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Before the Bell: Wall Street’s gains erode as GDP report fails to surprise; TSX futures turn

Equities

U.S. stock futures struggled ahead of the North American open after the U.S. posted strong second-quarter growth but still settled in the middle of the range economists had been expecting. Dow and S&P futures briefly dipped into the red immediately after the U.S. Commerce Department said second-quarter growth came in at 4.1 per cent. That was roughly in line with market forecasts, although some economists had suggested growth as high as 5 per cent was possible. At last check, both Dow and S&P futures had returned to positive territory suggesting a modestly higher start. Nasdaq futures, meanwhile, remained firmly in the black as Amazon gained on its latest results.

Futures on Bay Street also shifted gears as the opening bell approached, sliding below break even as oil prices remained underwater.

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Overnight, easing global trade tensions helped bolster world markets. MSCI’s all-country world index was modestly higher after the European open. That index, which tracks shares in 47 countries, is on track for six straight sessions of gains, its best showing since early this year. The index also looked set for its fourth straight weekly gain.

CMC chief markets analyst Michael Hewson said market reaction to a meeting between the U.S. and EU leaders earlier this week bolstered sentiment, with Germany’s DAX finishing Thursday at a five-week high. The meeting resulted in the United States withdrawing a threat to slap punitive import tariffs on EU autos.

“It was almost as if the EU and the U.S. were best buddies again,” Mr. Hewson said. “Nothing could be further from the truth, and while the prospect of tariffs on European cars has diminished, it hasn’t gone away completely, which means inevitably the market shifts its attention elsewhere. That elsewhere concerns what could happen next with respect to China, and the prospect of an escalation there.”

On Bay Street, earnings continue to roll in. Air Canada reported a second-quarter loss of $77-million or 28 cents a share, compared with profit of $311-million or $1.13. The loss in the latest quarter included a charge of $186-million on the sale of assets and losses on foreign exchange of $25-million. On an adjusted basis, the carrier reported earnings per share of 41 cents in the latest quarter. Analysts had been expecting earnings per share on that basis of 28 cents. Air Canada also said in its report that it expects to mitigate about 75 per cent of 2018 annual fuel price increases through higher fares and other initiatives.

Ahead of the open, investors also get results from Imperial Oil.

On Wall Street, Amazon shares were up about 4 per cent ahead of the North America open after the retailer posted profit in the latest quarter double Wall Street’s forecasts and said it expects strong fall sales. In the latest quarter, Amazon reported earnings of US$2.5-billion, while narrowly missing on revenue. Earnings per share of US$5.07 were double analysts’ consensus forecast. So far, the tech sector has seen a solid earnings season for the most part. The sector is set for annual earnings growth of 22.8 per cent, according to Thomson Reuters data. That figure is slightly higher the average forecast for all S&P 500 companies.

Early Friday, Twitter shares sank more than 16 per cent in premarket trading after the company fell short of analysts' forecasts for active monthly users. Active monthly users were down by 1 million in the second quarter from the first. Analysts had been looking for a gain of about 1 million.

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Also ahead of the open, the U.S. Commerce Department said U.S. economy grew at its fastest pace since 2014 in the second quarter, with consumer spending bolstered by tax cuts. The number came in at 4.1 per cent. That was in line with expectations, although forecasts had varied to as low as 3.5 per cent and as high as 5 per cent.

“Growth flowered in the spring, but there were plenty of reasons to think that the US economy can’t sustain anywhere near that pace head,” CIBC Capital Markets chief economist Avery Shenfeld said. "... Overall, these are definitely big numbers, but not unexpectedly so, and should not alter views on the Fed or the second half outlook much (inventories will be rebuilt in Q3, but exports will likely be softer.) "

Overseas, European markets looked set for their fourth week of gains with the pan-European STOXX 600 moving slightly higher in morning trading. Britain’s FTSE 100 was up 0.53 per cent. Germany’s DAX added 0.41 per cent and France’s CAC 40 rose 0.15 per cent.

In Asia, markets finished the day mixed. Japan’s Nikkei rose 0.56 per cent on broad gains despite weakness in the securities brokerages sector. Hong Kong’s Hang Seng edged up 0.08 per cent. The Shanghai Composite Index slid 0.03 per cent.


Commodities

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Crude prices were down slightly in early going although Brent looked set for a weekly gain bolstered by a halt in oil transportation by Saudi Arabia through a key shipping lane and easing global trade tensions. Brent was lower on the day so far and had a range of US$74.11 to US$74.59. West Texas Intermediate was also in the red through much of the predawn period and had a day range of US$69.27 to US$69.67.

For the week, Brent looked set to post its first weekly gain in four. WTI, however, appeared headed for its fourth week of declines.

“The major source of bullish impetus stemmed from Saudi Arabia’s decision to temporarily halt all oil shipments through the Bab al-Mandeb Strait,” brokerage PVM’s Stephen Brennock told Reuters. “Yet even this only had a limited impact in spurring buying pressures, with no sign of actual supply disruptions.”

Later in the day, the markets will get a reading on the number of U.S. oil rigs in service when energy services firm Baker Hughes releases its weekly report. In last week’s report, the number of U.S. rigs in action fell by eight to 1,046 after back-to-back weekly increases. As well, oil majors Chevron and Exxon Mobil are set to report earnings during the session.

In other commodities, gold was at a one-week low at the U.S. dollar rallied ahead of the second-quarter GDP report. Spot gold was down 0.3 per cent at US$1,218.92 an ounce ahead of the North American open after hitting a

week low of US$1,217.86. Spot gold was on track for its third weekly loss. U.S. gold futures for August delivery were also lower.


Currencies and bonds

The Canadian dollar was higher in early going, trading in a narrow day range of 76.46 US cents to 76.61 US cents. The gains came even as the U.S. dollar held early gains following the release of second-quarter GDP data. The U.S. economy grew at an annual rate of 4.1 per cent in the second quarter, matching forecasts but failing to reach the high end of some economists' predictions. Earlier this week, the loonie touched 76.77 US cents - its best level against the greenback in six weeks - on optimism over the prospects for a North American free-trade agreement and a breakthrough in talks between the U.S. and the European Union.

With no major Canadian releases, the loonie will likely follow the broader currency markets through the day.

Early Friday, the U.S. dollar gained against its world counterparts with the U.S. dollar index managing its highest level in five days.

“The dollar is higher across the board and this reflects the lift it is enjoying from fundamental factors, notably higher U.S. yields and Wall Street shares amid improving risk appetite,” Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo, told Reuters.

OANDA analyst Craig Erlam noted that GDP is expected to grow at an annual rate of 4.1 per cent, marking a “bumper quarter” after a modest first few months to the year.

“It will be interesting to see how markets react, should the economy outperform expectations, with the Federal Reserve already on course to raise rates twice more this year,” he said in an early note.

In bonds, the yield on the U.S. 10-year note was lower after the GDP release at 2.96 per cent. The yield on the 30-year note was slightly lower at 3.084 per cent.

Stocks set to see action

Twitter Inc posted record profit with second-quarter revenue that beat financial analysts’ estimates. However, the social media giant also reported fewer active monthly users, sending shares down 16 per cent in premarket trading. Monthly active users fell by 1 million in the second quarter from the first to 335 million. Analysts had expected a gain of 1 million users. The social media giant said penalizing misbehaving users this year had paid off even though monthly usage had dropped. Profit was US$100-million, with a US$42-million gain due to a tax accounting move. It marked Twitter’s third quarter in a row and the third three-month period without a loss. Adjusted earnings per share were in line with the average estimate in Thomson Reuters data at 17 cents per share, although it was not immediately known if the figures were comparable. Sales of US$711-million, mostly from advertising and up 24 per cent from last year, exceeded the average analysts’ estimate of US$696-million.

Imperial Oil Ltd posted a profit in the second quarter compared with a year-earlier loss, helped by growth in its refining and chemicals businesses. The company, majority owned by Exxon Mobil, reported a net profit of $196-million or 24 cents per share in the three months ended June 30, compared with a loss of $77-million or 9 cents per share a year earlier. Imperial said production slipped to 296,000 barrels of oil equivalent per day (boe/d) from 297,000 boe/d, a year earlier.

BP Plc has agreed to buy U.S. shale oil and gas assets from global miner BHP Billiton for US$10.5-billion, expanding the British oil major’s footprint in oil-rich onshore basins in its biggest deal in nearly 20 years. The acquisition marks a big turning point for BP since the Deepwater Horizon rig disaster in the Gulf of Mexico in 2010, for which the company is still paying off more than $65-billion in penalties and clean-up costs.

Merck & Co. reported second-quarter profit of US$1.71-billion or 63 US cents per share. Earnings, adjusted for costs related to mergers and acquisitions and restructuring costs, were US$1.06 per share, ahead of the US$1.03 analysts had been expecting. Merck’s total sales rose 5.4 per cent to US$10.47-billion. Merck shares were modestly higher ahead of the opening bell.

Colgate-Palmolive Co, the world’s largest toothpaste maker, reported quarterly sales on Friday that fell below Wall Street estimates, as sales in Latin America declined. The maker of Speed Stick deodorants and Softsoap hand-wash said net sales rose 1.6 per cent to US$3.89-billion, but the figure was below analysts’ average estimate of US$3.92-billion, according to Thomson Reuters I/B/E/S. Net income attributable to Colgate rose to US$637-million, or 73 US cents per share, in the second quarter ended June 30, from US$524-million, or 59 US cents per share, a year earlier.

Exxon Mobil Corp, the world’s largest publicly traded oil producer, posted a lower-than-expected quarterly profit on Friday as its production dropped and it spent heavily to upgrade several key refineries. Shares fell 2.7 per cent to US$82 in premarket trading. The Irving, Texas-based company posted second-quarter net income of US$3.95-billion, or 92 US cents per share, up from US$3.35-billion, or 78 US cents per share, in the year-ago quarter. Analysts expected earnings of US$1.27 per share, according to Thomson Reuters I/B/E/S.

More reading:

What a $700-million fund manager is buying and selling in the Canadian cannabis sector

Friday’s small-cap stocks to watch

Economic News

U.S. second-quarter GDP rose at annual rate of 4.1 per cent, in line with market forecasts.

With Reuters and The Canadian Press













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