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 Tuesday morning to you.
As oil goes, so does the market – at least that coupling is what we have seen recently. Today, oil is up, again, and all major North American markets appear set to open with gains.
This morning, futures are indicating a positive opening for all major North American markets. In the U.S., Dow futures are up 143 points or 0.8 per cent. S&P futures are up 16 points or 0.8 per cent, and Nasdaq futures are higher by 27 points or 0.6 per cent. In Canada, S&P/TSX 60 index futures are higher by 3 points.
Overseas in the Pacific Rim, it was a mixed trading session overnight. In Japan, the Nikkei 225 dropped 1.7 per cent. In Hong Kong, the Hang Seng fell 0.2 per cent. In China, the Shanghai composite edged lower by 0.3 per cent, while the Shenzhen composite rallied 1.1 per cent. The Korean KOSPI gained 0.3 per cent, while the Australian ASX 200 dropped 0.4 per cent.
Turning to major European markets, Monday's sell-off is being reversed. The German DAX and French CAC are both up over 2 per cent. In London, the FTSE is up 1.8 per cent. U.K. November Consumer Price Index (CPI) data was in-line with expectations, unchanged month-over month, and up 0.1 per cent year-over-year. Core CPI was in-line with forecasts at 1.2 per cent year-over-year.
In commodities, the price of West Texas Intermediate (WTI) oil futures are up 37 cents, or 1 per cent to $36.66 (U.S.). However, natural gas continues to slide lower, down 3 cents or 1.6 per cent to $1.86. Gold is down a dollar to $1,062.
In currency markets, the Canadian dollar is slightly higher this morning, back up over 73 cents to 73.06 relative to the U.S. dollar and at 66.34 cents relative to the Euro. The Euro continues to gain momentum and is at 1.1009 relative to the U.S. dollar.
Here's the bottom line. The price of oil has been a driving force for investor sentiment and equity market momentum, and the wild intra-day swings in the price of oil have heightened market volatility. On Monday, the price of WTI oil futures was around $35.50 (U.S.) around 11:30 a.m. (EST) but just over an hour later, spiked up by over a dollar to $36.70, and closed 2 per cent higher at $36.31. This oil price recovery gave U.S. equity markets a lift. Major U.S. markets rallied around half a per cent, the Dow climbed 0.6 per cent, the S&P was up 0.5 per cent and the Nasdaq advanced 0.4 per cent. However, the gains did not extend into Canada. The S&P/TSX index declined 0.7 per cent, on strong volumes, with only 21 per cent of the 242 stocks in the index closing in positive territory. The energy sector was the third worst performing sector declining 0.7 per cent with energy stocks such as Suncor falling 2 per cent. Investors seem to be steering clear of energy stocks.
Today, the spotlight has shifted from oil to the U.S. Federal Reserve with its rate decision and statement released Wednesday afternoon. The key focus will be commentary on future rate moves. Whatever the outcome, there could be further intra-day volatility in the markets in the near-term.
Now, here is a closer look at major markets, and corporate and economic news.
MARKET DATA
Futures
S&P 500 +0.8 per cent; Dow +0.8 per cent; Nasdaq: +0.6 per cent
Equities
Hong Kong's Hang Seng -0.17 per cent
Shanghai composite index -0.30 per cent
Japan's Nikkei -1.68 per cent
London's FTSE +1.85 per cent
Germany's DAX +2.40 per cent
France's CAC 40 +2.52 per cent
Commodities
WTI crude oil (Nymex Feb) +1.36 per cent at $38.11 (U.S.) a barrel
Gold (Comex Feb) -0.09 per cent at $1,062.40 (U.S.) an ounce
Copper (Comex Mar) -1.47 per cent at $2.08 (U.S.) a pound
Currencies
Canadian dollar +0.0014 at 73.02 cents (U.S.).
Bonds
U.S. 10-year Treasury yield 2.24 per cent, +0.02
ECONOMIC NEWS
(8:30 a.m. ET) Canadian October manufacturing sales down 1.1 per cent month-over month data. Prior month –1.5 per cent.
(8:30 a.m. ET) U.S. CPI month-over-month 0.0 per cent as expected. Year-over-year up 0.5 per cent, slightly above 0.4 per cent expected.
(8:30 a.m. ET) U.S. core CPI (excluding food and energy) month-over-month 0.2 per cent as expected. Year-over-year 2.0 per cent as expected
(8:30 a.m. ET) December Empire Manufacturing data – 4.59, ahead of expectations of –7. Prior month –10.7
(9 a.m. ET) November existing home sales increased 1.8 per cent month-over-month data, in-line with the prior month's increase. The Canadian Real Estate Association's Chief Economist, Gregory Klump indicated that, "Changes to mortgage regulations taking effect in mid-February next year appear aimed at cooling the Greater Vancouver and Greater Toronto housing markets,". He went on to say that, "Minimum down payments will be going up for homes that sell for more than half a million dollars, so larger more expensive housing markets will be affected most. Unfortunately, the regulatory changes will also cause unintended collateral damage to housing markets beyond Toronto and Vancouver, including places that are facing economic headwinds from the collapse in oil prices."
CORPORATE NEWS
Turquoise Hill Resources has lined up $4.4-billion (U.S.) of financing from Canada and several other countries to fund the restart of a major copper mining project in Mongolia. Financial backing for the Oyu Tolgoi underground project will come from a syndicate that includes Export Development Canada and Canadian Imperial Bank of Commerce.
Lumber Liquidators Holdings Inc., stung by allegations that it knowingly sold flooring with high levels of formaldehyde, jumped in early trading after short seller Whitney Tilson said he stopped betting against the company. Tilson, who spent months crusading against Lumber Liquidators, said he received information that leads him to believe senior management was probably unaware of the formaldehyde problems. The stock rose as much as 26 per cent to $17.65 in premarket trading.
Earnings include: FactSet Research Systems Inc.; Heico Corp.;
ANALYSTS' ACTIONS
Boyd Group Income Fund (BYD.un-TSX). RBC Capital Markets initiated coverage with a $72 price target and sector perform recommendation.
Canadian National Railway (CNR-TSX). The analyst at Raymond James lowered his target price on CNR to $84 from $87 but maintained his outperform recommendation. The analyst at RBC Capital Markets also reduced his target price to $82 from $92 and maintained his outperform recommendation.
TransCanada (TRP-TSX). J.P. Morgan initiated coverage with an overweight recommendation and $64 target price.
Quote of the day: "Hope is a risk that must be run." Georges Bernanos