With a slew of earnings reports on the horizon Tuesday, U.S. and Canadian futures initially pointed to a positive open but then fell lower as jitters remain in the markets as the U.S.-China trade war is in the spotlight yet again.
General Electric got the day started off on a negative note as it slashed its quarterly dividend to a penny a share starting in 2019 -- its second dividend cut in a year -- as it posted third-quarter earnings of 14 cents per share, 6 cents below analysts' forecasts. Its revenue also disappointed. It also said it would split up its power business. But investors viewed the cut as positive as it will give the conglomerate more cash to finance its restructuring. Its shares were up 0.5 per cent in premarket trading.
Coca-Cola’s results beat Wall Street expectations but its earnings were lower than a year ago. Its shares rose 0.1 per cent in premarket trading.
WestJet reported sharply lower profits for the third quarter compared to a year ago, but its diluted earnings per share beat expectations.
The ongoing U.S.-China trade was is again in focus after reports that the U.S. will impose tariffs on all Chinese imports by the end of the year unless there is progress at next month’s meeting between U.S. President Donald Trump and China’s President Xi Jinping.
Data Tuesday showed that U.S. home price gains fell below 6 per cent for the first time in a year, according to the August S&P Case-Shiller index. Prices rose 5.8 per cent in August, down from a 6-per-cent gain in July.
On Monday, stocks ended the day sharply lower, posting triple-digit losses, due to U.S.-China trade tensions, and as big tech stocks fell. On the Toronto stock market, health care stocks dragged down the index as marijuana stocks declined. Energy stocks were also lower.
Overseas, European shares slipped back into the red and China’s yuan hit a 10-year low on Tuesday, as the prospect of another escalation in the U.S.-Sino trade war compounded the recent gloom in global markets.
There was more negative news out of Italy, the other major concern for Europe at the moment, as its coalition government faces off with the European Commission over spending.
Data showed the Italian economy had ground to a halt in the third quarter as both domestic demand and trade flows failed to spur any growth.
The flat reading was the weakest since the fourth quarter of 2014 and renewed the pressure on Italy’s government debt in the bond markets.
Italy’s 10-year government bond yield was up 2.5 basis points at 3.36 per cent, having been as low as 3.32 per cent earlier in the session. The closely watched spread over German government debt was back up to 300 basis points.
London’s FTSE was up 0.16 per cent, Germany’s DAX fell 0.36 per cent and France’s CAC was off 0.43 per cent.
Asia had made modest gains overnight, thanks to hints of economic stimulus from Beijing, but Europe couldn’t keep up the momentum as some disappointing company results and consumer spending data from France triggered a 0.4-per-cent drop.
It was the 10-year low for China’s yuan in Asian trading that grabbed most attention, though, as it weakened to 6.9696 per dollar, stirring speculation over whether Beijing will tolerate a slide beyond 7 per dollar.
“We don’t see the trade war being resolved any time soon,” said Rabobank’s senior macro strategist Teeuwe Mevissen. “And it comes at a time when we see all the sentiment indicators in the euro zone but also in the U.S., too, cooling down.”
Beijing’s securities regulator said it would encourage share buybacks and mergers and acquisitions by listed firms and would enhance market liquidity.
Mainland China’s benchmark Shanghai Composite and the blue-chip CSI 300 gained to 1.0 per cent and 1.1 per cent, respectively, having fallen in early trading.
Japan’s Nikkei average also erased early losses and rose 1.5 per cent as traders went shopping for bargains among beaten-down stocks.
MSCI’s broadest index of Asia-Pacific shares has lost 12 per cent this month and is on track for its biggest October decline since 2008, during the global financial crisis.
“At this point, nobody can say the equity market is bottoming out. Global investor sentiment remains shaky,” said Yasuo Sakuma, chief investment officer at Libra Investments in Tokyo.
Commodities
Oil prices fell on Tuesday, depressed by concerns that the U.S.-China trade dispute will dent economic growth and by signs of rising global supply despite upcoming sanctions against Iran.
Benchmark Brent crude oil was down 70 cents a barrel at US$76.64. U.S. light crude was down 50 cents at US$66.54.
Both contracts have recovered ground over the last week but are around US$10 a barrel below four-year highs reached in the first week of October.
Oil has been caught in the global financial market slump this month, with equities under pressure from the trade war between the world’s two largest economies.
For now the dispute between Washington and Beijing looks set to curb global economic growth and fuel demand.
Gold slid on Tuesday as the dollar benefited from concerns about an escalating trade dispute between the United States and China, leaving the metal near key technical levels that might prompt fresh speculative bets for prices to fall further.
Spot gold was down 0.6 per cent to US$1,222.05 an ounce, having earlier touched it lowest in a week. U.S. gold futures were 0.3-per-cent lower at US$1,223.70 an ounce.
“The dollar’s appreciation is not helping gold and the general movement down appears to be related to increased speculation about further moves by the Trump administration in relation to tariffs,” said Capital Economics analyst Ross Strachan.
Gold prices have slipped around 10 per cent from their April peak after investors turned to the dollar as a safe-haven, as the U.S.-China trade war unfolded against a background of higher U.S. interest rates.
On the technical front, gold was testing support at the 100-day moving average around US$1,220.
Currencies and bonds
The Canadian dollar was trading at 76.16 cents US as oil prices slumped.
“The Canadian dollar remains on the back foot as the late-day equity sell-off propelled USD/CAD above trendline resistance at $1.3110 (76.27 cents US). The resulting bullish breakout shifts the focus up to $1.3226 (75.60 cents US) and $1.3290 (75.24 cents US) next, with support located at $1.3107 (76.29 cents US) and $1.3046 (76.65 cents US). Event risk picks up with tomorrow’s August GDP report,” RBC said in a note.
The U.S. dollar rose towards 2 1/2-month highs on Tuesday, supported by worries about an escalation of the Sino-U.S. trade war.
The euro, pushed lower by the stronger dollar, slipped as traders prepared for a swathe of data, including euro zone GDP and German inflation.
Investors bought into the dollar after Bloomberg reported that Washington was preparing to announce tariffs on all remaining Chinese imports by early December if talks between U.S. President Donald Trump and Chinese President Xi Jinping fail to ease the trade war.
Trump and Xi are due to meet on the sidelines of the Group of 20 leaders summit in Argentina at the end of November.
“Trade wars, a recovery on equity markets and poor data out of Europe and stronger data in the U.S.” were supporting the dollar at the euro’s expense, said Niels Christensen, chief analyst at Nordea.
“I don’t think the euro will bounce back. There’s no reason for the ECB (European Central Bank) to start sounding more hawkish unless inflation surprises,” he said.
The dollar, measured against a basket of its peers, rose 0.2 per cent to 96.806, not far from 96.860, last week’s 2 1/2- month high.
The euro was a touch lower at US$1.1369, after reaching a 10-week low of US$1.1332 on Monday when German Chancellor Angela Merkel said would not seek re-election as head of the Christian Democrats party.
Stocks to watch
Pfizer posted a 45 per cent jump in third-quarter profit, as it benefited from sharply lower taxes due to this year’s federal tax cut and slightly higher revenue. The maker of Viagra and nerve pain treatment Lyrica on Tuesday reported net income of US$4.11-billion, or 69 cents per share. Adusted for one-time gains and costs, the New York drugmaker said income came to 78 cents per share. That beat analyst expectations for earnings of 76 cents per share, according to Zacks Investment Research. However, its shares fell 3.3 per cent in premarket trading.
Strong sales of sparkling water and sugar-free drinks are powering third-quarter earnings for Coca-Cola Co. The company on Tuesday posted net income of US$1.88-billion, or 44 cents per share. Earnings, adjusted to account for discontinued operations and non-recurring costs, came to 58 cents per share, which is 3 cents better than Wall Street expected, according to a survey by Zacks Investment Research. The world’s largest beverage maker posted revenue of US$8.24-billion in the period, just above expectations. It shares rose 0.1 per cent in premarket trading.
WestJet Airlines Ltd. reported a third-quarter profit of $45.9-million, down from a profit of $135.9-million in the same quarter last year amid rising fuel prices. The airline says the profit amounted to 40 cents per diluted share for the quarter ended Sept. 30, compared with $1.15 per diluted share a year ago. Revenue totalled $1.26-billion for the quarter, which included the busy summer travel period, up from $1.21 billion a year earlier. Analysts on average had expected a profit of 33 cents per share for the quarter, according to Thomson Reuters Eikon.
Oil and gas producer Chesapeake Energy Corp. is buying smaller firm WildHorse Resource Development Corp. in a deal valued at nearly $4 billion, it said on Tuesday, as it looks to strengthen its operations in Southeast Texas. Chesapeake shares fell 7.5 per cent in premarket trading while WildHorse stock rose 19.4 per cent.
Marijuana producer Aphria Inc. says it has been approved for listing on the New York Stock Exchange and will begin trading on the U.S. market on Friday. The company will trade under the ticker symbol APHA. Aphria also says it will change its Toronto Stock Exchange symbol from APH on Friday to match its U.S. ticker symbol.
Under Armour Inc. raised its full-year profit forecast on Tuesday after reporting third-quarter results that topped Wall Street estimates, as the sportswear maker benefited from higher overseas sales and lower expenses. Shares of the Baltimore-based company, which has risen about 26 per cent this year as it strives to recover momentum in its battle to become one of the big players in global sportswear, rose 5.6 per cent in premarket trading.
Johnson Controls International Plc is nearing a deal to sell its power solutions business, which makes car batteries, to Brookfield Asset Management Inc for between US$13-billion and US$14-billion, people familiar with the matter said on Monday. The transaction would be one of the largest leveraged buy-outs this year and allow Johnson Controls to focus on its building technologies and solutions business, which makes heating, ventilation and air conditioning systems, as well as building access control and fire detection systems.
Mastercard Inc.’s third-quarter profit rose 33 per cent, it said on Tuesday, joining rival payments network Visa Inc. in reporting higher earnings led by rising U.S. consumer spending. Mastercard’s net income climbed to US$1.90-billion or US$1.82 per share in the three months ended Sept. 30, from US$1.43-billion or US$1.34 per share a year earlier. Excluding one-time items, the company earned US$1.78 per share. Analysts on average had expected earnings of US$1.68 per share, according to Refinitiv data. Its shares rose 0.55 per cent in premarket trading.
Mondelez International Inc. said late Monday it would hike prices for biscuits, gums and candies in the United States and certain emerging markets next year to battle rising transportation and freight costs. Net revenue fell 3.7 per cent to US$6.29- billion. Net income attributable to the company rose to US$1.19-billion, or 81 cents per share, in the third quarter, from US$981 million, or 64 cents per share, a year earlier. Excluding items, the company earned 62 cents per share. Analysts on average had expected a profit of 61 cents per share on revenue of US$6.32-billion, according to Refinitiv data. It shares were up 0.2 per cent in premarket trading.
Earnings include: Aetna Inc.; Alacer Gold Corp.; Allergan PLC; AltaGas Ltd.; American Tower Corp.; Amgen Inc.; Anadarko Petroleum Corp.; Baker Hughes; CRH Medical Corp.; Coca-Cola Co.; Colliers International Group Inc.; Cummins Inc.; DIRTT Environmental Solutions Ltd.; Eaton Corp. PLC; Ecolab Inc.; Electronic Arts Inc.; Facebook Inc.; First National Financial Corp.; Genworth MI Canada Inc.; Horizon North Logistics Inc.; Kirkland Lake Gold Ltd.; Mastercard Inc.; Morguard North American Residential; North American Construction Group Ltd.; ONEOK Inc.; Secure Energy Services Inc.; Stelco Holdings Inc.; T-Mobile US Inc.; WestJet Airlines Ltd.
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Economic news
(9 a.m. ET) U.S. S&P Case-Shiller Home Price Index (20 city) for August. Consensus is an increase of 0.2 per cent from July.
(10 a.m. ET) U.S. Conference Board Consumer Confidence Index for October. The Street expects a reading of 135.4, down from 138.4 in the previous month.
(3:30 p.m. ET) Bank of Canada Governor Stephen Poloz and Senior Deputy Governor Carolyn Wilkins appear before the House of Commons Standing Committee on Finance.
With files from Reuters