First-half production rose to 3,662 million barrels of oil equivalent per day, including Rosneft, from 3,544 mboe/d a year ago.
Shopify Inc reported a bigger quarterly loss as higher costs weighed on its earnings. The Ottawa-based company’s net loss widened to US$24-million, or 23 US cents per share, in the second quarter ended June 30, from US$14-million, or 15 US cents per share, a year earlier. Revenue jumped to US$245.0-million from US$151.7-million. Shopify’s U.S.-listed shares were down 9 per cent ahead of the North American open.
GDP grew 0.5 per cent in May, following a 0.1-per-cent increase in April. Economists had been forecasting a May increase of 0.4 per cent.
U.S. consumer spending rose by a solid 0.4 per cent in June, while a key gauge of inflation increased at an annual pace of 2.2 per cent for a second straight month, the strongest back-to-back gains in six years, the Associated Press reports. The U.S. Commerce Department says the gain in spending followed an even stronger 0.5 per cent rise in May, which was revised from a 0.2 per cent initial estimate. Incomes rose a solid 0.4 per cent in June, matching the May increase.
With Reuters and The Canadian Press