Canadian and U.S. stocks started lower Thursday as earnings on both sides of the border offered a mixed growth picture and the European Central Bank signalled more stimulus in coming months.
At 9:40 a.m. ET, the Toronto Stock Exchange’s S&P/TSX Composite index was down 48.11 points, or 0.29 per cent, at 16,563.73. All of the index’s 11 main sectors were lower. Energy shares led the losses, falling 1 per cent.
On Wall Street, the Dow Jones Industrial Average fell 22.58 points, or 0.08 per cent, at the open to 27,247.39. The S&P 500 opened lower by 3.30 points, or 0.11 per cent, at 3,016.26. The Nasdaq Composite dropped 26.82 points, or 0.32 per cent, to 8,294.68 at the opening bell.
“U.S. earnings continue to come in mixed, but some of the larger cap beats are dominating the headlines," OANDA analyst Edward Moya said in an early note. "3M and Facebook delivered strong results. So far roughly three out of four S&P 500 companies that have reported results have delivered strong earnings.”
Overseas, Europe’s major markets turned higher after the ECB’s announcement, but came off the boil as the session progressed.
In its latest policy decision, delivered before the North American open, the ECB said rates would remain at current record lows “or lower” through the middle of next year as it grapples with signs of a weaker economy and the impact of trade tensions. The addition of the phrase “or lower” suggests the central bank is now weighing a rate cut. The bank is also reportedly looking at a new round of bond buying after halting a 2.6-trillion-euro program last year.
On Bay Street, energy shares are at the forefront as Husky Energy, Cenovus and Precision Drilling all deliver their latest results.
Suncor Energy reported after Wednesday’s close, posting a 5-per-cent increase in second-quarter operating profit and higher upstream production. Net earnings jumped to $2.73-billion or $1.74 per share on a one-time tax recovery of $1.12-billion. Suncor’s total production rose to a record 803,900 barrels of oil equivalent per day (boepd) in the quarter. Last year, the company produced 661,770 (boepd).
Cenovus, meanwhile, posted a quarterly profit versus a loss in the year-earlier period. Net earnings from continuing operations was $1.78-billion, or $1.45 per share, in the second quarter ended June 30, compared with a loss of $410-million, or 33 cents per share, a year earlier. However, excluding items, earnings per share came in at 22 cents, below analysts’s forecasts of 34 cents. Total production fell to 443,318 barrels of oil equivalent per day from 518,530 boe/d in the quarter. Cenovus shares were down 3 per cent.
On Wall Street, the earnings deluge continues. During Wednesday’s session both the S&P 500 and the Nasdaq managed to touch record levels after Texas Instruments offered reassuring comments about global chip demand. That helped take the edge off weak results from blue chips Boeing Co. and Caterpillar Inc. Semiconductor stocks put in a solid showing in Asia overnight building on Wednesday’s gains.
Tech shares continue to be in the spotlight Thursday. Facebook Inc. shares were up 2 per cent at the open after the social media giant’s revenue beat market forecasts in the latest quarter. Quarterly revenue rose to US$16.9-billion from US$13.2-billion a year ago, beating analysts’ average estimate of US$16.5-billion, according to IBES data from Refinitiv. However, Facebook also cautioned that new data privacy rules and upcoming privacy product changes could slow future revenue growth and raise costs.
Shares of conglomerate 3M Co. also jumped more than 2 per cent in morning trading after the company reiterated its full-year forecast. On the flip side, shares of Ford Motor Co. fell more than 6 per cent after restructuring costs in Europe and South America sideswiped the automaker’s latest results.
After the close, Amazon and Alphabet both report their latest results. On Wednesday, U.S. Treasury Secretary Steven Mnuchin accused Amazon of having “destroyed the retail industry across America.” The comments came after news that the U.S. Justice Department would launch an antitrust probe of that country’s biggest tech names. In its latest report, The range on per-share earnings forecasts for Amazon in the latest quarter range from US$5.29 to US$5.70. Amazon has beat earnings forecasts for the last seven straight quarters. The retailer’s Prime memberships are also seen growing.
Google-parent Alphabet is expected to report adjusted earnings per share of US$13.97 on revenue of US$30.84-billion, according to analysts polled by Bloomberg. Revenue will be of particular interest to the markets after the company surprised with a sharp deceleration in revenue growth in the preceding quarter. Alphabet’s stock has also been trailing the Nasdaq, rising just under 10 per cent to date this year compared with the index’s more than 20-per-cent gain.
Starbucks also reports after the close of trading.
Overseas, European markets turned mixed after a pop following the ECB’s suggestion that more stimulus is on the way. The pan-European STOXX 600 fell by 0.05 per cent after the central bank’s announcement. Britain’s FTSE 100 slipped by 0.08 per cent in afternoon trading. France’s CAC 40 advanced 0.20 per cent and Germany’s DAX was down 0.37 per cent.
In Asia, markets finished mostly higher with semiconductor stocks helping boost sentiment. The Shanghai Composite Index ended up 0.48 per cent. Hong Kong’s Hang Seng advanced 0.25 per cent. In Japan, the Nikkei rose 0.22 per cent.
Crude prices were up in early going, continuing to rise on heightened tensions in the Middle East and a sharp drop in U.S. inventories. Brent crude was last trading near the top of the day range of US$63.08 to US$63.90. The range on West Texas Intermediate is US$55.86 to US$56.46. WTI was also sitting comfortably near the upper end of that spread.
Thursday’s gains came after a disappointing reading on the global manufacturing sector sent prices lower a day earlier. Brent had its first losing day in four with prices falling about 1 per cent. WTI lost 1.6 per cent on Wednesday.
“Prices have since stabilized in Asia as oil traders know OPEC policy compliance remains sturdy, and with global central banks preparing to unleash torrents of cheap money, its unlikely oil markets will fall off the cliff,” Stephen Innes, managing partner at Vanguard Markets, said.
He said prices continue to draw support from Middle East tensions after Iran seized a British tanker last week. The military adviser to Iran’s supreme leader was quoted on Wednesday as saying any change in the status of the Strait of Hormuz, which Tehran says it protects, would open the door to a dangerous confrontation, according to a Reuters report.
“But as this drags on, traders are only halfheartedly pricing in potential boots on the ground risk,” Mr. Innes said. “Suggesting any market top side ambitions will continue to fall prey to the deteriorating global economic backdrop.”
Also bolstering prices on Thursday was a U.S. government weekly report showing that U.S. crude stocks fell by 11 million barrels last week, far more than the market had been expecting.
“While that draw was influenced by temporary factors - Hurricane Barry - U.S. crude inventories have plunged by 40 million barrels over the last six weeks, suggesting the oil market is finally rebalancing,” UBS analyst Giovanni Staunovo said.
Gold prices, meanwhile, were mostly steady with market focus moving to the ECB meeting. Spot gold rose 0.1 per cent to US$1,426.76 per ounce. Prices were short of last week’s peak at US$1,452.60. Meanwhile, U.S. gold futures rose 0.2 per cent to US$1,427 per ounce.
The Canadian dollar was little changed, settling near the higher end of the day range of 76.08 US cents to 76.17 US cents as focus remains largely on international foreign exchange markets.
Markets are now turning their focus to next week’s U.S. Federal Reserve decision on interest rates, with most now expecting a quarter point rate cut. Attention will likely be placed on where the powerful central bank sees rates going for the rest of the year and whether further cuts are in store. Ahead of the Fed decision, markets get a first look at U.S. second-quarter GDP on Friday. The consensus is for growth of about 1.8 per cent in the quarter, down from 3.1 per cent in the first quarter.
There were no major Canadian economic reports set for release Thursday.
On global markets, the euro reversed an initial move higher and was last down 0.2 per cent on the day at US$1.1115, a new two-month low, after the ECB said rates would remain at “present or lower levels.”
German bond yields, meanwhile, fell to new record lows after the ECB signalled rate cuts, asset purchases and tiered interest rates.
The 30-year German government bond yield dropped more than three basis points to a record low of 0.173 per cent, while the spread between Italian and German 10-year government debt shrunk to its tightest since May 2018.
Elsewhere, the pound remained below US$1.25 and not far off the 27-month low seen last week after Prime Minister Boris Johnson announced his mostly Brexiteer cabinet.
In bonds, the yield on the U.S. 10-year note fell to a session low of 2.022 per cent after the ECB decision.
More company news
Husky Energy Inc reported a 17.4-per-cent drop in quarterly profit on Thursday, as the company’s crude production fell on the back of mandatory output cuts by the Alberta government and its refineries processed less oil. Net earnings fell to $370-million, or 36 cents a share, in the second quarter ended June 30, from $448-million, or 44 cents a share, a year earlier. The Calgary-based company’s average quarterly production fell to 268,400 barrels of oil equivalents a day (boepd) from 295,500 boepd.
Canadian miner Teck Resources Ltd reported quarterly profit slightly below analyst estimates, hurt by lower copper and zinc prices. The ongoing U.S.-China trade war and slowing macroeconomic outlook have hurt copper prices and other base metal prices, hurting Teck’s income. Production at its steelmaking coal operations, its biggest business, increased by about 1.6 per cent to 6.4 million tonnes in the second quarter. But the company slightly trimmed its steelmaking coal production guidance to 25.5 million to 26 million in tonnes in 2019, from an earlier guidance of 26 million to 26.5 million tonnes. The Vancouver-based company said adjusted profit fell to $459-million, or $0.81 per share, in the second quarter ended on June 30, from $653 million, or $1.12 per share, in the year-ago period. Analysts on average expected the company to earn $0.84 per share, according to IBES data from Refinitiv.
Shares of Tesla Inc sank 14 per cent a day after it disappointed Wall Street by softening its language on turning a profit this year. Only two Wall Street brokerage reduced their existing share price target for the firm but a batch of downbeat research notes from analysts focused on concern over shrinking margins for the Elon Musk-led firm, as it strives to find a path to sustainable profitability.
Diversified manufacturer 3M Co reported a 39-per-cent drop in quarterly profit, but reiterated its full-year earnings forecast as it fought the impact of slowing global growth, sending its shares up 4 per cent before the opening bell. The company’s sales fell key markets including Asia Pacific but expanded 2 per cent in the United States. Net income attributable to 3M fell to US$1.13-billion, or US$1.92 per share, in the second quarter ended June 30, from US$1.86-billion, or US$3.07 per share, a year earlier. The maker of Post-it notes and Scotch tape earned US$2.20 on an adjusted basis.
Comcast Corp reported second-quarter profit that beat Wall Street estimates as it added more high-speed internet customers, but it lost more video and phone customers than expected. Overall revenue missed analyst estimates. Net income attributable to Comcast fell to US$3.13-billion, or 68 US cents per share, from US$3.22-billion, or 69 US cents per share, a year earlier. Excluding items, the company earned 78 US cents per share, beating estimates of 75 US cents per share, according to IBES data from Refinitiv. Comcast reported revenue of US$26.86-billion on a pro-forma basis, which fell short of Wall Street expectations of US$27.06-billion.
Durable goods, items ranging from toasters to aircraft that are meant to last three years or more, increased 2 per cent in June, the most since August 2018, after declining 2.3 per cent in May.
With Reuters and The Canadian Press
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