Equities
Canada’s main stock index opened higher Wednesday in the wake of a stronger-than-forecast reading on economic growth in November. Wall Street saw a lower start with weakness in Alphabet shares weighing on the tech-heavy Nasdaq.
At 9:31 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 17.06 points, or 0.08 per cent, at 21,244.93.
In the U.S., the Nasdaq Composite dropped 185.71 points, or 1.20 per cent, to 15,324.19 at the opening bell, while the Dow Jones Industrial Average fell 40.53 points, or 0.11 per cent, at the open to 38,426.78.
The S&P 500 opened lower by 25.78 points, or 0.52 per cent, at 4,899.19.
On Wednesday afternoon, investors will get the Fed’s first rate decision of the year. Markets are widely expecting rates to hold steady but traders will be watching for hints about the path ahead. At the outset of the year, markets had expected cuts to begin in March, but the odds have since diminished and are less than 50 per cent.
“Overall, I believe it is premature to expect a rate cut as soon as March,” Morgane Delledonne, head of investment strategy for Europe with Global X, said.
“Similarly to the ECB, the Fed might be cautious not to act too quickly on inflation drop by taking the risk of having to restart tightening in case the drop on inflation was short-lived.”
The decision is due at 2 p.m. ET and will be followed by a news conference with Fed chair Jerome Powell.
In Canada, Statistics Canada said the country’s economy grew by 0.2 per cent in November, outperforming market expectations. Economists had been looking for an increase of 0.1 per cent. Early estimates, meanwhile, suggest growth of 0.3 per cent in December. That would translate into a 1.2-per-cent annual rate of growth in the fourth quarter of last year. The economy contracted in the third quarter. If fourth-quarter growth is confirmed, it would mean Canada has missed falling into a technical recession, defined as two consecutive quarters of negative growth.
“While that [fourth-quarter growth] would be better than the flat reading penciled into the Bank of Canada’s latest MPR forecasts, recent history has shown that these early GDP by industry data can differ significantly from the later released expenditure figures,” CIBC senior economist Andrew Grantham said.
“Moreover, even if the rebound in Q4 is confirmed, it is clear that it has been driven by an easing of some previous supply constraints rather than necessarily an improvement in domestic demand.”
On the corporate side, shares of Alphabet were down more than 5 per cent in morning trading after the company’s latest results topped expectations but holiday ad sales disappointed.
Alphabet’s overall revenue for the quarter ended Dec. 31 stood at US$86.3-billion, compared with estimates of US$85.3-billion according to LSEG data. Alphabet posted fourth-quarter profit of US$20.7-billion.
“Reaction to the big tech results on Tuesday night was to sell Microsoft and Alphabet/ Google, even though both companies beat earnings estimates,” Kathleen Brooks, research director with XTB, said.
“It’s easier to understand the sell off in Google’s share price, and Microsoft hovered between small losses and gains. The problem for Google is that they don’t have an AI product right now, and Tuesday’s earnings highlighted this. In contrast, Microsoft has AI products that are generating revenue and are expected to continue to do so in the future, so we expect Microsoft’s share price to outperform Google in the coming months.”
Wednesday, Wall Street gets results from Boeing and Mastercard while Canadian investors get earnings from Montreal’s CGI.
Overseas, the pan-European STOXX 600 was up 0.18 per cent by midday. Britain’s FTSE 100 added 0.16 per cent. Germany’s DAX fell 0.02 per cent while France’s CAC 40 gained 0.15 per cent.
In Asia, Japan’s Nikkei ended up 0.61 per cent. Hong Kong’s Hang Seng lost 1.39 per cent.
Commodities
Crude prices were weaker in early trading after disappointing factory activity data out of China, although both Brent and West Texas Intermediate looked set for monthly gains.
The day range on Brent was US$81.85 to US$82.94 in the early premarket period. The range on West Texas Intermediate was US$76.77 to US$78.11. Both benchmarks are up about 7 per cent for the month.
Sentiment took a hit early Wednesday after new figures showed manufacturing activity in China, one of the world’s top consumers of crude, contracted for a fourth consecutive month in January.
“The Chinese manufacturing sector remains under pressure amid a weak domestic recovery and poor external demand,” said Lynn Song, chief economist at ING bank, in a note.
Later this morning, markets will get figures from the U.S. Energy Information Administration on weekly crude inventories.
Late Tuesday, the American Petroleum Institute reported that crude stockpiles fell by 2.5 million barrels in the week ended Jan. 26. Gasoline inventories rose 600,000 barrels, and distillate stocks fell by 2.1 million barrels.
In other commodities, spot gold was flat at US$2,036.10 per ounce by early Wednesday morning, after touching a two-week high of US$2048.12 in the previous session. Gold has fallen more than 1 per cent so far this month.
U.S. gold futures rose 0.1 per cent to US$2,033.30.
Currencies
The Canadian dollar was lower while its U.S. counterpart edged higher ahead of the Fed’s rate decision and looked set for its biggest monthly gain since September.
The day range on the loonie was 74.46 US cents to 74.64 US cents in the predawn period. The Canadian dollar was down more than 1 per cent against the greenback for the year to date.
The U.S. dollar index was up 0.17 per cent at 103.58. The index, which weighs the greenback against a selection of currencies, was up more than 2 per cent for the month.
The euro was down 0.17 per cent at US$103.58. Britain’s pound slid 0.24 per cent to US$1.2671.
In bonds, the yield on the U.S. 10-year note was lower at 4.026 per cent ahead of the North American open.
More company news
Payments processor Mastercard on Wednesday reported an 11% jump in fourth-quarter profit, driven by resilient consumer spending during the holiday season as labor markets remained strong and fears of a recession eased. The company reported a profit of US$2.8-billion, or UA$2.97 per share, for the three months ended Dec. 31, compared with US$2.5-billion, or US$2.62 per share, a year earlier. -Reuters
Aurora Cannabis Inc. has announced a plan to consolidate its shares on a one-for-10 basis. The company says it expects the move will restore compliance with Nasdaq listing rules and ensure the company continues to have access to a wide range of institutional investors. -The Canadian Press
Boeing Co has “much to prove” to regain the confidence of regulators and customers after a mid-air cabin-panel blowout of a 737 MAX aircraft, CEO Dave Calhoun said on Wednesday, adding that the planemaker will “go slow” as it faces a “serious challenge.” As expected, Calhoun did not offer a financial or delivery forecast for 2024, stating that the company must focus on delivering quality airplanes. “We will not rush the system and we will take our time to do it right,” Calhoun said in a letter to employees, while voicing confidence in Boeing’s recovery from the current crisis. -Reuters
CGI Inc. reported its first-quarter profit and revenue rose compared with a year ago. The Montreal-based business and technology consulting firm says it earned $389.8-million or $1.67 per diluted share for the quarter ended Dec. 31. The result compared with a profit of $382.4-million or $1.60 per diluted share in the same quarter a year earlier. CGI says it its profit excluding specific items amounted to $1.83 per diluted share, up from $1.66 per diluted share a year earlier. -The Canadian Press
Canadian Pacific Kansas City Ltd. says it expects its adjusted earnings to grow by double digits this year, following an almost 20 per cent year-over-year drop in net income last quarter. The Calgary-based company says net income attributable to controlling shareholders totalled $1.02-billion in the quarter ended Dec. 31, down from $1.27-billion in the same period a year before. CPKC — the product of Canadian Pacific’s purchase of Kansas City Southern in April — says it boosted revenues to $3.78-billion last quarter from $2.46-billion a year earlier, which was before the purchase. -The Canadian Press
Economic news
(8:15 a.m. ET) U.S. ADP National Employment Report for January.
(8:30 a.m. ET) Canada’s monthly real GDP.
(8:30 a.m. ET) U.S. employment cost index for Q4.
(9:45 a.m. ET) U.S. Chicago PMI for January.
(2 p.m. ET) U.S. Fed announcement with chair Jerome Powell’s press briefing to follow.
With Reuters and The Canadian Press