Equities
U.S. stock futures were lower early Thursday as bond yields continued to rise and investors weighed earnings from retail giant Walmart Inc. On Bay Street, futures were little changed as Brent crude cracked US$80 a barrel for the first time since late 2014 but gold pulled back. Global markets measured by MSCI’s gauge of world shares were slightly higher overnight.
“The ghost of the 10-year Treasury yield has returned to spook markets again, with equities failing to make much progress as attention fixates on the key global benchmark,” Chris Beauchamp, chief market analyst with IG, said.
The yield on the U.S. 10-year bond - a key indicator of global borrowing costs - neared a seven-year high of 3.12 per cent.
Heading into the North American open, trade issues continue to cast a long shadow with the second round of bilateral talks between the United States and China set to begin in Washington. Thursday also marks a key deadline for NAFTA although an agreement appeared unlikely as the three countries remained at loggerheads over a number of major issues.
On Bay Street, Enbridge shares will be in the spotlight after the pipeline operator announced ahead of the market open that it would consolidate its assets in an $11.4-billion restructuring. Enbridge said in a release that it would buy outstanding shares of corporate units including Spectra Energy Partners and Enbridge Energy Partners. The move comes as Enbridge faces pressure to sell non-core assets and cut debt.
Earlier this month, Enbridge announced it would sell its 49-per-cent stake in wind and solar energy assets in North America and Germany for $1.75-billion. It also said affiliate of Boston-based private equity firm ArcLight Capital Partners LLC would buy its Midcoast Operating LP unit and related subsidiaries for about $1.44-billion.
South of the border, retail earnings continue with results from Walmart. Already this week, Home Depot saw its shares slump after reporting a below-forecast rise in same-store sales in the latest quarter. However, department store chain Macy’s saw its stock climb more than 10 per cent after it topped quarterly estimates and raised its full-year profit forecast.
On Thursday, Walmart reported adjusted per share profit of US$1.14, topping Wall Street forecasts of US$1.12. Walmart also said U.S. e-commerce sales rose 33 per cent in the quarter slower than year-earlier levels but ahead of the preceding quarter’s 23-per-cent increase. Same-store sales at U.S. outlets rose 2.1 per cent, in line with forecasts. Walmart shares were up about 1 per cent in premarket trading.
Other U.S. retailers reporting Thursday include JC Penney and Nordstrom, which reports after the close.
Overseas, European markets edged higher with the pan-European STOXX 600 rising 0.15 per cent at last check on a mixed trading day. Britain’s FTSE was up 0.13 per cent. Shares of British online supermarket Ocado spiked 50 per cent on news of an exclusive deal with U.S. retailer Kroger to become its exclusive partner in the United States. The deal takes Ocado’s home-delivery technology into the U.S. for the first time.
France’s CAC 40 was up 0.27 per cent. Germany’s DAX rose 0.38 per cent.
In Asia, shares finished mixed. Japan’s Nikkei ended up 0.53 per cent. The broader Topix added 0.45 per cent with oil and insurance subindexes gaining. Hong Kong’s Hang Seng fell 0.54 per cent. The Shanghai Composite Index was off 0.48 per cent.
Commodities
Crude prices were higher with Brent crude breaching US$80 a barrel overnight on continued concerns over the potential impact of renewed sanctions by the United States on Iran. The day range for Brent so far is US$79.22 to US$80.18. Benchmark Brent hasn’t traded at US$80 since November 2014. West Texas Intermediate was also higher and had a range for the day so far of US$71.49 to US$72.30.
“Oil climbed over 1 per cent in the previous session, an impressive feat given that EIA data showed U.S. oil exports climbed and that the EIA warned of waning global demand for oil following the recent its price spike,” Jasper Lawler, head of research at London Capital Group, said in an early note.
He said Thursday’s rise in prices came after French oil giant Total, the biggest foreign investor in Iran’s energy sector, said it will pull out of Iran unless they can guarantee protection from U.S. penalties.
“This is a blow to the EU’s plans to keep the nuclear agreement running,” Mr. Lawler said.
“Clearly there is no easy solution here and although the U.S. have said waivers can be applied for by companies, the bottom line is they want to hit Iran where it hurts so leniency is unlikely to feature strongly.”
In other commodities, gold prices slid as the U.S. dollar held near its highest level for the year. Spot gold was down modestly at last check, nearing the previoius day’s four-and-a-half month low of US$1,286.20. U.S. gold futures for June deliver were also lower.
“I expect further weakness in gold prices because I think the dollar can rise a bit further,” said ABN Amro analyst Georgette Boele told Reuters.
“Gold prices are mainly driven by the U.S. dollar and then U.S. yields ... our year-end 10-year U.S. Treasury forecast stands at 3.2 percent, with three more Fed rate hikes.”
In other metals, silver prices were higher after hitting a two-week low on Wednesday.
Currencies and bonds
The Canadian dollar was a touch higher after a choppy night as the U.S. dollar held close to its best levels of 2018 and yields on the U.S. 10-year note continued to trade above 3 per cent.
The day range on the loonie so far is 78.16 US cents to 78.43 US cents helped by climbing crude prices.
The week’s key economic reports for the Canadian dollar don’t land until Friday morning when Statistics Canada releases its reading on April inflation and March retail sales. Analysts see inflation hitting an annual rate of 2.2 per cent. Forecasts call for a monthly increase in consumer prices of 0.3 per cent. Retail sales are expected to edge up 0.1 per cent.
RBC chief currency strategist Adam Cole also noted that a speech by Bank of Canada deputy governor Lawrence Schembri on Wednesday “suggested no urgency to normalize policy” but offered little in terms of new insights for the markets.
Elsewhere, the U.S. dollar index was slightly higher at 93.500. On Wednesday the index hit 93.632, its highest since Dec. 19.
Rising bond yields continued to underpin the greenback. At last check, the yield on the U.S. 10-year note was 3.091 per cent, below its seven-year high of 3.12 per cent. The yield on the 30-year note was unchanged at 3.215 per cent.
Stocks set to see action
J.C. Penney Co Inc’s first-quarter same-store stores fell short of analysts’ estimates, hit by the late start to the spring selling season. The retailer’s same-store sales rose 0.2 per cent, missing the analysts’ estimate of about 2 per cent, according to Thomson Reuters I/B/E/S. The company’s net loss narrowed to US$78-million, or 25 US cents per share, in the quarter ended May 5, from US$187-million, or 60 US cents per share, a year earlier. J.C. Penney shares were down nearly 10 per cent in premarket trading.
Britain’s online supermarket Ocado signed a deal with Kroger as its exclusive partner in the U.S., securing its entry into the world’s biggest market and sending its shares up 50 per cent. The agreement takes Ocado’s home-delivery platform into the United States for the first time and marks the fourth major deal it has signed with supermarkets around the world in six months.
Strong earnings from Tencent Holdings sent its market value surging by as much as $34-billion on Thursday, helping the Chinese technology giant briefly reclaim the mantle of Asia’s most valuable listed company. The social media and gaming firm had posted on Wednesday better-than-expected net profit and gross profit margin for the first quarter, driven by the strong performance of its mobile gaming business and gains in its sprawling investment operations.
Cisco Systems Inc. posted third-quarter earnings per share of 66 US cents after the close on Wednesday, but also said its current quarter would likely produce 68 US cents to 70 US cents, below the current market expectations of 69 US cents. Cisco shares were down nearly 4 per cent in premarket trading.
Ford Motor Co. said it was restarting production of its F-150 ahead of schedule after delays caused by a fire at a parts supplier earlier this month. At the same time, it reaffirmed 2018 EPS guidance of US$1.45 to $1.70 despite an expected charge of 12 US cents to 14 US cents from this month’s lost production. Shares were up modestly in after-market trading.
More reading:
Thursday’s small-cap stocks to watch
Economic news
Statistics Canada says foreign investment in Canadian securities amounted to $6.1-billion in March, led by money market instruments. Canadian investors cut their holdings of foreign securities by $1.9-billion, the first divestment in four months, the agency said.
Initial claims for U.S. state unemployment benefits rose 11,000 to a seasonally adjusted 222,000 for the week ended May 12, the Labor Department said. The previous week’s figures were unrevised.
With Reuters and The Canadian Press
Terry Weber