After a brutal and bruising two days on the markets this week, U.S. and Canadian stocks are set to rise Friday after global stocks rebounded and as investors looked ahead to bank earnings as the third quarter earnings reporting season gets underway.
However, stocks are set to record their worst week since February.
In the U.S., it’s the start of earnings season and the banks are in focus on Friday with third-quarter results expected from JP Morgan Chase, Citigroup and Wells Fargo.
JPMorgan Chase got the jump on earnings season before the bell as it reported a 24.5-per-cent jump in quarterly profit as higher interest rates and gains from tax cuts helped offset weakness in bond trading revenue. The largest U.S. bank by assets said net income for the third quarter rose to US$8.38-billion, or US$2.34 per share, beating the consensus of US$2.25 per share. Its shares rose 1.4 per cent in premarket trading.
Wells Fargo & Co. posted a 32-per-cent rise in third-quarter profit on Friday, helped by an increase in net interest income and lower expenses. However, that fell short of analysts’ estimates on Friday, as a US$13-billion drop in new mortgage borrowing offset the bank’s efforts to cut costs. Still its shares were up 2 per cent in premarket trading.
Citigroup Inc. says third-quarter net income rose to US$4.62-billion or US$1.73 per share, from US$4.13-billion a year ago, which topped analyst expectations. Its shares were up 2.8 per cent in premarket trading.
The gainers include the high-growth FAANG group, which has led the three major U.S. indexes to record highs and also contributed heavily to rout in the past two sessions. Shares of Facebook, Amazon, Apple, Netflix and Alphabet were higher between 1.31 per cent and 3.78 per cent.
Philip Morris dipped 1 per cent and Altria was off 0.5 per cent after the U.S. Food and Drug Administration reasserted its previous focus on reducing nicotine in cigarettes.
Canadian energy stocks could draw attention Friday as the price of Western Canadian Select (WCS) crude fell to a record US$52.50 per barrel below the price of Northern American benchmark West Texas Intermediate in trading Thursday, according to Net Energy, a Calgary-based oil trader.
A shortage of pipeline capacity and refinery maintenance have combined to cause a growing glut of crude in Alberta, making Canadian oil cheaper relative to the U.S. benchmark.
Canadian marijuana stocks could get a lift after cannabis producer Aphria Inc. posted a 41-per-cent rise in quarterly profit, boosted by gains from its investments in Liberty Health Sciences and Hiku Brands Co. The company reported that its net income rose to $21.2-million, or 9 cents per share, for the three months ended Aug. 31, up from $15-million, or 11 cents per share, a year earlier.
Auto parts giant Magna International is again in the spotlight as more details are revealed about the ongoing feud between founder Frank Stronach and his daughter Belinda Stronach that has hit the courts over control of their private company, The Stronach Group, that owns and runs horse racetracks.
On Thursday, stocks were slammed again as concerns over interest rate hikes and rising bond yield sapped investor confidence. The Dow was off nearly 550 points, or more than 2 per cent, and the S&P fell 2 per cent while the Nasdaq lost 1.25 per cent. The S&P/TSX was down 200 points or 1.3 per cent.
Global shares were having their best day in nearly a month on Friday as European and Asian markets recovered from a brutal selloff that still left them set for their worst week since February.
After a partial recovery in Asian shares overnight, European stocks opened higher, with the pan-European STOXX 600 up 0.9 per cent on the day. Germany’s DAX up 0.3 per cent while Britain’s FTSE 100 gained 0.5 per cent and France’s CAC gained 0.3 per cent.
“Some traders are cautiously buying back into the market today, but the underlying issues which brought about the sell-off are still relevant,” said David Madden, markets analyst at CMC Markets in London.
The biggest market shakeout since February has been blamed on a series of factors, including worries about the impact of a China-U.S. trade war, a spike in U.S. bond yields this week and caution ahead of earnings season.
Trade figures from China on Friday showed China’s trade surplus with the United States hit a record high in September, providing a likely source of contention with U.S. President Donald Trump over trade policies and the currency.
The data showed solid expansion in China’s overall imports and exports, suggesting little damage from the tit-for-tat tariffs with the United States.
That added to bullish sentiment on Friday, Madden said, also noting the decision by U.S. Treasury staff to refrain from labelling China a currency manipulator as a positive for stocks.
Shanghai shares bounced 0.8 per cent, recouping earlier losses of 1.8 per cent as cheap valuations drew investors hunting for bargains.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 2.15 per cent, the biggest in more than two years.
But the bounce came after the index fell 3.6 per cent on Thursday to hit a one-and-a-half-year low. On the week, it is still on track for a weekly loss of 3.6 per cent. Japan’s Nikkei average rose 0.5 per cent.
So far this week, Chinese and U.S. shares are among the worst performers, a sign investor worries about the trade war are growing. MSCI’s U.S. index has shed 5.5 per cent, compared with a 4.9 per cent decline for MSCI’s gauge of stock performance in 47 countries. China A shares are still down 8.7 per cent.
“We’re still left with the sense that there has been a significant shift that markets now have to take stock of,” said Chris Scicluna, head of economic research at Daiwa Capital Markets in London.
Commodities
Brent crude rose to US$81 a barrel on Friday, rebounding after two days of declines, though prices pared gains after another closely watched forecaster deemed supply adequate and the outlook for demand weakening.
Crude was still heading for its first weekly drop in five weeks, pressured by a big rise in U.S. inventories and fading concerns that looming U.S. sanctions on Iran will cut supplies significantly.
A monthly report by the International Energy Agency (IEA) said the oil market looked “adequately supplied for now” after a big rise in production and trimmed its forecasts for world oil demand growth this year and next.
“This is due to a weaker economic outlook, trade concerns, higher oil prices and a revision to Chinese data,” said the IEA, which advises industrialized countries on energy policy.
International benchmark Brent crude rose 76 cents to US$81.02 a barrel, having dropped by 3.4 per cent on Thursday. U.S. crude added 71 cents to US$71.68. Brent is still on course for a 3.7-per-cent decline this week, the biggest weekly drop in about four months.
Gold fell on Friday, retreating from more than two-month highs hit in the previous session, as global equity markets recovered some poise from dramatic losses.
Spot gold was down 0.3 per cent at US$1,220.17 an ounce after jumping about 2.5 per cent on Thursday as a selloff in equities sent investors toward safe-haven assets. Prices hit their highest since July 31 at US$1,226.27 on Thursday. Gold has risen about 1.5 per cent this week, on track for its biggest weekly gain in seven.
“The markets have kind of stabilized and things have calmed down a bit and the sort of momentum for gold to push higher is not with us at the moment,” said Macquarie commodity strategist Matthew Turner.
Global shares were having their strongest day in nearly a month on Friday as European and Asian markets recovered from a brutal selloff that left them set for their worst week since February.
Despite gold’s sharpest one-day percentage gain since June 2016 on Thursday, the precious metal is still down about 11 per cent from a peak in April as investors bought dollars as the U.S.-China trade war unfolded against a backdrop of rising U.S. interest rates.
Currencies and bonds
The Canadian dollar was trading higher Friday but was still below the 77-cent US mark as global oil prices edged higher.
The dollar edged up on Friday, reflecting investor confidence in the U.S. economy, despite criticism by President Donald Trump of the Federal Reserve and a sell-off in U.S. equities.
The dollar has risen 2.5 per cent since July on expectations interest rates will soon rise further and on safe-haven flows from the U.S.-China trade war.
But a drop in U.S. Treasury bond yields and weaker-than-forecast rise in U.S. consumer prices saw the dollar shed half a percent on Thursday as traders cut their bets on Federal Reserve rate hikes.
Hedge funds have staked out their longest dollar positions since the end of 2016 and markets are focused on any change in economic data that could alter the Fed’s thinking.
The dollar index, a gauge of its value against six major currencies, traded 0.1 per cent at 95.143 on Friday, just below its monthly high of 96.15 on Tuesday.
“We doubt the dollar will derive much further cyclical support through the remainder of the year. Political uncertainty could also undermine the dollar ahead of the mid-term elections on 6 November,” said Derek Halpenny, European head of Global Markets Research at MUFG.
But other analysts see few signs the dollar will fall further. Fed officials said last month they expected three rate hikes in 2019.
“If the equity markets were to calm down again quickly without developments spreading to other asset markets, there is no reason in our mind why the Fed should not continue its rate hikes as planned,” said Esther Maria Reichelt, an FX strategist at Commerzbank in Frankfurt.
“The dollar will be able to maintain its current strong levels for now but further appreciation potential is limited,” she said.
In bonds, Canada’s 10-year bond yield was at 2.519 per cent, up slightly, while the U.S. 10-year Treasury yield was up slightly at 3.167 per cent.
Stocks to watch
Canadian media company Stingray Digital Group Inc. is buying Benelux-based music provider DJ-Matic NV/BV, establishing a beachhead for an aggressive push into Europe to sell its commercial music services. The roughly $20-million deal provides a jumping off point for Stingray’s commercial business in Europe, where executives say it plans to expand further in the years ahead. The business sells curated background music, video and signage to customers such as Telus Corp. and Sports Experts.
U.S. regional lender PNC Financial Services Group Inc. reported a 26.4 percent rise in third-quarter profit on Friday, helped by higher interest income and lower provision for credit losses.
Earnings include: Aphria Inc.; Citigroup Inc.; Corvus Gold Inc.; JPMorgan Chase & Co.; PNC Financial Services Group Inc.; Wells Fargo & Company
Read also: Friday’s small-cap stocks to watch
Economic news
U.S. import prices jumped faster than expected in September amid resurgent energy prices but prices excluding fuels were unchanged.
The Labor Department said on Friday import prices rose 0.5 per cent last month. That was the largest increase since May and followed a revised 0.4 per cent decrease in August.
Import prices were previously reported to have fallen 0.6 percent in August. Economists polled by Reuters had forecast import prices rising 0.2 per cent in September.
In the 12 months through September, import prices rose 3.5 per cent after a 3.8 per cent increase in the 12 months through August.
Last month, prices for imported fuels and lubricants rose 3.8 per cent, the largest increase since May, after falling 2.2 per cent in August. Food prices advanced 2 per cent in September after rising 0.3 per cent in the prior month.
Excluding fuels and food, import prices fell 0.1 per cent last month after slipping 0.2 per cent in August. Consensus was for a rise of 0.2 per cent from August and 3.2 per cent year over year.
(8:30 a.m. ET) Canada’s Teranet/National Bank Home Price Index for September.
(10 a.m. ET) U.S. consumer sentiment for October (preliminary). Consensus is 100.8, up from 100.1 in September.
(2 p.m. ET) U.S. treasury budget for September.
With files from Reuters