Equities
U.S. stock futures were modestly higher early Friday as markets looked for direction with European markets edging higher after a weak start and Asian shares selling off, taking a cue from Wall Street’s previous session. In Canada, TSX futures were up with crude prices firmer and earnings continuing to set the tone.
“Stock markets are a mixed bag this morning in the wake of the sell-off in Asia overnight,” David Madden, market analyst with CMC Markets U.K., said. "The disappointing U.S. retail sales numbers yesterday rattled Asian investors as the announcement suggests the U.S. economy isn’t as strong as initially thought."
He said reports out of China showing January inflation cooled to 1.7 per cent from 1.9 per cent in December and producer prices slowing to 0.1 per cent from 0.9 per cent also point to falling demand in China “and that plays into the wider slowdown story.”
U.S.-China trade also continues to be a key issue for the markets. On Friday, two top U.S.negotiators were set to meet with Chinese President Xi Jinping, although no decision has been made on extending the March 1 deadline for a deal. U.S. Treasury Secretary Steven Mnuchin said in a tweet on Friday that he and U.S. Trade Representative Robert Lighthizer had “productive meetings” with China’s Vice Premier Liu He. The White House said Friday trade talks will continue in Washington next week.
On Bay Street, Air Canada reported a fourth-quarter loss of $231-million or 85 cents a share, compared with a profit of $8-million or 2 cents a year earlier. The most recent results were hit by higher fuel costs. Operating revenue rose to $4.25-billion from $3.82-billion.
Canopy Growth Corp., Canada’s biggest cannabis company, topped analysts’ forecasts as revenue surged. The company posted revenue of $83-million, up 256 per cent from the previous quarter. The company also reported net income of $74.8-million or 22 cents a share. U.S.-listed shares rose more than 6 per cent in premarket trading on the results.
Enbridge Inc., meanwhile, topped analysts’ profit forecasts, reporting adjusted earnings per share of 65 cents. Analysts had been looking for earnings closer to 62 cents a share in the latest quarter.
On Wall Street, Pepsico Inc. shares were weaker in premarket trading after the company forecast a surprise drop in full-year profit, hit by a stronger U.S. dollar and increased investments. The company said it expects adjusted profit per share to drop 3 per cent to US$5.50 in 2019. Analysts had been expecting an increase of about 3.5 per cent rise to US$5.86.
Shares of semiconductor company Applied Materials Inc. were also down in the premarket after the chip gear maker forecast second quarter profit and revenue below market forecasts, underscoring weakness in that sector. Applied Materials said it expects adjusted earnings between 62 US cents and 70 US cents per share and net sales in a range of US$3.33-billion to US$3.63-billion. Analysts on average had expected the company to earn 76 US cents per share on sales of US$3.66-billion, according to IBES data from Refinitiv.
Overseas, European markets edged higher after a weaker start to the final trading day of the week. The pan-European STOXX 600 began the day flat but was up 0.76 per cent as the session wore on. Britain’s FTSE 100 was up 0.44 per cent. Germany’s DAX rose 0.75 per cent. France’s CAC 40 gained 1.02 per cent.
In Asia, markets followed Wall Street’s Thursday session lower. The Shanghai Composite Index fell 1.37 per cent. Japan’s Nikkei lost 1.13 per cent. Hong Kong’s Hang Seng fell 1.87 per cent.
Commodities
Crude prices were higher early Friday with Brent touching its best level of the year above US$65. The day range on Brent so far is US$64.42 to US$65.10. The range on West Texas Intermediate US$54.24 to US$55.01.
In an early note, OANDA analyst Craig Erlam noted that both gold and oil prices have capitalized on a weaker U.S. dollar with crude "oil also seizing the opportunity to drive towards previous peaks and an area that could once again offer strong resistance."
“WTI crude is facing significant potential resistance around US$55, a break of which could be the catalyst for a substantial move higher,” he said.
He also noted that crude faces a “very mixed picture” on the fundamentals side with record U.S. output, slower global growth expectations and questions about Russia’s compliance with OPEC output cuts putting a ceiling on gains.
“The flipside of that though is the falling US oil rig numbers, commitment by OPEC+ to cut – which has been successful in the past – and Saudi Arabia’s commitment to go further and cut an extra 500,000 barrels,” Mr. Erlam said. “On top of that, risk appetite has been on the mend, which is supportive for prices. I guess we’ll see shortly which side the broader market is on.”
Gold prices, meanwhile, were higher with weak readings on U.S. retail sales and jobless claims dampening expectations that the Federal Reserve will hike rates this year. Spot gold rose 0.3 per cent to US$1,316.66 per ounce and looked set for a modest weekly gain. U.S. gold futures gained 0.5 per cent to US$1,319.90 an ounce.
“The weak retail sales data from the U.S. in the previous session falls in line with general expectations that the Fed will not be pushing through with their monetary tightening as hard as they were planning,” SP Angel analyst Sergey Raevskiy told Reuters.
Currencies and bonds
The Canadian dollar was modestly higher in early going as crude prices rose and the U.S. dollar recovered against world currencies. At last check, the loonie sat near the higher end of the day range of 75.12 US cents to 75.31 US cents. The Canadian dollar took a hit on Thursday after Statistics Canada reported a surprise drop in factory sale in December. Weak economic figures out of the United States also raised concerns about the health of the broader global economy.
Canadian economic reports due Friday were mostly second tier and are unlikely to offer direction for the dollar.
In other currencies, the U.S. dollar recovered after a falling Thursday on a surprise 1.2-per-cent decline in December retail sales. The U.S. dollar index was up 0.2 per cent at 97.1 by early Friday morning.
“Calling the next move in the dollar is pretty tough right now. The start of the year saw investors move into under-valued risk assets, but right now the mood is shifting towards one of secular stagnation,” Chris Turner, head of foreign exchange strategy at ING, told Reuters.
The euro, meanwhile, was down 0.2 per cent at US$1.277. The British pound was largely unchanged at US$1.28 following another defeat for British Prime Minister Theresa May’s Brexit plan on Thursday.
In bonds, the yield on the U.S. 10-year note was lower at 2.655 per cent. The yield on the 30-year note was also lower at 2.99 per cent.
Stocks set to see action
Aphria Inc.’s U.S.-listed shares jumped more than 7 per cent in premarket trading after the company said a special committee had concluded that its acquisition of Latin American assets was within acceptable range compared with similar deals by rivals.
Ontario’s Progressive Conservative government has rejected Hydro One’s plan to pay a new chief executive officer up to $2.775-million and says it will take “any and all action necessary” to cap the salary at $1.5-million, further embroiling the company in political conflict. In response to the government’s demand to slash executive pay at the power utility, the board of directors said Thursday that its plan would reduce the CEO’s pay level by nearly 60 per cent and cut directors’ compensation by 47 per cent, saving $5-million annually. The government had set a limit in December of $1.5-million for the CEO and reduced compensation for other board members.
Cineplex Inc. reported fourth-quarter earnings per share of 43 cents on revenue of $428.2-million. Analysts had been expecting earnings per share of 49 cents, according to Refinitiv IBES data.
U.S. tractor maker Deere & Co.’s first-quarter earnings on Friday missed Wall Street’s estimates, hurt by higher raw materials and logistics costs as well as by slowing trade between the United States and its partners, particularly China. For the quarter ended Jan. 28, the company reported an adjusted profit of US$1.54 per share, up 14 per cent from a year earlier, but below analyst estimates of US$1.76 per share, according to Refinitiv Eikon data.
Shares in French media conglomerate Vivendi rose on Friday to the top of the Paris stock market, after a strong set of group-level earnings and results at Vivendi’s UMG music arm. Vivendi shares climbed 7 per cent in early trading. Late on Thursday, Vivendi reported higher earnings, helped by growth at the UMG division. Vivendi also said Vincent Bollore, Vivendi’s number one investor, would be replaced by his son Cyrille in April on the company’s board. Vivendi’s core 2018 operating profit jumped about 25 per cent to 1.29 billion euros (US$1.5-billion), mainly on UMG’s strong performance.
The Globe reports the federal government is set to announce $40-million in funding to BlackBerry Ltd. in Ottawa Friday that will help boost its smart-vehicle software business.
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Economic news
Statistics Canada says foreign investors cut their holdings of Canadian securities by $19-billion in December, led by record divestment of bonds. Canadian investors, meanwhile, reduced their holdings of foreign securities by $425-million on sales of U.S. Treasury instruments.
The U.S. Labor Department said import prices fell 0.5 per cent in January alongside lower costs for petroleum products and a stronger U.S. dollar. The government department said the January decline followed an unrevised drop of 1 per cent a month earlier.
The Canadian Real Estate Association says national home sales rose 3.6 per cent in January from December. Year-over-year activity was down 4 per cent. The national average sale price fell by 5.5 per cent year-over-year in January.
(9:15 a.m. ET) U.S. industrial production for January. Consensus is a rise of 0.1 per cent from December.
(10 a.m. ET) U.S. University of Michigan Consumer Sentiment for February. The Street expects a reading of 94.0, up from 91.2 in January.
With Reuters and The Canadian Press
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Terry Weber