U.S. stock futures pointed to a slight pullback Thursday after dovish remarks from U.S. Federal Reserve chair Jerome Powell triggered a broad rally on Wall Street during the previous session. Dow, S&P and Nasdaq futures were all in the red ahead of the North American open. On Wednesday, the Dow jumped more than 600 points to see its biggest single-day gain in eight months. On Bay Street, futures were weaker with West Texas Intermediate struggling to hold above US$50 a barrel after U.S. crude inventories posted their tenth straight weekly increase.
Overnight, shares in Asia were mixed to higher while major European markets were trading in positive territory in early going.
“Markets are trading on a more upbeat note after yesterday’s rally, although U.S. futures are slightly in the red on the back of some early profit taking,” OANDA analyst Craig Erlam said.
"There remains a number of very real risk for the markets heading into the end of the year - be it trade wars, higher interest rates, Brexit or Italy, just to name some - but yesterday’s rally will be very encouraging to investors. Stock markets will continue to be vulnerable to negative shocks in the near future but as we head into December, the so-called Santa rally may well be on the cards."
On Wednesday, Mr. Powell said the Fed’s policy rate is now “just below” neutral, fuelling market gains on expectations that the central bank’s three-year tightening cycle is nearing an end. A month earlier, Mr. Powell had said interest rates were likely still a “long way” from neutral. The head of the central bank has also recently been the subject of sharp criticism from U.S. President Donald Trump, who recently said he was “not even a little bit happy” with Mr. Powell.
On Bay Street, bank earnings continue with results from Canadian Imperial Bank of Commerce and Toronto-Dominion Bank. CIBC reported net profit of $1.27-billion, or $2.80 a share in the fourth quarter, up from $1.16-billion or $2.59 a year earlier. On an adjusted basis, earnings per share in the latest quarter totalled $3, just below the $3.04 analysts had been forecasting.
TD Bank, meanwhile, posted a 20-per-cent increase in fourth-quarter earnings, edging past analysts’ expectations. TD said earnings per share, excluding one-off items, rose to $1.63 in the quarter, compared with $1.36 a year ago. Analysts had, on average, forecast earnings of $1.62, according to IBES data from Refinitiv.
Mining stocks could also get a bit of attention as gold prices rose overnight as the U.S. dollar weakened on Mr. Powell’s latest remarks. Spot gold rose 0.4 per cent in early trading.
“Now that the language from the Fed chief Jerome Powell is less hawkish, the metal might find it easier to attract new buyers,” CMC Markets analyst David Madden said in an early note.
Overseas, markets in Europe got off to a positive start with the pan-European STOXX 600 rising 0.37 per cent. Britain’s FTSE 100 was up 0.71 per cent. Germany’s DAX rose 0.31 per cent and France’s CAC 40 gained 0.65 per cent. In individual stocks, shares of Deutsche Bank were down about 3 per cent in Europe after German authorities searched its Frankfurt headquarters and other offices on suspicion bank employees had helped clients set up offshore accounts to launder money.
In Asia, markets were mostly higher although some momentum faded as the session neared its close. The Shanghai Composite Index gave up early gains to finish down 1.32 per cent. Hong Kong’s Hang Seng also saw early gains give way to losses, closing down 0.87 per cent. Elsewhere in Asia, Japan’s Nikkei rose 0.39 per cent while the broader Topix added 0.35 per cent. Markets in South Korea and Australia also posted gains for the day.
Commodities
Crude prices continued to struggle in early going with West Texas Intermediate dropping below US$50 a barrel for the first time in more than a year. The day range on WTI so far is US$49.41 to US$51.04. Brent crude prices were also weaker heading into the North American open and had a range of US$57.50 to US$59.51. Prices are now down 23 per cent for the month so far. Reuters reports that crude is now on track for the biggest one-month decline since the depths of the 2008 financial crisis.
Markets, already concerned with oversupply, were hit again with U.S. inventory figures showing stocks saw their 10th straight week of increases last week to hit their highest level in a year. U.S. inventories are now just 80 million barrels below the March 2017 record of 535 million barrels.
“Oil’s slump under US$50 will capture many headlines, and given that the commodity usually leads GDP by about a year and a half, we should be preparing ourselves for some tougher times ahead.” Chris Beauchamp, chief market analyst at IG, said. “Last time oil sold off heavily we still had an accommodative Fed and an ECB engaging in QE (quantitative easing); this time, unfortunately, is different.”
Markets are looking ahead to the Dec. 6 meeting OPEC and its allies with hopes that they will cut production by as much as 1.4 million barrels a day. On Wednesday, Russian President Vladimir Putin said on Wednesday he was in touch with OPEC and ready to continue cooperation on supply if necessary, but he was satisfied with an oil price of US$60. (Suggestions that Russia was leaning toward backing a production cut helped firm crude prices somewhat as the North American opening bell approached.)
In other commodities, gold prices advanced as the U.S. dollar weakened overnight on Fed suggestions that interest rates are close to neutral. Spot gold was up 0.3 per cent at US$1,224.86 per ounce at in morning trading in Europe. U.S. gold futures were steady at US$1,224.1 per ounce.
“Ahead of the U.S open, gold prices have firmed overnight as the ‘big’ dollar falters after Fed Chair Powell comments,” OANDA analyst Dean Popplewell said.
Spot silver was down 0.2 per cent to US$14.29 per ounce. Platinum rose 0.2 per cent to US$823 per ounce after falling to a seven-week low of $809.50 on Wednesday.
Currencies and bonds
The Canadian dollar recovered some of its early losses even as crude prices struggled and a weaker U.S. dollar regained some of its footing after dropping overnight against its world counterparts. The day range on the loonie so far is 75.12 US cents to 75.45 US cents. The dollar languished in the lower end of that spread in the predawn hours but found its footing closer to the open as reports that Russia is leaning toward backing OPEC production cuts lent some support to oil prices.
The U.S. dollar index was last trading at 96.97, up 0.97. Earlier the index hit its lowest level in a week as markets reacted to the Mr. Powell’s comments.
“Broad-based USD weakness has continued overnight following the knee-jerk reaction to Fed Chair Powell’s comments late yesterday and further declines in US yields.” RBC chief currency strategist Adam Cole said.
“However, we agree with our economists’ assessment that markets are overinterpreting Powell’s reference to rates being ‘just below the neutral range’ and that they underprice the risk of policy normalization next year (barely more than one hike after the December move discounted).”
For the loonie, the markets are now awaiting third-quarter GDP figures to be released early Friday morning. Analysts are expecting GDP to grow at an annual rate of about 2 per cent, down from 2.9 per cent in the second quarter.
In bonds, the yield on the U.S. 10-year note was lower at 3.021 per cent. The yield on the 30-year note was also lower at 3.31 per cent.
Stocks set to see action
Apparel retailer Abercrombie & Fitch Co shot up more than 18 per cent in premarket trading after the retailer topped quarterly same-store sales estimates, driven by higher sales at its Hollister and flagship stores. The company said sales at established stores rose 3 per cent in the third quarter ended Nov. 3. Analysts on average had expected a 1.6 per cent increase, according to IBES data from Refinitiv. Net income attributable to Abercrombie rose to US$23.9-million, or 35 US cents per share, from US$10.1-million, or 15 US cents per share, a year earlier.
Dollar Tree Inc. shares fell nearly 6 per cent in premarket trading after the discount store operator missed analysts’ estimates for quarterly same-store sales, hit by weak sales at its Family Dollar business and name-sake brand as a strong economy encouraged customers to upgrade and make their purchases at more premium stores. Sales at stores open for at least a year rose 1 per cent, compared to analysts’ expectations of a 1.46-per-cent increase, according to IBES data from Refinitiv. Net income rose to US$281.8-million, or US$1.18 per share, in the third quarter ended Nov. 3, from US$239.9-million, or US$1.01 per share, a year earlier.
Calgary-based Bonterra Energy Corp. is slashing its monthly dividend to a penny per share due to the drop in oil prices. The energy company says the new rate will apply to its November dividend, which is payable on Dec. 31. Bonterra had been paying a monthly dividend of 10 cents per share.
Netflix Canada is raising prices. Netflix’s standard plan will now cost $3 more — or $13.99 a month — to watch content on two screens at a time, according to The Canadian Press. The basic plan — which does not offer high-definition video and only allows one stream — rises a dollar to $9.99 a month. Premium plan subscribers will pay $3 more — or $16.99 a month — for up to four simultaneous streams and ultra high definition 4K video. Netflix says the changes will take effect immediately for new subscribers, while its existing members will see their bills go higher in the coming weeks.
Unilever Chief Executive Paul Polman is retiring less than two months after a damaging row with shareholders and will be succeeded in January by Alan Jope, the head of the Anglo-Dutch group’s beauty business. Mr. Polman’s exit comes after the company was forced to scrap a plan to move the consumer goods group’s headquarters to the Netherlands in October, following an investor revolt.
Around 170 police officers, prosecutors and tax inspectors searched six Deutsche Bank offices in and around Frankfurt on Thursday over money laundering allegations, the Frankfurt public prosecutor’s office said in a statement. Investigators are looking into the activities of two Deutsche Bank staff members who are alleged to have helped clients set up off-shore firms to launder money, the prosecutor’s office said. Written and electronic business documents were seized from Deutsche Bank and further investigations are ongoing, the prosecutor’s office also said. Deutsche Bank confirmed the search of its offices and said it was fully cooperating with the authorities. Deutsche Bank shares were down about 3 per cent in Europe.
The Globe’s Susan Krashinsky Robertson reports Tim Hortons is making the biggest investment in brand-image marketing since Brazilian private-equity firm 3G Capital bought control in 2014, as it attempts to move past months of negative headlines stemming from a dispute with franchisees. The advertising, which launches online on Thursday and on television next week, will double the Toronto-based coffee chain’s spend on brand building, with at least five ads launching over the next year. Tim Hortons is owned by Restaurant Brands International.
Germany’s antitrust authority has launched an investigation into whether U.S. e-commerce giant Amazon is exploiting its market dominance in its relations with third-party retailers who use its website as a marketplace. The Federal Cartel Office said in a statement on Thursday that it had received many complaints from traders about the business practices of Amazon of late. “Amazon acts as a kind of ‘gatekeeper’ to customers. The double role as biggest trader and biggest marketplace means there is a potential to impede other traders on the platform,” said cartel office President Andreas Mundt.
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Thursday’s small-cap stocks to watch
Economic news
Statistics Canada says the country’s current account deficit fell by $6.3-billion in the third quarter to $10.3-billion. That’s the lowest level since late 2016, the agency said.
U.S. weekly jobless claims totaled 234,000 last week, higher than the 220,000 economists had been forecasting.
The U.S. Commerce Department says consumer spending rose 0.6 per cent last month as households spent more on prescription medication and utilities. Data for September was revised down to show spending rising 0.2 per cent instead of the previously reported 0.4-per-cent increase.
(10 a.m. ET) U.S. pending home sales for October. Consensus is an increase of 0.9 per cent from the previous month.
(2 p.m. ET) U.S. Fed minutes from Nov. 7-8 meeting are released.
With Reuters and The Canadian Press
Terry Weber