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Before the Bell: Futures fall as Alcoa disappoints, oil falters

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.

Trading is mixed in stock markets around the world today. U.S. index futures are down about 0.2 per cent giving back some of Monday's 0.5 per cent gains. European markets are up slightly with the FTSE up 0.5 per cent and the Dax up 0.6 per cent.

The U.S. dollar continues its relentless drive higher against pretty much everything on anticipation of more interest rate increases. Overnight Chicago Fed President Charles Evans, a voter next year, indicates he would not be surprised to see a rate hike in December. The growing prospects of a rate hike this year appear to be limiting the upside for U.S. stocks.

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I had a good laugh from Mr. Evans' other suggestion that the U.S. election would not have an influence on their decision. Considering the next Fed meeting is less than a week before the vote, and the Fed has been accused of keeping rates low to help the Democrats, it seems to me whatever decision is made could have a political impact.

The election may also still have an impact on the markets in the coming weeks. Although Republican presidential candidate Donald Trump did a lot better in the second debate, he took a hit in the polls from his comments about women in past tapes and videos. The recent widening gap appears to be related more to a fall in support for Mr. Trump (or less willingness among the public to openly admit to pollsters that they still plan to vote for him) than renewed enthusiasm for Democratic candidate Hillary Clinton.

Despite a widening lead in the polls for Ms. Clinton, the market reaction to the latest debate was fairly limited. This suggests to me that stocks have priced in peak Hillary and that the political risks for stocks are to the downside‎. A month is a long time in politics and a lot can change so traders should avoid complacency and be ready for volatility.

Another potential risk to the markets is that the election race and very different policy stances could impact business decision making and impact results or guidance in the upcoming earnings season. This risk appears even more real today with Alcoa trading lower this morning in premarket action after the company kicked off earnings season with a miss. Alcoa posted earnings of 32 cents a share, lower than the 35 cents per share expected by the Street. Revenue also fell short of expectations. Its shares sank nearly 5 per cent in premarket trading.

The Mexican peso, on the other hand, continues to recover. The Mexican peso surged against U.S. dollar on Monday on a combined boost from the debate and the oil rally but has levelled off today, trading just below 19 pesos per U.S. dollar.

Crude oil is down slightly today after rallying Monday with West Texas Intermediate still holding above $50 (U.S.). There are more informal talks being held among OPEC and non-OPEC countries on the sidelines of an oil conference in Turkey. On Monday, oil popped as Russia indicated support for a deal. It has dropped back today, however, on news from the International Energy Agency that OPEC production hit another record in September. Questions over whether Russia would actually participate in a freeze or cut and isn't helping either.

Smartphone stocks may be active today after Samsung announced that it is ending production of the Galaxy Note 7 following more battery fires. This could impact Samsung and its suppliers while potentially benefiting competitors like Apple, Google, Nokia and Blackberry and their suppliers. With Google having recently announced a new phone we could see a big reshuffling of the deck chairs in the sector over the next few months.

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Earnings are also in focus today as

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 8:15 a.m. ET)

Dow -0.21 per cent; S&P 500 -0.28 per cent; Nasdaq: -0.11 per cent; TSX 60 +0.34 per cent

Equities
Japan's Nikkei +0.98 per cent
Shanghai composite index +0.59 per cent
Hong Kong's Hang Seng -1.27 per cent 
Germany's DAX +0.41 per cent
London's FTSE +0.25 per cent
France's CAC 40 +0.35 per cent

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Commodities
WTI crude oil (Nymex Nov.) -1.30 per cent at $50.68 (U.S.) a barrel
Gold (Comex Dec.) -0.33 per cent at $1,256.30 (U.S.) an ounce
Copper (Comex Dec.) -0.57 per cent at $2.19 (U.S.) a pound

Currencies
Canadian dollar -0.31 at 75.59 cents (U.S.)
U.S. dollar index +0.52 at 97.45

Bonds
Canada 10-year bond yield +1.39 at 1.18 per cent

KEY ECONOMIC RELEASES

Japan current account balance
Germany ZEW survey  - expectations
EU finance ministers meeting in Luxembourg

(8:15 a.m. ET) Canada housing starts for September. Consensus projection is a 4.9-per cent annualized rate increase.
(10 a.m. ET) U.S. Federal Reserve Labor Market Conditions Index for September

KEY STOCKS TO WATCH

iPhone maker Apple was up 1.25 per cent in premarket trading on Tuesday following Samsung's Galaxy Note 7 announcement.

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Shares of Illumina plunged 26 per cent to $136.25 after the diagnostic test maker cut third-quarter revenue forecast for the second time in a row.

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JinkoSolar rose 4.2 per cent after the solar cell maker entered into an agreement for the sale of its Jinko Power downstream business in China.

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Caterpillar rose 1.3 per cent to $89.35 after Goldman Sachs and Jefferies raised price target on the stock.

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Twitter was upgraded to "hold" from "sell" at Evercore, which based its move on the recent plunge in the share price following reduced prospects for a Twitter sale.

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The board of food producer ConAgra approved a $1.25-billion stock buyback program.

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Susquehanna Financial initiated coverage on athletic footwear and apparel maker Nike with a "positive" rating, saying a 16 percent pullback this year represents a rare opportunity to buy a "world class equity" in a business that's in a favorable cycle.

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JPMorgan Chase upgraded disk drive maker Seagate Technology to "neutral" from "underweight," owing to a slowing decline in sales of server drives as well as reduced exposure for Seagate to the personal computer market. Its shares were up 1.7 per cent in premarket trading.

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Bombardier Inc.'s rail division, Berlin-based Bombardier Transportation, and consortium partner Vossloh Kiepe have won a $156-million (U.S.) contract to supply 40 low-floor trams to Sweden's second-largest city, Gothenburg.

Earnings include: Alcoa Inc.; Barracuda Networks Inc.; Fastenal Co.

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

With files from wire services

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