U.S. and Canadian futures are pointing to a dismal start of trading Tuesday with a triple-digit drop expected for the Dow, as investors remain jittery about stock valuations for tech and marijuana shares, worry about the impact of trade wars, Italy’s finances and Saudi Arabia’s diplomatic issues.
Tech shares in the U.S. continued to get hit Tuesday with Netflix down 2 per cent in premarket trading to add to its 11-per-cent dip this month. Other tech shares including Amazon, Nvidia, Alphabet and Twitter were also lower. Financial stocks also fell with Bank of America off 2 per cent as investors worried about the impact of rising rates on banks' businesses.
The earnings parade continues Tuesday with corporate giants McDonald’s, 3M, Caterpillar and others set to release results.
Caterpillar shares fell 5.4 per cent in premarket trading after the company reported better-than-expected quarterly results, but blamed U.S. tariffs for rise in costs. 3M Co. also fell 7 per cent after its third-quarter sales missed estimates.
McDonald’s earnings surpassed expectations and its shares rose 1.4 per cent in premarket trading.
Profits of S&P 500 companies are expected to have jumped nearly 22 per cent in the third quarter, according to Refinitiv data. But many investors are focusing on the outlook for future growth due to concerns over trade, rising costs and other factors.
Overseas, European trading pushed world shares towards their lowest level in a year and there was a heavy selloff in Asia.
On Tuesday, U.S. stocks fell in choppy trading as energy and financial stocks fell and investors grew cautious amid a slew of earnings reports.
In Toronto, marijuana stocks fell sharply Monday as investors questioned the valuations of these stocks and they suffered the worst trading day yet in 2018, falling by double-digit percentages and erased nearly $10-billion in market cap.
Overseas, the tech sector posted the worst performance after chipmaker AMS plunged 17 per cent as its outlook triggered alarm bells, but there was a broader force at play.
The pan-European STOXX 600 was near a two-year low with almost half of its stocks now in bear-market territory -- down 20 percent from their peak.
Germany’s DAX also fell to late 2016 lows, London’s FTSE was down near April lows, and MSCI’s world share index was just two points off a one-year low.
“This morning weaker stocks in Asia raised some eyebrows and overall sentiment is suffering from trade tensions, Italy to Brexit; a concoction of concerns,” said ING strategist Benjamin Schroeder.
The euro also fell towards a two-month low and Italian bonds struggled before a European Commission meeting that could see Brussels take the unprecedented step of demanding changes to Italy’s recently laid out budget plans.
Markets were also cautious Turkish President Tayyip Erdogan said on Tuesday there were strong signs Saudi Arabian journalist Jamal Khashoggi’s “savage” killing at a Saudi consulate in Istanbul this month was planned and attempts to blame it on intelligence operatives – Riyadh has suggested it was a rogue operation – “will not satisfy us.”
Saudi Arabia, a top crude oil exporter, faces international pressure to provide all the facts about an incident that has raised a global storm and added the threat of sanctions against the kingdom to a list of market concerns.
Asia’s overnight tumble gave back some of the ground the region had clawed back over the last two sessions.
MSCI’s broadest index of Asian shares dropped 2 per cent to a 1 1/2-year low, with declines in many of the region’s heavyweight bourses even more pronounced. South Korea’s Kospi and Hong Kong’s Hang Seng both fell 3 per cent and Japan’s Nikkei lost 2.7 per cent.
“We’ve got a few negative factors when market sentiment was already fragile,” said Hiroyuki Ueno, senior strategist at Sumitomo Mitsui Trust Asset Management. “And earnings from some Japanese companies were weaker than expected, with some starting to blame trade wars.”
Commodities
Oil prices fell on Tuesday after Saudi Arabia said it could supply more crude quickly if needed, reassuring investors ahead of U.S. sanctions on Iran’s crude exports that start next month.
Benchmark Brent crude oil fell US$1.51 a barrel to a low of US$78.32, down 1.9 per cent and below its 50-day moving average for the first time in two months, before recovering a little to around US$78.35.
U.S. light crude dropped US$1.27 a barrel to a low of US$68.09 and then recovered to trade around US$68.26, down US$1.10.
U.S. sanctions on Iranian oil begin on Nov. 4 and Washington has said it wants to stop all of Tehran’s fuel exports, but other oil producers are pumping more to fill any supply gaps.
Saudi Energy Minister Khalid al-Falih told a conference in Riyadh on Tuesday the oil market was in a “good place” and he hoped oil producers would sign a deal in December to extend co-operation to monitor and stabilize the market.
Gold jumped 1 per cent to a more than three-month peak on Tuesday as investors took cover from a slide in global stocks and rising political and economic uncertainty, including concerns over Italy’s spending plans.
Palladium also rallied, with momentum building from the previous session, closing in on recent record highs with additional support from expected further demand from the Chinese automotive sector.
Spot gold was up 1.1 per cent at US$1,235.10 an ounce, having touched its highest since July 17 at US$1,236.58.
U.S. gold futures rose 1.2 per cent to US$1,238.30 as momentum proved strong enough to counter the rising dollar, which touched a two-month high.
“Rising risk aversion, falling stock markets and continued concerns regarding Italy are supporting prices,” said Commerzbank analyst Carsten Fritsch.
“Now we have risen above the 100-day moving average (around US$1,224), which is key, so maybe we can see it rise to US$1,250, which could be the next target.”
Currencies and bonds
The Canadian dollar was down in early trading, near the 76.3 cent US mark.
“Initial support in USD/CAD stands at $1.3068 (the 100 day moving average), followed by $1.2983 (77.02 cents US) and $1.2904 (77.49 cents US) (the 200 day moving average). Meanwhile, resistance stands at $1.3122 (76.2 cents US), followed by $1.3226 (75.60 cents US) and $1.3290 (75.24 cents US). A daily close above $1.3122 (76.20 cents US) would cause our technical analysts to reassess their bearish technical view on USD/CAD. Their one-to-three month technical target remains at $1.2750 (78.43 cents US),” said RBC in a note.
The U.S. dollar index, a gauge of its value against six other major currencies, fell 0.2 per cent after earlier reaching a two-month high of 96.158.
Turbulence in Europe has lifted the dollar recently along with expectations that a strong U.S. economy may see the Federal Reserve raise rates faster than assumed.
The euro rose on Tuesday before a meeting of the European Commission on Italy’s budget that could see Brussels take the unprecedented step of rejecting it and demanding changes.
The dispute over Italy’s spending plans and doubts about the leadership of Britain’s prime minister, who is mired in a stalemate over Brexit, means investors are focusing on the likelihood of further political turmoil in Europe.
Broad risk aversion pervaded currency markets on Tuesday, with the safe-haven Japanese yen and Swiss franc strengthening, while higher-yielding currencies like the Australian and New Zealand dollars fell.
Worries about Italy’s spending has bred some doubt about the European Central Bank’s plan to raise interest rates next summer and that has hurt the euro. But on Tuesday, it rose 0.2 per cent to US$1.1486.
The U.S. 10-year Treasury yield was down slightly at 3.154 per cent and the Canada 10-year bond yield was off slightly at 2.449 per cent.
Stocks to watch
McDonald’s Corp. reported third-quarter earnings of US$1.64-billion or US$2.10 per share. The results exceeded Wall Street expectations. The average estimate of 13 analysts surveyed by Zacks Investment Research was for earnings of US$1.98 per share. The world’s biggest hamburger chain posted revenue of US$5.37-billion in the period, also topping Street forecasts. Eight analysts surveyed by Zacks expected US$5.25-billion. Its shares rose 1.4 per cent in premarket trading.
Canada’s FSD Pharma Inc. signed a letter of intent to acquire Israel’s Therapix Biosciences Ltd. for US$48-million in stock, combining two complementary businesses focused on the research and development of cannabinoid treatments.
3M Co. reported third-quarter profit of US$1.54-billion. On a per-share basis, the St Paul, Minnesota-based company said it had net income of US$2.58. The results did not meet Wall Street expectations. The average estimate of six analysts surveyed by Zacks Investment Research was for earnings of US$2.70 per share. The maker of Post-it notes, industrial coatings and ceramics posted revenue of US$8.15-billion in the period, which also fell short of Street forecasts. Three analysts surveyed by Zacks expected US$8.42-billion. 3M expects full-year earnings in the range of $9.90 to $10 per share. Its shares fell 7 per cent in premarket trading.
Verizon Communications Inc. reported third-quarter earnings of US$4.92-billion. The company said it had profit of US$1.19 per share. Earnings, adjusted for non-recurring costs, were US$1.22 per share. The results surpassed Wall Street expectations. The average estimate of 19 analysts surveyed by Zacks Investment Research was for earnings of US$1.19 per share. The largest U.S. cellphone carrier posted revenue of US$32.61-billion in the period, which also topped Street forecasts. Nineteen analysts surveyed by Zacks expected US$32.54-billion. Its shares rose 0.6 per cent in premarket trading.
Montreal’s SNC-Lavalin Group Inc., one of the world’s top engineering and construction businesses, is prepared for a radical reshaping if the criminal trial it faces on corruption charges thrusts the company into years of legal limbo that damage shareholder value, the company’s CEO, Neil Bruce, said.
Harley-Davidson Inc. profit topped Wall Street estimates on Tuesday for the seventh straight quarter and it maintained its 2018 shipments forecast, as sales for its classic heavy touring bikes climbed overseas led by Europe. Harley-Davidson shares were up 4 per cent before the bell.
Fifth Third Bancorp’s quarterly profit beat analysts’ estimates on Tuesday, as it earned more from interest-bearing assets and gave out more commercial loans. On an adjusted basis, Fifth Third earned 64 cents per share, brushing past estimates of 63 cents, as per Refinitiv data.
United Technologies Corp. reported a better-than-expected quarterly profit on Tuesday as the industrial conglomerate benefited from higher sales of aircraft parts, driven by record production at planemakers Boeing and Airbus. The maker of Pratt & Whitney aircraft engines and Carrier air conditioners said net income attributable to shareholders fell to US$1.24-billion, or US$1.54 per share, in the second quarter ended Sept. 30, from US$1.33-billion, or US$1.67 per share, a year earlier. On an adjusted basis, the company earned US$1.93 per share, beating analysts’ average estimate of US$1.81 per share, according to Refinitiv. Net sales rose 9.6 per cent to US$16.51-billion. Its shares rose 0.85 per cent in premarket trading.
Earnings include: 3M Co.; Canadian National Railway Co.; Capital One Financial Corp.; Caterpillar Inc.; Centene Corp.; Chubb Ltd.; Corning Inc.; Edwards Lifesciences Corp.; Express Scripts Holding Co.; Ilumina Inc.; Lockheed Martin Corp.; McDonald’s Corp.; NextEra Energy Inc.; PACCAR Inc.; Texas Instruments Inc.; United Technologies Corp.; Verizon Communications Inc.
Other reading: Tuesday’s small-cap stocks to watch
Economic news
Bank of England governor Mark Carney speaks at a conference in Toronto.
(10 a.m. ET) U.S. Richmond Fed Index for October.
With files from Reuters