Equity Markets
Dow futures posted triple-digit gains early Tuesday after a spate of solid earnings from U.S. heavyweights, while Nasdaq futures held near break even as slipping Alphabet shares weighed. Big U.S. players reporting include General Motors, McDonald's and 3M. In Canada, Canadian National Railway reports its latest results after the close.
Google parent Alphabet Inc. posted a 21-per-cent increase in quarterly revenue after the close of trading Monday, although a record $2.7-billion European Union antitrust fine taking a bite out of the bottom line. Shares in Alphabet slid in the premarket on concerns that costs were rising faster than sales and that expenses would remain high as more searches shift to the mobile market.
So far, U.S. earnings have had a strong start. According to FactSet, 19 per cent of S&P 500 companies had reported by the end of last week. Of those 73 per cent posted earnings ahead of estimates compared to the five-year average. More than 77 per cent have reported sales above estimates.
Early Tuesday, GM topped forecasts despite posting lower quarterly profit from continuing operations on slower sales and restructuring charges. The auto maker reported second-quarter profit of $2.4-billion or $1.60 a share, down from $2.8-billion or $1.74 a share last year. Excluding one-time charges, the company reported earnings per share of $1.89. Analysts had on average expected earnings per share for the quarter of $1.69. GM shares were up 2 per cent ahead of the open.
McDonald's, meanwhile, posted a stronger-than-forecast rise in quarterly sales at U.S. restaurants open at least a year. U.S. same-store sales rose 3.9 per cent in the second quarter. Analysts had been expecting an increase of about 3.2 per cent. Worldwide same-store sales rose 6.6 per cent, the biggest increase in more than five years. Shares were up nearly 3 per cent with just over an hour to go before the opening bell.
Outside the earnings sphere, U.S. retailer Michael Kors said it had struck a deal to buy luxury shoe brand Jimmy Choo for $1.2-billion (U.S.). Under the terms of the deal, Michael Kors will pay a premium of 36.5 per cent for the company. Michael Kors, which said in May that fourth-quarter same-store sales were down 14 per cent, has been battling to bolster its business. The retailer has lost about 65 per cent of its market value since 2014.
Traders will also begin turning an eye to the U.S. Federal Reserve, which begins its latest two-day meeting on Tuesday. Few expect a rate hike in Wednesday's announcement but the path of future moves will be of intense interest. Right now, the markets have priced in a less than 50-per-cent chance of another rate increase by year's end.
"While no change in policy is expected and no press conference is taking place, with the central bank believed to be preparing measures to reduce the balance sheet from September, there may be hints at such a move in the statement, OANDA senior market analyst Craig Erlam said in a note.
On Bay Street, CNR's results after the bell will draw some attention. The railway is expected to post earnings per share of about $1.31 in the latest quarter. The Canadian dollar is also likely to be front and centre after having touched its highest level in two years during the previous session. The loonie was holding below 80 cents in the early hours.
Overseas, major markets in Europe were higher in early trading. Britain's FTSE 100 was up 64.06 points at 7,441.60. Germany's DAX was up 62.22 points at 12,270.84 with a strong reading on German business moral helping underpin sentiment. France's CAC 40 rose was up 0.95 per cent.
In Asia, stocks finished mixed with the Nikkei slipping 0.10 per cent. The Shanghai composite index falling 0.21 per cent. Hong Kong's Hang Seng finished higher at 26,852.05 points.
Commodities
Oil prices continued to climb early Tuesday on a vow from Saudi Arabia to vowed to cut exports and OPEC called on members to comply with existing production caps. Both Brent crude and West Texas Intermediate were higher in early trading, with WTI climbing more than 1 per cent. U.S. crude rose more 1.25 per cent on Monday after Saudi Arabia, OPEC's leading producer, said it would cut exports to 6.6 million barrels a day next month to reduce the global market overhang. Suggestions from drilling giant Haliburton that the U.S. share boom was showing signs of plateauing and would likely east next year also helped underpin prices.
"The Saudi's have been among the most aggressive in cutting output and are now cutting their exports as well, though both Libya and Nigeria continue to remain exempt from the curbs, and OPEC gave no indication that they were considering future output curbs," CMC market analysts Michael Hewson said in a morning note.
" One other factor that didn't hurt with respect to yesterday's rebound was that U.S. rig counts do appear to be showing signs of plateauing, though that could well change if U.S. oil prices head back towards $50 again."
In other commodities, gold prices retreated after hitting a one-month high in Monday's session as traders turned their focus to the start of the two-day U.S. Federal Reserve meeting.
Spot gold and gold futures for August delivery were modestly higher in early trading but shifted lower as the session continued.
Silver prices also shifted higher, managing their best levels since early this month. Copper prices rose to their best levels since February in London on a weaker U.S. dollar and signs of strength in the Chinese economy.
Currencies and bonds
The Canadian dollar was trading just above the 80-cent (U.S.) mark again Tuesday after touching its highest level in two years during the previous session. The U.S. dollar, which had managed brief gains early on, reversed course and gave back some of that advance. The green back was at a 13-month low against a basket of world currencies early Tuesday ahead of the start of the two-day Federal Reserve meeting. The powerful central bank announces its decision on interest rates Wednesday afternoon. No hike is expected but traders are watching for signals about future moves, with expectations for another hike by year's end fading. Reuters notes that the U.S. dollar is down about 4 per cent against the currency basked over the last month and 8 per cent for the year so far. Futures now rate chances of a December hike by the Fed at about 42.3 per cent.
"Investors are craving for more details regarding the balance sheet normalisation," LCG senior market analyst Ipek Ozkardeskaya said."September could be a reasonable date to start reducing the size of the Fed's $4.47-billion worth portfolio. Lack of details could further dent the hawkish Fed expectations."
For the loonie, the next bit economic report isn't due until Friday., when Statistics Canada releases its May GDP report. Economists are expecting an increase of about 0.2 per cent for the month. At the same time, the markets will get the latest reading on U.S. GDP for the second quarter. Consensus is for an annual rate of 2.5 per cent.
So far, day range for the Canadian dollar is 79.84 cents to 80.09 cents. The loonie jumped back above the 80-cent (U.S.) mark with about 90 minutes to go before the start of trading in North America.
Shaun Osborne, Scotibank's chief FX strategist, and Eric Theoret, currency strategist for the bank, said in a note that the markets have "more or less fully absorbed the shift in the outlook for the Band of Canada, digesting the July hike and all but pricing in another for 25 basis points October."
"Scotiabank's BoC forecast also incorporates another 25-basis-point hike in January," they said. "The Fed, on the other hand, has signaled greater caution in terms of the policy outlook for the second half of 2017. Concerns about inflation have called into question the likelihood of a third 25 basis point 2017 Fed hike and markets are currently attributing it a sub-50 per cent probability."
In bonds, U.S. Treasurys were lower ahead of the Fed meeting. The yield on the 10-year note was higher at 2.277 per cent while the yield on the 30-year note was 2.852 per cent.
In Europe, Greece's government borrowing costs held near their lowest level since 2010 on Tuesday as the country sought to end a three-year exile from financial markets. Greece will later on Tuesday sell a new five-year bond and conclude an offer to switch or tender old bonds maturing in 2019, according to Reuters.
Stocks set to see action
U.S. retailer Michael Kors has agreed to buy luxury shoemaker Jimmy Choo for $1.2-billion, snapping up a British brand launched in the east end of London and made famous by celebrity fans including Princess Diana. Founded in the 1990s by bespoke shoemaker Jimmy Choo, the brand is known for its stiletto heals and accessories and sells in cities from London to Paris, New York and Tokyo.
Netherlands-based drinks bottler Refresco has agreed to buy the bottling activities of Canada-based Cott Corp for $1.25-billion, giving a big boost to its business in the United States, the world's largest soft drinks market. Cott will add 29 production sites to Refresco's network, with 19 in the United States, four in Canada, one in Mexico and five in Britain.
General Motors topped forecasts despite posting lower quarterly profit from continuing operations on slower sales and restructuring charges. The auto maker reported second-quarter profit of $2.4-billion or $1.60 a share, down from $2.8-billion or $1.74 a share last year. Excluding one-time charges, the company reported earnings per share of $1.89. Analysts had on average expected earnings per share for the quarter of $1.69.
McDonald's posted a stronger-than-forecast rise in quarterly sales at U.S. restaurants open at least a year. U.S. same-store sales rose 3.9 per cent in the second quarter. Analysts had been expecting an increase of about 3.2 per cent. Worldwide same-store sales rose 6.6 per cent, the biggest increase in more than five years.
Caterpillar Inc smashed Wall Street's profit estimates and raised its full-year forecast for the second time, driven by improving demand in China and a recovery in mining activity. Shares of the world's largest construction and mining equipment maker rose 5.6 percent in premarket trading on Tuesday. Caterpillar's strong results underscore a turnaround in its main businesses that have been hit by low commodity prices and slowing demand in the past few years. "While a number of our end markets remain challenged, construction in China and gas compression in North America were highlights in the quarter," Chief Executive Jim Umpleby said in a statement.
Chemicals and seeds company DuPont , which is merging with Dow Chemical, beat analysts' estimates for both profit and revenue on Tuesday, helped by higher sales in its agriculture business Sales in the business, which accounts for nearly half of DuPont's total revenue, rose 7 percent, as the company sold more insecticides and fungicides. DuPont also said higher soybean sales in North America and increased demand for sunflower and corn seeds in Europe helped its agriculture business in the first half of the year. DuPont and Dow are hiving off assets worth billions, including a portion of DuPont's crop protection business, to comply with anti-trust regulators after announcing their $130-billion merger-before-breakup deal in December 2015.
Alphabet Inc reported a 21-per-cent jump in quarterly revenue on Monday, maintaining a growth rate that is rarely seen among companies its size and suggesting the big sales gains enjoyed recently by the other Internet firms are not done yet. Alphabet, the owner of Google and YouTube, said it made $3.5-billion in net income on sales of $26-billion. The profit would have been much larger but for a record $2.7-billion European Union antitrust fine. Still, the company noted that costs were rising faster than sales and warned that expenses would remain high as more searches shift to mobile devices. Alphabet shares were down in premarket trading.
Deutsche Bank AG may shift about €300-billion ($436-billion) from the balance sheet of its British entity to Frankfurt as client trading and assets migrate to the continent following Britain's decision to leave the European Union, according to a person familiar with the matter. The project, dubbed Bowline, calls for trading in the German city to go live in September, 2018, and for the assets to be moved over by March, 2019, said the person, who asked for anonymity in discussing internal matters. Shifting €300-billion would be equivalent to almost a fifth of Deutsche Bank's balance sheet, which listed €1.59-trillion in total assets at the end of last year.
More reading: The fast-approaching threat to the energy sector
More reading: David Rosenberg: The Canadian dollar's big move is done
Economic News
U.S. single-family home prices accelerated at a slower pace in April, falling short of forecasts, a survey showed on Tuesday. The S&P CoreLogic Case-Shiller composite index of 20 metropolitan areas rose 5.7 per cent in May on a year-over-year basis from a upwardly revised 5.8 percent increase in April. May's result fell just short of the 5.8-per-cent increase forecast in a Reuters poll of economists.
U.S. consumer confidence unexpectedly rose in July to a four-month high as Americans had sunnier views on both the current situation and outlook, data from the New York-based Conference Board showed Tuesday. The research group's confidence index increased to 121.1 following a 117.3 June reading. The median estimate of analysts surveyed by Bloomberg was for a decline to 116.5.
U.S. Federal Open Market Committee begins a two-day meeting.
With files from Reuters Bloomberg