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Before the Bell: Stock futures sink as Trump rally pauses

The Before the Bell report is compiled by editors of The Globe and Mail and is updated throughout the morning to reflect latest developments. Colin Cieszynski, Chartered Financial Analyst and Chartered Market Technician, is chief market strategist with CMC Markets.

It's a long weekend coming up in the U.S. and much of Canada.  I've been thinking that the enthusiasm of traders to hold positions over the weekend would be a true test of whether the current rally has any legs left or is totally exhausted and vulnerable to a correction.

Stocks have rallied on a combination of speculation on U.S. President Donald Trump's tax reform package, generally positive earnings and guidance, strong U.S. economic data, institutional short covering and easing political uncertainty following a series of no drama summits with the leaders of the U.K., Japan, Canada and Israel.

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One of the signs of a rally is that markets respond positively to positive news, which is what we saw Wednesday with strong U.S. day driving the Dow to a new all-time high. On Thursday, however‎, stocks failed  to respond to positive jobless claims and Philadelphia Fed reports, which is a sign that markets may be getting fully priced and vulnerable to a correction.

Overnight and into this morning, stock indexes have been sliding with U.S. index futures down 0.2 per cent and Dow futures approaching a retest of 20,500. ‎Overseas, the FTSE is up slightly while the Dax is down 0.2 per cent and the Nikkei is down 0.6 per cent.

Currency trading has been active today. The yen is rallying while gold is holding on to recent gains as capital leaving risk markets flows back into defensive havens. The British pound is getting hammered (you thought I was going to say pounded didn't you?) back toward $1.2400 after U.K. retail sales disappointed, ending a post-Brexit hot streak for now. The euro and Canadian dollar are down moderately against the U.S. dollar.

‎This action suggests that traders are starting to take profits ahead of the long weekend. News flow is drying up and political uncertainty is starting to loom again. It looks like negotiations over Greece are going to blow through next week's deadline and into the upcoming European election season with the European Union and Iinternational Monetary Fund (read: U.S.) still divided over austerity levels and debt relief for the long-suffering cradle of civilization.

Meanwhile, debate on the Brexit bill in the House of Lords starts Monday. The government remains on track so far toward triggering Article 50 in March but it remains to be seen if this will happen around the EU Summit being held on March 9-10 ‎or later in the month.

And of course, in the U.S. political uncertainty may be only a tweet away. ‎Following on from his successful meeting with President Trump Monday and speech to the EU Parliament about CETA yesterday, Canadian Prime Minister Justin Trudeau meets with German Chancellor Angela Merkel today. Talks on trade and defense are likely to top the agenda.

Some have suggested that Canada could offer advice on how to work with the new U.S. administration. I think it's going to be difficult for Germany to get out of the doghouse, however, because the issues related to trade, currency and Greece are structural not political and can't be easily resolved without sweeping changes to the Eurozone.

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Now, here is a closer look at key market data, and corporate and economic news.


Futures (as of about 7:30 a.m. ET)

Dow -0.21 per cent; S&P 500 -0.20 per cent; Nasdaq: -0.15 per cent; TSX 60 -0.17 per cent

Japan's Nikkei -0.58 per cent
Shanghai composite index -0.86 per cent
Hong Kong's Hang Seng -0.31 per cent 
Germany's DAX -0.23 per cent
London's FTSE +0.32 per cent
France's CAC 40 -0.79 per cent

WTI crude oil (Nymex March) -0.41 per cent at $53.14. (U.S.) a barrel
Gold (Comex April) +0.19 per cent at $1,244.00  (U.S.) an ounce
Copper (Comex March) -0.80 per cent at $2.71 (U.S.) a pound

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Canadian dollar -0.05 at 76.44 cents (U.S.)
U.S. dollar index +0.20 at 100.64

Canada 10-year bond yield +0.24 at 1.71 per cent


U.K. retail sales

(8:30 a.m. ET) Canada international securities transactions for December.
(10 a.m. ET) U.S. leading indicator for January. Consensus is an increase of 0.4 per cent from December.


Also see: Friday's small-cap stocks to watch


U.S. food company Kraft Heinz Co. has proposed a merger with Unilever,  but the Anglo-Dutch consumer goods company has declined, Kraft said on Friday. Kraft shares rose 5.4 per cent in premarket trading.


Enbridge Inc., Canada's largest pipeline company, reported a 3.4 percent decline in fourth-quarter profit, hurt by charges, including for asset impairment and restructuring.Earnings attributable to the company's shareholders fell to $365 million, or 39 cents per share, in the quarter, from $378 million, or 44 cents per share, a year earlier.Revenue rose nearly 5 percent to C$9.34 billion.


Air Canada  reported a bigger fourth-quarter loss, hurt by a rise in fuel costs. The company's net loss widened to $179 million, or 66 cents per share, in the three months ended Dec. 31 from $116 million, or 41  cents per share, a year earlier. The Montreal-based airline's revenue rose 7.6 percent to $3.43 billion.


U.S. farm equipment maker Deere & Co. reported a 1.8 percent rise in quarterly revenue, partly helped by stronger pricing. Its shares rose 2 per cent in premarket trading.


Earnings include: Air Canada; Algoma Central Corp.; Campbell Soup Co.; Cheniere Energy Inc.;  Deere & Co.; Enbridge Inc.; Enbridge Income Fund Holdings Inc.; Fluor Corp.; J M Smucker Co.; Moody's Corp.; Spectra Energy Corp.; VF Corp.

With files from wire services

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