Equity Markets
U.S. stock futures were positive Friday even as fears over the potential for a U.S. government shutdown hit the greenback and sent U.S. 10-year Treasury yields to their highest levels in three years. On Bay Street, futures were firmer even as crude prices slipped. Overnight, world share measured by the MSCI world index, which tracks stocks in 47 countries, hit record highs, helped by gains in Asia.
Late Thursday, the U.S. House of Representatives passed a temporary funding bill to stave off an imminent shutdown. However, the bill now moves to the Senate, where it needs 60 votes to pass. A number of government services face the possibility of being forced to shut down if they don't receive new funding by midnight Friday, when existing funds expire.
"We must remember the threats of a government shutdown are not new," AxiTrader chief market analyst James Hughes said. "This has happened a number of times in the past, and under a number of presidents. We must resist the feeling of blaming a government shutdown on Trump.
"Historically a shutdown usually hurts stocks, so the vote later this afternoon is going to be closely watched, and I wouldn't rule out a degree of nervousness as we approach."
On this side of the border, Canadian Pacific shares will likely get some attention after the railway reported better-than-forecast fourth-quarter profit following the close of trading Thursday. Profit jumped to $984-million or $6.77 a share in the latest quarter, from $384-million or $2.61. The most recent quarter included a $527-million gain related to the new U.S. tax code. Excluding one-time items, the company earned $3.22 a share. Analysts had been expecting earnings by that measure of $3.20. Canadian Pacific also said it expects revenue growth in the mid-single digits this year and adjusted earnings per share growth to be in the low double-digits.
"Over all, we believe there could be some upside to the guidance depending on how volumes recover in [the second half of 2018], " Desjardins Capital Markets analyst Benoit Poirier said in a report. "Tax reform, pension tailwind and land sales will help drive EPS growth in 2018. As a result, we are maintaining our target of $254 and still recommend investors buy the shares."
On Wall Street, American Express shares were down about 2 per cent in premarket trading after the credit card company posted its first quarterly loss in 26 years and said it wouldn't buy back shares for the next six months as a result of U.S. tax changes. AmEx took a $2.6-billion charge as a result of the tax code overhaul. The company's net loss attributable to common shareholders was $1.20-billion, or $1.41 per share, in the fourth quarter, compared with a profit of $825-million, or 88 cents per share, a year earlier. Excluding the charge, AmEx earned $1.58 per share, topping analysts' estimates of $1.54 per share, according to Thomson Reuters I/B/E/S. The results were reported after the close of trading Thursday.
U.S. earnings due Friday include Schlumberger NV and Citizens Financial Group.
Overseas, European markets were trading in positive territory, with Britain's FTSE recouping early session losses. At last check, the FTSE was up 0.21 per cent. Germany's DAX was up 0.98 per cent and France's CAC 40 rose 0.48 per cent.
In Asia, most markets managed to finish the week with gains. Japan's Nikkei rose 0.19 per cent, with financials advancing. Hong Kong's Hang Seng was up 0.41 per cent and the Shanghai composite index also advanced 0.41 per cent. Earlier in the day, the Shanghai index had traded at its best levels in two years, bolstered by Thursday's solid growth figures for the Chinese economy.
Commodities
Oil prices were lower in early going as concerns over rising U.S. production continue to stalk the market. Brent crude was lower early on and had a day range of $68.30 to $69.08. Brent touched its highest level since 2014 on Monday. West Texas Intermediate was also lower with a day range of $62.85 to $63.77. Friday's declines came after the International Energy Agency said in its monthly report that oil inventories had fallen on OPEC's continued production caps but also cautioned that fast-rising U.S. production could hamper efforts to curb the market overhang.
"Explosive growth in the U.S. and substantial gains in Canada and Brazil will far outweigh potentially steep declines in Venezuela and Mexico," the IEA said of 2018 production in a report released Friday.
In its weekly report, the U.S. Energy Information Administration noted that crude stocks fell for a ninth straight week last week, led by a drawdown at the U.S. storage hub in Cushing, Oklahoma. Crude inventories fell 6.9 million barrels in the week to Jan. 12, compared with analysts' expectations for a decrease of 3.5 million barrels.
Desjadins characterized that report as "fairly bullish" noting that the draw was materially ahead of consensus. Desjardin also noted that U.S. crude production regained momentum alongside the return of milder temperatures, although crude exports also recovered.
"The bulk of the increase was offset by increased crude exports...which appear poised to provide a market for the vast majority of future production growth from U.S. shale producers.," Desjardin said.
In other commodities, gold prices advanced, helped by a softer greenback. However, Reuters notes that gold remains on track for its first weekly drop in six. Spot gold was higher ahead of the North American open. So far, spot gold has declined 0.5 per cent this week, its worst showing since early last month. Gold futures were also higher Friday.
Silver, meanwhile, was also higher.
Currencies and bonds
The Canadian dollar was down slightly in early trading, hovering below the mid-80-cent (U.S.) mark as its U.S. counterpart struggled against world currencies on fears over the threat of a U.S. government shutdown. The day's range on the loonie so far is 80.41 cents (U.S.) to 80.64 cents.
For the Canadian dollar, the lone economic report is Statscan's release covering manufacturing sales for November. The agency said sales for the month rose 3.4 per cent to a record $55.5-billion. In total, 12 of 21 industries, accounting for 81 per cent of the sector posted increases. The loonie, which had been steadily weakening as the North American open approached, showed little movement after the numbers were released.
As far as currencies go, markets will be paying more attention to the greenback, given the drama currently unfolding in Washington, with currency analysts questioning what will happen to the U.S. dollar if a deal isn't reached.
"So what happens if the U.S. government shuts down?," Elsa Lignos, RBC's global head of FX strategy, asked in a morning report. "There are three examples in the last 25 years, two from the mid-90s and the most recent in October 2013 – all lasted 2-3 weeks. A shutdown became increasingly likely through the last week of Sept 2013 and yet [the U.S. dollar index] was flat during that period and through the shutdown itself."
This time, however, she said a shutdown could have a more negative impact on the green back for three reasons. First, she said, relations between Congress and the President Donald Trump "are unusual and in many ways dysfunctional (shown again by yesterday's confusion over whether or not the White House supported the GOP approach to include CHIP in the stopgap bill) so confidence in a quick resolution will be lower." Secondly, Congress needs to raise the debt ceiling within the next few months and failure to do so would have wider market repercussions, she said. Finally, she noted, momentum and sentiment are already negative for the U.S. dollar "so it is pushing on an open door."
Ahead of Friday's open, the U.S. dollar index, which weighs the currency against a basket of world counterparts, was weaker after touching its worst level in three years. The dollar appeared headed for its fifth week of declines. Reuters notes that would be the longest losing streak for the currency since May 2015. The agency also points out that the dollar index is down about 2 per cent so far in 2018.
In bonds, fears over a potential government shutdown hammered sentiment. U.S. 10-year Treasury yields hit their highest level in more than three years at 2.642 per cent on Friday and looked set for their biggest weekly increase in a month. At last check, the yield on the 10-year note was higher at 2.631 per cent. The yield on the 30-year note was also higher at 2.915 per cent.
Stocks set to see action
Protesters angered by some Ontario Tim Hortons franchisees who slashed workers' benefits and breaks after the province raised its minimum wage plan to spread their rallies to other areas of the country, The Canadian Press reports. About 50 demonstrations are planned in cities across the country on Friday, although at least 38 will be based in Ontario, including 18 planned in Toronto. As of Dec. 31, 2016, the number of Tim Hortons locations in Canada was 3,801. Other cities involved in the protest include Calgary, Halifax, Saskatoon, Regina, Vancouver and two other cities in British Columbia. Tim Hortons is owned by Restaurant Brands International.
Lowe's Cos Inc. said on Friday it added two board members, a week after reports that hedge fund D.E. Shaw & Co had built an active stake in the home improvement chain, sending its shares up 2 per cent. David Batchelder, co-founder of Relational Investors, and Lisa Wardell, CEO of Adtalem Global Education, were named to the board after "constructive discussions" with D.E. Shaw, the company said.
Schlumberger reported a bigger-than-expected quarterly profit on Friday as the oilfield services provider benefited from higher oil prices, while also taking $2.7-billion in charges for restructuring and investment in Venezuela. A rise in drilling by shale producers helped the company's revenue in North America rose 59 percent to $2.81-billion for the fourth quarter, pushing total revenue up 15 per cent to $8.18-billion. Excluding items, Schlumberger 48 cents a share, beating average analyst estimates of 44 cents per share, as per Thomson Reuters I/B/E/S.
International Business Machines Corp.'s revenue rose for the first time in 23 quarters, beating analysts' estimates, but the company warned after the close Thursday that a higher tax rate this year would eat into its profit. The company forecast stable margins and revenue growth for 2018, buoyed by growth in its newer businesses such as cloud computing and security services. However, IBM forecast an operating profit of at least $13.80 per share for 2018, compared with $13.80 in 2017 and market expectations of $13.92, according to Thomson Reuters I/B/E/S. IBM shares were down nearly 3 per cent in premarket trading.
Aurora Cannabis Inc. intends to sweeten its offer for medical marijuana producer CanniMed Therapeutics Inc. in an attempt to turn its hostile takeover attempt into a friendly deal, The Globe's Jeff Jones reports. Aurora contacted CanniMed with an enriched overture late on Wednesday as the success of its unsolicited, all-stock bid, launched in November, looked increasingly remote, sources said. The move comes as the battle has become particularly heated, marked by rancorous public statements and legal action.
Air Canada faced possible operational restrictions at San Francisco International Airport after two close calls involving passenger jets landing at night spurred U.S. investigations, The Globe's Eric Atkins reports. The unspecified measures were not imposed, but became the subject of a November meeting between officials from Transport Canada and the U.S. Federal Aviation Administration, The Globe and Mail has learned. The landing incidents in July and October prompted Air Canada to launch a safety review of its operations under the oversight of Canadian regulators, including the addition of pilot supervisors on some San Francisco flights and enhanced crew training schedules.
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Economic News
Statistics Canada says factory sales rose 3.4 per cent to a record high of $55.5-billion in November, mostly on sales of transportation equipment, petroleum and coal products. In total, 12 of 21 industries accounting for about 81 per cent of the manufacturing sector posted increases for the month. Excluding the impact of higher petroleum prices, sales were up 2.5 per cent in November, Statscan said.
"The Canadian factory report was much stronger than expected and more than made up for the prior month's decline," National Bank economist Jocelyn Paquet said. "The motor vehicles category registered its largest increase in nearly two years, as a GM plant in Ontario resumed its activity following a strike. Even without transportation, shipments still surged 2.1 per cent as sales in the petroleum/coal category continued to advance at an impressive pace."
Statscan also said foreign investment in Canadian securities totalled $19.6-billion in November, mainly purchases of Canadian bonds. Meanwhile, Canadian investors reduced their holdings of foreign securities by $4.6-billion, following strong acquisitions in October, the agency said.
(10 a.m. ET) U.S. University of Michigan Consumer Sentiment for January is unveiled. Consensus is 97.0, up from 95.9 in the previous month.
With files from Reuters and The Canadian Press