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 Wednesday morning to you.
It's Fed day. At 2 p.m. (ET), the first rate hike by the U.S. Federal Reserve in nearly a decade is widely expected to be announced, removing an overhang from the market. What will be of interest to investors is the tone of the statement for indications about the pace of future rate hikes. It is largely expected that Fed Chair, Janet Yellen, will take a conservative approach, offering up a dovish statement, stating that future rate hikes will be data dependent. This may give way to a Santa Clause rally for equity markets.
Ahead of the meeting, futures are in the green, with equity markets expected to open higher. In the U.S., Dow futures are up 102 points or 0.6 per cent, S&P 500 futures are higher by 11 points or 0.5 per cent, and Nasdaq futures are up 28 points or 0.6 per cent. In Canada, the S&P/TSX 60 index futures are higher by 5 points.
Overseas in the Pacific Rim, markets followed North American markets lead and rebounded sharply. In Japan, the Nikkei 225 advanced 2.6 per cent. In Hong Kong, the Hang Seng rallied 2 per cent. The Korean KOSPI jumped 1.9 per cent and the Australian ASX 200 gained 2.4 per cent. In China, more moderate gains were experienced with the Shanghai composite and Shenzhen composite higher by 0.2 per cent and 0.7 per cent, respectively. Tonight, Japanese trade data for November will be released. Last month, exports fell for the first time in 14 months by 13.4 per cent, with reduced exports to China as its economy's growth slows.
In European markets, economic data was relatively in-line or slightly positive, which is helping give a lift to equity markets along with investors anticipation of a U.S. rate hike. In Germany, December manufacturing purchasing managers' index (PMI) ticked up to 53, a four month high, from the prior reading of 52.9. Services PMI was 55.4 compared to the previous reading of 55.6. In France, December manufacturing PMI was 51.6, surpassing the consensus forecast and prior reading of 50.6. However, December services PMI was softer-than-expected at 50, compared to expectations of 50.8 and the previous reading of 51. Euro zone manufacturing PMI was 53 in December, climbed to a 20-month high, surpassing the consensus estimate and prior month's level of 52.8. Euro zone services PMI declined slightly to 53.9 from 54.2 in November. The German DAX is up 0.7 per cent. In France, the CAC 40 is up 0.8 per cent, and in the U.K., the FTSE is higher by 0.9 per cent.
Turning to commodities, it could be another volatile day with weekly oil inventory data released by the U.S. Energy Information Administration at 10:30 a.m. (ET), and the 2 p.m. (ET) Fed rate announcement. The price of West Texas Intermediate oil futures are down 15 cents to $37.20. The fall in the price of natural gas futures continues, drifting lower by 1.6 per cent to $1.79, with unusually warm winter weather and high storage levels providing no support. Gold is steady at $1,062.60, up a dollar.
The Canadian dollar continues its slide and is down to 72.63 cents relative to the U.S. dollar, and at 66.5 cents relative to the euro. The euro is stable at 1.0921 relative to the U.S. dollar.
Here's the bottom line. U.S. markets have been spinning their wheels, zigging higher one day and zagging lower another day. Volatility has been high but conviction has been low. It has been a great year for traders but a challenging time for long-term investors. Year-to-date, U.S. equity markets are relatively unchanged. The Dow Jones Industrial Average is down 2 per cent, and the S&P 500 is down 1 per cent. Last week, the S&P 500 fell 3.8 per cent, experiencing its worst week since August, and the TSX index fell 4.3 per cent with the price of oil plunging 11 per cent. This week, we may be in for a rally with the markets zigging to the upside. Watch for the Fed's statement to set the stage for the markets' next moves.
Now, here is a look at major markets, and economic and company news.
MARKET DATA
Futures
S&P 500 +0.5 per cent; Dow +0.5 per cent; Nasdaq: +0.5 per cent
Equities
Hong Kong's Hang Seng +2.01 per cent
Shanghai composite index +0.16 per cent
Japan's Nikkei +2.61 per cent
London's FTSE +0.73 per cent
Germany's DAX +0.85 per cent
France's CAC 40 +0.73 per cent
Commodities
WTI crude oil (Nymex Jan) -0.40 per cent at $37.20 (U.S.) a barrel
Gold (Comex Feb) +0.07 per cent at $1,062.40 (U.S.) an ounce
Copper (Comex Mar) +0.22 per cent at $2.06 (U.S.) a pound
Currencies
Canadian dollar -0.0011 at 72.70 cents (U.S.).
Bonds
U.S. 10-year Treasury yield 2.27 per cent, +0.27
ECONOMIC NEWS
U.S. housing starts in November rebounded from a seven-month low and permits surged to a five-month high, signs of strength in the housing market that could give the Federal Reserve more confidence to raise interest rates on Wednesday. Groundbreaking jumped 10.5 percent to a seasonally adjusted annual pace of 1.17 million units, the Commerce Department said on Wednesday. October's starts were largely unchanged at a 1.06 million-unit rate.
(9:15 a.m. ET) U.S. industrial production and capacity utilization for November. Consensus is a decline of 0.1 per cent from October and 77.4, down from 77.4 in previous month, respectively.
(10:30 a.m. ET) EIA petroleum status report
(2 p.m. ET) U.S. FOMC announcement and summary of economic projections
(2:30 p.m. ET) Fed chair Janet Yellen's quarterly press briefing
CORPORATE NEWS
Valeant Pharmaceuticals International Inc. cut its earnings guidance for next year, suggesting that the drug maker may have more work to do to end the fallout from a scandal over its business practices and to get its operations in line. After issuing an initial 2016 forecast on Oct. 29, Valeant said in a statement Wednesday that its primary measure of profits, adjusted EBITDA, or earnings before interest, tax, depreciation and amortization, will be $6.9-billion to $7.1-billion, down from the $7.5-billion it had previously predicted. Fourth-quarter earnings will also be lower than expected, at $2.55 to $2.65 a share, down from the $4 to $4.20 it predicted on Oct. 19.
DHX Media Ltd. announced it is partnering with Mattel to jointly fund, develop, and produce content based on Mattel's franchises such as Bob the Builder, Polly Pocket, and Little People. Terms were not disclosed.
GuestLogix Inc., a provider of ancillary-focused merchandising, payment and business intelligence technology to airlines and the passenger travel industry, announced that a preliminary internal review initiated by the CEO and the board of directors of the company has revealed that the company may not have been following proper revenue recognition accounting policies. As a result, the company has formed an independent committee of its directors to supervise a review of the company's historical financial statements and to determine the extent to which these issues could result in the Company being required to restate any of its financial statements. "While it is too early to determine the precise amounts or effect of the issues that have been identified, the preliminary review indicates that they are material," a statement from the company said.
Dow component Disney was up 1.2 per cent in the premarket as the newest installment of "Star Wars" hit screens worldwide.
Earnings include: Cintas Corp.; Enghouse Systems Ltd.; FedEx Corp.; Herman Miller Inc.; Oracle Corp.; Pier 1 Imports Inc.; Worthington Industries Inc.
ANALYSTS' ACTIONS
Altus Group (AIF-TSX). RBC Capital Markets initiated coverage with a sector perform recommendation and $21 price target.
Bankers Petroleum (BNK-TSX). The analyst at FirstEnergy Capital maintained his outperform rating but trimmed his price target to $4 from $4.50.
Enerflex (EFX-TSX). The analyst at Raymond James reduced his recommendation to market perform from outperform, but raised his target price slightly to $15.50 from $15.
QUOTE OF THE DAY
"Only those who will risk going too far can possibly find out how far one can go." - T.S. Eliot