Equity Markets
Canada's main stock index rose on Tuesday as financial stocks kept the index in positive territory despite a hefty decline in Shopify Inc. shares and weaker resource stocks.
The Toronto Stock Exchange's S&P/TSX composite index was up 13.09 points, or 0.08 per cent, at 16,015.87 shortly after the open.
Six of the index's 10 key sectors rose, but information technology fell 0.9 per cent on Shopify, which was down 7.8 per cent.
Wall Street opened higher on Tuesday, the last trading of October, helped by a string of upbeat earnings reports from companies such as Kellogg and Mastercard.
The Dow Jones Industrial Average rose 26.64 points, or 0.11 per cent, to 23,375.38. The S&P 500 gained 2.9 points, or 0.11 per cent, to 2,575.73. The Nasdaq Composite added 17.59 points, or 0.26 per cent, to 6,716.55.
The Canadian dollar weakened against its U.S. counterpart on Tuesday after data showing a surprise contraction of the domestic economy in August further dampened prospects of another Bank of Canada interest rate hike this year.
MasterCard shares were up 1 per cent premarket after the company's quarterly profit beat market estimates, while Kellogg jumped 5 per cent following a surprise rise in sales.
"We're still in the thick of earnings and have seen some high-profile companies driving the market a lot," said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.
The earnings season has been closely tracked to justify stretched valuations and results have been largely above expectations.
With more than half the S&P 500 components reported, third-quarter earnings are estimated to have climbed 6.7 per cent, up from an expectation of 5.9-per cent growth at the start of October, according to Thomson Reuters I/B/E/S.
A day earlier, the TSX breached the 16,000 mark for the first time, helped by gains in marijuana stocks. Wall Street, meanwhile, ended in the red on a Bloomberg report that a proposed business tax cut would be implemented gradually over several years. While earnings continue to play a key role for markets Tuesday, much of the expected market-moving news of the week remains in the wings.
"If I'm hoping for 'Fright Night' thrills today, I might struggle to find them in markets," Societe Generale analyst Kit Juckes said. "The FOMC and the ISM (Institute for Supply Management) data are tomorrow, the Fed Chair announcement is expected on Thursday, and the payroll data are on Friday."
In Canada, Statscan said GDP fell by 0.1 per cent in August. Economists had been expected a modest uptick after a flat reading in July. The loonie tanked on the report losing about a third of a U.S. cent.
Later in the day, Bank of Canada Governor Stephen Poloz and Deputy Governor Carolyn Wilkins appear before the federal finance committee.
In earnings, WestJet posted a 20-per-cent increase in third-quarter profit on improved capacity and traffic. The carrier reported profit of $138.4-million or $1.18 a share for the quarter compared with a profit of $116-million or 97 cents a share a year earlier. Revenue rose to $1.22-billion from $1.12-billion.
Meanwhile, Shopify topped forecasts for the 10th quarter early Tuesday, reporting an adjusted profit of 5 cents a share, compared with a loss of 2 cents a year earlier. Analysts had been expecting a loss of 1 cent a share in the latest quarter. Alongside the results, analysts will also be watching for the company's first substantive response to short-seller's attack on the company's affiliate marketing program that lets third-party promoters to earn commissions for persuading new merchant customers to sign up.
South of the border, outside the earnings arena, the Federal Reserve begins its two-day meeting. No interest-rate hike is expected in Wednesday's announcement but markets will be looking for a hawkish tone in the central bank's statement that could firm up expectations of a December increase in borrowing costs. The markets are also expecting an announcement Thursday on who will be the next chair for the powerful central bank. All this plays out against a backdrop of political uncertainty after federal investigators proving Russian interference in the 2016 election charged President Donald Trump's former campaign manager, Paul Manafort, and another aide, Rick Gates, with money laundering.
President Donald Trump is likely to pick Fed Governor Jerome Powell as the next head of the U.S. central bank on Thursday.
U.S. Treasury yields fell after the report on Monday as Powell is seen as more dovish than other contenders.
The central bank is likely to refrain from raising rates after the meeting, with economists expecting a hike only in December, according to a Reuters poll.
Overseas, European shares managed their best level in five months. Energy stocks where higher in London, helped by a rally in BP shares after the company announced a share buyback issued to help cover part of losses stemming from lower oil prices. BP's earnings also jumped 9.2 per cent in the third quarter. Britain's FTSE 100 was up 0.06 per cent. France's CAC 40 was up 0.15 per cent. Germany's DAX was closed for a public holiday.
In Asia, shares finished mixed. Japan's Nikkei pulled back from early losses to finish close mostly flat after the Bank of Japan held monetary policy steady. Hong Kong's Hang Sens finished down 0.32 per cent and the Shanghai composite index ended up 0.12 per cent. MSCI's broadest index of Asia-Pacific shares outside Japan ended up 0.4 percent.
Commodities
Brent and West Texas Intermediate prices were both down slightly in early going but still near recent highs, with Brent continuing to hold about $60 (U.S.) a barrel. WTI's day range so far is $53.93 to $54.28. Despite the early declines, Brent is still near the July 2015 highs seen earlier this week. WTI is close to highs last seen in February and also not far off its best level in two years.
"The sentiment in the oil markets is positive before the OPEC's World Oil Outlook due on Nov. 7 and the ordinary OPEC meeting due on Nov. 30," ICG senior market analyst Ipek Ozkardeskaya said in a note. "The next resistance is eyed at $55.00/55.67 (January high). The WTI's price increased by 5 per cent since the formation of golden cross (50-day moving average above 200-day moving average) in September."
(A golden cross is a bullish pattern marked by the short-term moving average breaking above the long-term moving average)
Traders cited by Reuters suggested Tuesday's move slightly lower may be the result of investors adjusting positions after crude prices rose 5 per cent this month.
Some analysts are also cautioning that the the market is overbought after recent, sudden gains.
"U.S. shale output could keep a lid on prices over the medium to long-term," said Shane Chanel, equities and derivatives adviser at ASR Wealth Advisers.
In other commodities, gold prices steadied as the U.S. dollar weakened although the looming Fed decision and announcement on the central bank's chair kept investors on edge.
Spot gold was little changed early on while U.S. gold futures for December delivery were lower.
Silver was a touch higher. London copper turned higher in late Asian trading as the U.S. dollar pulled back.
Currencies and bonds
The Canadian dollar sank after Statscan said GDP fell by 0.1 per cent in August, dropping to the bottom end of the day's range of 77.52 cents (U.S.) to 77.97 cents. The August GDP decline was the first contraction since October, 2016. Economists had already been increasingly doubtful that the Bank of Canada would hike rates for a third time this year after the central bank struck a dovish note recently. Before Tuesday's report, the market had been pricing in just a 50-per-cent chance of a rate increase by January.
"The soft overall August results are consistent with our view that Canadian real GDP grew just under 2 per cent annualized in Q3," National Bank senior economist Krishen Rangasamy said. "The moderation of growth and still-mild inflation will be welcome by a Bank of Canada intent in delaying interest rate hikes for as long as possible even though, by its own admission, the economy is now operating at capacity."
In recent note, BMO chief economist Douglas Porter said that interest rate spreads have pretty much taken over as the main driver for the Canadian dollar this year, noting that the loonie sagged 2.2 per cent last week on the back of the previous week's 1.2-per-cent drop. Those declines, he said, came despite a gradual climb in oil prices and other commodities and reflect a comeback in the U.S. dollar and concerns about NAFTA and a more subdued rate outlook from the Bank of Canada.
Meanwhile, the U.S. dollar recovered lost ground after the U.S. Labor Department reported that labour costs in gathered steam in the third quarter, posting the biggest annual increase in more than two years. The report was seen as offering hope that wage growth was gaining traction as the labour market tightens. Earlier in the session, the U.S. dollar fell to an 11-day low against the safe-haven yen amid news of charges by investigators probing Russian interference in last year's U.S. election. Ahead of the North American open, the greenback looked set for its best monthly gain since February.
In bonds, the yield on the U.S. 10-year note was higher at 2.379 per cent. The yield on the 30-year note was higher at 2.889 per cent.
Stocks set to see action
Under Armour Inc.'s third-quarter profit more than halved from a year ago, hit by an $85-million restructuring charge. The company's shares fell 14.7 per cent in premarket after the company also cut its full-year outlook. Revenue fell 4.5 per cent to $1.41-billion in the latest quarter.
Mastercard Inc. reported a 21-per-cent rise in quarterly profit on Tuesday as consumers spent more globally and it fought for market share over other payment channels. Net income rose to $1.43 billion or $1.34 per share in the third quarter ended Sept 30, from $1.18-billion or $1.08 per share. Analysts on average were looking for $1.23 per share, according to Thomson Reuters I/B/E/S. It was not immediately clear if the numbers were comparable. Net revenue rose 18 per cent to $3.40-billion. Its shares gained 2 per cent in premarket trading.
Kellogg Co. reported Tuesday higher quarterly sales on increased demand for frozen foods and Kashi snacks, even as sales of cereals and snacks in the United States declined. Kellogg's shares were up 4.5 per cent in pre-market trade. Net income rose to $297-million, or 85 cents per share, in the third quarter ended Sept. 30, from $292-million, or 82 cents per share, a year earlier. Net sales rose 0.6 per cent to $3.27-billion following 10 straight quarterly declines, and beat the average analyst estimate of $3.21-billion, according to Thomson Reuters I/B/E/S.
Airbus said on Tuesday it had uncovered inaccuracies in its filings to U.S. regulators over arms technology sales, drawing the United States for the first time into a scandal over alleged misconduct at Europe's largest aerospace firm. Airbus also warned about potentially significant fines resulting from existing bribery investigations in Britain and France over the use of middlemen in civil airplane sales, which have triggered a sweeping internal investigation. But it said it was too early to guess the size or timing of any European penalties, or the outcome of the new U.S. findings.
Pfizer Inc..'s third-quarter profit more than doubled, while revenue remained largely flat. The largest U.S. drug maker posted net income of $2.84-billion, or 47 cents per share, in the third quarter, from $1.36-billion, or 22 cents per share, a year earlier. Revenue rose to $13.17-billion from $13.05-billion. Its shares slipped 0.2 per cent in premarket trading.
BP said it will resume share buybacks after reporting a doubling in third-quarter profit in the clearest sign yet that the oil company is confident about a turnaround in a week when Brent prices hit a two-year high above $60 a barrel. BP said it was able to balance its cashflow in the first nine months of the year, excluding large payments for the settlement of the 2010 Deepwater Horizon spill, at $49 a barrel as years of costs cuts pay off. BP's shares rose 2.5 per cent in premarket trading.
U.S. health insurer Aetna Inc., which is said to be in talks to be bought by CVS Health, reported a higher-than-expected quarterly profit on Tuesday as it kept its costs in control and cut losses in its pared down Obamacare business. Its shares rose 1.3 per cent in premarket trading.
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Economic News
The euro zone economy grew faster than expected in the third quarter and unemployment fell to an almost nine-year low, but consumer inflation slowed again in October after two months of faster rises, first estimates and data showed on Tuesday. The European Union's statistics office Eurostat estimated that the gross domestic product of the 19 countries sharing the euro grew 0.6 percent in July-September from the previous three months and was 2.5 percent higher than in the same period of 2016.
Statistics Canada says real gross domestic product pulled back by 0.1 per cent in August, hit by declines in manufacturing and mining, quarrying and oil and gas extraction. The agency says goods-producing industries contracted by 0.7 per cent for the month, while services-producing industries edged up 0.1 per cent. Twelve of 20 sectors improved for the month, but weakness in manufacturing and mining, quarrying and oil and gas extraction more than offset the gains. The manufacturing sector contracted 1.0 per cent for the month as both durable and non-durable manufacturing declined.
U.S. home prices rose at a healthy clip in August from a year ago, a trend that is thwarting many would-be buyers and potentially slowing sales. The Standard & Poor's CoreLogic Case-Shiller national home price index increased 6.1 per cent in August from a year earlier. That's higher than the 5.9 per cent annual gain in July. In 9 of the 20 cities tracked by the index, yearly price gains in August were faster than in July, the Associated Press reported.
(9:45 a.m. ET) U.S. Chicago PMI for October is released. Consensus is 60.0, down from 65.2 in September.
(10 a.m. ET) U.S. Conference Board Consumer Confidence Index for October is unveiled. Consensus is 121.0, up from 119.8 in previous month.
(3:30 p.m. ET) Bank of Canada Governor Stephen Poloz and Deputy Governor Carolyn Wilkins appear before the House of Commons Standing Committee on Finance.
With files from Reuters and The Canadian Press