Equities
U.S. stock futures wavered around break even early Friday as results from some of the country’s biggest banks kicked off what is expected to be a solid earnings season. Bay Street futures edged slightly higher even as crude prices fell and looked set for a weekly decline.
Overnight, world stocks rose for the second straight week with a lack of trade news helping sooth investors’ nerves. Shares in Europe started the day higher, while Japan’s Nikkei rose nearly 2 per cent as the yen weakened. However, fresh data showing China’s trade surplus with the United States rose to record levels in June also added a note of caution, given the continuing tensions between the two nations.
“Hopes are high that earnings season will deliver plenty of good news, although with high expectations - earnings growth of 21 per cent for the S&P 500 has been forecast by Thomson Reuters - comes the risk of disappointment,” IG chief market analyst Chris Beauchamp said.
“The constant drumbeat of company reports from the U.S. over the next few weeks will at least allow us to focus on something other than the trade spat between the U.S. and China.
He also noted that the S&P 500 is now at a key level with a break above the 2,800 mark “likely to galvanize risk appetite.”
On Wall Street, JPMorgan shares were higher ahead of the open. The bank kicked off the day’s earnings reporting an 18-per-cent increase in quarterly profit. On a per-share basis, JPMorgan posted earnings of US$2.29, up from last year’s US$1.82. The latest number topped analysts’ forecasts which called for earnings in the latest quarter of US$2.22.
Citigroup, meanwhile, beat analysts’ forecasts with a quarterly profit of US$1.63 a share, up from US$1.28 a year earlier. Analysts were expecting earnings of US$1.56 in the latest quarter. But the bank also fell short on revenue. Quarterly revenue rose 2 per cent to US$18.47-billion, below the US$18.51 billion the Street had been expecting. Citi shares were down in premarket trading.
Elsewhere, consumer products giant Johnson & Johnson shares were down more than 3 per cent in premarket trading after a jury ordered the company to pay a record US$4.69-billion to 22 women who alleged J&J’s talc-based products contain asbestos and caused them to develop ovarian cancer. The verdict is the largest to date related to the claims.
AT&T shares were down nearly 2 per cent on news that the U.S. Justice Department will appeal a judge’s approval of that company’s acquisition by Time Warner. The U.S. Justice Department had sued AT&T to block the deal on antitrust grounds but U.S. District Judge Richard Leon last month sided with the companies and allowed it to go ahead. The deal closed June 14 after the Justice Department didn’t seek an immediate stay of the order. However, the U.S. government still had 60 days to appeal the ruling.
On Bay Street, falling oil prices could weigh on energy stocks. Ahead of the North American open, Brent crude fell more than 1 per cent and approached US$73 a barrel as Libya reopened ports and the possibility that the U.S. could give give exemptions to some buyers of Iranian crude. West Texas Intermediate was also lower in early going. Both Brent and WTI were on track for weekly losses.
In Europe, the pan-European STOXX 600 was up 0.19 per cent with most sectors in positive territory. Britain’s FTSE 100 rose 0.49 per cent in morning trading. Germany’s DAX added 0.21 per cent and France’s CAC 40 rose 0.35 per cent.
In Asia, Japan’s Nikkei ended the week’s final session up 1.85 per cent helped by a weaker yen. The services sector led the index’s gains. Hong Kong’s Hang Seng rose 0.16 per cent. The Shanghai Composite Index, however, lost 0.22 per cent.
Commodities
Crude prices continued to struggle with Brent losing more than 1 per cent overnight to near US$73 a barrel. Brent crude was headed for a second straight week of declines. West Texas Intermediate was also lower and looked set for a weekly loss as well.
The declines came after crude prices jumped last month on supply disruptions in Libya and Venezuela and concerns that the U.S. would financially punish companies looking to buy Iranian crude. However, this week Libya reopened ports in the east and U.S Secretary of State Mike Pompeo suggested that the Trump administration could give exemptions to some countries looking to buy Iranian crude.
“Fears of weaker future demand because of the U.S.-China trade dispute, coupled with news of increased supply from Saudi Arabia, and plans for Libya to boost exports all contributed to the slump in price,” David Madden, market analyst with CMC Markets U.K., said in a note. “Despite the relatively low price, demand was subdued.”
The day range on Brent so far is US$73.22 to US$74.47. The range for WTI is US$69.84 to US$70.42.
Later in the day markets will also get the weekly reading on U.S. production when energy services firm Baker Hughes releases its latest drill count figures. For the week ended July 6, the rig count edged up by five, putting the total number in operation at 1,052. That is up 100 from the same time last year.
In other commodities, gold prices fell to their lowest in more than a week as the U.S. dollar strengthened. Spot gold was down but off the session lows of US$1,238.90, its lowest since July 3.
U.S. gold futures were also weaker.
“When the [U.S.] dollar rises we see gold falling, but when the dollar falls we don’t see gold recovering because there is very little appetite for gold at this time,” ActivTrades analyst Carlo Alberto De Casa said. “Higher interest rates in the U.S. means holding gold costs money.”
Currencies and bonds
The Canadian dollar slid in the predawn hours as its U.S. counterpart strengthened on world currency markets. The loonie topped out at 76.03 US cents last night and has since seen a steady decline in the overnight period, nearing a session low of 75.71 US cents as the opening bell approached.
Falling crude prices alongside a higher U.S. dollar weighed on the loonie through the predawn period. The U.S. dollar rally comes after consumer price figures released on Thursday suggested rising inflation could cause the Federal Reserve to hike interest rates as many as four times by the end of this year. On Friday, the U.S. dollar index reached a two-week high at 95.232.
“With very little in the way of data today, [U.S. President Donald] Trump’s visit to the U.K. is likely to hog the headlines,” RBC chief currency strategist Adam Cole said.
“JPMorgan, Citi and Wells Fargo kick off the U.S. Q2 earnings season (all before the US open),” he said. “There are a couple of central bank speakers, but the only important data is the UoM sentiment index in the U.S. The headline index remained close to a cycle high last month.”
In bonds, the yield on the 10-year note was lower at 2.84 per cent. The yield on the 30-year note was also lower at 2.937 per cent.
Stocks set to see action
Wells Fargo shares were down about 3 per cent in premarket trading after the bank’s quarterly results fell short of forecasts. Wells Fargo reported adjusted earnings per share of US$1.08. Analysts had been looking for earnings closer to US$1.12. The bank said lending activity in the latest quarter slowed as a result of higher interest rates and expenses. Wells Fargo beat Wall Street forecasts in the first quarter, but missed in the fourth quarter.
The Globe’s Andrew Willis reports that Ontario Premier Doug Ford ousted the board of directors and CEO at Hydro One Ltd. by threatening to rip up executive employment contracts at the utility, an aggressive approach that is expected to make it difficult to draft a new leadership team.
Callidus Capital Corp. said Friday it will eliminate the company’s dividend effective immediately “in light of the resumption of growth in the loan porfolio and anticipated funding requirements to support this growth. The announcement came as the lender said it has closed a new loan for $125-million.
DavidsTea Inc. says Roland Walton has resigned as a director. Mr. Walton was elected to the company’s board of directors last month as part of a group of dissident nominees that replaced the existing board. He is a former president of Tim Hortons Canada. DavidsTea co-founder Herschel Segal led the shareholder revolt to replace the board at the company’s annual meeting in June. The fight also resulted in the resignation of chief executive Joel Silver and saw Segal become executive chairman and interim CEO.
U.S. retailer Walmart Inc said it has not decided to sell its Japanese supermarket chain Seiyu and would continue to develop its business in Japan. The Nikkei business daily reported this week that Walmart would sell the supermarket chain and had approached major retailers and private equity funds, with a deal likely to raise US$2.7-billion to US$4.5-billion. “Walmart has not made a decision to sell Seiyu. We are not in any discussions with prospective buyers, and we continue to build our Japan business towards the future to meet the changing needs of customers there,” a spokesperson for Walmart told Reuters.
French technology consultancy Altran said on Friday it had uncovered US$10-million in false purchasing orders at recently acquired U.S. business Aricent, sending its own shares down as much as 30 per cent. Altran, which acquired its U.S. competitor in a US$2-billion deal from investors led by private equity fund KKR, said it had found forged orders linked to an individual employee that had inflated Aricent’s reported revenue and profit. The French firm said it “does not expect a material impact” on its own first-half results from the forgery, which occurred before the March 21 closing of the acquisition.
More reading:
Short sales on the TSX: What bearish investors are betting against
Friday’s small-cap stocks to watch
Economic news
(10 a.m.) U.S. reports July University of Michigan consumer sentiment. Consensus is for a reading of 98.2, unchanged from June.
With Reuters and The Canadian Press
Terry Weber