Jennifer Dowty
Jennifer Dowty, Chartered Financial Analyst, writes exclusively for Globe Unlimited subscribers. The Before the Bell report is updated throughout the premarket to reflect latest developments.
Good Monday morning to you.
We are just eight days away from an interest rate decision from the U.S. Federal Reserve - and that is the focus for investors. Given last Friday's strong U.S. employment data, Fed fund futures are now pricing in a 76 per cent probability of rate hike. Fed members have clearly articulated their desire to normalize rates. Investors appreciate this clarity and the strengthening U.S. economic conditions, and this is fuelling markets higher. Market momentum, while off to a rocky start in December, may steadily inch higher on what is historically a strong month for equity markets.
Today, North American futures are indicating modest changes at the opening bell. All major U.S. equity markets are indicating an opening of less than 0.25 per cent. Dow futures are up 25 points, or 0.1 per cent. S&P 500 futures are higher by 4 points, or 0.2 per cent. Nasdaq futures are up 11 points, or 0.2 per cent. In Canada, S&P/TSX 60 index futures are relatively unchanged.
Turning to the Pacific Rim, Japan's Nikkei 225 gained 1 per cent, and in China, the Shanghai composite and Shenzhen composite rallied 0.4 per cent and 1.3 per cent, respectively. Tonight, several important economic data points will be released. Chinese trade data - November import and export figures - will be reported. Last month, October trade figures fell short of expectations and raised concerns over the health of China's economy. In addition, third-quarter gross domestic product (GDP) figures from Japan will be reported overnight.
Overseas in Europe, markets are sharply higher. In Germany, October industrial production recovered from the prior month, coming in at 0.2 per cent, month-over-month, compared to a decline of 1.1 per cent in the prior month. The German DAX is rallying nearly 2 per cent. In France, the CAC is higher by 1.6 per cent, and the London FTSE is trailing with a gain of 0.4 per cent.
Turning to commodities, downward pressure remains in full force on the prices of oil and gas. On Friday, the Organization of the Petroleum Exporting Countries (OPEC) did not signal a reduction in production would be on the horizon and appears ready to maintain low prices in order to defend market share. This morning, West Texas Intermediate oil futures are down 70 cents (U.S.) or 1.8 per cent to $39.27. Natural gas futures are down 6 cents or 2.8 per cent to $2.13 with high inventory levels and persistent warm weather in the U.S. northeast, a high consumption region. Temperatures in New York City are expected to be in the mid-teens this upcoming weekend, well above historical norms.
The Canadian dollar, considered to be a petrocurrency, is facing pressure as a result, and is down nearly a half a cent to 74.45 cents relative to one U.S. dollar. The loonie is at 68.78 cents to each Euro. Meanwhile, the Euro is down half a cent to 1.0822 relative to the U.S. dollar.
Here is the bottom line: The framework has been set for a rate hike announcement from the U.S. Federal Reserve on Dec.16. This is likely to strengthen the U.S. dollar, limit the appreciation of commodities denominated in U.S. dollars, and provide resiliency to equity markets, at least in the near-term. I expect U.S. markets to continue to outperform Canadian equity markets due to the TSX index's heavy weighting in resources. Speaking of resources, the downside for the price of oil is likely limited from current levels. There is solid support around $38, near its August lows. However, I would expect to see further downward pressure in the price of gold. Tonight, watch for Chinese trade data and Japan's third-quarter GDP.
Now, here's a closer look at major markets, and corporate and economic news.
MARKET DATA:
Futures
S&P 500 +0.3 per cent; Dow +0.2 per cent; Nasdaq: +0.3 per cent
Equities
Hong Kong's Hang Seng -0.15 per cent
Shanghai composite index +0.34 per cent
Japan's Nikkei +0.99 per cent
London's FTSE +0.51 per cent
Germany's DAX +2.09 per cent
France's CAC 40 +1.83 per cent
Commodities
WTI crude oil (Nymex Jan) -1.73 per cent at $39.28 (U.S.) a barrel
Gold (Comex Feb) -0.22 per cent at $1,081.70 (U.S.) an ounce
Copper (Comex Mar) -0.26 per cent at $2.07 (U.S.) a pound
Currencies
Canadian dollar -0.0047 at 74.33 cents (U.S.).
Bonds
U.S. 10-year Treasury yield 2.26 per cent, -0.0035
ECONOMIC NEWS
No major reports planned.
CORPORATE NEWS
Keurig Green Mountain Inc, the maker of K-Cup single-serve coffee pods, said it would be bought by an investor group led by Germany's JAB Holding Co (JAB) for about $13.9 billion (U.S.). The $92.00 per share cash offer represents a 78 percent premium to Keurig's Friday close.
Chipotle Mexican Grill shares fell 9 per cent in premarket trading, after the popular burrito chain warned that sales at established restaurants would fall in the fourth quarter due to the impact of an E. coli outbreak.
Alcoa was up 2 per cent in premarket trading after a Barron's article said the company's split could boost shares by 50 per cent.
Oil producer Devon Energy Corp said it will buy some assets in the Anadarko Basin from smaller peer Felix Energy LLC for $1.9 billion, the latest deal in the U.S. oil patch amid a global crude price rout.
Philip Morris International Inc. declined 4.7 per cent in early New York trading after a report that a senator submitted a bill to Russia's lower house of parliament to raise the smoking age to 21.
General Electric pulled the $3.3 billion sale of its home appliances unit to Electrolux on Monday after the Justice Department claimed the transaction would make the Swedish appliance-maker overly dominant in the U.S. cooker market. Electrolux tumbled as much as 17 per cent, the most in four years.
Earnings include: H & R Block Inc.; Integrated Asset Management Corp.; Merus Labs International Inc.; Orvana Minerals Corp.; Starcore International Mines Ltd.; United Natural Foods Inc.; Vail Resorts Inc.
ANALYSTS' ACTIONS
Bankers Petroleum (BNK-TSX). The analyst at TD Securities changed his recommendation to a "speculative buy" from a "buy" and lowered his price target to $3.25 from $4.75.
North West Company (NWC –TSX). The analyst at Industrial Alliance Securities increased his recommendation to a "buy" from a "hold", but maintained his price target at $28. The company will be announcing third-quarter fiscal 2016 results on Dec. 10.
Sherritt International (S-TSX). The analyst at RBC Capital Markets reduced his recommendation to a "sector perform" from an "outperform", and lowered his price target to $1 from $1.75.
Thompson Creek Metals (TCM –TSX). The analyst at RBC Capital Markets downgraded his recommendation to "underperform" from "sector perform" and lowered his price target to $0.30 from $0.80
QUOTE OF THE DAY
"It matters more how one gives than what one gives." - Pierre Corneille