Equities
U.S. stock futures turned higher after the latest reading on U.S. employment blew through forecasts. Dow and S&P futures shook off early losses in the wake of the report, although Nasdaq futures remained in the red. World markets took a breather after spiking on signals from the Federal Reserve that it would pause rate hikes with trade talks between United States and China concluding on a positive note but still offering no clear end to the dispute. On Bay Street, futures were slightly higher after a strong January showing with crude prices holding steady.
MSCI’s All Country World Index, which tracks stock markets in 47 countries, turned slightly lower after hitting its best level since early December and posting a record January increase of nearly 8 per cent for the month.
“A subdued session in Asia and early on in Europe looks to be carrying over to the U.S. on Friday, with futures mixed ahead of the open on Wall Street,” OANDA analyst Craig Erlam said. "Trade talks between the US and China in Washington appear to have gone very well, with trade representative praising the ‘substantial progress’ on various issues and [U.S. President Donald] Trump himself expressing optimism at the prospect of the ‘biggest deal ever made.’
Mr. Trump is expected to meet with the Chinese premier later this month.
Ahead of the North American open, the U.S. Labor Department reported that nonfarm payrolls rose by 304,000 last month, far better than the 165,000 economists had been forecasting. The January increase came despite a partial shutdown of U.S. government services. December’s payroll increase was revised down to 222,000 from the previously reported 312,000.
“While it makes sense for the Fed to wait and see how its 2018 rate hikes impact the economy in the first half of this year, strong job creation and wage growth suggests consumer spending should still be robust and that policymakers should be able to hike rates once more this year. Positive for the US$ and negative for fixed income,” CIBC economist Andrew Grantham said. He said the only slight negative in a strong report was the slim 0.1-per-cent gain in wages, although past revisions put the annual rate at 3.2 per cent.
On earnings, U.S. energy companies Exxon Mobil Corp., Chevron Corp. both report results. On this side of the border, Imperial Oil Ltd., which is majority owned by Exxon Mobil, reported earnings per share of $1.08 in the fourth quarter, in line with analysts' estimates and up from a loss of 16 cents a share in the year-ago quarter. Last year’s fourth quarter included an impairment charge of $566-millon.
On Bay Street, look for Teck Resources Ltd. to see some movement after the diversified miner said it expects fourth-quarter profit to be below Street estimates due to “disappointing” business at its energy and Trail, B.C., operations. Teck said results of its energy business and Trail operations, as well as inventory valuations, would reduce quarterly earnings by 30 cents a share and earnings before interest, tax, depreciation and amortization (EBITDA) by $195-million. Analysts had expected a fourth-quarter profit of $1.10 per share, according to Thomson Reuters Eikon.
On Wall Street, shares of Amazon.com Inc. were down more than 4 per cent in premarket trading after the online retail giant forecast first-quarter sales below below analysts' estimates. Amazon said it now expecting net sales of between US$56-billion and US$60-billion for the first quarter, missing the analyst average estimate of US$60.77-billion, according to IBES data from Refinitiv. The company cited regulatory hurdles in India and slower online sales in Europe for the weaker forecast. The outlook came as Amazon reported net income rose to US$3.03-billion, or US$6.04 per share, in the quarter ended Dec. 31 from US$1.86-billion, or US$3.75 per share, a year earlier, which included a tax gain.
Overseas, the pan-European STOXX 600 edged higher in morning trading with media stocks among the best performers following strong results from French outdoor advertising company JCDecaux. Britain’s FTSE 100 was up 0.58 per cent. Germany’s DAX added 0.01 per cent. France’s CAC 40 rose 0.17 per cent.
In Asia, optimism over U.S.-China trade stocks helped buoy Chinese markets with the Shanghai Composite Index closing up 1.30 per cent. However, a survey released Friday showing contraction in China’s factory sector in January tempered the mood. Hong Kong’s Hang Seng ended off 0.04 per cent. In Japan, the Nikkei edged up 0.07 per cent.
Commodities
Oil prices were little changed early Friday with weaker factory data out of China offsetting optimism over trade talks. Brent crude saw a choppy session overnight and had a day range of US$60.46 to US$61.32. WTI had a range for the day of US$54.37 to US$54.19.
On Thursday, Mr. Trump fuelled optimism over trade talks, tweeting that he would meet Chinese President Xi Jinping soon to try to seal a deal. However, he also later told reporters: “This is either going to be a very big deal, or it’s going to be a deal that we’ll just postpone for a little while.”
“Many traders recognize that sense is likely to prevail and a deal will be struck after the summit - although the shape of any deal will continue to drive a jittery market,” Cantor Fitzgerald Europe said in a note. “This has overshadowed bullish indicators.”
Meanwhile, a report Friday showing Chinese factory activity contracted in January by the most in three years struck a note of caution about the global economy, putting a ceiling on crude prices.
In other commodities, gold prices were lower but looked set for a second straight weekly gain. Spot gold fell 0.3 per cent to US$1,316.95 per ounce. Prices rose to US$1,326.30, their highest since April 26, on Thursday and are set to gain 1.1 per cent for the week, according to Reuters. U.S. gold futures were down 0.2 per cent at US$1,317.10 per ounce.
“Gold has been the biggest beneficiary of the weaker [U.S.] dollar, climbing above US$1,300 last Friday before running into resistance around US$1,320 in the middle of the week,” Mr. Erlam said. "We continue to trade around these levels and a good report may put pressure back on US$1,300 from above and test just how much conviction there is in the initial breakout."
In other metals, silver prices were down about 1 per cent at US$15.91 after hitting its best level since July 2018 during Thursday’s session. Palladium prices were steady at US$1,342.98.
Currencies and bonds
The Canadian dollar strengthened in the wake of a strong reading on U.S. hiring south of the border, pushing to the top of the day range of 76 US cents to 76.22 US cents.
There were no major Canadian economic releases due Friday. Elsa Lignos, global head of FX strategy for RBC, said in an early note that a Thursday afternoon speech by Bank of Canada Deputy Governor Carolyn Wilkins offered little new on the policy front. “She discussed some reasons for weaker than expected wage growth and reiterated that the economy is operating pretty much at full capacity,” Ms. Lignos said.
The key event for currency markets will be the morning release of the U.S. January employment numbers.
“Despite the shutdown (furloughed employees will still be counted as employed), initial jobless claims during the survey week were back near the all-time lows on a labour force adjusted basis,” Ms. Lignos said. “The big hurdle for payroll growth is a technical one. Given that extremely robust month-ago print of 312,000, we would be surprised if NFP (non-farm payrolls) did not print something closer to 150,000 in January.”
The U.S. dollar index, which weighs the greenback against a basket of world currencies, was steady at 95.5860 after the U.S. Labor Department reported that nonfarm payrolls rose by 304,000 positions last month. The index is set to end the week lower, after losing 0.6 per cent of its value last week.
On world markets, the Australian dollar, often viewed as a gauge of market concern over China, lost 0.4 per cent to trade at 72.42 US cents after a survey showed contraction in China’s factory sector in January. The New Zealand dollar was also lower against the U.S. dollar.
In bonds, the yield on the U.S. 10-year note rose after the jobs report hitting 2.64 per cent. was lower at 2.627 per cent.
Stocks set to see action
Exxon Mobil Corp reported a quarterly profit that topped analysts’ estimate on higher prices and volumes for its oil and natural gas as production rose slightly on a year-over-year basis. The company’s fourth quarter net income fell to US$6-billion, or US$1.41 a share, from US$8.38-billion a year ago. Analysts had forecast a US$1.18 a share profit excluding one-time items, according to data from Refinitiv. Shares were up more than 2 per cent in premarket trading.
U.S. electric vehicle maker Tesla Inc said it will start taking orders in China on Friday for a lower-priced version of its Model 3 car, as it seeks to accelerate China sales hit by trade friction between Washington and Beijing. The California-based firm said in a statement that Chinese customers will be allowed to place orders for a long range, rear-wheel-drive Model 3 variant whose price will start at 433,000 yuan ($64,300.56).
Australian hospital operator Healthscope Ltd said on Friday it had recommended a A$4.35-billion ($4.1-billion) takeover offer from Canadian investment firm Brookfield, taking its shares to an eight-month high. After months of negotiations and counter bids from a rival consortium, Healthscope said it had entered a scheme of arrangement with Brookfield under which the Canadian company was offering A$2.5 for each share in Healthscope, slightly less than the A$2.585 per share it had offered in December. Brookfield said it had also launched an off-market takeover offer for Healthscope for about A$2.4 per share.
Weekend Unlimited Inc., a Vancouver-based cannabis lifestyle company with global ambitions, thought it had slim odds when it tossed its name in the hat for the coveted POT ticker symbol. “That disbelief makes it even more exhilarating. Once we got the notice that we actually won the lottery, it felt like we won the lottery," chief executive officer Paul Chu joked in an interview with The Globe and Mail on Thursday. "I was very surprised.” Owing to high demand, the Canadian stock exchanges held a lottery Wednesday to determine which company would get the ticker. It has been laying dormant for 13 months, since Potash Corp. of Saskatchewan yielded POT in early 2018 when it merged with Agrium Inc., creating a company called Nutrien.
U.S. drug maker Merck & Co Inc reported quarterly profit that edged past estimates, helped by strong demand for its blockbuster cancer treatment Keytruda. Sales of Keytruda, the most important drug in Merck’s portfolio, rose 66 per cent to US$2.15-billion in fourth quarter, compared with analysts’ average estimate of US$2.12-billion, according to IBES estimates from Refinitiv. The company, however, forecast muted 2019 revenue and earnings, joining major drug makers such as Amgen Inc and Pfizer Inc that forecast disappointing profits for the year. The company forecast 2019 revenue in the range of US$43.2-billion-US$44.7-billion, compared with analysts’ average estimate of US$44.53-billion. Merck shares were slightly higher in premarket trading.
Cigna Corp posted a better-than-expected quarterly profit, but forecast revenue and earnings below Wall Street estimates for the first full year after the health insurer closed its acquisition of pharmacy benefits manager Express Scripts. The results come a day after the U.S. government proposed a rule to end a decades-old system of rebates, a potential blow to pharmacy benefit managers like Express Scripts which act as middlemen in the pharmaceuticals supply chain. Express Scripts on Thursday said it was evaluating the proposed rule, but noted rebates help keep premiums low for Medicare beneficiaries.
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Economic news
The U.S. economy created 304,000 new jobs last month, well ahead of the 165,000 economists had been expecting. The unemployment rated edged up to 4 per cent.
(10 a.m. ET) U.S. University of Michigan Consumer Sentiment Index for January.
With Reuters and The Canadian Press
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