Equity Markets
U.S. futures signalled a lower start Wednesday mirroring global sentiment as investors took a pause following another record session on Wall Street. On Bay Street, futures were lower even as oil prices continued to push higher. Dow futures were down by more than triple digits at one point ahead of the North American open. The MSCI world equity index, which tracks shares in 47 countries, was little changed early on.
Markets were also rattled by reports that China could slow or halt U.S. bond purchases. Bond yields hit multi-month highs in the wake of the report. Reports suggest officials in China are reviewing that country's foreign-exchange holdings and have recommended slowing or stopping purchases of U.S. Treasuries.
"If the reports turn out to be true and China no longer sees Treasuries as an attractive option, the repercussions could be significant as the country is one of the biggest holders of U.S. debt," OANDA senior market analyst Craig Erlam said. "A significant change in policy could put considerable upside pressure on U.S. yields, the result of which would be an effective tightening for the U.S."
On Bay Street, a continued rally in oil prices could help bolster energy stocks. Early Wednesday, U.S. crude futures hit their highest level since 2014 on OPEC's efforts to cut production and balance the market. James Hughes, chief market analyst at Axitrader, noted that West Texas Intermediate has pushed through $63 a barrel and "looks to hunt down what is becoming a psychological target at $70 per barrel."
Elsewhere, forestry stocks could feel some heat after the U.S. Commerce Department decided to impose initial duties of 9.93 per cent against Canadian newsprint sold in the United States. A second decision on anti-dumping tariffs is set for March 7. Resolute Forest Products finished down slightly in Toronto during yesterday's session following the news.
On the corporate front, Corus Entertainment reported net income of $77.7-million or 38 cents in the latest quarter. Corus CEO Doug Murphy said the results were "below expectations" with a weak TV advertising market more than offsetting gains in local radio advertising as well as at its Nelvana content business.
On Wall Street, Warren Buffett's Berkshire Hathaway voted Wednesday to increase its board of directors to 14 from 12. The company tapped Gregory Abel as Berkshire Hathaway's vice chairman for non-insurance business operations, and Ajit Jain as vice chairman for insurance operations. Both are seen as potential successors for Mr. Buffett.
Overseas, the pan-European Stoxx 600 was south of break even with most sectors in the red. Britain's FTSE 100 was off 0.07per cent. British retailers Sainsbury's and Ted Baker were both higher early Wednesday on news of higher sales during the key Christmas period. Germany's DAX fell 0.78 per cent and France's CAC 40 was off 0.40 per cent.
In Asia, most markets were also down, although Hong Kong's Hang Seng managed its 12 consecutive day of gains. That index finished up 0.20 per cent. Japan's Nikkei fell 0.26 per cent even as autos and financials pushed higher. Shares of two heavily weighted companies on the Nikkei - SoftBank and Fast Retailing - both ended lower. The Shanghai composite index edged up 0.24 per cent.
Commodities
Oil prices were higher early Wednesday with U.S. crude topping $63 (U.S.) a barrel to touch its highest level since 2014. The day range on West Texas Intermediate was $63.33 to $63.57. The top end of that range marks WTI's best showing since early December 2014. Brent crude was also positive with a narrow range of $69 to $69.26 for the day.
The continuation of the recent crude rally came after the American Petroleum Institute said Tuesday that U.S. crude inventories fell by 11.2 million barrels last week to 416.6 million. As well the U.S. Energy Information Administration hiked its 2018 global oil demand growth forecast by 100,000 barrels a day from its earlier estimate.
More U.S. crude inventory numbers are due later Wednesday morning when the EIA releases its weekly report.
OANDA's Craig Erlam notes that Tuesday's API report marks the biggest inventory drop since September 2016.
"Should EIA report a similar figure to API, it could trigger another push higher in oil – with markets previously anticipating only a 3.89 million barrel drawdown – while a smaller number may see it pare its gains," Mr. Erlam said in a morning note.
At this point, he said, both Brent and WTI are now up just shy of 50 per cent from their June lows "driven primarily by the agreement to cut production between OPEC and some non-OPEC countries, including Saudi Arabia and Russia."
"While some doubted whether the countries would follow through on the deal and how effective it would be, the results are clear for all to see with oil now trading back at more sustainable levels, despite US output continuing to rise. I do wonder how much more upside we'll see though before countries involved in the deal either reduce the size of the cuts or end them altogether," he said.
In other commodities, gold and silver prices were both higher early on, helped by wavering European markets and a weaker U.S. dollar.
Currencies and bonds
The Canadian dollar was higher in early going, gathering steam overnight as its U.S. counterpart fell against world currencies. The day range on the loonie so far is 80.15 cents (U.S.) to 80.46 cents. The only domestic release on the economics calendar today is Statistics Canada's report on November building permits. Statscan said building permits fell 7.7 per cent to $7.7-billion from a month earlier. Economists had been expecting a decline, but most had forecast a more modest decrease. The government agency said all building components fell during the month, with the exception of single-family dwellings. The loonie showed little reaction immediately after the figures were released, although the dollar was off its highest levels of the morning. The markets have been paying close attention to recent economic reports ahead of next week's Bank of Canada decision on interest rates. At this point, markets have priced in a more than 80-per-cent chance of a rate increase.
In other currencies, the U.S. dollar fell to its lowest level in six weeks against the yen. That came after the Bank of Japan moved to cut its government bond purchases, fuelling speculation in the market that it would also begin easing its massive monetary stimulus program. Overnight, the greenback fell to its lowest level since Dec. 1 against the Japanese currency. A report that Chinese officials had recommended slowing or halting U.S. Treasury purchases also took a toll on the U.S. dollar.
The U.S. dollar index, meanwhile, was down. That index measures the greenback against a basket of world currencies. Reuters notes that Wednesday's weakness in the greenback underlines the currency's vulnerability to moves by other central banks toward normalizing monetary policy. The markets are expecting two U.S. rate hikes this year but have also started pricing in moves by other U.S. banks as well, the news agency says.
In bonds, yields on the 10-year U.S. Treasury note touched a 10-month high overnight, partly due to the Bank of Japan's recent moves. At last check, the yield on the 10-year note was higher at 2.59 per cent. The yield on the 30-year note was also higher at 2.938 per cent.
Stocks set to see action
Microsoft Corp. says that software patches released to guard against microchip security threats slowed down some personal computers and servers, with systems running on older Intel Corp processors seeing a noticeable decrease in performance. The comments in a blog post were the clearest signal from Microsoft that fixes for flaws in microchips from Intel and rivals described last week could meaningfully degrade performance. The topic is of keen interest to large data center operators, which could incur significant cost increases if computers slow down, Reuters reports.
Warren Buffett's Berkshire Hathaway is adding Gregory E. Abel and Ajit Jain as directors, boosting the size of its board to 14 members. The company said Wednesday that Buffett and Charles T. Munger, Berkshire Hathaway's vice chairman, will retain their positions on the board. Abel, chairman and CEO of Berkshire Hathaway Energy Co., is being named vice chairman of non-insurance business operations. Jain is being appointed vice chairman of insurance operations. He currently serves as executive vice-president of National Indemnity Co.
U.S. telecoms carrier AT&T has dropped plans to sell Chinese brand Huawei's smartphones in the United States, dealing a setback to the No. 3 global phone maker's expansion plans, according to news reports. The Wall Street Journal, which reported the development Tuesday, gave no reason for AT&T Inc.'s decision. The South China Morning Post of Hong Kong said Huawei Technologies Ltd.'s vice-president for consumer business, Richard Yu, confirmed the move in a text message to the newspaper and wrote, "We have been harmed again."
Sears Holding Corp. said on Wednesday it raised $100-million in funding and was in talks with lenders to improve the terms on its more than $1-billion of non-first lien debt, sending its shares up 5 per cent in premarket trading. The company said the new loan was backed by land leases and select intellectual property and would be entitled to raise a further $200 million with the consent of the lender. Sears also said comparable-store sales during November and December fell as much as 17 per cent, as shoppers continued to stay away from the embattled retailer's stores.
Corus Entertainment reported net income of $77.7-million or 38 cents a share in the latest quarter. On an adjusted basis, earnings were also 38 cents, below analysts' forecasts which called for 44 cents a share.
U.S. home builder Lennar Corp on Wednesday reported alower than expected quarterly profit due to a delay in the booking of a single large transaction, although orders rose and revenue topped estimates. Net income attributable to Lennar fell 1.2 percent to $309.6 million, or $1.29 per share, missing the average estimate of $1.48 per share. The company blamed the shortfall on its moving of a "strategic" deal into the first quarter of 2018, without giving any details on the deal. The company's shares were down nearly 5 per cent in premarket trading.
Toyota and Honda are recalling more than 1 million additional vehicles in the U.S. to replace defective and potentially deadly Takata air bag inflators. The new recalls come after Takata revealed that another 3.3 million inflators are defective. The latest recalls are part of the largest series of automotive recalls in U.S. history, with 19 auto makers having to recall up to 69 million inflators in 42 million vehicles. The problem brought a criminal conviction and fine against Takata and forced the Japanese company into bankruptcy protection.
American Airlines Group on Wednesday raised its forecast for total revenue per available seat mile for the fourth quarter, citing improving yields and higher than expected domestic close-in bookings The No.1 U.S. airline said it now expects the key revenue metric to increase about 5-6 per cent in the quarter, compared with its prior guidance of 2.5-4.5 per cent.
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Economic News
Statistics Canada said building permits fell 7.7 per cent to $7.7-billion in November from month-earlier levels.
The U.S. Labor Department said import prices rose 0.1 per cent last month after an upwardly revised 0.8 per cent increase in November. The December gain was the smallest since July.
U.S. reports November wholesale inventories. Expectations are for an increase of 0.7 per cent. (10 a.m.)
With files from Reuters and Bloomberg