U.S. and Canadian stock futures indicated stocks will rebound at the open Tuesday as investors looked ahead to a slew of key corporate earnings, including Morgan Stanley and Goldman Sachs, which both posted stronger than expected results.
Morgan Stanley reported a 19-per-cent increase in quarterly profit, with strong performance in its equities trading business outweighing weakness in bond trading. Net income rose to US$2.11-billion, or US$1.17 per share, in the third quarter, from US$1.78-billion, or 93 cents per share, a year ago. Analysts were expecting $1.01 per share, according to I/B/E/S data from Refinitiv. Its shares rose nearly 2 per cent in premarket trading.
Goldman Sachs Group Inc. reported third-quarter earnings of US$2.52-billion or $6.28 per share, which topped Wall Street expectations. Analysts were expecting earnings of US$5.42 per share. The investment bank posted revenue net of interest expense was US$8.65-billion, also topping Street forecasts. Its shares rose 1 per cent in premarket trading.
BlackRock’s results were mixed as it posted better-than-expected earnings but weaker sales. Johnson & Johnson also posted strong earnings. BlackRock’s stock was up 0.25 per cent in premarket trading while J&J shares gained 0.64 per cent.
Shares in Walmart were down nearly 1 per cent after it cut its fiscal 2019 earnings forecast due to its Flipkart deal.
Netflix was 0.8 per cent ahead of its earnings report, expected after market close. The video streaming company will be the first to issues results among the FAANG group of stocks, which have at the centre of last week’s selloff.
The reports from some of the biggest U.S. companies would help soothe nerves of investors who have been fretting over the impact of tariffs, rising interest rates, wage growth and other factors on corporate profits.
Still, earnings at S&P 500 companies is expected to have risen 21.6 percent in the third quarter, a slowdown from the past two quarters, according to I/B/E/S data from Refinitiv.
On Monday, stocks closed down as investors remained cautious about rising interest rates and ongoing political disputes.
The disappearance in Turkey earlier this month of a Saudi journalist critical of Riyadh has provoked an international outcry against the oil-rich kingdom.
Saudi Arabia is preparing to acknowledge the death of Saudi journalist Jamal Khashoggi in a botched interrogation, CNN and the New York Times said on Monday.
That backdrop, together with nagging concerns about the economic outlook, global trade tensions and higher U.S. interest rates, meant a degree of caution prevailed. The blue-chip Dow has lost 4.5 per cent this month, as long-term Treasury yields soared to their highest level since 2011. Higher yields make equities less attractive.
World stocks nudged higher on Tuesday, as focus turned to earnings season and a rebound in Italian assets helped battered equities find firmer ground for now.
In Europe, shares rallied 0.4 per cent and pulled back from Monday’s 22-month lows. That followed gains in some Asian markets, led by Japan’s blue-chip Nikkei index, which was up over 1 per cent after a decline of nearly 2 per cent the previous day.
Britain’s FTSE was off 0.3 per cent, Germany’s DAX gained 0.4 per cent, and France’s CAC added 0.4 per cent.
Calm in Italy -- a major source of turbulence in world markets in recent weeks -- helped explain the recovery in risk appetite on Tuesday, said Marchel Alexandrovich, European financial economist at Jefferies in London.
Stock market sentiment in Europe also got a boost from expectations that earnings season will deliver double-digit earnings growth for the third quarter.
“If you look at what’s happening here and now, it is an improvement from what was happening a week ago,” Alexandrovich said. “How long the stability lasts is anyone’s guess.”
Chinese stocks closed lower on Tuesday after data showed factory-gate inflation had cooled for a third straight month in September amid weaker domestic demand, reflecting more pressure on the world’s second-biggest economy.
“The focus of the markets has turned to the Middle East due to the Saudi incident. And with U.S. stocks still struggling, other equity markets will have a difficult time bouncing convincingly,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.
Commodities
Oil prices fell on Tuesday on evidence of higher U.S. oil production and increasing U.S. crude inventories, but reports of a fall in Iranian oil exports helped limit losses.
Brent crude was down 50 cents a barrel at US$80.28. U.S. light crude was 50 cents lower at US$71.28.
“Shale oil production continues unabated in the United States,” said Carsten Fritsch, commodities analyst at Commerzbank. “Rising U.S. oil production is one key reason why the global oil market is likely to be amply supplied next year.”
Oil production from seven major U.S. shale basins is expected to rise by 98,000 barrels per day (bpd) in November to a record of 7.71 million bpd, the U.S. Energy Information Administration (EIA) said.
Gold prices held steady on Tuesday near last session’s 2½-month high as risk-averse investors sought refuge in the metal amid rising political tensions and economic uncertainty.
Spot gold was little changed at US$1,226.71 an ounce. It touched US$1,233.26 on Monday, its highest since July 26, as global stocks slid on rising tensions between Western powers and Saudi Arabia and concerns over the pace of global economic growth. U.S. gold futures were flat at US$1,230.40 an ounce.
“While the sell-off in stocks rekindled some demand, there were other key factors in play. With escalating trade tensions, concerns over slowing global growth, geopolitical tensions and U.S. mid-term election jitters in the mix, gold has a chance to shine,” said Lukman Otunuga, Research Analyst for FXTM.
“While the risk-off trading environment is poised to send gold higher in the near term, the medium- to longer-term outlook remains dictated by the dollar and U.S. rate hike expectations.”
Currencies and bonds
The Canadian dollar rose in early trading Tuesday and was trading above the 77-cent US mark.
The U.S. dollar was mired near a three-week low on Tuesday thanks to tepid U.S. data overnight, though broadly firmer U.S. Treasury yields prevented a sell-off.
The data, showing U.S. retail sales barely rose in September, was a rare blemish in a run of economic indicators which this month pushed 10-year U.S. Treasury yields to their highest levels for more than seven years above 3.22 per cent. U.S. industrial output data is due later today.
“We are seeing a cautious retreat in the dollar rather than a significant correction and incoming U.S. data will be in the spotlight for now,” CIBC Capital Markets head of G10 FX strategy Jeremy Stretch said.
The dollar index was broadly flat at 95.11, just above last week’s three-week low of 94.92.
The U.S. 10-year Treasury yield was at 3.171 per cent while the Canadian 10-year bond yield was at 2.509 per cent.
Stocks to watch
Adobe climbed 5.9 per cent after the software company reaffirmed its current-quarter forecast and provided 2019 targets that eased concerns over the impact of a recent acquisition.
Aviation training firm CAE Inc. said on Tuesday it expects global demand for pilots to rise with fleet growth and changing crew ratios, and the active combined airline and business jet pilot population will exceed half a million by 2028.
Wells Fargo & Co. said on Tuesday it has applied for an investment firm license in France as part of its Brexit strategy. The San Francisco-based bank is planning to offer a range of capital markets and investment banking services to its European and international customers, subject to regulatory approval from French Prudential Supervision and Resolution Authority. The new unit will be called Wells Fargo Securities Europe S.A.
Domino’s Pizza Inc. reported a smaller-than-expected increase in quarterly same-store sales at company-owned stores in the United States on Tuesday, underscoring intensifying competition from Pizza Hut and food delivery upstarts in an overcrowded market. Shares of the company fell 5.2 per cent to US$256.25 in trading before the bell after it reported growth of 4.9 per cent in same-store sales at company-owned U.S. outlets and 6.4 per cent at franchises, both below Wall Street expectations.
UnitedHealth reported better-than-expected profits and revenue for the third quarter and the company raised its outlook yet again on strong trends in the insurance business. Its shares rose 3.4 per cent in premarket trading.
Cott Corp. says its DS Services subsidiary has acquired The Mountain Valley Spring Company for $78.5-million in cash from Great Range Capital.
Sierra Wireless Inc. chairman Kent Thexton will become the Vancouver firm’s full-time CEO, taking the helm of a global supplier of technology for the burgeoning internet-of-things market at a pivotal time for the 25-year-old tech company.
A bankruptcy judge approved $300-million in financing to keep department store chain Sears Holdings Corp. open through the holiday season, giving the century-old retailer that once dominated U.S. shopping malls a chance to remain in business. Sears filed for Chapter 11 bankruptcy protection early Monday.
Earnings expected today include: BHP Billiton Ltd.; BlackRock Inc.; CSX Corp.; International Business Machines; Johnson & Johnson; Lam Research Corp.; Morgan Stanley; Neptune Wellness Solutions Inc.; Netflix Inc.; ProLogis Inc.; Progressive Corp.; United Continental Holdings Inc.; UnitedHealth Group Inc.
More reading: Tuesday’s small-cap stocks to watch
Economic news
(8:30 a.m. ET) Canada’s international securities transactions for August.
(9:15 a.m. ET) U.S. industrial production for September. Consensus is an increase of 0.2 per cent from August.
(10 a.m. ET) U.S. NAHB housing market index for October. Consensus is a reading of 67, unchanged from September.
(10 a.m. ET) U.S. job openings and labor turnover survey (JOLTS) for August.
(4 p.m. ET) U.S. treasury international capital for September.