Markets are struggling for direction as the final trading day of a volatile week gets underway.
In early trading, the Toronto Stock Exchange’s S&P/TSX composite index was down 11.12 points, or 0.05%, at 20,532.99.
But the S&P 500 and the Nasdaq opened higher on Friday after strong results from Apple Inc and as the latest reading of the Federal Reserve’s preferred gauge to measure inflation came in line with expectations.
The S&P 500 opened higher by 9.68 points, or 0.22%, at 4,336.19, while the Nasdaq Composite gained 83.93 points, or 0.63%, to 13,436.71 at the opening bell. The Dow Jones Industrial Average fell 25.54 points, or 0.07%, at the open to 34,135.24.
Stock futures in the predawn hours were heavily in the red, before making a recovery into the North American open.
This morning, the prospect of a series of interest rate hikes to tame inflation are clouding stellar results from the world’s largest company by market value, Apple Inc.
The iPhone maker gained nearly 3% after posting record sales for its flagship phones in the holiday quarter.
Wall Street’s main indexes are on course for their fourth straight weekly fall as traders and big banks raised their bets to nearly five rate hikes by December after the Federal Reserve hinted at a rate hike in March and warned of persistent inflation.
Geopolitical tensions between Russia and West over Ukraine also increased market volatility, with the Wall Street’s fear gauge last up 0.75 point at 31.24.
The benchmark S&P 500 narrowly avoided correction for the fourth time this week on Thursday. Small-caps have suffered the most, with the Russell 2000 index now down 20.8% from its record-closing peak of Nov. 8 and confirming a bear market.
The Toronto Stock Exchange’s S&P/TSX composite index ended 0.2% lower after a volatile session on Thursday, with major technology and gold mining stocks weighing the most.
Economist David Rosenberg suggests the lack of rallies with staying power this week points to more pain to come. “Here’s how you know when you’re in, or heading into, a bear market. Rallies get sold, and this is happening with regularity. Buy-the-dips has now died along with transitory. Every rally is getting sold. Full stop. And there is heightened volatility across all the asset classes — equities, credit and rates,” he said in his Breakfast With Dave note this morning.
The fourth-quarter earnings season has been mixed so far. Of the 145 companies in the S&P 500 that have reported earnings as of Thursday, 79.3% beat profit expectations, according to Refinitiv data. The TSX earnings season has just begun, but it’s off to a promising start, with 92% of the 13 TSX Composite members that have reported earnings so far exceeding analysts’ forecasts.
In Canadian corporate news this morning, Canadian Pacific Railway reported late Thursday that its profit fell by 33 per cent in the fourth quarter as costs rose owing to supply-chain snarls and the planned takeover of Kansas City Southern. At least a couple analysts raised their price targets this morning following the results.
Oil prices rose on Friday, heading towards a sixth consecutive weekly gain, as geopolitical tensions continue to raise supply concerns.
Brent crude futures were up 66 cents, or 0.7%, at $90 a barrel in morning trade, having hit $91.04 on Thursday for their highest since October 2014.
U.S. West Texas Intermediate crude futures rose 57 cents, or 0.7%, to $87.18. WTI also reached a seven-year high of $88.54 earlier in the session.
Both Brent and WTI are on track for what would be the longest run of weekly gains since October.
Supply scarcity has pushed the six-month market structure for Brent into steep backwardation of $6.56 a barrel, the widest since 2013. This means that current levels are higher than those in later months, which usually encourages traders to release oil from storage to sell it promptly.
Oil prices continue to receive support from concerns that the Ukraine crisis could disrupt energy markets. Russia has massed troops near Ukraine’s border but says it does not plan to invade.
Price gains have been pared by a resurgent U.S. dollar, which is on track for its biggest weekly rise in seven months on expectations of higher interest rates.
Meanwhile, gold was set for its worst week since late November, with its price falling to a six-week low on Friday, as the dollar rallied on an expected U.S. Federal Reserve rate hike in March.
Copper prices headed towards their biggest weekly decline since October on Friday as the prospect of central bank tightening reduced investor appetite for risky assets, hammering equities and boosting the dollar.
Currencies and bonds
The Canadian dollar is under pressure, down about one-third of a cent amid the continued slide in risk sentiment and narrowing US-Canada yield spreads. The spread between the Canadian and U.S. 2-year bonds has narrowed to around -5 basis points s this morning while the 5 year spread has moved above zero to stand at +5 basis points, Scotiabank forex analysts said in a note this week.
Many market players were positioned for the Bank of Canada to hike interest rates this week; when they failed to deliver, it Canadian rates eased more than corresponding moves in U.S. markets.
“Firm commodity prices—with crude heading for a sixth weekly gain—are providing a modest prop for the CAD but near term risks are tilting a bit lower for the currency amid soft risk appetite and a long wait for the March Bank of Canada decision,” the Scotia analysts said.
Other corporate news
Teck Resources Ltd. says its steelmaking coal sales fell below its already downward revised guidance for the fourth quarter as adverse weather in British Columbia continued to affect logistics.
Cineworld Group said on Friday Canada’s Cineplex Inc filed an appeal against its plea challenging an order the British cinema operator pay C$1.23 billion in damages to Cineplex for abandoning a planned takeover.
Chevron Corp on Friday reported a fourth quarter profit, which missed estimates by analysts on weaker than expected oil and gas production that outweighed gains from recovering prices. Its shares slid nearly 4% in pre-market trade. The first major oil company to report quarterly results posted adjusted earnings of $5.1 billion, or $2.65 a share. Analysts had forecast a $3.12 per share profit, Refinitiv showed, expecting a bigger boost from rebounding prices.
Caterpillar Inc topped Wall Street estimates with a fourth quarter revenue increase of more than 20 percent, but the heavy-equipment maker warned operating margins in the current quarter could be hit by higher production and labor costs. Shares of the world’s largest construction and mining equipment maker fell 2.4% in Friday’s premarket trading.
Visa added 4.5% after beating Wall Street’s quarterly estimates as more international travel and e-commerce drove an increase spending volumes.
Commission-free brokerage Robinhood Markets Inc dropped 13.2% after reporting a net loss, while storage hardware maker Western Digital fell 10.4% on downbeat revenue outlook.
Eli Lilly and Co said on Friday it expects the U.S. Food and Drug Administration to decline the approval of expanded use of its rheumatoid arthritis drug Olumiant as a treatment for adults with moderate-to-severe eczema.
The personal consumption expenditures (PCE) price index, a measure of prices that is closely tracked by the Federal Reserve, rose 5.8% last year, the sharpest increase since 1982, as brisk consumer spending collided with snarled supply chains to raise the costs of food, furniture, appliances and other goods. Excluding the volatile food and energy components, the PCE price index rose 0.5% after a similar gain in November.
The report Friday from the Commerce Department also said that consumer spending fell 0.6% in December. A wave of omicron cases discouraged many Americans from traveling, eating out or visiting theaters and other entertainment venues. At the same time, incomes rose 0.3% last month, providing fuel for future spending.
(10 a.m. ET) U.S. University of Michigan consumer sentiment for January. Estimate is 68.8, down from 70.6 in December.
Also: Ottawa’s budget balance for November.
With files from Reuters