Wall Street futures edged higher early Tuesday with key U.S. inflation data in focus. Major European markets were mostly positive. TSX futures were up.
In the early premarket period, Dow, S&P and Nasdaq futures all saw gains. All three finished in positive territory on Monday with the Nasdaq popping 1.5 per cent while the S&P 500 added nearly 1 per cent. Both the S&P and Nasdaq managed their best closing levels yesterday since last spring. Canada’s S&P/TSX Composite Index closed yesterday up 0.15 per cent, helped by gains in the tech sector.
Tuesday’s key event for markets is the release of May inflation figures. The report comes one day before the Federal Reserve’s interest rate decision.
The figures released early Tuesday morning showed that the annual rate of U.S. inflation fell to a two-year low of 4 per cent in May from 4.9 per cent a month earlier. The annual rate of U.S. inflation peaked at 9.1 per cent last June.
On a monthly basis, consumer prices rose 0.1 per cent last month. The annual rate of core inflation, excluding food and energy, was 5.3 per cent in May, roughly in line with forecasts and down from 5.5 per cent in April.
“The CPI data has shown clearly that the Fed needs to take summer off now with respect to their monetary policy,”Naeem Aslam, chief investment officer with Zaye Capital Markets, said.
“The data is showing that inflation is slowing down and it is moving in the direction. Traders are already expecting some kind of a pause from the Fed or at least some hints coming in their meeting which is planned tomorrow. In simple terms, it seems like there is less wood to chop for the Fed as inflation begins to cool down.”
As of early Tuesday morning, markets were pricing in a more than 70-per-cent chance that the Fed would hold interest rates steady in its policy decision, due Wednesday afternoon.
Canada’s May inflation report is expected next week.
On the corporate side, shares of Oracle were up more than 4 per cent in premarket trading after the cloud and software company beat fourth-quarter revenue estimates and forecast a positive first quarter. Oracle forecast total revenue to rise 8 per cent to 10 per cent in the first quarter. Analysts on average were expecting growth of about 8 per cent, Reuters reported.
In Canada, The Globe’s Nicolas Van Praet reports Rio Tinto PLC is investing $1.4-billion to expand its aluminum manufacturing operations in Saguenay, Que., breathing new life into the industrial centre after years of uncertainty. The mining giant said Monday it will build out a smelter that uses lower-carbon AP60 technology at its Complexe Jonquière site, adding 96 new pots to the existing 38 and increasing capacity to about 220,000 metric tonnes of primary aluminum per year.
Overseas, the pan-European STOXX 600 was up 0.01 per cent in late morning trading. Britain’s FTSE 100 dipped 0.09 per cent. Germany’s DAX and France’s CAC 40 advanced 0.15 per cent and 0.02 per cent, respectively. The European Central Bank is scheduled to release its next rate decision on Thursday. That central bank is expected to hike rates again by a quarter percentage point.
In Asia, Japan’s Nikkei closed up 1.8 per cent, topping the 33,000 level for the first time in more than three decades. Hong Kong’s Hang Seng gained 0.60 per cent.
Commodities
Crude prices recouped some of the previous session’s steep losses as traders await Wednesday’s Fed rate decision.
The day range on Brent was US$71.94 to US$72.87 in the early premarket period. The range on West Texas Intermediate was US$67.15 to US$67.89. Both benchmarks were up more than 1 per cent early Tuesday morning after losing US$3 a barrel on Monday.
“With every energy trader buckling up for a massive week of central bank rate decisions and important economic data, volatile price action should be expected,” OANDA senior analyst Ed Moya said.
“Oil could get many conflicting signals this week as we are expecting a hawkish skip by the Fed, another ECB rate hike and a signal for more tightening, possibly a technical recession for New Zealand, and a growing case for easing by the People’s Bank of China.”
He added that the global economic outlook could mean more demand weakness ahead “which could support oil prices remaining under pressure unless OPEC+ signals and delivers on more production cuts.”
Later Tuesday, markets will get the first of two weekly U.S. inventory reports, with fresh numbers from the American Petroleum Institute. More official government figures are due Wednesday morning.
In other commodities, gold prices saw tentative gains, helped by a softer U.S. dollar.
Spot gold rose 0.3 per cent to US$1,962.59 per ounce by early Tuesday. U.S. gold futures gained 0.3 per cent to US$1,975.80.
“With stocks in bull market territory, demand for safe-havens has disappeared,” Mr. Moya said.
“Gold either needs investors to get nervous about earnings, disinflation trends to improve, or for the PBOC to send a strong message that they will energize growth.”
Currencies
The Canadian dollar was slightly firmer in early trading as its U.S. counterpart saw a modest decline against a basket of global currencies.
The day range on the loonie was 74.74 US cents to 74.96 US cents in the early premarket period. As of early Tuesday morning, the Canadian dollar had gained 0.94 per cent against the greenback over the last month.
There were no major Canadian economic releases due Tuesday.
On world markets, the U.S. dollar index, which weighs the greenback against a group of currencies, was down 0.3 per cent at 103.27. The index has lost about 0.8 per cent over the past month.
Elsewhere, the euro was up 0.42 per cent to $1.08 on Tuesday, after touching its highest since May 23 earlier in the session at US$1.081, according to figures from Reuters.
Britain’s pound was up 0.43 per cent at US$1.257 after a stronger-than-expected reading on employment prompted traders to bet the Bank of England would have to raise interest rates further than previously expected. Still, it remained below the one-month peak of US$1.26 hit on Monday, Reuters reported.
In bonds, the yield on the U.S. 10-year note was lower at 3.726 per cent in the predawn period.
More company news
U.S. grains merchant Bunge and Glencore-backed Viterraon Tuesday announced an US$18-billion deal including debt to merge, creating one of the world’s largest agriculture trading firms. The deal brings Bunge closer in global scale to leading rivals Archer-Daniels-Midland and Cargill and will be examined closely by antitrust regulators. Shares of Bunge fell 5 in premarket trading. -Reuters
Nippon Steel remains interested in Teck Resources’ steelmaking coal assets, a spokesperson said on Tuesday, adding that talks continue despite Glencore’s latest offer for the Canadian miner’s coal business. Swiss trading and mining firm Glencore on Monday offered to buy Teck’s steelmaking coal business as a standalone unit, after the Canadian miner twice rebuffed its $22.5 billon offer to combine the two companies. Nippon Steel’s spokesperson declined to comment on Glencore’s latest proposal. –Reuters
Toyota will introduce high-performance, solid-state batteries and other technologies to improve the driving range and cut costs of future electric vehicles (EVs), the automaker said on Tuesday, a strategic pivot that sent its shares higher. The Japanese giant’s technology roadmap, covering aspects as varied as next-generation battery development and a radical redesign of factories, amounted to the automaker’s fullest disclosure of its plan to compete in the fast-growing market for EVs where it has lagged rivals led by Tesla. –Reuters
Economic news
(6 a.m. ET) U.S. NFIB Small Business Economic Trends Survey for May.
Netflix on Thursday reported that its subscriber growth slowed dramatically during the summer, a sign the huge gains from the video-streaming service’s crackdown on freeloading viewers is tapering off.
The 5.1 million subscribers that Netflix added during the July-September period represented a 42% decline from the total gained during the same time last year. Even so, the company’s revenue and profit rose at a faster pace than analysts had projected, according to FactSet Research.
Netflix ended September with 282.7 million worldwide subscribers — far more than any other streaming service.
The Los Gatos, California, company earned $2.36 billion, or $5.40 per share, a 41% increase from the same time last year. Revenue climbed 15% from a year ago to $9.82 billion. Netflix management predicted the company’s revenue will rise at the same 15% year-over-year pace during the October-December period, slightly than better than analysts have been expecting.
The strong financial performance in the past quarter coupled with the upbeat forecast eclipsed any worries about slowing subscriber growth. Netflix’s stock price surged nearly 4% in extended trading after the numbers came out, building upon a more than 40% increase in the company’s shares so far this year.
The past quarter’s subscriber gains were the lowest posted in any three-month period since the beginning of last year. That drop-off indicates Netflix is shifting to a new phase after reaping the benefits from a ban on the once-rampant practice of sharing account passwords that enabled an estimated 100 million people watch its popular service without paying for it.
The crackdown, triggered by a rare loss of subscribers coming out of the pandemic in 2022, helped Netflix add 57 million subscribers from June 2022 through this June — an average of more than 7 million per quarter, while many of its industry rivals have been struggling as households curbed their discretionary spending.
Netflix’s gains also were propelled by a low-priced version of its service that included commercials for the first time in its history. The company still is only getting a small fraction of its revenue from the 2-year-old advertising push, but Netflix is intensifying its focus on that segment of its business to help boost its profits.
In a letter to shareholder, Netflix reiterated previous cautionary notes about its expansion into advertising, though the low-priced option including commercials has become its fastest growing segment.
“We have much more work to do improving our offering for advertisers, which will be a priority over the next few years,” Netflix management wrote in the letter.
As part of its evolution, Netflix has been increasingly supplementing its lineup of scripted TV series and movies with live programming, such as a Labor Day spectacle featuring renowned glutton Joey Chestnut setting a world record for gorging on hot dogs in a showdown with his longtime nemesis Takeru Kobayashi.
Netflix will be trying to attract more viewer during the current quarter with a Nov. 15 fight pitting former heavyweight champion Mike Tyson against Jake Paul, a YouTube sensation turned boxer, and two National Football League games on Christmas Day.
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