Equities
Wall Street futures turned higher after a fresh reading on inflation came in softer than expected. On Bay Street, futures were little changed even as rising oil prices pushed world stocks into positive territory for the year.
Overnight, rising energy shares push markets in Asia higher, lifting MSCI’s world equity index to its best level in three weeks. The index, which weighs shares in 47 countries, is now positive for the year, rising 0.3 per cent since Jan. 1, according to Reuters.
“In the aftermath of Donald Trump’s announcement on the Iran nuclear deal, oil has continued to rally on Thursday although the gains the are being made are now slowing,” OANDA senior market analyst Craig Erlam said.
“While it remains unclear what impact the sanctions – which are not backed by the other countries that signed up to the initial agreement – will have on output, the moves we’ve so far seen suggest there is a belief it will be significant.”
On Bay Street, Canadian Tire announced early Thursday that it would acquire Norwegian sportswear maker Helly Hansen for $985-million plus $50-million in debt. Canadian Tire CEO Stephen Wetmore called the brand an “exceptional fit” for Canadian Tire, which also operates the Marks Work Wearhouse and FGL Sports banners.
Canadian Tire also said earnings per share for the latest quarter fell 5.3 per cent to $1.18. The quarter included a one-time depreciation expense of 19 cents a share.
In other earnings, Enbridge topped analysts’ forecasts, posting adjusted earnings per share of 82 cents. The Street had been expecting earnings closer to 67 cents. Net income attributable to shareholders fell to $445-million or 26 cents a share from $638-million or 54 cents per share a year earlier.
Telus Corp. and Magna International also both released results early Thursday.
On Wall Street, Boeing shares were little changed after its CEO said its 737 production won’t be hurt after the United States revoked its licence to sell jets to IranAir. Boeing said none of the 737 aircraft it had planned to sell to Iran were in its backlog of orders. IranAir had ordered jets from Airbus, Boeing and ATR. Those deals, however, are dependent on U.S. licences because of the use of American parts in the planes.
Ford Motor Co. shares were down slightly in premarket trading after the auto maker said second-quarter earnings will be affected by shutdowns at three U.S. truck plants after a fire at a key parts supplier. However, Ford officials said in a call late Wednesday that they were “confident that any impacts will be short term.”
Meanwhile, the U.S. Labor Department said the consumer price index rose 0.2 per cent in April, just shy of economists forecasts. Economists said the softer reading likely wouldn’t do much to deter the Federal Reserve from its course of normalizing interest rates but it could signal a slightly slower approach.
“The Fed is still likely to pull the trigger on another rate hike in June. But this does further tilt the odds in favour of two more rate hikes this year rather than the three some Fed officials have been suggesting,” CIBC Capital Markets economist Royce Mendes said.
Overseas, European markets were mixed ahead of the Bank of England decision on interest rates. The bank isn’t expected to change rates. The pan-European STOXX 600 was mostly unchanged in morning trading. Britian’s FTSE 100 was off 0.30 per cent. France’s CAC 40 was essentially flat. Germany’s DAX added 0.46 per cent.
In Asia, Japan’s Nikkei finished up 0.39 per cent. The broader Topix added 0.27 per cent with gains led by the mining and oil sectors. Hong Kong’s Hang Seng rose 0.89 per cent. The Shanghai Composite index was up 0.89 per cent.
Commodities
Oil prices continued to gain on the spectre of renewed U.S. sanctions against Iran and a decline in U.S. crude stocks. Crude now sits at its highest level since late 2014 and looks headed for its best weekly increase in a month. Brent crude was higher and had a range for the day so far of US$77.34 to US$78. West Texas Intermediate was also positive and was trading in a range of US$71.19 to US$71.89.
“Oil continued to rally for a second straight session following Trump’s announcement on Tuesday and his promise of powerful new sanctions on Iran, expected to target the country’s oil industry, tightening global supply,” Jasper Lawler, head of research at London Capital Group, said. “News that US crude stock piles also fell by more than expected gave traders another reason to buy into oil.”
Analysts also said there was little hope that opposition from its allies would prevent the U.S. from going ahead with sanctions.
“We believe the previous 1 million [barrels a day] limit for exports (imposed during previous sanctions) will be reimposed. As before, it may take several rounds of reductions to reach target levels,” FGE’s founder and chairman Fereidun Fesharaki said in a note.
Crude prices also drew support from U.S. Energy Information Administration figures which showed that crude stockpiles in the United States fell by 2.2 million barrels last week. Analysts had been expecting a decrease of 719,000. However, gains could be tempered by continued concerns over rising U.S. production. In its monthly forecast released this week, the EIA raised its outlook for U.S. output to 12 million barrels a day by late next year. The U.S. government agency has hiked its forecast every month since last summer.
In other commodities, gold prices found their footing as the rise in the U.S. dollar paused. Spot gold and U.S. gold futures for June delivery were both higher. Traders said investors’ desire for safe have holdings have helped support gold prices despite a recent run-up in the greenback.
“We’ve seen a turnaround in (the dollar) in the last few weeks, but actually gold hasn’t gone down as far as you might think, so political tensions are helping,” said Macquarie commodities strategist Matthew Turner told Reuters.
Silver prices were also up after hitting a two-week high of US$16.62 an ounce during the previous session.
Currencies and bonds
The Canadian dollar was higher helped by the continued rise in oil prices and a pause by its U.S. counterpart. The loonie was trading well above the 78 US cent mark at last check and had a range for the day of 77.76 US cents to 78.28 US cents.
The day’s key economic news came from south of the border, with the U.S. Department of Labor reporting that the consumer price index rose 0.2 per cent in April, slightly below the 0.3-per-cent increase economists had been expecting. The core CPI advanced by 0.2 per cent.
Overseas, currency markets were waiting for the Bank of England decision, although - as expected - that central bank held steady. Markets had priced out a move after a soft reading on first-quarter GDP and recent remarks from BoE Governor Mark Carney. Britain’s pound was hovering near a four-month low against the U.S. dollar ahead of Thursday’s decision.
The U.S. dollar index remained lower after the release of the inflation figures. The index sat at 92.95 following the release of the numbers. This week the index touched its best level in more than four months, touching 93.42. The index is up about 4.7 per cent from its April low.
“The market is focused on interest rates today,” Ulrich Leuchtmann, head of FX strategy at Commerzbank told Reuters.
“The U.S. exit from the Iran nuclear deal has not had much of an impact so it’s become a risk-off environment where interest rate differentials get to decide where the dollar goes next,” he said.
In bonds, the yield on the U.S. 10-year note was lower at 2.975 per cent. The yield on the 30-year note was also lower at 3.147 per cent.
Stocks set to see action
Telus Corp posted a 2.4-per-cent drop in quarterly profit on Thursday, hurt by higher operating expenses. Telus’s net income fell to $412-million, or 69 cents per share, in the first quarter ended March 31, from $422-million, or 70 cents per share, a year earlier. Excluding items, Telus earned 73 cents per share, missing analysts’ average estimate by 2 cents, according to Thomson Reuters I/B/E/S. Operating revenue rose to $3.38-billion from $3.18-billion. Telus also raised its dividend to 52.5 cents a share from 49.25 cents.
Magna International Inc posted a 14.3-per-cent rise in first-quarter profit, helped by higher demand for mirrors and electronic components. Net income attributable to the company rose to US$660-million, or US$1.83 per share, for the three months ended March 31 from US$577-million, or US$1.51 per share, a year earlier. The Aurora, Ont.-based company’s sales rose to US$10.79-billion from US$8.90-billion. Magna also raised its profit and sales forecast for the year. Magna said it expects full-year sales of US$40.9-billion to US$43.1-billion, up from its previous forecast of US$39.3-billion to US$41.5-billion. It forecast 2018 net income of US$2.4-billion-US$2.6 billion, slightly higher than its previous projection of US$2.3 billion-US$2.5 billion.
Canadian Pacific Railway Ltd. raised its dividend 15.5 per cent to 65 cents a share.
Scotiabank continues to expand its footprint in Latin America, with a plan to acquire a 51-per-cent controlling interest Peru’s Banco Cencosud for approximately $130-million. The agreement, which is subject to regulatory approval, will make Scotiabank the second-largest credit card issuer in the South American country. The deal will see the two companies enter into a 15-year partnership to manage the credit card business and “provide additional products and services to customers,” according to a Scotiabank statement.
Wells Fargo & Co said it expects efficiency efforts to cut expenses by US$2-billion annually in 2018 and 2019, and that the aftertax impact on net income of a regulatory cap on its assets will be less than $100 million in 2018. Wells Fargo gave the figures in an investor presentation posted on the San Francisco bank’s website. It said it expects net interest income to be “relatively stable” in 2018 as projected higher interest rates will be offset by lower earning assets and increases in deposit costs.
BT will cut 13,000 managerial and back-office jobs and move to a smaller London base in the latest attempt by the boss of Britain’s biggest telecoms group to rebuild from an accounting scandal and downturn in trading. Chief Executive Gavin Patterson sought to placate shareholders by maintaining BT’s dividend and agreeing a new pension funding plan but a forecast that it would take up to three years to return to profit growth sent the shares down 9 percent. Traders said guidance for the current financial year was lower than expected, while fourth-quarter revenue fell short of targets. BT, which owns Britain’s biggest mobile operator EE, said it would hire about 6,000 new engineers and front line customer service staff to support its roll out of fibre and 5G networks.
More reading:
Thursday’s small-cap stocks to watch
Thursday’s Insider Report: Companies insiders are buying and selling
Economic news
The U.S. Labor Department says its Consumer Price Index rose 0.2 per cent after slipping 0.1 per cent in March. In the 12 months through April, the CPI increased 2.5 per cent, after rising 2.4 per cent March. Excluding the volatile food and energy components, the index rose 0.1 per cent. The core CPI rose 2.1 per cent year-on-year in April, matching March’s increase. Economists had forecast a rise of 0.3 per cent in April and the core CPI climbing 0.2 per cent.
Initial claims for U.S. state unemployment benefits were unchanged at a seasonally adjusted 211,000 for the week ended May 5, the U.S. Labor Department said.
With Reuters and The Canadian Press
Terry Weber