U.S. and Canadian stocks markets are set to rise Wednesday, hoping to add to the gains reached Tuesday, as investors keep close watch on the flurry of earnings to come and stay positive that ongoing trade wars won’t get worse.
The Dow was pointing towards a triple-digit gain at the open, while other futures were also positive.
Earnings are expected from a slew of large corporations Wednesday, including General Motors, GlaxoSmithKline, Air Canada, Cogeco Communications, Great-West Lifeco, Killogg, Suncor and TransAlta.
Air Canada reported a lower-than-expected quarterly profit on Wednesday, hurt by higher fuel costs. Canadian oil producer Cenovus Energy reported a loss for the third quarter, hurt by a decline in Canadian crude prices amid rising oil supplies. Late Tuesday, Facebook’s revenue disappointed as its new user growth stalled. Still, its shares were up 5 per cent in premarket trading.
General Motors reported stronger-than-expected results and its shares gained 7 per cent in premarket trading.
On Tuesday, markets closed higher as they shrugged off worries about an escalating trade war between the U.S. and China, and sentiment rose as corporate earnings stayed relatively upbeat.
Global stock markets bounced higher on Wednesday, bringing some relief after a brutal October in which equities have suffered one of their worst drops in a decade and spooked investor confidence.
Sino-U.S. trade tensions, concerns about global growth and higher U.S. interest rates and fears that corporate earnings are peaking have combined to shake financial markets in October, leaving most major markets in negative territory for the year.
That has spurred predictions that an almost decade-long bull-market has run its course.
Data overnight showing that China’s factory growth slowed to its lowest in two years has reinforced worries about weakening growth stemming from the trade conflict with the United States, and followed disappointing euro zone growth data published on Tuesday.
A batch of positive earnings set a firmer tone for European stocks on Wednesday, although pan-European indexes are headed for their weakest month since August, 2015.
The leading euro zone stock index was up 1.5 per cent in early trading, with the pan-European STOXX 600 up 1.5 per cent and Germany’s DAX up 1.3 per cent. Britain’s FTSE 100 increased 1.5 per cent and France’s CAC was up 2.3 per cent.
The gains follow Asia, where the MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.4 per cent, drawing support from gains on Wall Street.
The MSCI world equity index, which tracks shares in 47 countries, rose 0.6 per cent but remains down 8.2 per cent in October, its worst month since 2012. The index is down 13 per cent from all-time highs hit in January.
“Ultimately I’m still of the belief that we are in for more downside and rallies are for selling, but squeezes in bear markets are not normally comfortable affairs,” said Neil Campling, co-head of the global thematic group at Mirabaud Securities.
“I think a two- to three-day battle toward the top of the downtrend. Then we can return to the bigger picture – the mid-terms (U.S. elections), trade wars, rates etc. once a few shorts have been taken out of the tape.”
Japan’s Nikkei rose 2.2 per cent, Hong Kong’s Hang Seng rose 1.6 per cent, and China’s Shanghai index rose 1.4 per cent.
Commodities
Oil prices rose more than 1 per cent on Wednesday as markets braced for the imposition of U.S. sanctions on Iran next week and as stock markets clawed back some of their recent losses.
Benchmark Brent crude oil was up 80 cents at US$76.71 a barrel. The contract fell 1.8 per cent on Tuesday, at one point touching its lowest since Aug. 24 at US$75.09.
U.S. light crude was up 60 cents at US$66.78. It hit a two-month low of US$65.33 a barrel on Tuesday.
New U.S. sanctions on Iran begin on Nov. 4 and Washington has made it clear to Tehran’s customers that it expects them to stop buying any Iranian crude oil from that date.
Imports of Iranian crude by major buyers in Asia hit a 32-month low in September, as China, South Korea and Japan sharply cut their purchases ahead of the sanctions on Tehran, government and ship-tracking data showed.
“The bullish argument for crude still centers on Iran sanctions which are due to begin in November, and continued output declines from Venezuela,” said William O’Loughlin, investment analyst at Rivkin Securities.
Despite the rally on Wednesday, both crude benchmarks are around US$10 below four-year highs reached on Oct. 3 and on track for their worst monthly performance since July, 2016.
Gold prices fell to a more than two-week low on Wednesday as Asian stocks gained and the dollar touched multi-month highs on upbeat U.S. economic data.
The yellow metal, however, remained on track to end a six-month losing streak, the longest since a period that finished in early 1997.
Spot gold was 0.4 per cent lower at US$1,217.26 an ounce, having touched its lowest since Oct. 12 at US$1,215.35 earlier in the session. It has risen about 2.4 per cent so far in October, the biggest monthly gain since January.
U.S. gold futures fell 0.5 per cent to US$1,219.3 an ounce.
A stronger dollar and a recovery in equities are putting pressure on gold today, said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.
“The market would now be focusing on the upcoming U.S. non-farm payroll data due on Friday and the U.S. mid-term elections next week for a direction,” Leung added.
Currencies and bonds
The Canadian dollar was trading slightly lower Wednesday just above the 76.1 US cent mark ahead of the release of the country’s August gross domestic product figures.
In addition, traders are also watching testimony to the Senate by Bank of Canada Governor Stephen Poloz and Senior Deputy Governor Carolyn Wilkins.
The U.S. dollar rose to its highest levels in more than a year on Wednesday as dovish comments by the Bank of Japan and weak data from China reinforced the greenback’s attractiveness as an investment destination.
Fuelled by an overnight rally in equities – Japanese stocks rose more than 2 per cent – the dollar was set for a seventh consecutive month of gains.
“Euro zone growth figures have been disappointing and the Bank of Japan is striking a dovish stance at a policy meeting today so there is more room for the dollar to gain from current levels,” said Paul Bednarczyk, director of G10 FX at Continuum Economics based in London.
Against a basket of its rivals, the dollar rose to 97.07 in Asian trade, its highest since June 2017 and up ten percent from its February lows. It is holding firm against the euro at $1.1356.
The U.S. 10-year Treasury yield was at 3.14 per cent, up slightly. Canada’s 10-year bond yield also rose to 2.461 per cent.
Stocks to watch
Kellogg Co. cut its full-year profit outlook on Wednesday, as the cereal maker spends more on advertising and faces higher distribution costs, sending its shares down 5.7 per cent in premarket trading. Kellogg now expects its full-year adjusted earnings per share to increase in the range of 7 per cent to 8 per cent, down from the prior outlook of a 11 per cent to 13 per cent rise. Analysts on average were expecting a 11.9 per cent rise in full-year adjusted profit, according to Refinitiv data. Kellogg also said cereal consumption in the United States was impacted by a June recall of its Honey Smacks cereal due to a potential salmonella contamination.
Air Canada, the country’s biggest airline operator, reported a lower-than-expected quarterly profit on Wednesday, hurt by higher fuel costs. The company’s fuel costs per litre rose 39.7 per cent in the third quarter from a year earlier. On an adjusted basis, the company earned $2.03 per share, missing the average analyst estimate of $2.09, according to Refinitiv data.
Canadian oil producer Cenovus Energy on Wednesday reported a loss for the third quarter, hurt by a fall in Canadian crude prices amid rising oil supplies. Cenovus said net loss was $242-million, compared with a profit of $275-million a year earlier. Excluding one-time items, Cenovus reported a loss of 3 cents per share. Analysts on average had expected earnings of 21 cents per share, according to Refinitiv data.
Facebook Inc. stumbled through another rocky quarter, struggling to add new users in key markets as the social media giant continues to face a public backlash over concerns about privacy and political interference on its platform. But its shares gained 5 per cent in premarket trading.
General Motors Co. posted far stronger-than-expected quarterly profit and said its full-year earnings forecast would come in at the high end of its forecast due to strong demand in North America. The Detroit automaker reported third-quarter net income of US$2.53-billion, or US$1.75 a share, compared with a loss last year of US$2.98-billion, or US$2.03 a share. Last year’s quarter included a charge related to Europe. Excluding one-time items, GM earned US$1.87 a share in the third quarter, easily beating the US$1.25 analysts polled by Refinitiv estimates had expected. Its shares rose 7 per cent in premarket trading.
Aircraft parts maker Spirit AeroSystems topped Wall Street estimates for third-quarter profit on Wednesday, and said it was back on track to meet surging demand from top customers Boeing Co and Airbus SE. Spirit’s net income rose to US$169-million in the three months ended Sept. 27, from US$147-million a year earlier. Excluding one-time items, the company earned US$1.70 per share, above analysts’ average estimate of US$1.65, according to Refinitiv data. Total revenue rose about 4 per cent to US$1.81-billion, but was below the estimate of US$1.83-billion. Its shares rose 1.8 per cent in premarket trading.
EBay Inc. rose 6.3 per cent after the company topped profit expectations, helped by cost cutting efforts.
Electronic Arts Inc. dropped 4 per cent after the video-game publisher’s revenue forecast missed estimates due to the delayed launch of its popular “Battlefield V” game.
Earnings include: Automatic Data Processing Inc.; Akita Drilling Ltd.; Acadian Timber Corp.; Air Canada; Allstate Corp.; Anthem Inc.; Ballard Power Systems Inc.; Bonavista Energy Corp.; Brookfield Renewable Partners LP; Cenovus Energy Inc.; Centerra Gold Inc.; Clarke Inc.; Cogeco Communications Ltd.; Cogeco Inc.; Copper Mountain Mining Corp.; Enterprise Products Partners LP; Fiserv Inc.; General Motors Co.; GlaxoSmithKline; Golden Star Resources; Goodfood Market Corp.; Great-West Lifeco Inc.; HudBay Minerals Inc.; Kellogg Co.; Liberty Health Sciences Inc.; Maxar Technologies Ltd.; Morguard REIT; Open Text Corp.; People Corp.; Praxair Inc.; Riocan REIT; Seven Generations Energy Ltd.; Sherritt International Corp.; Source Energy Services Ltd.; Suncor Energy Inc.; Taseko Mines Ltd.; TransAlta Corp.; Whitecap Resources Inc.; Williams Companies Inc.
Other reading: Wednesday’s small-cap stocks to watch
Economic news
Statistics Canada says real gross domestic product edged up 0.1 per cent in August, the seventh consecutive month to see an increase.
Thomson Reuters Eikon says economists had expected no change for the month.
Growth in oil and gas extraction and the finance and insurance sector helped to more than offset declines in 12 of the 20 industrial sectors tracked by the federal agency.
The mining, quarrying and oil and gas extraction sector rose 0.9 per cent, while the oil and gas extraction subsector gained 1.9 per cent.
The finance and insurance sector rose 1.0 per cent in August, the largest monthly gain since May 2017.
Overall, Statistics Canada says services-producing industries edged up 0.1 per cent, while goods-producing industries were essentially unchanged.
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(8:15 a.m. ET) U.S. ADP National Employment Report for October. Consensus is an increase of 190,000 from September.
(8:30 a.m. ET) Canada’s industrial product and raw materials price indexes for September. Estimate is declines of 0.5 per cent from August for both.
(8:30 a.m. ET) U.S. employment cost index for Q3. Consensus is an increase of 0.7 per cent from Q2 and a rise of 2.9 per cent year over year.
(9:45 a.m. ET) U.S. Chicago PMI for October. Consensus is 61.0, up from 60.4 in September.
(3:30 p.m. ET) Bank of Canada Governor Stephen Poloz and Senior Deputy Governor Carolyn Wilkins appear before the Senate Standing Committee on Banking, Trade and Commerce.
With files from Reuters