Equities
U.S. stock futures were higher early Friday mirroring overnight moves in Asia and Europe despite an air of caution still hanging over global markets. Rising bank stocks and gains by Dow component Nike after market-topping results helped bolster futures before the North American open. In Canada, futures on Bay Street were positive as attention turns to the Bank of Canada’s latest reading on business sentiment and federal support for the metals sector in the face of U.S. tariffs.
MSCI’s all-world index was up 0.5 per cent in early going, marking its strongest gain in three weeks. However, Reuters also notes that the index would end the second quarter in the red on continued concerns about the impact of global trade tensions. Friday marks the final trading day of the month.
“Some of the fears regarding a possible trade war have slipped away and investors are snapping up relatively cheap equities,” David Madden, market analyst with CMC Markets, said. “Beijing and Washington DC are still at loggerheads, bur the situation has cooled recently, and this has enticed fresh buying.”
In Canada, trade and the metals sector will come into focus. The Globe and Mail reports that federal ministers will announce support for the steel and aluminum sector Friday morning and unveil the final list of Canadian retaliatory tariffs against U.S. goods. The announcement, scheduled for 11 a.m. ET, is also expected to include financial support for industry in the form of loans and loan guarantees.
Also Friday morning, the Bank of Canada releases its latest business outlook survey, offering a glimpse of Canadian business sentiment. The report comes ahead of the bank’s July 11 policy announcement. Right now, the markets are increasingly expecting a rate hike in that announcement following bullish comments from Stephen Poloz during a press conference earlier in the week.
“Our expectation is that most measures will reaffirm positive growth though anticipate that with the economy at capacity there will be greater indications of some moderation in the pace,” RBC assistant chief economist Paul Ferley said.
On Wall Street, bank stocks could get come into focus after the Deutsche Bank’s U.S. subsidiary failed the second part of the central bank’s stress tests due to “material weakness” in its capital market plan. Deutsche Bank cleared the earlier part of the Fed’s stress tests last week. Over all, the Fed approved the capital plans for 34 lenders. It also said it conditionally approved the plans for Goldman Sachs and Morgan Stanley. Both saw capital levels affected during the test period by changes to the U.S. tax code. Goldman shares were higher in premarket trading while Morgan Stanley was down modestly.
Wells Fargo, Citigroup, Bank of American and JPMorgan were all higher in premarket trading.
Overseas, markets in Europe rallied after EU leaders reached an agreement on migration. The pan-European STOXX 600 was up 1.08 per cent in morning trading. Resource stocks were among the big winners. Britain’s FTSE 100 was up 0.94 per cent. Germany’s DAX gained 1.3 per cent, with the EU deal easing pressure on German Chancellor Angela Merkel. France’s CAC 40 rose1.40 per cent.
In Asia, stocks also finished in the black. Japan’s Nikkei ended up 0.15 per cent with pharmaceutical and exporters moving higher. Hong Kong’s Hang Seng jumped 1.61 per cent. The Shanghai Composite Index finished 2.20 per cent higher.
Commodities
Crude prices were mostly steady early on as the impact of trade fears on oil consumption balanced off the effect of expected U.S. sanctions on Iran. Brent crude was higher ahead of the North American open with a range for the day of US$77.45 to US$79.34. West Texas Intermediate was just south of break even at last check with a range so far of US$72.93 to US$73.67.
On Thursday, WTI hit US$74.03, its best level in more than three years.
“U.S. crude oil prices have continued their surge higher in the wake of this week’s announcement by the U.S. State Department on Iranian imports, taking out the highs this year, and hitting levels last seen in November 2014,” Michael Hewson, chief market analyst at CMC Markets U.K., said.
“In less than two weeks U.S. crude prices have risen over 14 per cent from their June lows, which in turn is likely to put upward pressure on U.S. inflation which is already trending just below the Feds 2-per-cent target.”
Market sentiment has been underpinned this week by an outage at Canada’s Syncrude as well as a U.S. demand that other countries cease buying Iranian crude starting in November. Supply disruptions in Libya and Venezuela have also tightened the market.
Rising U.S. production will come back into focus later in the day with the release of the latest U.S. rig count figures from energy services firm Baker Hughes.
In other commodities, gold was off the six-month lows seen this week on profit taking and a pullback in the U.S. dollar. Spot gold was higher in early trading after hitting its lowest since Dec. 13, 2017, during Thursday’s session. U.S. gold futures were also modestly higher.
“We’re receiving only a couple of dollars bounce on the back of a pretty decent weakening of the dollar, so gold’s not showing any signs of strength,” said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen told Reuters.
“The shorts are still in control and the momentum is negative. The dollar and U.S. treasuries have taken over the role of safe haven this month and as long as the trade war is creating uncertainty then that will probably prevail.”
Currencies and bonds
The Canadian dollar moved higher in early going, building on the previous day’s gains triggered by rising oil prices and rising expectations for an interest-rate increase next month.
The day range on the loonie so far is 75.36 US cents to 75.69 US cents. The loonie has seen sharp movements this week, slumping initially on what the markets perceived as dovish comments from Bank of Canada Governor Stephen Poloz during an afternoon speech on Wednesday. However, a more hawkish sentiment emerged during the subsequent press conference, pushing the market’s expectations for a July 11 increase to about 65 per cent.
Heading into the trading day, markets got a reading on Canada’s economic health. According to Statistics Canada, gross domestic product advanced by 0.1 per cent in April. The markets had been expecting little change for the month. The loonie was trading higher at 75.61 US cents immediately after the report’s release.
“Bearish for fixed income, bullish for the Canadian dollar in helping cement expectations for the next rate hike,” CIBC World Markets chief economist Avery Shenfeld said of the report.
The U.S. dollar index, meanwhile, slid 0.5 per cent to 94.874 ahead of the opening bell. That comes after the index, which weighs the U.S. dollar against a basket of currencies, rose to 95.534 on Thursday, the best showing in almost a year. The dollar index is now up more than 5 per cent for the quarter. The index hasn’t seen a quarterly increase since the last quarter of 2016.
In bonds, U.S. Treasury yields were lower on continued trade fears. The yield on the U.S. 10-year note was lower at 2.846 per cent. The yield on the 30-year note was also lower at 2.972 per cent.
Stocks set to see action
Nike Inc shares jumped nearly 10 per cent and were on track to open at a record after the shoe maker posted profit and revenue ahead of market forecasts. The Dow component also announced a US$15-billion buyback program and said it expected fiscal 2019 revenue at the higher end of its earlier forecast. Net income rose to US$1.14-billion, or 69 US cents per share, in the fourth quarter ended May 31, from US$1.01-billion, or 60 US cents per share, a year earlier. Excluding one-time items, the company earned 69 US cents per share, beating estimates of 64 US cents. Total revenue rose 12.8 per cent to US$9.79-billion, also topping estimates of US$9.41-billion.
Constellation Brands Inc. reported a lower-than-expected quarterly profit due to higher marketing and transportation costs, and the Corona beer maker forecast full-year earnings that also missed estimates. Net income attributable to the company rose to US$743.8-million, or US$3.77 per Class A share, in the first quarter ended May 31, from US$398.5-million, or US$1.98 per share, a year earlier. Excluding items, the company earned US$2.20 per share, missing analysts’ average estimate of US$2.43, according to Thomson Reuters I/B/E/S. Constellation Brands shares were down about 4 per cent in premarket trading.
Novartis plans to spin off its Alcon eye care business to shareholders and buy back up to US$5-billion in stock as chief executive Vas Narasimhan refocuses the Swiss group on prescription drugs. Alcon, a legacy from former Novartis boss Daniel Vasella’s empire building, has been problematic since it was bought for US$52-billion in 2011. Mr. Narasimhan declined to give a valuation for the business on Friday, although his predecessor Joe Jimenez once estimated it at only US$25-$35 billion.
The head of the U.K. Parliament’s media committee has criticized Facebook for what it describes as evasive behaviour in answering questions on fake news. Committee chair Damian Collins says Friday that Facebook’s claims they were unable to distinguish between political and non-political advertising is “difficult to believe.” He also slammed their refusal to reveal the level of resources devoted to security in questions that followed oral testimony before the committee. Collins says Facebook continues “to display a pattern of evasive behaviour - a pattern which has emerged over the course of our inquiry.”
A Minnesota regulator on Thursday approved a certificate of need for Enbridge Inc to rebuild its Line 3 oil pipeline, angering environmentalists but offering hope to Western Canadian oil producers that have struggled to move crude oil to refiners. The Minnesota Public Utilities Commission’s decision clears the final major hurdle, pending possible appeals, in Enbridge’s three-year effort to rebuild its aging, corroded 1,031-mile (1,660-km) pipeline that runs from Alberta in western Canada to Wisconsin. Enbridge said the cost estimate for the Line 3 replacement project remains materially unchanged.
Torstar Corp. will lay off 21 staff at its StarMetro office in Toronto as part of a shift of production operations to nearby Hamilton. The cuts include nine full-time editors, two full-time reporter-photographers, and 10 part-time copy editors, who will have work at the paper until the end of August, company spokesman Bob Hepburn said Thursday.
More reading:
Did you get faked out by soaring bond yields?
Friday’s analyst upgrades and downgrades
Economic news
The Canadian economy grew by 0.1 per cent in April. Markets had been expecting little change for the month. Statistics Canada says 12 of 20 industrial sectors advanced during the month.
U.S consumers increased their spending just 0.2 per cent in May. The Commerce Department says that the rise in spending last month followed stronger increases of 0.6 per cent in March and 0.5 per cent in April. It was the poorest showing since spending had fallen 0.1 per cent in February., The Associated Press reports.
The Commerce Department says that the tiny rise in spending last month followed much stronger increases of 0.6 per cent in March and 0.5 per cent in April. It was the poorest showing since spending had fallen 0.1 per cent in February.
(10:30 a.m. ET) Bank of Canada business outlook survey.
With Reuters and The Canadian Press