U.S. and Canadian stock market futures moved higher Friday but fluctuated as investors reacted to jobs figures from both Canada and the U.S.
While U.S. futures turned positive after the report and then fell and rebounded again, the TSX 60 futures stayed was flat and then fell, down 0.09 per cent.
Statistics Canada reported that the country gained 63,000 jobs in September, edging the unemployment rate lower to 5.9 per cent. That’s nearly double the 32,000 jobs expected by The Street.
CIBC said the headline Canadian numbers “blew past expectations, but that hid some softer details” such as the fact much of the jobs created were part time and hourly earnings weren’t up as much as expected. “Overall, the headline surprises will support the Canadian dollar and yields today, but they likely overstate the positives for the economy given the underlying details.”
In the U.S., the country added 134,000 jobs last month. Wall Street economists had expected an increase of about 168,000, according to MarketWatch. The unemployment rate fell to 3.7 per cent. August’s jobless rate was 3.9 per cent. Average earnings rose by 8 cents an hour and are up 2.8 per cent over the past year. CIBC said the U.S. report was “solid” and the “results are still consistent with a strong U.S. economy and gradually accelerating inflationary pressures.”
Canada recorded its first trade surplus for more than 18 months in August as unusually timed shutdowns at auto plants helped cut imports at a greater rate than exports, Statistics Canada said on Friday. The surplus of $526 million was the first since December 2016.
Auto plants in Canada, which usually cut production in July for retooling, had atypical planned shutdowns in August, Statscan said.
Exports in August fell by 1.1 per cent, the biggest decline since January, partly due to lower shipments of motor vehicles, and imports dropped by 2.5 per cent for the same reason.
Exports to the United States fell by 1.2 per cent while imports declined by 1.3 per cent. As a result, the trade surplus with the United States – which took 74.6 per cent of Canada’s goods exports in August – remained almost unchanged at $5.35-billion.
The U.S. trade deficit increased to a six-month high in August as exports dropped further amid declining soybean shipments and imports hit a record high, suggesting that trade could weigh on economic growth in the third quarter.
The Commerce Department said on Friday the trade gap increased 6.4 percent to $53.2 billion, widening for a third straight month. Data for July was revised to show the trade deficit rising to $50.0 billion, instead of the previously reported $50.1 billion.
The politically sensitive goods trade deficit with China surged 4.7 percent to a record high of $38.6 billion. Economists polled by Reuters had forecast the overall trade deficit swelling to $53.5 billion in August.
World markets steadied ahead of U.S. jobs numbers on Friday, as a four-year high in oil prices and the biggest weekly jump in Treasury yields since February left investors wondering where to go next.
The usual drop in activity ahead of the monthly non-farm payrolls couldn’t prevent Europe’s main bourses following Asia into the red – but it wasn’t the deep shade of crimson of the previous day.
Lingering worries about Italy’s finances pushed Milan down 0.9 per cent, while London’s FTSE, Frankfurt’s DAX and the CAC in Paris were off 0.5-0.9 per cent.
Benchmark U.S. Treasury yields were at a seven-year top and on their way to their biggest weekly yield rise since February while European yields were adding to their biggest rise in months as well.
And with talk of plenty more U.S. interest rate hikes growing louder, it put all the more focus on the U.S. jobs data later.
Eaton Vance portfolio manager Justin Bourgette said though there was too much hype around the payrolls figures, whichever way you approach it, the U.S. labor market is currently super strong.
The latest Reuters poll sees 185,000 new jobs and average hourly earnings increasing 0.3 per cent in September after leaping 0.4 percent in August.
“Whatever the Fed’s concept of the neutral interest rate is, it must be rising,” Bourgette said. “And it is going to be trial and error to some degree (on how high rates go), because you just don’t know where the choking point is.”
Tied in with the rise in borrowing costs has been the latest spike in oil prices, as energy costs tend to have an outsized impact on inflation which is what most major central banks focus on when setting interest rates.
In corporate news, shares in Danske Bank plummeted on Friday to their lowest in four years after a media report the bank executed up to 8.5 billion euros of mirror trades for Russian customers in 2013, and a downgrade by Credit Suisse. An internal memo seen by the Financial Times indicates that Danske Bank executed mirror trades in 2013 of between 6 billion euros and 8.5 billion euros, the UK newspaper reported on Friday. Danske shares were trading 9.8 per cent lower.
Some news in the oilpatch could see some action in that sector as Canada’s Precision Drilling Corp. said on Friday it would buy smaller rival Trinidad Drilling Ltd. in a deal valued at $1.03-billion, trumping a hostile bid from Ensign Energy Services. Precision Drilling’s shares fell 1.5 per cent in premarket trading.
Shares in Lenovo Group and ZTE Corp tumbled on Friday, hurt by worries about overseas sales after Bloomberg reported that systems of many U.S. firms had been infiltrated by malicious computer chips inserted by Chinese spies. The issue also hit shares of Apple Inc., which was down 0.2 per cent in premarket trading. Apple has said it has “no evidence” the the China spy chip claims.
Bloomberg Businessweek cited 17 unidentified sources from intelligence agencies and business that Chinese spies had placed computer chips inside equipment used by about 30 companies and multiple U.S. government agencies, which would give Beijing secret access to internal networks.
In Asia, Japan’s Nikkei was off 0.8 per cent and Hong Kong’s Hang Seng fell 0.19 per cent.
Commodities
Oil prices rose back towards four-year highs on Friday as traders anticipated a tighter market due to U.S. sanctions on Iran’s crude exports.
Benchmark Brent crude oil was up 30 cents a barrel at US$84.88. On Thursday, Brent fell by US$1.34 a barrel or 1.6 per cent, but the contract remains on course for a gain of around 2.5 per cent for the week. U.S. light crude was up 50 cents at US$74.83, reflecting a gain of more than 2 per cent since last Friday.
“The market mood is exceptionally bullish, with fears growing that the U.S. demands for an Iran oil embargo could cause a significant supply shortfall,” said Norbert Rucker, head of macro and commodity research at Julius Baer.
Both benchmarks retreated on Thursday following a rise in U.S. oil inventories and after Saudi Arabia and Russia said they would raise output to at least partly make up for expected disruptions from Iran, OPEC’s third-largest producer.
But the pull-back did little to dent a 15 to 20-per-cent rise in oil prices since mid-August, which has pushed them to their highest since 2014.
Washington wants governments and companies around the world to stop buying Iranian oil from Nov. 4 to put pressure on Tehran to renegotiate a nuclear deal.
Gold prices held in a narrow range on Friday ahead of a monthly U.S. employment report that should yield further clues on the pace of monetary tightening.
Spot gold was little changed at US$1,198.86 an ounce. It had gained 0.6 per cent so far for the week, on track to mark its biggest weekly gain in six. U.S. gold futures were up 0.1 per cent at $1,202.40 an ounce.
Despite the weekly gain, gold prices have fallen more than 12 per cent from a peak in April largely due to strength in the dollar, which has benefited from a vibrant U.S. economy, rising U.S. interest rates and fears of a global trade war.
“The fear is that the rising dollar is going to cause a huge rout in the emerging markets and investors want to hedge that risk,” Think Markets UK chief markets analyst Naeem Aslam said.
Currencies and bonds
The Canadian dollar was holding steady near 77.3 US cents on Friday ahead of Canada’s jobs report. The loonie has been edging lower this week and a strong jobs figure could confirm upcoming rate hikes by the Bank of Canada – with one already expected later this month, which could bolster the loonie. Holding back the loonie, economists say, are the differences in Canadian and American interest rates, our lagging competitiveness and the gap between the price of our oil and that of the U.S.
The dollar edged toward a six-week high on Friday before monthly U.S. jobs data that investors hope will shed light on how much longer the Fed’s aggressive rate-hiking cycle will continue.
The U.S. currency is outperforming other major currencies as the U.S. economy continues to grow strongly while recent data in other large economies, including the euro zone, has come in below expectations.
Investors are watching for signs of increasing U.S. inflation as companies including Amazon raise minimum wages. Friday’s non-farm payrolls release for September will give new indications of wage growth and labour market strength.
The dollar index, which measures its performance against a basket of six currencies, was 0.1 per cent higher on the day at 95.907, closing in on a six-week high of 96.121.
Private payrolls data came in stronger than forecast on Thursday, pushing the yield on the benchmark 10-year U.S. Treasury note to its highest levels since May 2011.
“We have downplayed the relevance of the U.S. labour market report for the dollar ... but the data might become more significant again now there is debate over how much longer the rate hike cycle will continue,” said Antje Praefcke, a currency strategist at Commerzbank in Frankfurt.
The U.S. central bank foresees another interest rate hike in December, three more next year, and one in 2020.
Fed Chairman Jerome Powell on Wednesday talked up the U.S. economy, saying that the United States is on the verge of a “historically rare” era of ultra-low unemployment and tame prices.
That spooked investors and caused U.S. Treasury yields and the euro/dollar currency pair to breach key technical levels.
But even if the job’s data beats expectations the dollar might not move significantly because the bar for an upward surprise has been raised by recent strong data, analysts at MUFG said.
“Powell has commented that this level of wage growth is not necessarily a sign of an overheating labour market signalling the Fed remains comfortable with gradual rate hikes,” the analysts said.
Stocks to watch
Marijuana stocks could see some reaction Friday to warnings from multiple provincial distributors and retailers that Canada’s largest cannabis growers are behind on their first orders for recreational marijuana, a development that will leave consumers with less product and fewer choices come Oct. 17.
Shares of Tesla Inc. fell as much as four per cent on Friday after Tesla CEO Elon Musk on Thursday mocked the U.S. Securities and Exchange Commission, just hours after a federal judge ordered him and the regulator to justify their securities fraud settlement, which let Musk remain chief executive. “Just want to that the Shortseller Enrichment Commission is doing incredible work,” Musk, a frequent critic of investors betting against the electric car company, wrote on Twitter. “And the name change is so on point!”
Generic drugmaker Mylan slipped 1.2 per cent after Mizuho downgraded the stock to “neutral” from “buy.”
Snap Inc. rose about 5 per cent on a report that CEO Evan Spiegel has set a goal to achieve full-year profitability in 2019 and outlined a new set of strategic goals, citing a memo.
Manulife Financial is expected to be in the crosshairs again today after well-known American short-seller Muddy Waters LLC, run by Carson Block, revealed on Thursday that he is betting against Manulife Financial Corp., arguing that a lawsuit the insurer faces could put it at risk of significant financial damage. The short-seller hopes there will be a drop in the Canadian life insurance giant’s share price if it loses a little-known lawsuit launched by a hedge fund. Its stock fell 3.4 per cent on Thursday.
Shares in Intu Properties soared more than 37 per cent on Friday after a consortium including British billionaire John Whittaker and Canada’s Brookfield Asset Management said it was considering a bid for the shopping center owner. Peel Group, which is the investment vehicle of the Whittaker family, Saudi Arabia’s Olayan Group and property investor Brookfield said on Thursday they were weighing a cash offer for the London-listed shopping center company. Peel and Olayan, the conglomerate founded by the Olayan family, together hold 29.9 per cent of Intu, the consortium said.
Aritzia Inc. reported second-quarter comparable sales growth of 11.5 per cent, following 5.4-per-cent growth in the second quarter last year. Net revenue increased by 18 per cent to $205.4-million from $174-million in the same quarter last year. Analysts were expecting revenue to come in at $198.5-million in the latest quarter. Canaccord Genuity analyst Camilo Lyon kept his “buy” rating on the stock and raised his target for its shares by a loonie to $21, which is 38 cents lower than the current consensus.
Hudbay Minerals Inc. issued a statement after markets closed on Thursday to comment on a media report “speculating on a potential business acquisition” by the company. Bloomberg reported the company is in talks to buy Chilean miner Mantos Copper SA.
Various Sobeys brand packaged vegetables products are being recalled in the Maritimes due to possible Listeria contamination. The Canadian Food and Inspection Agency says 19 Sobeys vegetable products were sold in New Brunswick, Nova Scotia, and Prince Edward Island. The agency says the products include the Sobeys rainbow veggie platter, the bacon broccoli salad and the veggie stir fry mix. It says all of the recalled items have a best before date of Oct. 7. Sobeys is owned by Empire Co. Ltd.
Believing a “pivot toward growth is underway,” Citi analyst Christian Wetherbee raised his financial expectations and target price for share for Canadian Pacific Railway Ltd. after coming away from its Investor Day event in Calgary on Thursday “impressed with the current pace of growth.”
Other reading:
Friday’s small-cap stocks to watch
Economic news
(8:30 a.m. ET) Canadian employment for September. The Street expects an increase of 32,000 jobs (or 0.2 per cent) with the unemployment rate falling 0.1 per cent to 6.0 per cent.
(8:30 a.m. ET) Canada’s merchandise trade balance for August, Consensus is a deficit of $500-million.
(8:30 a.m. ET) U.S. trade balance for August. Consensus is a deficit of US$52.2-billion, rising from US$50.1-billion in July.
(8:30 a.m. ET) U.S. employment for September. Consensus is the addition of 185,000 jobs with the unemployment rate falling 0.1 per cent to 3.8 per cent.
(3:30 p.m. ET) U.S. consumer credit for August. Consensus is an increase of US$15-billion.
With files from Reuters, The Canadian Press, The Associated Press