Equities
U.S. stock futures turned sour early Thursday as global trade concerns continued to weigh on world markets. In Canada, Bay Street futures were also lower as trade fears outweighed oil’s recent gains. MSCI’s index of world markets, which weighs shares in 47 countries, was lower early on and was on course to see its fourth losing month in five.
“U.S. markets surrendered impressive mid-session gains to finish in the red, and already this morning the same thing is happening in Europe,” IG’s chief market analyst Chris Beauchamp said, noting sellers have “taken charge again.”
Markets whipsawed Wednesday after the White House indicated it would use a security review process to oversee Chinese investment in sensitive U.S. technologies rather than an outright restrictions. However, speaking later in a TV interview, White House economic adviser Larry Kudlow rejected the idea that the move marked a softer approach by the U.S. toward China.
On Bay Street, the earnings calendar includes results from Shaw Communications and Sobeys-owner Empire Co.
Ahead of the open, Empire reported net earnings per share of 26 cents, up from 11 cents a year earlier. Adjusted earnings per share totaled 35 cents in the latest quarter, up from 18 cents last year. On that basis, analysts had been expecting earnings per share of about 29 cents in the most recent quarter. Empire also raised its dividend to 11 cents a share from 10.5 cents.
Shaw, meanwhile, reported revenue of $1.30-billion for the quarter, up 6.9 per cent from the year-earlier period. Shaw said the gains were led by its wireless and business units. The company reported a quarterly net loss of $91-million or 18 cents a share, compared with profit of $133-million or 27 cents last year. The latest quarter includes a $284-million charge related to Shaw’s investment in Corus Entertainment.
Investors are also awaiting a decision out of Minnesota on Enbridge Inc.’s plan to run its Line 3 pipeline through that state. Calgary-based Enbridge wants to replaced its Alberta-to-Wisonsin pipeline and is awaiting a decision from Minnesota’s Public Utilities Commission on the section that would run through the state. A decision is expected this week.
On Wall Street, Pier 1 Imports shares were down more than 15 per cent in premarket trading after the retailer’s latest quarterly results disappointed investors. The company’s same-store sales fell 8.2 per cent in the latest quarter, more than the 7.6-per-cent decrease analysts had been expecting. The company’s operating loss per share, however, came in at 36 US cents, better than the 39 US cents analysts had been forecasting. Online competitors like Amazon and Wayfair have put pressure on Pier 1, which is aiming for profitability in three years. The results were released after the close of trading on Wednesday.
Overseas, the pan-European STOXX 600 was down 0.41 per cent in morning trading, with most sectors in the red. Tech stocks were the weakest performers. Britain’s FTSE 100 was down 0.05 per cent. France’s CAC 40 fell 0.32 per cent and Germany’s DAX was off 0.73 per cent.
In Asia, markets finished lower on continuing trade concerns. Japan’s Nikkei finished just south of break even, closing down 0.01 per cent. The Shanghai Composite Index turned lower in afternoon trading to end the session down 0.97 per cent. Hong Kong’s Hang Seng managed to finish up 0.42 per cent, helped by gains in energy and information technology shares.
Commodities
Crude prices were steady early on with U.S. oil holding close to its best level in more than three years as concerns about U.S. sanctions against Iran underpinned the market. The day range on Brent crude so far is US$77.09 to US$78.17. The range on WTI is US$72.25 to US$72.96. On Wednesday, WTI went as high as US$73.06. That was its highest since November 2014.
The gains followed demands by the United States that all countries end imports of Iranian oil from November. That decision came as OPEC nations and their allies last week looked to moderate prices by increasing output.
“The steady accumulation of geopolitical catalysts threatens to push oil prices back into the stratosphere,” Desjardins Securities said in a morning note. “Yesterday’s update from the US State Department detailing plans to aggressively press Iranian oil sanctions on allies by restricting waivers has clearly skewed risk to the upside for supply outages to the extent that they would effectively require several countries to cease imports from Iran by early November — a significantly more restrictive policy than that pursued under the last sanctions regime.”
Meanwhile, Desjardins said, Libyan supply outages are also threatening to flare up following recent actions by a rogue military commander governing the eastern half of the country.
“His decision to hand over control of two critical oil export facilities to a rival faction of the Tripoli-based central government has already taken ~400 million barrels a day off the market in the near term while threatening to torpedo UN-sponsored efforts toward national reunification,” Desardins said.
In other commodities, gold prices hit their worst levels in six months. Spot gold was down 0.2 per cent at last check. Earlier in the session, gold hit US$1,248.25, its lowest since mid-December.
U.S. gold futures for August delivery were also down.
“The dollar may continue to strengthen because of rising U.S. interest rates and yields. That is all the key reason that makes holding gold unattractive,” said Helen Lau, analyst, Argonaut Securities told Reuters.
Currencies and bonds
The Canadian dollar turned higher Thursday as the U.S. dollar gave back early gains. The loonie was close to the higher end of the day range of 74.90 US cents to 75.33 US cents at last check. The move higher came as the U.S. dollar index lost some altitude in the premarket, although it continues to hold close to the one-year highs seen last week. At last check, the dollar index was lower at 95.272.
For the loonie, markets continue to speculate on whether the Bank of Canada will raise rates at its policy meeting next month. Initially markets had been stoked for an increase, citing a change in the bank’s language in its last statement. However, recent economic data have cast doubt on the move. Bank of Canada Governor Stephen Poloz, in a late-day speech on Wednesday, gave few clues as to what was in store or what to expect in Friday’s release of its business outlook survey.
“Markets instead focused on his reference to the bank remaining data-dependent and that they will work to include the impact of steel and aluminium tariffs in their projections,” RBC chief currency strategist Adam Cole said in a note. “Our economists think the latter will not have a significant bearing on the medium-term outlook.”
At this point, markets have priced in a less than 60 per cent chance of a rate increase at the July meeting, he said.
In bonds, U.S. Treasury yields pushed higher as trade concerns persist. The yield on the 10-year note was higher at 2.833 per cent. The yield on the 30-year note was also higher at 2.976 per cent.
Stocks set to see action
Labour representatives at Hudson’s Bay’s German department store chain Kaufhof are expected to put the brakes on restructuring talks in the face of reports about a possible joint venture with Austria’s Signa, a union leader said. Sources told Reuters this week that Hudson’s Bay was discussing a possible joint venture involving Kaufhof with rival chain Karstadt, owned by property and retail group Signa. On June 29 a meeting of labour representatives with Kaufhof management is scheduled to discuss a restructuring deal aimed at turning around the loss-making store chain.
A pickup in production of Tesla Inc’s Model 3 cars, after earlier delays, has resulted in occasional battery cell shortages, a Panasonic Corp official said on Thursday in a sign Tesla is in overdrive to meet its end-June forecast. Tesla Chief Executive Elon Musk earlier this month said his company should achieve its 5,000 cars-per-week target by the end of June, provoking skepticism from some Wall Street analysts. Yoshio Ito, head of Panasonic’s automotive business, told the company’s general shareholders meeting on Thursday there had been a “sharp improvement in production” that was leading to occasional battery (cell) shortages.
Fashion retailer H&M will have to cut prices further to help shift growing piles of unsold merchandise over the summer after another decline in quarterly profit, it said on Thursday. The Swedish company, which has seen profit fall in the past two years as fewer customers shop in its main H&M brand stores, said it would now be tougher to reach its target of a “somewhat better” group result for the year. Pretax profit in the three months to the end of May shrank 22 per cent from a year ago to 6.01 billion crowns (US$670-million), slightly below the average forecast in a Reuters poll of analysts.
Walgreens Boots Alliance Inc on Thursday reported a 15.5 per cent rise in quarterly profit, as sales in its pharmacy business rose helped by its acquisition of Rite Aid stores. Net income attributable to Walgreens rose to US$1.34-billion, or US$1.35 per share, in the third quarter ended May 31, from US$1.16-billion, or US$1.07 per share, last year. The company also said it had authorized a US$10-billion share repurchase program.
Maple Leaf Foods Inc. has signed an agreement to buy two poultry plants and associated supply from Cericola Farms, a privately held company. The plants are in Bradford, Ont., and Drummondville, Que., and together process a total of about 32 million kilograms of chicken per year.
>Magna International Inc. has signed a deal to buy Italian company OLSA S.p.A., a maker of automotive lighting products, for about $354-million. The Canadian auto parts company valued the transaction at 230 million euros.
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Thursday’s small-cap stocks to watch
Economic news
Statistics Canada says average weekly earnings of non-farm payroll employees totaled $995 in April, unchanged from the previous month. For the 12-month period, earnings were up 2.5 per cent, the agency said.
U.S. first-quarter growth was revised lower to 2 per cent, from a previous estimate of 2.2-per-cent annual growth. The revision was the third estimate on gross domestic product growth in the January-to-March period.
Initial claims for U.S. state unemployment benefits rose 9,000 to a seasonally adjusted 227,000 for the week ended June 23, the U.S. Labor Department said. Economists polled by Reuters had forecast claims increasing to 220,000 in the latest week.
Also: U.S. Fed releases results of 2018 bank stress tests (second release)
With Reuters and The Canadian Press
Terry Weber