Major U.S. stock indexes opened higher on Tuesday, led by technology shares, although the overall sentiment remained fragile due to worries about higher inflation and its impact on third-quarter earnings starting this week.
The Dow Jones Industrial Average rose 11.09 points, or 0.03%, at the open to 34,507.15. The S&P 500 opened higher by 7.12 points, or 0.16%, at 4,368.31, while the Nasdaq Composite gained 52.89 points, or 0.37%, to 14,539.09 at the opening bell.
Canada’s TSX - which was closed on Monday for a holiday when U.S. indexes saw modest losses - was down 0.1% in early Tuesday trading, although energy stocks were trading in positive territory.
Bond markets were closed in both the U.S. and Canada on Monday, and this morning the benchmark 10-year U.S. Treasury yield is fetching about 1.6% - close to four-month highs.
The focal point of attention remains growing inflation, product delays due to various goods’ shortages, and their impact on the third-quarter earnings season, which starts with the big U.S. banks later this week.
Some decent bids this morning in tech stocks is helping the Nasdaq to outperform and stay in positive territory. Tesla rose 0.7% after data showed the electric vehicle maker sold 56,006 China-made vehicles in September, the highest since it started production in Shanghai about two years ago.
Higher oil prices and supply chain disruptions have set off alarm bells for businesses and consumers ahead of the third-quarter reporting season that kicks off on Wednesday with JPMorgan Chase & Co’s results.
“We believe that market participants could stay concerned over high energy prices translating into further acceleration in inflation, and thereby faster tightening by major central banks,” said Charalambos Pissouros, head of research at JFD Group.
Shares of JPMorgan and other major U.S. lenders traded lower this morning.
Analysts expect a 29.6% year-over-year increase in profit for S&P 500 companies in the third quarter, according to IBES data from Refinitiv as of Friday.
Investors also looked ahead at the release of minutes from the Federal Reserve’s meeting on Wednesday for clues on taper timeline, while inflation and retail sales data will be scrutinized to gauge the pace of economic recovery.
“Clearly, there’s plenty of uncertainty in the markets that’s been a drag on sentiment over the last couple of months but equally, investors are not conceding defeat easily. Perhaps their old friend TINA is driving this behaviour, as the fundamentals certainly do not justify such resilience,” said Craig Erlam, Senior Market Analyst, UK & EMEA for OANDA, a forex trading company.
“While the lack of alternatives is certainly an argument for remaining long equity markets, it’s hardly a healthy reason. And this is after more than a decade of central banks effectively backstopping any sell-offs, which creates the FOMO buy-the-dip siege mentality that now looks relatively reasonable, by comparison,” he added. “But as we’ve learned over the last decade or so, no matter how hard it can be to justify the apparently inflated levels in stock markets at times, or how long and severe the list of downside risks become, we never seem to far away from a record high. Will this time be different as central banks withdraw pandemic stimulus measures and raise rates? It should and yet I doubt it.”
In Canadian corporate news this morning, the Globe and Mail is reporting the board of Rogers Communications will meet next week to discuss chair Edward Rogers’s future interactions with the company’s management in light of Mr. Rogers’s thwarted attempt to oust the telecom giant’s chief executive.
The board meeting is planned for the week of Oct. 18. Rogers is scheduled to release its third-quarter results that week, on Oct. 21.
The Globe reported last Friday that Mr. Rogers unsuccessfully attempted to remove company CEO Joe Natale from the top job and replace him with the company’s chief financial officer, Tony Staffieri, according to three sources familiar with the situation. One of the sources said Mr. Rogers was also planning to oust other members of the company’s executive leadership team.
Brent oil rose towards US$84 a barrel on Tuesday, within sight of a three-year high, supported by a rebound in global demand that is contributing to energy shortages in big economies such as China.
With demand growing as economies recover from pandemic lows, the Organization of the Petroleum Exporting Countries (OPEC) and allied producers, collectively known as OPEC+, are sticking to plans to restore output gradually rather than boost supply quickly.
“OPEC+ will push ahead with its cautious approach to supply in the year-end period. Set against this backdrop, oil bears will remain in hibernation mode,” said Stephen Brennock of oil broker PVM.
Brent crude was up 23 cents, or 0.3%, at $83.88 a barrel in early North American trading. On Monday it reached $84.60, the highest since October 2018. U.S. oil gained 41 cents, or 0.5%, to $80.93, having hit its highest since late 2014 on Monday at $82.18.
Jeffrey Halley, analyst at brokerage OANDA, said the lack of significant change in prices on Tuesday could be because the market looks overbought based on short-term technical indicators such as the relative strength index.
“It would not surprise me in the least if we saw a sharp sell-off of $5 to $8 a barrel at some stage this week,” he said.
The price of Brent has surged by more than 60% this year. As well as OPEC+ supply restraint, the rally has been spurred by record European gas prices, which have encouraged a switch to oil for power generation.
Currencies and bonds
The U.S. dollar is near its highs of the year this morning, supported by expectations that the U.S. Federal reserve will start tapering its massive bond buying program as early as next month. U.S. job numbers last week were overall disappointing, but there were a number of strong data points under the surface, including upward revisions to previous reports, rising earnings, and strong private sector hiring.
The Canadian dollar gained about 1% against the greenback last week, and analysts at Scotiabank believe it’s well positioned to see further gains before year-end.
“A monster jobs report last Friday, firm crude oil prices (WTI trading north of $80) and rising—even if “transitory”—inflation bolster the case for further reduction in BoC asset purchases at the October 27th policy meeting,” Scotiabank analysts said in a note. “Friday’s (jobs) data showed that hours worked rose but remain 1.5% below pre-pandemic levels while job creation remains a little shy of the 500k gain that Governor Macklem said was needed back in July. Still, we think the BoC will see developments as solid progress towards its objectives and that tapering is likely to continue later this month. The CAD may struggle to make significant progress against a strong USD but it should see clear support against those currencies whose central banks are lagging behind in the policy adjustment process.”
Other corporate news
Dorel Industries shares doubled in early trading on Tuesday after the company announced it is selling its bicycle division -- which makes brands such as Schwinn and Cannondale -- for $1B. It also warned that its remaining furniture and baby gears divisions are facing supply chain problems and will not report the revenue the company had forecast in the summer.
NFI Group said it received an order for 20 zero-emission, electric New Flyer Transit Buses from Long Beach Transit. NFI shares were up 0.25% in early trading.
American Airlines forecast on Tuesday a smaller-than-expected adjusted net loss for the third quarter as the U.S. airline hopes to take advantage of holiday season demand from travelers who did not see friends and family last year. Excluding items, American expects to report a net loss of between $620 million and $675 million in the third quarter. Analysts on average had expected the company to report a loss of $741.7 million. The U.S. airline expects third-quarter revenue to fall about 25% from 2019, compared with a prior outlook of down between 24% and 28%. The company’s shares rose nearly 1% in morning trade.
U.S. job openings fell in August, but remained significantly high amid labor shortages that are crimping employment growth. Job openings, a measure of labor demand, dropped 659,000 to 10.4 million on the last day of August, the Labor Department said in its monthly Job Openings and Labor Turnover Survey, or JOLTS report, on Tuesday. Hiring decreased 439,000 to 6.3 million.
With files from Reuters