Skip to main content
markets

Equity Markets

Canada's main stock index opened higher on Wednesday as oil prices rose on an expected fall in U.S. inventories and geopolitical tensions around oil-rich Iraq and Iran.

The S&P TSX index was up 0.23 per cent, or 35.47 points, to 15,852.37 in early trading.

On Tuesday, the index inched higher, helped by a rise in Bombardier Inc shares and financial stocks.

The Canadian dollar edged higher against its U.S. counterpart on Wednesday, boosted by higher oil prices and data showing a surprise rise in domestic manufacturing sales.

Canadian factory sales grew by 1.6 percent in August from July as sales increased in motor vehicles, and petroleum and coal, Statistics Canada said. Analysts had forecast a decrease of 0.1 percent.

"Today's figures are modestly positive for the Canadian dollar and negative for the front-end of the bond curve," Nick Exarhos, an economist at CIBC Capital Markets, said in a research note. "An October move from the Bank of Canada is still a long-shot."

Chances of a hike at next week's interest rate decision have fallen to 22 percent from nearly 50 percent in mid-September, the overnight index swaps market indicates.

Prices of oil, one of Canada's major exports, rose as weekly U.S. crude inventories were expected to have fallen steeply and geopolitical tensions around oil-rich Iraq and Iran raised risk premiums.

U.S. crude prices were up 0.69 per cent at $52.24 a barrel.

The Canadian dollar was trading at $1.2497 to the greenback, or 80.02 U.S. cents, up 0.2 per cent.

The currency, which has recovered from an 11-day low on Tuesday at $1.2591, traded in a range of $1.2487 to $1.2534.

Gains for the loonie have come after news on Tuesday that talks on renegotiation of the North American Free Trade Agreement would be extended through the first quarter of next year.

Still, greater trade policy uncertainty and tighter mortgage underwriting rules "risk slowing future rate hikes by the Bank of Canada," said Sal Guatieri, senior economist at BMO Capital Markets in a research note.

The Dow Jones Industrial Average opened above 23,000 for the first time on Wednesday following strong quarterly results from IBM.

The Dow Jones Industrial Average rose 114.49 points, or 0.5 percent, to 23,111.93. The S&P 500 gained 4.3 points, or 0.16 percent, to 2,563.66. The Nasdaq Composite added 8.83 points, or 0.13 percent, to 6,632.48.

Key U.S. earnings due Wednesday include Abbott Laboratories ahead of the start of trading and eBay and American Express after the close. In Canada, Corus Entertainment posted adjusted earnings of 22 cents a share, topping analysts' forecasts, which had called for earnings of 16 cents. The company's net income rose more than 15 per cent to $28.9-million for the quarter ended Aug. 31.

On Wall Street, Abbott Laboratories reported a quarterly profit in the most recent quarter compared with a loss a year earlier. The improvement was fuelled by sales of medical devices and generics. Profit rose to $603-million or 34 cents a share in the third quarter from a loss of $329-million or 22 cents per share, a year earlier. Sales rose to $6.8-billion from $5.3-billion.

On Tuesday, U.S. markets saw a mixed session over all, but the news of the day was the Dow breaching 23,000 intraday for the first time. The index finished just below that level. Dow futures were up nearly 100 points just before the start of trading on Wednesday.

"Companies started reporting third quarter results last week and while the number has picked up this week, it will likely dominate more and more over the coming weeks," OANDA senior market analyst Craig Erlam said.

" Coming on the back of impressive second quarter results and in a more positive global economic environment, expectations are quite high for Q3, even taking into account the detrimental impact of the hurricanes towards the end of the quarter."

In addition to the earnings parade, Bay Street traders got a reading on the health of Canada's manufacturing sector. Statistics Canada said factory sales rose by a surprising 1.6 per cent in August. Economists had expected a decline of 0.9 per cent. August's increase came after two straight months of declines and was driven by higher sales in the transportation, equipment and petroleum industries. Overall, sales were up in eight of 21 industries, representing about 66 per cent of the Canadian factory sector, the agency said.

"Despite the increase in August, real factory shipments are on track to fall in Q3 (a first quarterly decline since 2016's second quarter), consistent with our view that Canadian real GDP growth softened in the third quarter after a hot first half of the year," National Bank senior economist Krishen Rangasamy said.

Overseas, world markets held near recent highs as China's Communist Party conference began and European markets awaited remarks from European Central Bank chief Mario Draghi.

The MSCI's index of Asia-Pacific shares outside Japan was largely unchanged but near its best level since late 2007 after China President Xi Jinping opened the conference, which is held once every five years. China's blue-chip CSI300 index advanced in the wake of the the speech. The Shanghai composite index rose 0.28 per cent.

In Japan, the Nikkei advanced 0.13 per cent and Hong Kong's Hang added 0.05 per cent.

In Europe, markets were higher as the third-quarter earnings parade continued. The pan-European Stoxx 600 was higher in early going with nearly all major sectors in positive territory. Britain's FTSE 100 was up 0.41 per cent. Germany's DAX and France's CAC 40 were both up about half a percentage point.

Mr. Draghi and ECB chief economist Peter Praet are both scheduled to speak at a conference in Frankfurt Wednesday. The comments come ahead of next week's ECB. The central bank is expected to announce plans to cut new asset purchases.

Commodities

Crude prices were higher ahead of weekly U.S. inventory figures, which are seen showing a sharp decline in U.S. oil stocks. In early going, benchmark Brent crude posted gains just shy of a percentage point while West Texas Intermediate moved up to top $52 (U.S.) a barrel. The day range on WTI is $51.91 to $52.17.

Later Wednesday, the U.S. Energy Information Administration releases its weekly crude inventory numbers. Analysts are expecting to see a draw down after the American Petroleum Institute's weekly figures - released Tuesday - showed a decline in inventories of 7.13 million barrels last week.

"Oil has been on another impressive run as of late, supported by higher global demand, a rebalancing of the market and more recently, supply disruptions in Iraq," Mr. Erlam noted. "A similar draw down today may provide another boost but given the moves we've seen since the summer, I do wonder how much higher we can go in the short-term."

Underpinning recent gains are increased tensions in Iraq. Reuters notes that Iraqi government forces captured the major Kurdish-held oil city of Kirkuk earlier this week, responding to a Kurdish independence referendum.

"It remains to be seen whether the Kurds, after withdrawing from the region they claim to be entitled to, will allow crude oil to be transported by pipeline across their territory to the Turkish Mediterranean port of Ceyhan," said analysts at Commerzbank.

The news agency also reported that a technical pattern known as a "Golden Cross" was approaching in WTI crude oil contracts on Wednesday, in which the 50-day moving average climbs higher than the 200-day. This is widely seen as a bullish price indicator, and already occurred with Brent futures on Sept. 25, Reuters noted.

In other commodities, gold was lower for the third consecutive day as the U.S. dollar firmed. Speculation over who will be the next head of the Federal Reserve has been bolstering the currency. Reports suggest about five candidates are in the running.

Both spot gold and U.S. gold futures were both lower in early going.

Silver was also weaker. London copper prices were down after hitting their highest level in three years as investors took profits.

Currencies and bonds

The Canadian dollar got a lift early Wednesday when Statscan reported that August factory sales rose 1.6 per cent after two straight months of declines. Immediately after the release of the report, the loonie returned to near the 80-cent (U.S.) mark. The day's range is now 79.79 cents to 80.07 cents. Economists had been expecting another down month for the country's factories.

"Today's figures are modestly positive for the C$ and negative for the front end of the bond curve, although an October move from the BoC is still a long-shot," CIBC economist Nick Exarhos said, noting gains were concentrated in transportation industries.

Early Wednesday, the U.S. dollar was trading higher for the fifth straight session. The U.S. dollar index, which weighs the greenback against a basket of currencies, was higher.

"The U.S. dollar is trading higher again this morning as the possibility of a more hawkish Federal Reserve Chair succeeding Janet Yellen in February raises the prospect of more interest rate hikes next year," Mr. Erlam said. "Market expectations for interest rates next year are already well below those of the central bank, should Yellen be replaced by someone of a more hawkish nature, the market could find itself well behind the curve."

Although the U.S. currency has been staging a recovery over the last month, he notes that it's "not a million miles from its lows and has some way to go to pare the substantial losses suffered this year."

"A break and hold above 94 in the dollar index may signal such a correction, which may be well supported into the end of the year should a more hawkish Chair appointment be announced and Congress make progress on health care and, more importantly, tax reform," Mr. Erlam said.

In bonds, the yield on the U.S. 10-year note was higher at 2.332 per cent as investors await the release of the Fed's beige book Wednesday afternoon. The yield on the 30-year note was also higher at 2.834 per cent.

Stocks set to see action

Encana Corp. will update its five-year plan at its investor day on Wednesday. In a release ahead of the session, Encana said it expects to deliver leading corporate retuns, strong cash flow and substantial free cash flow.

"Successful execution of our strategy and strong performance through 2017 has set the stage for the next five years," CEO Doug Suttles said. "We have created a highly resilient business that is unique in our industry. Our updated five-year plan is better on every measure. We are on track to deliver leading corporate returns, strong cash flow growth and substantial free cash flow, without any improvement in commodity prices."

Encana says, ‍through its five-year plan, it expects return on capital employed will climb to between 10 to 15 per cent​. Encana expects to deliver about 25 per cent compound annual growth in non-GAAP cash flow and around $1.5-billion of cumulative non-GAAP free cash flow.

Canadian Pacific Railway Ltd. boosted its full-year profit forecast on Tuesday amid strong growth in freight revenues, The Globe's Eric Atkins reports. Calgary-based CP, which reported third-quarter financial results after markets closed, said revenue increased by 3 per cent to $1.6-billion while diluted earnings per share rose by 50 per cent to $3.50. Net income was $510-million for the three months ending Sept. 30. On an adjusted basis, per-share profit rose by 6 per cent to $2.90. Analysts expected adjusted per-share profit of $2.87.

A U.S. judge's ruling on Monday invalidating Allergan PLC's patents on its blockbuster $1.5-billion dry-eye medicine, Restasis, has cast doubt on the company's novel strategy to enlist a Native American tribe to help shield those patents from challenge by generic drug makers, legal experts said. In a deal announced last month, Allergan transferred the Restasis patents to New York state's Saint Regis Mohawk Tribe, claiming the group's status as a sovereign nation meant the patents could not be reviewed by the U.S. patent office. Allergan said the move was justified because the same patents were already being reviewed in federal court, but critics said it was a cynical attempt to prolong the company's monopoly on Restasis.

International Business Machines Corp's shift to newer businesses such as cloud and security services helped it beat analysts' quarterly revenue estimates, and the technology major hinted at sales growth after nearly six years of declines. IBM has been focusing on cloud, cybersecurity and data analytics, or what the company calls its "strategic imperatives", to counter a slowdown in its legacy hardware and software businesses. Revenue from these businesses climbed 11 per cent to $8.8-billion in the third quarter ended Sept. 30, accounting for about 46 per cent of the company's total revenue. IBM shares were up 6 per cent in premarket trading.

Canada's Corus Entertainment Inc. reported a better-than-expected profit on Wednesday as the media company benefited from cost savings. The company's net income attributable to shareholders rose 15.7 per cent to $28.9-million in the fourth quarter ended Aug. 31. Excluding items, Corus earned 22 Canadian cents per share. Analysts on average had expected a profit of 16 Canadian cents, according to Thomson Reuters I/B/E/S. Corus also said it would sell its French-language specialty channels to the media unit of rival BCE Inc. for $200-million.

Diversified healthcare company Abbott Laboratories on Wednesday reported a quarterly profit compared with a loss in the year-ago quarter, helped by strong sales in its medical devices and generics businesses. Its shares were up 0.07 per cent in premarket trading.

The U.S. Securities and Exchange Commission on Tuesday charged mining company Rio Tinto Plc and two of its former top executives with fraud, saying they inflated the value of coal assets in Mozambique acquired for $3.7-billion and sold a few years later for $50-million. The U.K.'s Financial Conduct Authority also said Tuesday it had reached a settlement with Rio Tinto under which the company would pay a fine of £27 million ($35.6-million) to settle claims that it breached accounting rules in connection with the Mozambique assets. Rio's U.S.-listed shares fell 2 per cent in premarket trading.

MGM Resorts was downgraded to "hold" from "buy" by Stifel Nicolaus. Its shares fell 0.8 per cent in premarket trading.

U.S. regulators have granted a priority review to AstraZeneca's ovarian cancer drug Lynparza as a treatment for breast cancer, putting it on track for potential approval in the new disease area during the first quarter of 2018. The medicine, which is being jointly developed and marketed with Merck under a deal struck in July, is the first poly ADP-ribose polymerase (PARP) drug to be considered for use outside ovarian cancer. Merck shares were up 1.8 per cent in premarket trading while AstraZeneca's stock was down 0.2 per cent.

Chipotle Mexican Grill slipped 2.82 per cent after Bank of America Merrill downgraded the company's stock to "underperform" and slashed its price target by $105 to $285.

More reading: Wednesday's insiders report
More reading: My new dividend portfolio is off to a flying start

Economic News

Canadian manufacturing sales rose 1.6 per cent in August. Economists had been expecting a decline of 0.9 per cent.


U.S. home building fell to a one-year low in September as Hurricanes Harvey and Irma disrupted the construction of single-family homes in the South, suggesting that housing probably remained a drag on economic growth in the third quarter, according to Reuters. Housing starts decreased 4.7 per cent to a seasonally adjusted annual rate of 1.127 million units.


(10:30 a.m. ET) EIA Petroleum Status Report is unveiled.


(2 p.m. ET) U.S. Fed releases Beige Book.

With files from Reuters