Colin Cieszynski
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.
Wednesday's big bearish reversals and late day selloff carried through overnight trading but appears to be tapering off this morning. The Nikkei fell 1.4 per cent, the Hang Seng fell 0.5 per cent, while the FTSE is off 0.3 per cent and the Dax is down 0.2 per cent. U.S index futures are flat but slightly positive, licking their wounds at a lower level.
On Wednesday, the day that started with tremendous optimism turned into a crushing defeat for market bulls. Stocks initially soared on better than expected ADP payrolls. Traders took slightly soft non-manufacturing PMI in stride, but the Fed minutes were too much to handle.
Even with the Fed on course to raise interest rates three to four times this year, the Fed minutes came in as surprisingly hawkish for two reasons.
First, Federal Open Market Committee members expressed concern about high stock prices, which is rare, and indicated a big tumble could impact their forecast for the year. That was a shock considering that the Fed has been a big backer of the big bull market this decade through its ultra-low interest rate and quantitative easing (QE) asset purchase policies.
Second, Fed members indicated interest in starting to shrink the central bank's big balance sheet later this year. To this point, the Street has been thinking the Fed would raise rates this year then pause and work on the balance sheet next year. Indications they could do both at once was seen as a hawkish surprise by traders.
These two items spooked traders and sent the fast money running for the exits. Much of the monetary stimulus of recent years has followed the path of least resistance into the stock market, inflating prices. Indications that the liquidity party may be ending and the prospect of rocket fuel being taken away could start to drag on indexes going forward.
The hawkish Fed news also boosted the U.S. dollar late Wednesday and, into today, the greenback is consolidating its gains for the most part. Oil is bouncing back a bit on reports that Iran has sold the last of the inventory it had stored at sea and is struggling to grow production. This supports rumblings through the week that the slack in the oil market may be shrinking. This prospect has helped the Canadian dollar to stabilize today as well.
Today a meeting between U.S. President Donald Trump and his Chinese counterpart Xi Jinping, the first between the world's two most powerful leaders, is keeping trade and geopolitics in focus. Investors are wary about the potential outcome of this meeting.
Topping the agenda at Mr. Trump's Mar-a-Lago resort in Florida will be whether he makes good on his threat to use U.S.-China trade ties to pressure Beijing to do more to rein in its nuclear-armed neighbor North Korea.
It's a light day for economic news so we may see traders continue to react to the Fed minutes and prepare for upcoming developments. Tomorrow brings U.S. nonfarm payrolls and Canada's jobs report, which may settle whether economic or monetary factors are the bigger driver of trading these days. On the US domestic front the wheels continue to turn on health care reform, tax reform and infrastructure spending.
Now, here is a closer look at key market data, and corporate and economic news.
MARKET DATA:
Futures (as of about 7:30 a.m. ET)
Dow +0.15 per cent; S&P 500 +0.14 per cent; Nasdaq: +0.13 per cent; TSX 60 +0.20 per cent
Equities
Japan's Nikkei -1.40 per cent
Shanghai composite index +0.35 per cent
Hong Kong's Hang Seng -0.52 per cent
Germany's DAX -0.03 per cent
London's FTSE -0.29 per cent
France's CAC 40 +0.45 per cent
Commodities
WTI crude oil (Nymex May) +0.51 per cent at $51.41 (U.S.) a barrel
Gold (Comex June) +0.45 per cent at $1,254.10 (U.S.) an ounce
Copper (Comex May) -0.02 per cent at $2.68 (U.S.) a pound
Currencies
Canadian dollar +0.11 at 74.44 cents (U.S.)
U.S. dollar index -0.01 at 100.55
Bonds
Canada 10-year bond yield -0.11 at 1.57 per cent
KEY ECONOMIC RELEASES
Japan consumer confidence index
China Caixin composite and services PMI and foreign reserves
Euro area retail PMI
Germany factory orders
(8:30 a.m. ET) Canada building permits for February. The analyst estimate is an increase of 2.0 per cent from January.
Statistics Canada says municipalities issued $7.5 billion worth of building permits in February, down 2.5 per cent from January. The agency says the decrease was mainly the result of a drop in plans for single-family dwellings and institutional structures. The value of residential building permits issued fell 1.5 per cent to $5.0 billion in February, with the decrease for single-family homes construction permits offset in part by an increase in the multi-family component.
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(8:30 a.m. ET) U.S. initial jobless claims for week of April 1. Estimate is 245,000, a decline of 13,000 from the previous week.
Fewer Americans applied for unemployment benefits last week, a sign of the job market appears to be increasingly secure for workers. The Labor Department says weekly applications for unemployment aid plunged 25,000 to a seasonally adjusted 234,000. The four-week average, a less volatile measure, dipped to 250,000. Applications are a proxy for layoffs. They have remained below 300,000, a level linked with job growth, for 109 weeks. That's the longest such stretch since 1970, when the U.S. population was much smaller.
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Also: Chinese president Xi Jinping is scheduled to meet U.S. president Donald Trump at Mar-a-Lago through Friday.
KEY STOCKS TO WATCH
Also see: Thursday's small-cap stocks to watch
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Barrick Gold Corp. says it is selling a 50-per-cent stake in its Veladero mine in Argentina to Chinese mining company Shangdong Gold Group for $960-million as part of what it calls a "strategic co-operation agreement." The Toronto-based gold miner says as part of the deal, the two companies will also explore the joint development of its Pascua-Lama deposit, located about 10 kilometres from the Veladero site. Its shares were down 0.21 per cent in premarket trading.
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Advanced Micro Devices dropped 3.3 per cent after Goldman Sachs initiated coverage with a "sell" rating.
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Retailer Costco was up nearly 2 per cent after reporting better-than-expected 6 per cent increase in U.S. same-store sales for March.
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Bed Bath & Beyond was up 2 per cent after reporting quarterly results.
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Constellation Brands Inc., the no. 3 U.S. beer company, reported better-than-expected quarterly profit and sales, helped by strong demand for its premium beers such as Corona and Ballast Point, and forecast 2018 earnings above estimates. Excluding certain items, Constellation earned $1.48 per share, beating analysts' average estimate of $1.36 per share. Constellation forecast 2018 earnings of $7.70 to $8 per share, beating analysts' average estimate of $7.51 per share. its shares rose 5 per cent in premarket trading.
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CarMax Inc., the No.1 U.S. used-car dealer, reported a higher-than-expected quarterly profit, helped by higher vehicle sales. Its shares rose 2.5 per cent in premarket trading.
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Yum China reported quarterly profit of 44 cents per share, six cents a share above estimates. Its shares rose 11 per cent in premarket trading.
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Sunoco is selling most of its convenience stores to 7-Eleven in a deal valued at $3.3 billion as it looks to focus more on its fuel supply business. 7-Eleven Inc. will get about 1,110 convenience stores, mostly along the East Coast and in Texas. Sunoco's shares were up 12 per cent in premarket trading.
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T-Mobile was downgraded to "hold" from "buy" at Deutsche Bank. Its shares fell 1 per cent in premarket trading.
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JMP Securities upgraded chip maker NetApp to "market perform" from "market underperform." Its shares gained 0.2 per cent in premarket trading.
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Earnings include: Cogeco Inc.; Constellation Brands Inc.; Sandvine Corp.
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With files from wire services