Equities
U.S. stock futures were higher early Tuesday with tech shares in focus after Google-parent Alphabet beat on profit but also saw operating margins slip. On Bay Street, futures were higher as oil prices rose and investors braced for another raft of key earnings. Overseas, markets were mostly higher with MSCI’s world equity index turned positive, snapping a three-day losing streak.
U.S. Treasury yields also backed off in early going with the yield on the 10-year note trading lower at 2.964 per cent early on after flirting with the key 3-per-cent level earlier in the week.
“Equities have pushed modestly higher so far this morning, but the nervous bedside watch on the 10-year yield goes on,” IG chief market analyst Chris Beauchamp said. “The magic 3 per cent was nearly hit yesterday, but for now apparent financial Armageddon has been averted, allowing equities room to breathe.”
On Bay Street, mining stocks could get some attention after Barrick Gold reported a 5-per-cent increase in first-quarter adjusted profit. Analysts had been revising their earnings forecasts for the past month and had, on average been expecting earnings of 13 cents in the latest quarter. Barrick also said, after years of mine sales, it sees no further need to sell assets to cut debt. Barrick’s U.S.-traded shares were slightly higher in premarket trading.
CN Rail, meanwhile, reported a 16.2-per-cent drop in first-quarter profit after Monday’s close, hurt by higher operating costs. Revenue fell for the first time in four quarters to $3.19-billion. Earnings per share totalled $1, ahead of analysts’ forecasts although the railway also said it now expects 2018 adjusted earnings of $5.10 to $5.25 a share, down from earlier estimates of $5.25 to $5.40.
Also Tuesday, Restaurant Brands International, in reporting its latest earnings, announced a plan to improve customer experience and sales at Tim Hortons. Tim Hortons has been hit recently by a public spat between the company and some of its franchisees. The company labelled the plan “Winning Together.” RBI earned US$147.8-million or 59 US cents per diluted share for the quarter ended March 31. That compared with a profit of US$50.2 million or 21 US cents per diluted share a year ago. Revenue totalled US$1.25-billion, up from US$1-billion in the same quarter last year.
South of the border, Alphabet shares pulled back slightly ahead of Tuesday’s North American open. Alphabet reported strong ad sales at Google and YouTube but that wasn’t enough to offset declining first-quarter operating margins. Operating margins in the quarter fell to 22 per cent, down from 27 per cent last year. However, worldwide sales rose to $31.1-billion, topping analysts’ forecast of $30.3-billion. Alphabet’s quarterly profit of $9.4-billion, or $13.33 a share, beat estimates of $6.56-billion, or $9.28 per share, according to Thomson Reuters I/B/E/S.
Overseas, the pan-European STOXX 600 was up 0.09 per cent after a string of down days. Oil and gas stocks were among the day’s winners after Brent crude neared US$75 a barrel in early trading. Britain’s FTSE was up 0.31 per cent. Germany’s DAX rose 0.39 per cent while France’s CAC 40 gave up early gains to slip 0.07 per cent.
In Asia, markets were mixed following Wall Street’s lead on Monday. Japan’s Nikkei finished up 0.86 per cent. Hong Kong’s Hang Seng rose 1.26 per cent and the Shanghai Composite Index was up 1.97 per cent.
Commodities
Brent crude topped US$75 a barrel on the combined impact of OPEC cuts, rising production and the looming spectre of U.S. sanctions in Iran. The day range on Brent so far is US$74.72 to US$75.27. Brent has been rising for six straight sessions, hitting its best level Tuesday since late 2014. West Texas Intermediate was also higher ahead of the start of trading in North America and had a range for the day of US$68.77 to US$69.33.
“Crude oil prices continue to be a cause for concern hitting a fresh three year high above $75, despite comments from Iranian oil minister Bijan Zanganeh that there would be no need to extend the current pact of output freezes beyond this year,” CMC market analyst Michael Hewson said in an early note.
“It is this move higher in crude oil prices, along with the rise in demand, that is helping fuel the recent rise in yields as well as the positive tone for equity markets, however if it continues too far we could start to see it act as a drag on equity markets, if prices along with yields start to move even higher.”
The U.S. has until May 12 to decide whether to exit the nuclear deal with Iran and impose sanctions on one of OPEC’s biggest producers in a move that would tighten supplies. Stephen Innes, head of trading for Asia-Pacific at futures brokerage OANDA, said new sanctions against Tehran “could push oil prices up as much as $5 per barrel,” according to Reuters.
Meanwhile, the American Petroleum Institute releases its latest weekly inventory numbers Tuesday afternoon. On Wednesday, the U.S. government releases its own figures. Forecasts are calling for a decline of about 1.37 million barrels in the EIA report.
In other commodities, gold prices found their footing after three days of declines with spot gold and gold futures both trading higher early on. Gold slid almost 2 per cent over the last three sessions as rising bond yields pushed up the U.S. dollar.
Currencies and bonds
The Canadian dollar was a touch higher as its U.S. counterpart held near three-month highs against a basket of world currencies.
“CAD remains on the back foot as broad-based USD strength dominates amidst an environment of higher U.S. interest rates,” Elsa Lignos, RBC’s global head of FX strategy, said. “Hence, despite oil prices near their highest levels since 2015, the widening trend in 2-year US-CA interest rate spreads is carrying the day.“
There were no big data releases scheduled for Canada on Tuesday. Late Monday, Bank of Canada Governor Stephen Poloz and deputy governor Carolyn Wilkins appeared before the Commons finance committee.
“ Poloz said monetary conditions are roughly where they should be and that housing demand remains “very strong” in Canada,“ Lignos said. “He repeated the assessment from the MPR that inflation above target this year will be temporary .”
She also noted that Mr. Poloz said the economy is about 50 per cent more sensitive now to interest rates than it was in the past because of high debt levels.
The U.S. dollar index, meanwhile, was trading little changed at 90.909 after seeing its best levels since early January. Rising bond yields have bolstered the U.S. currency while denting emerging market currencies.
At last check, the yield on the U.S. 10-year note was unchanged at 2.973 per cent. The yield on the 30-year note was also steady at 3.143 per cent.
Stocks set to see action
Teck Resources Ltd , the world’s second-biggest exporter of steel-making coal, reported on Tuesday higher-than-expected adjusted first-quarter earnings as sales volumes climbed. Steel-making coal sales volume rose to 6.1 million tonnes in the quarter ended March 31 from 5.7 million tonnes in the year-earlier quarter. Average quarterly realized price per tonne, however, fell to $207 from $212 a year earlier. The sales volume was roughly in line with 6 million tonnes Teck forecast on March 9 after logistic issues and poor performance at a coal terminal in British Columbia prompted the company to cut the forecast.
Mitel Networks Corp. has struck a deal to be bought by an investor group for about $2-billion. Mitel shareholders will receive $11.15 a share in cash under the agreement. Mitel’s board will recommend that shareholders approve the deal.
Coca-Cola Co reported quarterly revenue that beat Wall Street estimates on Tuesday on higher demand for Coke Zero Sugar and new flavors of Diet Coke. The Fanta and Sprite maker’s net profit rose to US$1.37-billion, or 32 US cents per share, in the first quarter ended March 30 from US$1.18-billion, or 27 US cents per share, a year earlier. Revenue fell 16 percent to US$7.63-billion, due to the divestment of its bottling operations, but beat analysts’ estimate of US$7.34-billion.
Grocer Metro Inc. reported net earnings per share of 47 cents and adjusted earnings per share of $1.14. Second-quarter sales fell 1 per cent to $2.899-billion. Same-store sales rose about 1 per cent.
Eli Lilly and Co on Tuesday beat analysts’ profit estimates for the fifth straight quarter and raised its 2018 forecasts on higher demand for newer drugs including diabetes drug Trulicity and psoriasis medicine Taltz. However, the company’s shares fell about 3 per cent to $78 premarket after advisers to the U.S. FDA on Monday voted against approving a higher dose of the company’s rheumatoid arthritis drug, while recommending a lower dose. Lilly also raised its 2018 profit forecast to $5.10 to $5.20 per share from $4.81 to $4.91 per share.
Caterpillar Inc upgraded the outlook for 2018 profits after the world’s largest heavy-duty equipment maker beat estimates for first-quarter earnings on strong global demand for its equipment. The Deerfield-Illinois based company now expects the full-year profit to range between $9.75 to $10.75 per share compared with $7.75 to $8.75 per share it projected earlier. For the first quarter, the company reported a net profit of $2.74 per share, above analysts’ consensus forecast of $2.04 per share.
More reading:
Tuesday’s small-cap stocks to watch
Economic news
U.S. home prices jumped in February. The S&P CoreLogic Case-Shiller national home price index released Tuesday jumped 6.3 per cent in February from a year earlier, matching December’s increase.
(10 a.m. ET) U.S. Conference Board Consumer Confidence Index for April. Consensus is 126.0, down from 127.7 in March.
With Reuters and The Canadian Press