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Before the Bell: Futures sink on hawkish Fed comments

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.

The big story overnight has been the U.S. dollar's relentless drive higher against most other major currencies. U.S. Federal Reserve speakers this week have been leaning hawkish with even doves like Chicago Fed President Charles Evans suggesting a rate hike is likely this year, maybe even November (which I doubt, but they clearly want to keep options open). Yesterday's smoking hot non-manufacturing PMI report and surprise drop in oil inventories indicated a strong U.S. economy that could withstand a rate hike. U.S. index futures are down 0.2 per cent on these hawkish headwinds.

Overseas, talk that the European Central Bank could start tapering back asset purchases has gone quiet, but not away. Strong factory orders and construction PMI for Germany indicate that stimulus may not be needed as much just as it's reaching its limits anyway. Today's ECB minutes could spark more trading action in European markets where a rally in the euro this week has held back European indexes with the FTSE down about 0.1 per cent and the DAX and CAC down about 0.2 per cent so far today.

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The higher greenback and round number resistance have combined to stall West Texas Intermediate oil's advance at the $50 (U.S.) level for now with Brent trading near $52 (U.S.). With U.S. inventories out for this week and surprisingly positive again, speculation could shift overseas. There have been rumours floating around that more informal talks among OPEC and non-OPEC countries about production targets could be held this weekend or next week.

In currency action this morning, the higher U.S. dollar has sent the British pound to another new low, although the pace of declines is slowing. The euro has dropped back while the yen is steady and gold has bounced back a bit suggesting a bit of a defensive shift, particularly as commodity currencies like the Canadian, Australian and New Zealand dollar have weakened overnight.

Today is quiet for scheduled news in North America, so we may see traders here prepare for tomorrow's big U.S. nonfarm payrolls and Canada Labour Force reports which could kick off another round of central bank speculation on both sides of the border.

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

MARKET DATA:

Futures (as of about 8:45 a.m. ET)

Dow -0.15 per cent; S&P 500 -0.17 per cent; Nasdaq: -0.15 per cent; TSX 60 -0.15 per cent

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Equities
Japan's Nikkei +0.47 per cent
Shanghai composite index +0.23 per cent
Hong Kong's Hang Seng +0.69 per cent 
Germany's DAX -0.29 per cent
London's FTSE +0.04 per cent
France's CAC 40 -0.20 per cent

Commodities
WTI crude oil (Nymex Nov.) -0.14 per cent at $49.76 (U.S.) a barrel
Gold (Comex Dec.) +0.06 per cent at $1,269.30 (U.S.) an ounce
Copper (Comex Dec.) -0.51 per cent at $2.15 (U.S.) a pound

Currencies
Canadian dollar -0.10 at 75.73 cents (U.S.)
U.S. dollar index +0.26 at 96.38

Bonds
Canada 10-year bond yield -0.5368 at 1.08 per cent

KEY ECONOMIC RELEASES

China foreign reserves
Euro Area retail PMI and ECB minutes from Sept. 8 meeting
Germany factory orders

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(8:30 a.m. ET) Canada building permits for August. Estimate is an increase of 2.0 per cent from July.

The value of Canadian building permits issued in August surged far more than expected on higher construction intentions for condominiums and commercial buildings, data from Statistics Canada showed on Thursday. The 10.4 per cent increase well exceeded economists' expectations for a 3.0 per cent gain. July was revised up to a rise of 3.4 per cent from the previously reported 0.8 per cent.


(8:30 a.m. ET) U.S. initial jobless claims for week of Oct. 1. Estimate is 256,000 jobs, an increase of 2,000 from week of Sept. 24.

The number of Americans filing for unemployment benefits unexpectedly fell last week to near a 43-year low, an indication of firmness in the labor market which may support an interest rate increase by the U.S. Federal Reserve this year.Initial claims for state unemployment benefits declined 5,000 to a seasonally adjusted 249,000 for the week ended Oct. 1, the Labor Department said on Thursday.

Economists polled by Reuters had forecast first-time applications for jobless benefits rising to 257,000 in the latest week. First-time claims were the lowest since April, when initial applications for aid were at levels not seen since November 1973.


(10:30 a.m. ET) EIA natural gas report.
(11:35 a.m. ET) Bank of Canada deputy governor Carolyn Wilkins speaks at the Université du Québec à Trois-Rivières.

Also: G20 finance ministers and central bank governors working dinner in Washington.

KEY STOCKS TO WATCH

Twitter shares plunged 17 per cent to $21 in heavy premarket trading, after technology news website Recode said Disney and Alphabet were not bidding for the company.

**

Wal-Mart reiterated its prior financial guidance for this year, and said it expected earnings to be flat next year compared with this year and then up 5 per cent the following year. The retailer plans to slow new store growth, and added that it is very strong financially and has flexibility and options that competitors do not have. Its sharres are down 2.3 per cent in premarket trading.

**

Yum Brands reported adjusted quarterly profit of $1.09 per share, missing estimates by a penny a share. The restaurant operator's revenue also was below forecasts. The parent of KFC, Taco Bell, and Pizza hut also reported a one percent drop in China same-store sales, compared to estimates of a 4.5 per cent increase. Its shares were down 2.2 per cent in premarket trading.

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Alnylam dropped 43.3 per cent in premarket trading after it abandoned testing its experimental drug for heart failure as trial data showed patients who took the treatment were more likely to die than those who got a placebo.

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Tesla fell 2.1 per cent to $204.10 after Goldman Sachs downgraded its stock to "neutral" from "buy".

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Victoria's Secret parent L Brands reported a three per cent increase in September same-store sales, well above the 0.1 per cent increase estimated by analysts surveyed by Thomson Reuters. It shares were up 2.1 per cent  in premarket trading.

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Abercrombie & Fitch was downgraded to "sector weight" from "overweight" at KeyBanc, citing a heavier promotional environment. It shares slipped 0.7 per cent in premarket trading.

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JD.com shares are up 2.6 per cent in premarket trading on news that Wal-Mart is nearly doubling its investment in the China-based online retailer to about 10.8 per cent. The Wall Street Journal reports that the move also gives Wal-Mart observer status at JD.com's board meetings.

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Warehouse retailer Costco reported a September same-store sales increase of one per cent, doubling the Thomson Reuters estimate of a 0.5 per cent rise. Its shares were off 0.03 per cent in premarket trading.

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Medical device maker ICU Medical Inc. said it would buy Pfizer Inc.'s global infusion therapy business, Hospira Infusion Systems (HIS), for $1 billion in cash and stock. Pfizer will receive $600 million in cash and nearly $400 million in newly issued shares of ICU Medical common stock.

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

Earnings include: Advanced Drainage Systems Inc.; Richelieu Hardware Ltd.; Sandvine Corp.

With files from wire services

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