Canadian and U.S. stock futures are pointing to a lower open Thursday after several days of market gains as investors put the U.S. midterm elections behind them and instead shift their focus to what the U.S. Federal Reserve will say later in the day.
The Fed, which is meeting for the second day, is due to announce its latest monetary policy decision. The market isn’t expecting any change but investors will be searching for clues from the central bank about whether or not it will raise interest rates next month and continue its monetary tightening path.
While the Fed won’t hold a news conference this month but its will publish a statement that is expect to lay the ground for a fourth rate hike of the year next month.
“A split Congress is unlikely to materially alter the Fed’s near-term hiking trajectory and the Fed will be biased to keep raising rates until the data or financial conditions turn,” strategists at Bank of America Merrill Lynch wrote.
In Canada, Bombardier’s stock could be active after the aerospace manufacturer announced it was selling $900-million in non-core assets and cutting 5,000 jobs as it moves its product portfolio more toward luxury jets and trains.
Cannabis stocks could also see as boost as many see the defeat of Republican Pete Sessions as a positive for the industry as he continually prevented many laws surrounding marijuana from reaching the House floor for debate and eventual vote. Those stocks rose sharply on Wednesday.
On Wednesday, stocks soared after the U.S. midterm elections played out as expected with the Democrats regaining control of the House and the Republicans solidifying their hold on the Senate. With the uncertainty of the election behind them, investors are now shifting their focus to ongoing parade of corporate earnings and monetary policy.
Overseas, world stocks basked in an eighth straight session of gains in their longest winning streak of the year on Thursday, as reassuring trade data from China kept the previous day’s post-U.S. midterms risk rally rolling.
Traders were gearing up for the latest U.S. Federal Reserve meeting in a confident mood and the contrast to a month ago, when markets were taking a painful pounding, could not have been more stark.
European shares jumped to a one-month high after results from SocGen and Commerzbank and France’s Sodexho soothed concerns about slowing corporate earnings. Asia and Wall Street had set similar milestones overnight.
Britain’s FTSE rose 0.3 per cent but Germany’s DAX fell 0.2 per cent and France’s CAC was off 0.03 per cent.
The dollar and bond yields also rose, the U.S. currency pulling away from 2-1/2 week lows hit after Donald Trump’s loss of the House of Representatives in the midterms reduced the chance of another blizzard of tax cuts.
That in turn had analysts and money managers breathing a sigh of relief that the U.S. economy wouldn’t ultimately overheat and force the Fed to keep jacking up borrowing costs.
“We think we are close to the end of the appreciation of the dollar,” said fund manager Amundi’s Didier Borowski, who expects the Fed to pause its hiking cycle next year as the economy starts to slow.
“Usually we see a year-end rally (in stocks)” he added.
That rally may in fact be arriving early. Hong Kong’s Hang Seng had advanced 0.9 per cent and the Shanghai Composite Index climbed 0.2 per cent overnight, receiving a mild lift from stronger-than-expected October Chinese exports data.
Japan’s Nikkei surged 1.8 per cent, which was almost as much as Wall Street’s 2-per-cent leap.
“Going forward, we think the removal of uncertainty and realization of the expected outcome should be supportive for risk assets,” Goldman Sachs analysts said in a report.
Commodities
Oil rose on Thursday, recovering modestly from this week’s three-week lows, after record Chinese crude imports soothed some concern that demand in the world’s largest commodity buyer may be flagging just as global supply is rising.
Record U.S. crude production and signals from Iraq, Abu Dhabi and Indonesia that output will grow more quickly than expected in 2019 pushed the price of Brent oil to its lowest since mid-August earlier in the week.
Brent crude futures rose 71 cents to US$72.78 a barrel, while U.S. crude futures gained 55 cents to US$62.22.
“Crude oil prices are being supported by a jump in October Chinese crude oil imports ... thirst for the black stuff has increased amongst domestic teapot refiners,” PVM Oil Associates strategist Tamas Varga said.
China’s crude imports rose 32 per cent in October compared with a year earlier to 9.61 million barrels per day (bpd), customs data showed on Thursday.
“Crude oil imports rose ... as uncertainty around tariffs on U.S. imports and sanctions on Iran eased,” ANZ bank said.
Tempering some of the enthusiasm was data showing U.S. output reached a new record high of 11.6 million bpd, and a forecast that it would grow far more quickly next year than many previously expected.
Gold slid to a one-week low on Thursday as the dollar firmed in the wake of the U.S. midterm elections, with market participants now awaiting clues on the pace of interest rate hikes from the U.S. Federal Reserve.
The metal is on track to post a fifth straight session of losses, hurt more broadly by a recovery in investor appetite for nominally higher-risk assets like stocks.
Spot gold was down 0.2 per cent at US$1,223.36 per ounce, after touching its lowest since Nov. 1 at US$1,221.10 earlier in the day. U.S. gold futures fell 0.4 per cent to US$1,224.20 per ounce.
The dollar’s recovery ahead of the Fed is pressuring gold, ABN AMRO analyst Georgette Boele said, while technical factors are also weighing.
“Speculators are not yet anticipating a recovery,” she said. “The longer-term trend is still negative as it is still under the 200-day moving average. If you break above that level, then you would see a speculative move into gold.”
Currencies and bonds
The Canadian dollar rose in trading Thursday and was near the 76.3 US cents mark.
“Despite the initial selloff in USD/CAD in response to an increase in risk sentiment after the U.S. mid-term elections, prices have failed to register a daily close below support at $1.3091 (76.38 US cents) that is required in order to confirm a bearish short-term trend reversal (this outcome would expose $1.2970, 77.1 cents US, next). Resistance is located at $1.3129 (76.16 US cents) and $1.3170 (75.93 US cents),” said a note from RBC.
The U.S. dollar extended its recovery following a sigh of relief across markets after the U.S. midterm election results, and as investors turned their attention towards the Federal Reserve’s policy meeting later on Thursday.
The dollar pulled further away from 2-1/2 week lows hit on Wednesday. The Fed is expected to keep interest rates on hold but signal further tightening in December and 2019.
The dollar index nudged up 0.3 per cent to 96.251. It had hit as low as 95.678 on Wednesday.
“Over the coming weeks and months the market will have to draw its own conclusion about how far the hiking cycle in the U.S. will go, based on the continuation of the U.S. fiscal and trade policy under the new conditions in Congress and the economic data,” Commerzbank analysts said in a note.
“That means that in particular positive wage, price and labour market data might provide support for the dollar.”
More broadly, analysts said foreign exchange traders were treading cautiously and looking for their next cue on the strength of the global economy, despite world stocks racking up their longest winning streak of 2018 on Thursday.
The U.S. 10-year Treasury yield rose slightly to 3.219 per cent and the Canadian 10-year bond yield edged lower to 2.531 per cent.
Stocks to watch
Telus Corp.’s third-quarter profit rose 10 per cent, the Canadian telecom company said on Thursday, as it signed up more subscribers to its wireless services. Excluding one-time items, Telus earned 74 cents per share. Analysts on average had expected earnings of 72 cents per share, according to IBES data from Refinitiv.
Auto parts maker Magna International Inc. topped estimates for quarterly profit on Thursday while trimming its 2018 total sales forecast on the back of a dip in its units that produce car frames and complete vehicles. Excluding one-time items, the company earned $1.56 per share, while analysts on average had expected $1.51 per share, according to IBES data from Refinitiv.
Canadian Tire Corp Ltd. reported a 16.5-per-cent rise in quarterly profit on Thursday, helped by higher sales at its retail segment and the inclusion of newly acquired Helly Hansen’s operations to its earnings.
Tesla Inc. said board member Robyn Denholm will replace Elon Musk as its chair, more than a month after the billionaire had to step down as the electric-car maker’s chairman as part of a settlement with U.S. regulators. Its shares slipped 0.3 per cent in premarket trading.
Earnings include: Activision Blizzard Inc.; Advantage Oil & Gas Ltd.; Algonquin Power & Utilities Corp.; Autocanada Inc.; Bombardier Inc.; Boston Pizza Royalties Income Fund; Brookfield Asset Management Inc.; CES Energy Solutions Corp.; CI Financial Corp.; CanWel Building Materials Group Inc.; Canadian Tire Corp. Ltd.; Cara Operations Ltd.; Cascades Inc.; Chartwell Retirement Residences; Chemtrade Logistics Income Fund; Conifex Timber Inc.; Cott Corp.; Dream Global REIT; Dream Office REIT; E L Financial Corporation Ltd.; Echelon Financial Holdings Inc.; Emera Inc.; Enerflex Ltd.; Equitable Group Inc.; Exchange Income Corp.; Extendicare Inc.; Freshii Inc.; Guardian Capital Group Ltd.; Hydro One Ltd.; IBI Group Inc.; Inter Pipeline Ltd.; Interfor Corp.; Lundin Gold Inc.; Magna International Inc.; Martinrea International Inc.; Morguard Corp.; Northwest Healthcare Properties REIT; Obsidian Energy Ltd.; Paramount Resources Ltd.; Power Corp.; Power Financial Corp.; Premium Brands Holding Corp.; Quebecor Inc.; SSR Mining Inc.; STEP Energy Services Ltd.; Savaria Corp.; Sierra Wireless Inc.; Stantec Inc.; Stingray Digital Group Inc.; Telus Corp.; TMAC Resources Inc.; TMX Group Ltd.; Tamarack Valley Energy Ltd.; Trican Well Service Ltd.; True North Commercial REIT; Tucows Inc.; WSP Global Inc.; Walt Disney Corp.; Wesdome Gold Mines Ltd.;
Other reading: Thursday’s small-cap stocks to watch
Economic news
8:15 a.m. ET) Canadian housing starts for October. Estimate is an annualized rate increase of 6.0 per cent.
(8:30 a.m. ET) Canada's new home price index for September. Estimate is unchanged from August and up 0.2 per cent year over year.
(8:30 a.m. ET) U.S. initial jobless claims for week of Nov. 3. Estimate is 214,000, or unchanged from previous week.
(2 p.m. ET) U.S. Federal Open Markets Committee (FOMC) policy statement.
With files from Reuters