U.S. markets traded lower Thursday morning with a disappointing economic numbers and weakness in healthcare stocks weighing on sentiment. On Bay Street, the TSX Composite Index was also in the red as gold prices slid and crude prices pulled back from recent highs.
Just before 11 a.m. ET, the Toronto Stock Exchange’s S&P/TSX Composite Index was down 36.57 points, or 0.23 per cent, at 15,994.67.
On Wall Street, the Dow Jones Industrial Average fell 91.76 points, or 0.35 per cent to 25,862.68. The S&P 500 was lower by 12.16 points, or 0.44 per cent, at 2,772.54. The Nasdaq Composite dropped 50.14 points, or 0.67 per cent, to 7,438.93.
The declines followed a disappointing report from the U.S. Commerce Department showing durable goods orders rose 1.2 per cent, below the 1.7-per-cent increase the market had been expecting. The report also showed a surprise decline in new orders for key U.S.-made capital goods, suggesting slower business spending. Weakness in healthcare shares led by Johnson & Johnson - which received subpoenas related to litigation over its Baby Powder product line - hit sentiment in early trading.
“It would appear that concern over weaker than expected U.S. durable goods numbers for December, and a weak Philadelphia Fed survey for February, is prompting concerns that the weakness that we’ve been seeing in global manufacturing appears to be now manifesting itself in the latest U.S manufacturing numbers,” Michael Hewson, analyst with CMC Markets U.K., said. “Another area of concern is the U.S. housing market with existing home sales hitting a three year low in January.”
Ahead of the figures, the markets had been focusing on reports suggesting the United States and China have started to draft out memorandums of understanding on some key issues in the trade dispute.
Markets also drew some early support from the minutes of the Federal Reserve’s latest meeting, which suggest the powerful central bank will remain patient in its approach to tightening monetary policy. The Fed also noted, however, that the U.S. economy and job markets remain strong, leading some analysts to believe that the bank could deliver one rate hike later this year.
“There was something for everyone in the January Fed minutes,” Jasper Lawler, head of research for London Capital Group, said. "The minutes showed that the Fed were comfortable adopting the more patient approach to hikes. The Fed saw no problems arising by keeping rates on hold in the face of headwinds such as trade tensions and slowing global growth."
That, he said, is unlike previous meetings where the Fed has considered it “potentially dangerous to sit on their hands.”
On trade, reports early Thursday said negotiators are drawing up six memorandums of understanding on structural issues including forced technology transfer and cyber theft, intellectual property rights, agriculture and currency, according to Reuters. High level talks are scheduled to resume in Washington today. Both sides face a March 1 deadline when the U.S. is set to raise tariffs on Chinese imports, although U.S. President Donald Trump has also suggested that date could shift depending on how talks progress.
On Bay Street, traders will be watching a midday speech by Bank of Canada Governor Stephen Poloz. Mr. Poloz is set to speak in Montreal around 1 p.m. on the topic of monetary policy. The remarks will be followed by a news conference.
In corporate news, grocery giant Loblaw Cos. Ltd. reported its latest results ahead of the start of trading. The company reported adjusted earnings per share of $1.07, exceeding market forecasts of $1.04 a share. Net profit rose to $221-million or 59 cents, from $31-million or 8 cents a year earlier. Revenue rose to $11.22-billion, from $10.99-billion. Shares were down about 4 per cent in early trading as the grocer continues to face stiff competition in the sector.
Hydro One Ltd. reported adjusted earnings per share of 30 cents. The Street had been looking for earnings by that measure of 29 cents. Revenue rose to $11.22-billion from $10.99-billion. Alongside the earnings, the Ontario government announced it would impose a compensation plan on Hydro One, ensuring its chief executive earns no more than $1.5-million. Hydro One shares were modestly lower in early trading in Toronto.
Overseas, European markets were mixed in morning with disappointing corporate results weighing. The pan-European STOXX 600 was down 0.48 per cent by afternoon local time. Britain’s FTSE 100 was down 1.11 per cent. Germany’s DAX was little changed. France’s CAC 40 slid 0.19 per cent.
In Asia, the Shanghai Composite Index ended down 0.34 per cent after a choppy session. Hong Kong’s Hang Seng was up 0.41 per cent. In Japan, the Nikkei edged up 0.15 per cent. The broader Topix finished mostly unchanged.
Oil prices continued to hover near their highest levels of the year early on, supported by production cuts by OPEC and its allies and U.S. sanctions on Venezuela and Iran. Both Brent and West Texas Intermediate put in a choppy overnight period. Brent has a range for the day of US$66.73 to US$67.31. West Texas Intermediate has a range of $56.96 to US$57.61.
“The main factor keeping oil prices from rising even further is soaring U.S output, which rose by more than +2 million barrels per day last year to a record +11.9 million barrels per day,” OANDA analyst Dean Popplewell said. “The increase in production has resulted in rising U.S oil inventories.”
Figures released Wednesday by the American Petroleum Institute showed crude stocks rose by 1.3 million barrels to 448.5 million barrels last week. “Expect traders to take direction from this morning’s production data report which is due from the U.S Energy Information Administration (EIA) at 11.00 am ET,” Mr. Popplewell said.
In other commodities, gold prices pulled back from their best levels in 10 months. Mr. Popplewell said the move came as the U.S. dollar gained after “some support on rate hawks optimism that the Fed has another rate hike on their agenda this year.”
Spot gold fell 0.2 per cent to US$1,335.66 per ounce, having hit US$1,346.73 the previous session, its highest level since April 19. U.S. gold futures slipped 0.7 per cent to US$1,338.
Meanwhile, palladium fell 0.8 per cent to US$1,476.64 per ounce, after metal broke through the US$1,500 mark on Wednesday.
“Palladium touched $1,500 and that has attracted some profit taking in the short term, but the overall fundamental outlook remains the same,” Saxo Bank analyst Ole Hansen told Reuters.
Currencies and bonds
The Canadian dollar was steady ahead of Thursday’s remarks by Mr. Poloz as the greenback advanced against a group of world currencies on renewed expectations that there could be an interest rate hike this year.
The day range on the loonie is 75.72 US cents to 75.97 US cents. On Wednesday, the Canadian dollar touched its best level in two weeks, helped by rallying oil prices and renewed optimism over trade talks between the United States and China.
For the Canadian dollar, the day’s key event remains Mr. Poloz’s midday speech and subsequent press conference.
“He is expected to confirm the main message from the Jan. 9 policy statement that interest rates ‘will need to rise over time into a neutral range.’” Bank of Montreal economist Sal Guatieri said in a note. “Still, he should stress that the ‘appropriate pace will depend on how the outlook evolves’, which hinges largely on oil prices, the housing market and trade policies.”
Since the last policy statement, Mr. Guatieri said, U.S. crude prices have risen about 8 per cent while Canadian prices have held above $40. As well, the Canadian housing market has shown more signs of stability outside of Vancouver and the oil-producing regions.
“However, it’s unlikely that the more positive developments have moved the dial on bank policy, especially with the economy braking hard late last year,” he said. "More recently, the governor said there is “no preset course for rates” and “it’s all about the data”, stressing patience. He is unlikely to signal an imminent rate hike until there is more clarity on key concerns."
A surprise rise in December wholesale sales also helped underpin the loonie. Statistics Canada said sales for the month rose 0.3 per cent, exceeding market forecasts.
In world currencies, meanwhile, the U.S. dollar index gained on the Fed minutes, advancing 0.11 per cent to 96.559. The index weighs the U.S. dollar against a basket of global currencies.
Elsewhere, Mr. Cole noted that the Australian dollar sank overnight on forecasts that the country’s central bank would cut rates twice this year. The Australian currency was also hit by reports that the Chinese port of Dalian had banned imports of Australian coal, he said.
The Aussie fell 1 per cent to 70.86 US cents in Asian trading before regaining some of those losses. On the day, the Australian dollar was down 0.7 per cent against the greenback.
In bonds, U.S. government debt prices were lower with the yield on the 10-year note higher at 2.67 per cent. The yield on the 30-year note was also higher at 3.014 per cent.
Stocks set to see action
Johnson & Johnson said it has received subpoenas from the U.S. Justice Department and the Securities and Exchange Commission (SEC) related to litigation involving alleged asbestos contamination in its signature Baby Powder product line. The company said it intends to “cooperate fully with these inquiries and will continue to defend the Company in the talc-related litigation.” The disclosure in Johnson & Johnson’s annual report on Wednesday is the first time that the company disclosed it had received subpoenas from federal agencies regarding its talc powder products. Shares fell 1 per cent in early trading.
The money-laundering scandal at Danske Bank deepened on Thursday as the Danish lender said it had received an inquiry from the U.S. Securities and Exchange Commission (SEC). Danske is already under investigation in several other countries and the threat of hefty fines has sent its shares plunging almost 50 per cent since March last year. The SEC is now also carrying out inquiries, adding to an ongoing criminal investigation by the U.S. Department of Justice (DoJ) in relation to the case of possible money laundering at Danske Bank’s Estomia branch. The announcement sent its shares down 4.3 per cent.
The biggest threat to Volkswagen’s 2019 profit is potential tariffs from the United States, Chief Executive Herbert Diess told the Financial Times. “It’s becoming tense once again,” Diess told the FT. “You know it’s a pity because we can’t solve it from the car industry [alone]. It’s more of a tariffs negotiation between Europe and the United States.” Analysts at London-based Evercore ISI said tariffs could cost Volkswagen 2.5 billion euros ($2.8-billion) a year, about 13 percent of expected earnings.
Burger chain Wendy’s missed Wall Street forecasts for same-restaurant sales in the fourth quarter, as it struggled to lure diners in a crowded U.S. fast-food market. Wendy’s said sales at outlets open at least 15 months rose just 0.2 per cent in the three months ended December, even as the Dublin, Ohio-based chain rolled out a series of new items like the premium S’Awesome burger and the US$5 junior bacon cheeseburger meal. Analysts on average had estimated same-restaurant sales to rise 0.74 per cent, according to IBES data by Refinitiv. The stock was modestly lower.
Domino’s Pizza Inc reported a smaller-than-expected rise in quarterly same-store sales in the United States and internationally, as it battled competition from rival pizza chains and food delivery companies. Same-store sales at Domino’s company-owned U.S. outlets rose 3.6 per cent, the slowest pace in at least four years, while franchises posted 5.7 per cent growth in the fourth quarter, both well below Wall Street expectations. Analysts on average had expected same-store sales to rise 6.60 per cent at company-owned U.S. stores and 7.25 per cent at franchise stores, according to IBES data from Refinitiv. Net income rose to US$111.6 million, or US$2.62 per share, in the fourth quarter ended Dec. 30, from US$93.3 million or $2.09 per share, a year earlier, but also missed Wall Street forecast of earnings of US$2.69. Shares sank 8 per cent in morning trading.
U.S. gold miner Newmont Mining Corp beat analysts’ estimates for quarterly profit, boosted by higher gold production in its Colorado and Ghana mines and lower costs. The company is set to overtake Barrick Gold Corp as the world’s largest gold producer following its acquisition of rival Goldcorp Inc, which is expected to close in the second quarter. The company’s net income attributable to shareholders was US$2 million in the fourth quarter ended Dec. 31, compared with a loss of US$542-million a year earlier. Excluding one-time items, Newmont earned 40 US cents per share, beating the average analyst estimate of 25 US cents, according to IBES data from Refinitiv.
Shares of Nike Inc fell about 1 per cent, a day after a sneaker worn by emerging basketball star Zion Williamson split in half 33 seconds into a hotly anticipated game between Duke University and North Carolina. The freshman center, who plays for the Duke Blue Devils, suffered a mild sprain to his right knee, according to his coach Mike Krzyzewski.
Canadian wholesale sales rose 0.3 per cent to $63.1-billion in December following a 1.1 per cent decline in November, Statistics Canada said. Economists had been expecting a decline of about 0.2 per cent. Sales were up in four of seven subsectors, representing about 64 per cent of total sales.
U.S. durable goods orders rose 1.2 per cent in December. Economists had been forecasting an increase closer to 1.7 per cent.
Initial claims for U.S. unemployment benefits fell to 216,000 last week, down 23,000.
U.S. home sales fell 1.2 per cent in January to their worst pace in more than three years, according to The Associated Press. The National Association of Realtors said sales of existing homes declined 1.2 per cent to a seasonally adjusted annual rate of 4.94 million last month, the slowest sales rate since November 2015.
Bank of Canada Governor Stephen Poloz speaks to the Montreal Chamber of Commerce.
With Reuters and The Canadian Press
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