Major U.S. and Canadian stock indexes are posting strong gains this morning, with a rally into the close on Tuesday providing investors with a boost to confidence as they take in a number of fresh earnings reports. Treasury yields are modestly softer this morning, offering some comfort ahead of a key U.S. report on inflation on Thursday.
Signs of easing tensions in Ukraine have also been giving market bulls a reason to increase equity holdings. French President Emmanuel Macron said on Tuesday he believed steps could be taken to de-escalate the crisis after a meeting with Russian President Vladimir Putin and called on all sides to stay calm.
Cameco and Canopy Growth are the star performers on the TSX this morning, with shares of both companies rising about 10% at the open after reporting earnings.
The S&P 500 and the Nasdaq reversed early losses and ended sharply higher on Tuesday, lifted by Apple Inc and Microsoft Corp and banking stocks that were boosted by a jump in Treasury yields. Canada’s main stock index rose on Tuesday to its highest level in over three weeks as gains for financial and industrial shares offset a decline in the energy group.
Global stock markets were on a firm footing on Wednesday, with the benchmark 10-year U.S. Treasury yield slipping from multi-year highs hit in the previous session.
Megacap names such as Meta Platforms, Google-owner Alphabet Inc, Amazon.com Inc Tesla Inc Apple and Microsoft were up between 0.8% and 1.6% in premarket trading.
For now, the intense selling pressure that dominated last month in markets seems to have subsided, even as the reason for it is somewhat elusive. Growth and technology companies have been among the worst hit this year on rate hike fears that prompted investors to move away from companies with rich valuations. The Nasdaq fell nearly 9% in January and is down marginally so far this month.
“It’s hard to pinpoint exactly what has changed; whether it’s earnings that are lifting the mood or the soothing tones of central bankers desperately trying to manage expectations. Perhaps it’s simply a case of investors coming to terms with the tightening environment and feeling more comfortable with it,” commented Craig Erlam, Senior Market Analyst, UK & EMEA, for OANDA.
“Whatever the reason, investors certainly appear encouraged by the fact that the falling knife period looks to be in the rear-view mirror and we’re now seeing signs of stabilization. In recent week’s we’ve also seen periods of aggressive selling being bought into which has helped create the impression that the worst is behind us. Of course, that could change quickly if the inflation outlook worsens, as has repeatedly been the case in recent months,” Mr. Erlam said in a note.
Investors are awaiting consumer prices data on Thursday for clues on the Federal Reserve’s plans to hike interest rates, particularly after an unexpectedly strong jobs report last week raised concerns of a more aggressive move by the central bank. Inflation is forecast at a four-decade high of 7.3%.
High U.S. inflation may get even higher before subsiding in the face of Fed action and as supply chain strains recede, San Francisco Federal Reserve Bank President Mary Daly said on Tuesday.
The TSX and the major U.S. indexes are up in the 0.5% to 1% range, with the Nasdaq gaining the most.
Equities have been climbing in much of the world as well. The pan-European STOXX 600 is up 1.4%, MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.5% to a two-week high and the blue-chip Nikkei closed just over 1% higher.
The TSX health-care sector is getting a boost today after pot producer Canopy Growth this morning reported a smaller third-quarter loss, helped by months of cost cuts and a complete overhaul of its portfolio of cannabis products. Cameco shares are up 10%.
The Ontario-based company, which had in November pushed back its target to turn profitable, resorted to layoffs, store closures and a complete revamp of its offerings to cater to changing consumer preferences. Canopy in December also agreed to sell a German pharmaceutical unit, hurt by poor revenue and pandemic restrictions hitting growth. That helped the company cut its third-quarter core loss to $67.4 million from over C$162 million in the second quarter and by 1% from a year earlier.
Also in the Canadian earnings scene this morning, Cameco Corp. raised its annual dividend as it reported its fourth-quarter profit and revenue fell compared with a year ago. The uranium miner says it will now pay an annual dividend of 12 cents per share, up from eight cents per share. Its shares are up 10% at the open.
Equities
Commodities
Oil prices were stable on Wednesday, with some modest softening, but the prospect of increased supply from Iran and the United States kept pressure on the market.
U.S. crude was trading near US$89 a barrel. The contract slid about 2% on Tuesday as Washington resumed indirect talks with Iran to revive a nuclear deal.
An agreement could lift U.S. sanctions on Iranian oil and quickly add supply to the market, although a number of vital issues still need to be ironed out.
Currencies and bonds
The firm tone in stocks and a drop back in the volatility index are helping to support the loonie this morning against the greenback. But the Canadian dollar remains rangebound.
“Increasing financial media coverage of Canada’s vaccine mandate protests—in particular the closure of the Ambassador Bridge to Detroit to commercial traffic amid a truck blockade—has yet to have much obvious impact on the CAD (or on the auto sector),” Scotiabank strategists said in a note this morning. “But a sustained blockade could be disruptive, add to supply constraints and weigh on Canadian exports at a time when the economy is already relatively soft (Q1 GDP is poised to slow sharply from Q4).”
Currency and bond markets will be monitoring Bank of Canada Governor Tiff Macklem’s speech at 12 noon ET on the economic outlook. He will be speaking with reporters after the event.
The U.S. 10-year Treasury yield was down 3 basis points at 1.93%, not far off the highest levels since late 2019 hit on Tuesday. Some say Treasury yields may have risen too far, too fast.
“I rarely use the move overdone in markets, but I would say this move in bonds has been overdone. The speed has been so quick since Thursday, a correction was due,” said Piet Haines Christiansen, chief strategist, Danske Bank. “We still have the U.S. CPI tomorrow, so let’s see what happens after that.”
Other corporate news
Enphase Energy jumped 19.0% on upbeat results, lifting other solar stocks like SunPower and SolarEdge Technologies, which rose 6.8% and 9.4% respectively.
CVS Health Corp slipped 0.3% after its earnings forecast for 2022 fell short of Wall Street expectations but quarterly results topped estimates.
Ride-hailing platform Lyft Inc fell 4.6% after providing downbeat outlook for the current quarter. Rival Uber Technologies Inc, down 0.5%, will be reporting later in the day.
KFC-parent Yum Brands Inc reported quarterly comparable sales that beat Wall Street estimates on Wednesday, boosted by robust demand for its tacos and fried chicken as people venture out to eat after the easing of COVID-19 restrictions.
Tesla is recalling nearly 27,000 vehicles in the U.S. because the cabin heating systems may not defrost the windshield quickly enough, cutting visibility and increasing the risk of a crash. Nevertheless, shares were up about 2% in the premarket.
Other earnings today include: Birchcliff Energy Ltd.; Cameco Corp.; Canaccord Genuity Group Inc.; Ceridian HCM Holding Inc.; CGfl Environmental Holding Inc.; Great-West Lifeco Inc.; Keyera Corp.; Manulife Financial Corp.; Mullen Group Ltd.; RioCan REIT; Sun Life Financial Inc.; Toromont Industries Ltd.; Uber Technologies Inc.; Walt Disney Co.
Economic news
(10 a.m. ET) U.S. wholesale inventories for December.
(12 p.m. ET) Bank of Canada Governor Tiff Macklem speaks on “The Evolution of Canadian Businesses” to the Canadian Chamber of Commerce (videoconference)
With files from Reuters