U.S. and Canadian stock futures are pointed to a positive open Friday as a slew of strong earnings from corporate giants buoyed investors and helped them put aside worries about interest rates and risks about Europe and Saudi Arabia.
Consumer goods bellwether Procter & Gamble, Honeywell and Corus Entertainment all reported results that beat expectations. Rogers Communciations also beat estimates.
The Canadian telecom company benefited from strong growth in its wireless and cable businesses. Revenue from the wireless business rose 5.8 per cent to $2.33-billion, while revenue from its cable business edged up nearly 1 per cent to $983-million. The Toronto-based company’s net income rose 17 per cent to $594-million, or $1.15 per share, in the third quarter ended Sept. 30.
“There have been macro concerns but results have been the biggest driver this week, and today is no different,” said Art Hogan, chief market strategist at B. Riley FBR in New York.
Earnings growth for S&P 500 companies is expected to have increased 22 per cent in the third quarter, a slowdown from the first half, according to Refinitiv data. Of the 69 companies that have reported earnings so far, 78.3 per cent have beaten expectations.
On Thursday, the Dow shed 300 points and the TSX lost 125 points as investors worried about a warning issued by the European Commission over Italy’s budget and the strained relationship between the United States and Saudi Arabia following the disappearance and presumed death of journalist Jamal Khashoggi at the Saudi embassy in Turkey. A batch of disappointing results from industrial companies on Thursday also didn’t soothe worries over the impact of tariffs, rising borrowing costs and wages on corporate profits.
In Toronto, steel stocks could see some reaction as the U.S. and Canada continue talks to end steel and aluminum tariffs.
Canadian media company Corus Entertainment Inc.’s quarterly profit beat estimates on Friday, helped by lower restructuring and broadcasting costs. Excluding items, the company earned 19 cents per share. Analysts on average had expected the company to earn 15 cents per share, according to data from Refinitiv.
Ongoing shortages of marijuana supply persisted as the legalization of cannabis moved into its third day, and that could have an impact on marijuana stocks.
In economic news, the annual pace of inflation slowed more than expected in September as increases in the price of gasoline eased compared with August.
Statistics Canada says the consumer price index in September was up 2.2 per cent from a year ago compared with a year-over-year increase of 2.8 per cent in August. Economists had expected the September figure to come in at 2.7 per cent, according to Thomson Reuters Eikon.
In Europe, investors sold Italian bonds and the euro on Friday, with Italy’s bond yield hitting four-year highs as the European Union called its draft budget an “unprecedented” breach of EU fiscal rules.
Late on Thursday, the European Commission told Rome in a letter that planned government spending was too high and that its structural deficit would rise instead of fall, and that the country’s public debt would not fall in line with EU rules. Italy’s prime minister Giuseppe Conte defended the budget.
EU authorities will send a formal warning letter that could lead to Brussels rejecting the draft before the end of the month.
While it isn’t unusual for the EU to ask member countries for clarification on points of their budget plans, the sending of a formal letter and the tone of the comments were particularly strong, analysts said.
“The letter was more sharply worded than usual. It described the budget as ‘an obvious deviation’ from prior commitments, on an ‘unprecedented’ scale,” Deutsche Bank research strategist Jim Reid said in a note to clients.
Italy’s benchmark 10-year bond yields rose to 3.74 per cent in early trade on Friday, the highest since February 2014. The closely watched Italian/German bond yield spread hit a fresh 5-1/2 year high of 332 basis points.
Italian stocks tumbled nearly 1.2 per cent, while its bank stocks in particular fell almost 3 per cent. The news also weighed on the euro, which fell to a two-month low.
Britain’s FTSE was up 0.07 per cent, Germany’s DAX was off 0.43 per cent and France’s CAC was down 0.94 per cent.
In Asia, data showing China’s economy growing at its slowest pace since 2009 weighed on shares in Asia, although Chinese shares staged a recovery after the securities regulator announced a series of measures to aid the market.
MSCI’s broadest index of Asia-Pacific shares outside Japan was up less than 0.l per cent after earlier falling as much as 0.9 per cent ahead of the China GDP reading. Japan’s Nikkei average ended 0.6 per cent lower for its third straight week of declines.
Commodities
Oil prices rose on Friday on signs of surging demand in China, the world’s second-biggest oil consumer, although the market was heading for a second week of losses on rising U.S. inventories and concern that trade wars were curbing economic activity.
Benchmark Brent crude oil was up 70 cents a barrel at US$79.99. U.S. light crude was 40 cents higher at US$69.05.
For the week, Brent crude was 0.5 per cent lower while U.S. crude was down 3.2 per cent, both on track for a second consecutive weekly decline, and down around US$7 a barrel from four-year highs reached in early October.
“It looks like the oil market moved too fast too far,” said Carsten Menke, analyst at Swiss bank Julius Baer. “Prices are down around 8 per cent from recent highs, trading back below US$80 a barrel. Sentiment in the futures market seems to have cooled.”
Refinery throughput in China, the world’s largest oil importer, rose to a record high of 12.49 million barrels per day (bpd) in September as some independent plants restarted operations after prolonged shutdowns over the summer to shore up inventories, government data showed on Friday.
Undermining sentiment were official figures showing China’s economic growth slowed in the third quarter to its weakest pace since the global financial crisis, with gross domestic product expanding by only 6.5 percent, missing estimates.
The data raised concerns that China’s trade war with United States was beginning to hit growth, which may limit oil demand.
Gold prices rose on Friday, setting the metal on course for a third week of gains as weaker stock markets spurred investors to seek refuge in bullion, which also gained technical momentum after scaling key milestones.
Spot gold added 0.3 per cent to US$1,228.31 per ounce. The metal has gained 0.9 per cent so far this week, after hitting a 2-1/2-month high at US$1,233.26 on Monday. U.S. gold futures were up 0.1 per cent at US$1,231.50 an ounce.
“Gold has done really well to hold up here, given the Fed was really hawkish. Sensitivity to equity markets is helping gold at the moment,” said Macquarie commodity strategist Matthew Turner.
“We are entering a new paradigm, where any further rate hike could be a sign that the economy is overheating a bit, which should be more positive for gold and problematic for equities.”
Currencies and bonds
The Canadian dollar was trading higher near 76.7 cents US as oil prices stabilized.
“A 25 [basis point interest rate] hike at next week’s [Bank of Canada] meeting is fully priced, with a further hike priced into the first quarter of 2019. Thursday’s close above $1.3041 (76.68 cents US) paves the way to resistance at $1.3129 (76.16 cents US) which serves as the pivot for our bearish technical view,” RBC wrote in a note Friday.
The dollar index, a gauge of its value against major peers, traded flat at 95.9 on Friday, close to a two-month high of 96.155.
The euro fell towards a two-month low on Friday after the European Union criticized Italy’s spending plans, raising fresh concern about a conflict within the common currency zone.
The single currency fell to an intraday low of US$1.1433 close to a two-month low of US$1.1432 hit on Oct. 9. In later trading it was up 0.1 per cent on the day at US$1.1464.
Italy is the third-largest economy of the 19-country euro zone, and a crisis there could unsettle the entire bloc.
The U.S. 10-year Treasury yield was at 3.192 per cent, up slightly. Canada’s 10-year bonds yield was at 2.514 per cent, also up slightly.
Stocks to watch
Procter & Gamble Co. on Friday reported fiscal first-quarter net income of US$3.2-billion or US$1.22. a share. Earnings, adjusted for non-recurring gains, were US$1.12 per share. The results topped Wall Street expectations. The average estimate of 10 analysts surveyed by Zacks Investment Research was for earnings of US$1.09 per share. The world’s largest consumer products maker posted revenue of US$16.69-billion in the period, also surpassing Street forecasts. Eight analysts surveyed by Zacks expected US$16.56-billion. Its shares rose 3.4 per cent in premarket trading.
InterContinental Hotels Group reported only a small rise in revenue per available room in the third quarter, held back by a U.S. decline in the face of competition from online rental services, sending its shares down 5.8 per cent.
Honeywell International Inc. reported better-than-expected quarterly profit on Friday and lifted its full-year forecasts for cash flow and margins, driven by strong sales of aircraft parts and warehouse automation products. Shares of Honeywell, which makes everything from aircraft engines to catalysts used in petroleum refining, were up 3.2 per cent in premarket trading.
Walt Disney shares rose 1.1 per cent in premarket trading after Barclays upgraded its shares to “over weight”, saying its purchase of US$71-billion of assets from Twenty-First Century Fox Inc may mark a turning point for the company.
PayPal climbed 6.5 per cent after the payments company beat quarterly profit estimates, signing up more customers and raising volume of payments processed.
Apple rose 1.2 per cent as it began taking pre-orders for its new iPhone XR and Wedbush upgraded the stock expecting the company to benefit from more customers upgrading their phones. Other members of the FAANG group also gained nearly a per cent.
Schlumberger reversed earlier losses to trade 1.5 per cent higher as its third-quarter profit increased on higher oilfield services demand.
Interpublic Group jumped 5.5 per cent after the U.S. advertising firm beat quarterly revenue estimates, benefiting from higher client spending worldwide.
Facebook Inc. has hired former U.K. Deputy Prime Minister Nick Clegg to lead its global affairs and communications team, making him the most senior European politician ever in a leadership role in Silicon Valley. Its shares were us 0.8 per cent in premarket trading.
Earnings include: Corus Entertainment Inc.; Honeywell International Inc.; Kansas City Southern; Mason Graphite Inc.; Procter & Gamble Co.; Rogers Communications Inc.; Schlumberger NV; State Street Corp.; SunTrust Banks Inc.
More reading: Friday’s analyst upgrades and downgrades
Economic news
The annual pace of inflation slowed more than expected in September as increases in the price of gasoline eased compared with August. Statistics Canada says the consumer price index in September was up 2.2 per cent from a year ago compared with a year-over-year increase of 2.8 per cent in August. Economists had expected the September figure to come in at 2.7 per cent, according to Thomson Reuters Eikon.
Statistics Canada says prices were up in all eight major components for the 12 months to September, while the increase in the transportation index, which includes gasoline, slowed. Gasoline prices in September were up 12.0 per cent compared with a year ago compared with a 19.9 per cent increase in August. The report comes ahead of the Bank of Canada’s rate decision next week when it will also update its forecast for the economy in its monetary policy report. The central bank is widely expected to raise its key interest rate target, which sits at 1.5 per cent, by a quarter of a percentage point.
(8:30 a.m. ET) Canadian retail sales for August. The Street expects an increase of 0.5 per cent from July (or 0.2 per cent excluding automobiles).
(10 a.m. ET) U.S. existing home sales for September. Consensus is an annualized rate decline of 0.8 per cent.
with files from Reuters