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Before the Bell: Stocks turn positive despite ADP miss

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.

Growing speculation that the recent easy money cycle may be ending while political uncertainty is on the rise continues to send shockwaves ‎through global stock and currency markets.

U.S. indexes are consolidating yesterday's losses with U.S. index futures down slightly today. Last evening Chicago Fed President Charles Evans,  a non-voter this year but voter next year, indicated he thinks if inflation picks up we could see a rate hike this year, and left the door open to November. This is particularly notable as Mr. Evans is one of the most dovish Fed members. He also indicated that while indifferent on the timing of the next hike, he expects the longer term rate hike path to be gradual.

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ADP payrolls increased by 154,000 last month, short of the 165,000 the Street had expected. This could be due to a combination of factors including a slowing U.S. economy, the U.S. nearing full employment or business delaying investment decisions including hiring ahead of next month's big election. So far, the Street appears to be taking the news as slightly dovish with stocks up slightly and the U.S. dollar down slightly.

Meanwhile in Europe, speculation that the European Central Bank is considering ending its asset purchase program through tapering back purchases like the Fed did in 2014 won't go away despite denials from the ECB. European indexes are trading lower on the news with the FTSE down 0.5 per cent while the DAX, CAC and IBEX are all down 0.6 per cent.

The euro is the top performing major today rallying against U.S. dollar, British pound and yen. Market action indicates that traders are now thinking even if quantitative easing (QE) continues for a while longer, its limits have been reached and additional stimulus out of the ECB is unlikely. The yen, on the other hand, continues to retreat with the Bank of Japan still in pedal-to-the-metal stimulus mode.

‎Crude oil is rallying again overnight with West Texas Intermediate and Brent both up 1.6 per cent. Another big surprise drop of 7.5 million barrels (mmbbls) in American Petroleum Institute oil inventories sparked the latest rally with more action possible around today's Department of Energy mid-morning report. Gold stabilized near $1,275 overnight following yesterday's collapse. The Canadian dollar has not followed the oil rally opening room for a loonie catchup or a crude correction. Resource stocks may also be active again today with prices providing a tailwind to energy producers and a headwind to miners.

Political uncertainly may also be influencing trading in some markets. In the U.K., the pound continues to slide following comments from Bank of England Monetary Policy Committee member Ben Broadbent indicating concern over the impact Brexit may have on business investment (although he may also have been trying to justify the MPC hitting the panic button prematurely).

Meanwhile, the U.S. election also presents the potential for swings in the markets. Last night's Vice-Presidential debate was apparently seen as won by Republican Mike Pence, stopping a recent shift in momentum toward the Democrats. Even with the supposed Hillary Clinton debate win and apparent Donald Trump implosion over the last week, the race remains very close especially after factoring in that conservatives around the world tend to do better at the ballot box than in pre-election polls. The next Presidential debate is Sunday night and a close contest could rattle complacent markets in the coming weeks.

Now, here is a closer look at what's going on this morning and what is still to come.

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MARKET DATA:

Futures (as of about 8:35 a.m. ET)

Dow +0.25 per cent; S&P 500 +0.26 per cent; Nasdaq: +0.23 per cent; TSX 60 +0.26 per cent

Equities
Japan's Nikkei +0.50 per cent
Shanghai composite index +0.23 per cent
Hong Kong's Hang Seng +0.42 per cent 
Germany's DAX -0.61 per cent
London's FTSE -0.54 per cent
France's CAC 40 -0.62 per cent

Commodities
WTI crude oil (Nymex Nov.) +1.6 per cent at $49.47(U.S.) a barrel
Gold (Comex Dec.) +0.5 per cent at $1,276.00 (U.S.) an ounce
Copper (Comex Dec.) -0.32 per cent at $2.17 (U.S.) a pound

Currencies
Canadian dollar -0.09 at 75.67 cents (U.S.)
U.S. dollar index -0.12 at 96.05

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Bonds
Canada 10-year bond yield -0.1103 at 1.06 per cent

KEY ECONOMIC RELEASES

Japan services and composite PMI
Euro Area retail sales, services and composite PMI

(8:15 a.m. ET) U.S. ADP national employment report for September. Consensus is an increase of 165,000 jobs.

U.S. private employers added 154,000 jobs in September, below economists' expectations, a report by a payrolls processor showed on Wednesday.  Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 166,000 jobs, with estimates for the gain ranging from 140,000 to 181,000.

(8:30 a.m. ET) Canada merchandise trade deficit for August.  Consensus is $2.5-billion, unchanged from July.

Canada's trade deficit in August shrank to $1.94-billion (Canadian), the lowest for eight months, as exports posted a third consecutive gain and imports stayed flat, Statistics Canada said on Wednesday. The deficit, the 24th in a row, was less than the $2.60-billion shortfall predicted by analysts in a Reuters poll. Statscan revised July's deficit down to $2.19-billion from an initial $2.49-billion. Exports rose by 0.6 per cent on the back of a healthy performance by the consumer goods and metallic products sections. This could please the Bank of Canada, which says non-energy exports are crucial to helping revive an economy hobbled by low oil prices. Energy exports also increased.

(8:30 a.m. ET) U.S. goods and services trade deficit for August. Consensus is $40-billion, up from $39.5-billion in July.

The U.S. trade deficit rose more than expected in August as a rise in imports offset higher exports. The Commerce Department said on Wednesday the trade gap widened 3 per cent to $40.73-billion (U.S.). Imports hit their highest level since September, 2015, while exports were the highest since July of last year. The July trade deficit was revised to $39.55-billion from a previous $39.47-billion. Economists polled by Reuters had forecast the trade gap decreasing to $39.3-billion in August. When adjusted for inflation, the deficit fell to $57.48-billion from a revised $58.23-billion in July.

(10 a.m. ET) U.S. factory orders for August. Consensus is a decline of 0.3 per cent from July.
(10 a.m. ET) U.S. non-manufacturing ISM for September. Consensus is 53.0, up from 51.4 in August.
(10:30 a.m. ET) EIA petroleum status report.

KEY STOCKS TO WATCH

Bank of Montreal has revised its capital levels downward for the previous three fiscal quarters, raising the prospect that the lender may have to raise additional funds and delay possible acquisition plans and share buybacks.

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Eli Lilly Co. said on Wednesday it would buy German drugmaker Boehringer Ingelheim's U.S. pet vaccines business and a manufacturing plant for $885-million.

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Restaurant operator McDonald's is near a deal to sell 20-year franchise rights in Singapore and Malaysia to Saudi Arabia's Reza Group, according to Reuters, with the potential transaction worth up to $400-million. Reza already operates a number of McDonald's restaurants in Saudi Arabia.

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Spirits maker Constellation Brands reported adjusted quarterly profit of $1.77 per share, 12 cents a share above estimates. Revenue also beat forecasts, driven by strong beer sales. Constellation also increased its full-year guidance. Separately, the company bought craft whiskey maker High West Distillery for about $160-million as it moves ahead with plans to expand further into premium liquor. Its shares were up 2 per cent in premarket trading.

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Global Payments, a provider of payment technology services, earned an adjusted 86 cents per share for its latest quarter, three cents a share above estimates. Revenue was also above forecasts and it raised its full-year forecast. Its shares were up 3 per cent in premarket trading.

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Shares of Micron Tech were down 4.8 per cent in premarket trading after the chipmaker gave a disappointing forecast for the current quarter. Micron also reported an adjusted quarterly loss of five cents per share, smaller than the 12 cents a share loss expected by analysts.

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Casualty insurer Endurance rose 4.7 per cent to $91.99 after Japanese insurer Sompo Holdings said it would buy the company for $6.3-billion.

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Salesforce.com was off 3 per cent at $70.38 after the software seller gave full-year sales forecast that missed analysts' estimates.

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Twitter rose nearly 3 per cent after the Wall Street Journal reported that the micro-blogging website is expected to field bids this week.

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Earnings include: Acuity Brands Inc.; Constellation Brands Inc.; Monsanto Co.; MTY Food Group Inc.; Yum! Brands Inc.

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

With files from wire services

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