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Before the Bell: Futures slide as debt talks drag on; Canada’s big banks report results

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Equities

Canada’s main stock index fell at Wednesday’s opening bell after two of the country’s biggest banks posted results short of analysts’ forecasts. On Wall Street, key indexes were also down with traders focused on continuing efforts to reach an agreement on raising the U.S. debt ceiling.

The Toronto Stock Exchange’s S&P/TSX composite index was down 129.18 points, or 0.64 per cent, at 20,016.83 shortly after the start of trading.

In the U.S., the Dow Jones Industrial Average fell 33.75 points, or 0.10 pe rcent, at the open to 33,021.76.

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The S&P 500 opened lower by 12.62 points, or 0.30 per cent, at 4,132.96, while the Nasdaq Composite dropped 78.35 points, or 0.62 per cent, to 12,481.90 at the opening bell.

“The clock continues to tick on a debt ceiling deal, with U.S. stocks taking a bit of a tumble after a report came out that saw House Republicans question Treasury Secretary Janet Yellen’s warning that the deadline for a deal is June 1st,” Michael Hewson, chief market analyst with CMC Markets U.K., said.

“With elements of both sides becoming increasingly entrenched there is this rising fear that we could stumble into a miscalculation that results in a technical default or creates a situation that does enormous damage to the U.S.’s fiscal credibility.”

Negotiators for U.S. President Joe Biden and House Speaker Kevin McCarthy will resume debt ceiling talks on Wednesday morning.

In Canada, big banks are in the spotlight with Bank of Nova Scotia and Bank of Montreal releasing results before the bell. TD, RBC and CIBC report tomorrow.

The Globe’s Stefanie Marotta reports this morning that Scotiabank earned $2.16-billion, or $1.69 per share, in the three months that ended April 30. That compared with $2.75-billion, or $2.16 per share, in the same quarter last year. Adjusted to exclude certain items, the bank said it earned $1.70 per share. That fell below the $1.77 per share analysts expected, according to Refinitiv.

On an adjusted basis, excluding acquisition and integration costs from its purchase of Bank of the West and other items, Bank of Montreal said it earned $2.93 per share, below the $3.16 per share analysts expected, according to Refinitiv.

BMO shares were down more than 3 per cent in early trading in Toronto. Scotiabank shares slid more than 1 per cent.

Overall, analysts are expecting Canada’s big lenders to post a weaker quarter amid higher loan-loss provisions. Earnings per share are seen dropping 8 per cent to 9 per cent year-over-year.

On the economic side, the U.S. Federal Reserve releases the minutes of its most recent meeting this afternoon.

“The minutes have been somewhat superseded, as the debate on a June rate hike was reopened by [Dallas Fed President Lorie] Logan last week,” RBC chief currency strategist Adam Cole said.

“At the time of the meeting, the Fed was seen as signalling that it was shifting to a predominantly data-dependent mode without any pre-commitment to additional hikes. Chairman [Jerome] Powell acknowledged the ‘meaningful change’ in the Fed’s policy bias during his press conference.”

However, Mr. Cole said, Mr. Powell left the door open for another increase in June and said the central bank doesn’t expect to cut rates as quickly as markets had been expecting.

Overseas, the pan-European STOXX 600 was down 1.35 per cent in morning trading. Britain’s FTSE 100 lost 1.53 per cent. Germany’s DAX and France’s CAC 40 slid 1.25 per cent and 1.44 per cent.

In Asia, Japan’s Nikkei finished down 0.89 per cent. Hong Kong’s Hang Seng lost 1.62 per cent. Both marked their second consecutive day of losses.

Commodities

Crude prices rose in the wake of a decline in U.S. inventories and comments from Saudi Arabia’s energy minister suggesting the OPEC+ group could again cut output.

The day range on Brent was US$77.35 to US$77.87 in the early premarket period. The range on West Texas Intermediate was US$73.52 to US$73.98.

“Oil prices are trading higher again on Wednesday, buoyed by the latest short-seller warning from Saudi Arabia,” OANDA senior analyst Craig Erlam said.

“The prospect of another ‘ouching’ moment is seemingly too much to bear although if past experience is anything to go by, traders may be tempted to call his bluff.

Saudi Energy Minister Prince Abdulaziz bin Salman told short-sellers to watch out during his most recent comments on the market which come ahead of the next OPEC+ meeting on June 4, Mr. Erlam said in a note.

Meanwhile new figures from the American Petroleum Institute showed crude inventories fell about 6.8 million barrels last week. Gasoline inventories dropped about 6.4 million.

More official figures are due later Wednesday morning from the U.S. Energy Information Administration.

Spot gold was little changed at US$1,972.49 per ounce by early Wednesday morning. U.S. gold futures were steady at US$1,973.70.

“Gold is treading water it seems ahead of the Fed minutes later today and the U.S. inflation data at the end of the week,” Mr. Erlam said.

“It has stabilized around US$1,960 which is a big technical level of support for the yellow metal.”

Currencies

The Canadian dollar was weaker while its U.S. counterpart continued to hold near two-month highs as investors opt for safer holdings as debt ceiling talks drag on.

The day range on the loonie was 73.80 US cents to 74.10 US cents in the predawn period. The Canadian dollar is down about 0.63 per cent over the past five days as of early Wednesday morning.

There were no major Canadian economic releases due Wednesday.

On world markets, the dollar index which tracks the U.S. currency against six major peers was flat at 103.5, just below Tuesday’s 103.65, its highest since March.

The euro was up 0.17 per cent at US$1.0786 and the pound was slightly lower at US$1.24105, having earlier risen as much as 0.44 per cent to US$1.247 after a report showed British inflation slowed by much less than markets had expected, driving expectations of further rate hikes from the Bank of England, Reuters reported.

In bonds, the yield on the U.S. 10-year note was down slightly at 3.692 per cent early Wednesday morning.

More company news

The Globe’s Temur Durrani reports this morning that Shopify Inc. is launching new point-of-sale hardware in Canada, as it aims to widen its offerings for brick-and-mortar stores amid a slowdown in e-commerce growth that has weighed on the company’s results. The retail technology, dubbed POS Go, was first introduced in the United States last year. It will be made available for Canadian businesses starting this week, with an option for translation services in French geared toward merchants in Quebec.

Kohl’s Corp maintained its full-year profit and operating margin forecasts even as it missed quarterly sales estimates on Wednesday, sending the department store chain’s shares up 10% in premarket trading. The company is attempting a turnaround after Chief Executive Officer Tom Kingsbury took the helm in February. Kohl’s said its first-quarter gross margin grew by 67 basis points, as the company worked to manage its inventory, bringing it down by 6% during the quarter. –Reuters

Netflix Inc on Tuesday expanded its crackdown on password sharing to the United States and more than 100 other countries, alerting users that their accounts cannot be shared for free outside of their households. The streaming video pioneer has been looking for new ways to make money as it faces signs of market saturation, with efforts including limits on password borrowing and a new ad-supported option. Netflix on Tuesday said it was sending emails about account sharing to customers in 103 countries and territories, including the United States, Britain, France, Germany, Australia, Singapore, Mexico and Brazil. -Reuters

Meta Platforms Inc started carrying out the last batch of a three-part round of layoffs on Wednesday, according to a source familiar with the matter, as part of a plan announced in March to eliminate 10,000 roles. Meta in March became the first Big Tech company to announce a second round of mass layoffs, after showing more than 11,000 employees the door in the fall. The cuts brought the company’s headcount down to where it stood as of about mid-2021, following a hiring spree that doubled its workforce since 2020. –Reuters

Economic news

(2 p.m. ET) U.S. Fed minutes for May 2-3 meeting are released.

With Reuters and The Canadian Press

 

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The close: TSX notches biggest gain of 2023 as stocks rally on U.S. jobs data, debt default deal

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12 hours ago

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June 2, 2023

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U.S. and Canadian stocks closed higher on Friday after a labour market report showing moderating wage growth in May indicated the Federal Reserve may skip a rate hike in two weeks, while investors welcomed a Washington deal that avoided a catastrophic debt default. It was the biggest gain in seven months for the TSX, with energy and financial shares among the biggest winners in a broad-based rally.

Bond yields spiked as a risk-on tone to markets had investors shunning the bond market.

The tech-heavy Nasdaq index surged to a 13-month intraday high and posted its sixth-straight week of gains that mark its best winning streak since January 2020.

U.S. job growth accelerated in May but a surge in the unemployment rate to a seven-month high of 3.7% as more people looked for employment indicated labour market conditions were easing.

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The jump in the unemployment rate from a 53-year low of 3.4% in April reflected a drop in household employment and a rise in the overall workforce. A bigger labour pool is easing pressure on businesses to raise wages and helping decelerate inflation.

Average hourly earnings climbed 0.3% after rising 0.4% in April. That lowered the year-on-year increase in wages to 4.3% after an advance of 4.4% in April. Annual wage growth averaged about 2.8% prior to the pandemic.

“While it appears to be a hot number on the actual number of people employed, the wage rate is not increasing as fast,” said Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh. “That is a softening effect and is this the mythical soft landing? Looks like that.”

The data brought relief to investors who mostly expect the Fed to pause hiking rates at its policy meeting on June 13-14. It would be the first halt since the Fed started its aggressive anti-inflation policy tightening more than a year ago.

But some pointed to the much hotter-than-expected jobs data as a sign the Fed still has not yet tamed inflation.

“Our view is and has been that the market is completely wrong on assessing what the Federal Reserve is doing,” said Phil Orlando, chief equity strategist at Federated Hermes in New York.

“The market’s perception is that this economy was going to cool, inflation was going to collapse and the Fed was going to turn around and start cutting interest rates. That’s wrong.”

Fed funds futures showed a 66.6% probability that the Fed will hold rates steady in two weeks, down from 79.6% on Thursday, according to CME Group’s FedWatch Tool.

The yield on the 10-year U.S. Treasury climbed to 3.70% from 3.60% late Thursday. The two-year Treasury yield, which moves more on expectations for Fed action, jumped to 4.52% from 4.34%. Canadian bonds saw a similar jump in yields.

Markets now await data on key consumer prices a day before the Fed’s rate decision.

The Toronto Stock Exchange’s S&P/TSX composite index ended up 352.38 points, or 1.8%, at 20,024.63, its biggest advance since November 2022. For the week, it was up 0.5%.

“It is all these little factors that the market is holding on to, looking for any reason to be bullish and they’re finding it,” said Philip Petursson, chief investment strategist at IG Wealth Management. “It’s definitely risk-on today.”

The TSX energy sector rallied 2.8% as oil settled 2.3% higher at US$71.74 a barrel ahead of a meeting of OPEC and its allies this weekend.

Suncor Energy Inc was up 3.2% after the company told employees it plans to cut 1,500 jobs this year.

“It appears that some activist investors are trying to make Suncor more efficient over the long term by getting them to cut costs and that’s good to see for investors,” said Greg Taylor, chief investment officer at Purpose Investments.

Heavily-weighted financials rose 2.1% and industrials were up 2.2%.

The real estate sector also advanced 2.2% as data showed home prices in the Greater Toronto Area increased in May from April and sales rose sharply.

In contrast, shares of Canaccord Genuity Group Inc fell 6.8% after a management-led consortium said its C$1.13 billion take-private offer may not result in a deal.

In the U.S., the Senate passing a bill late on Thursday to lift the government’s US$31.4 trillion debt ceiling avoided what would have been a catastrophic, first-ever default.

Passage of the vote eased investor concerns as Wall Street’s fear gauge, the CBOE volatility index, fell to its lowest since November 2021, down 1.1 points at 14.6 points.

The Dow Jones Industrial Average rose 701.19 points, or 2.12%, to 33,762.76, the S&P 500 gained 61.35 points, or 1.45%, to 4,282.37 and the Nasdaq Composite added 139.78 points, or 1.07%, to 13,240.77.

Shares of Verizon Communications Inc, AT&T Inc and T-Mobile US Inc declined after a report said Amazon.com Inc was in talks with the U.S. telecoms to offer low-cost wireless services to its Prime members.

Verizon slid 3.2%, while AT&T and T-Mobile declined 3.8% and 5.6%, respectively; Amazon gained 1.2%.

All 11 S&P 500 sectors advanced, with the materials index leading, up 3.4%, and the consumer discretionary sector, housing Amazon, close behind, rising 2.2%.

Nvidia Corp slid 1.1% for a second day of declines after briefly entering on Wednesday the elite club of megacap stocks valued at $1 trillion or more on hopes artificial intelligence will deliver significant future returns.

But Nvidia’s almost 170% rise year to date highlights investors face of a market dominated by the out-performance of megacaps while most other companies tread water.

“Nobody’s really explained to me how they’re going to make any money from it,” said Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management in Punta Gorda, Florida. “A company like Nvidia going up so much in such a short period of time, that doesn’t make any rational sense.”

Advancing issues outnumbered declining ones on the NYSE by a 4.75-to-1 ratio; on Nasdaq, a 2.73-to-1 ratio favored advancers. The S&P 500 posted 15 new 52-week highs and two new lows; the Nasdaq Composite recorded 74 new highs and 40 new lows. Volume on U.S. exchanges was 11.05 billion shares, compared with about 10.58 billion average for the full session over the last 20 trading days.

Reuters, Globe staff

 

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Gold prices struggling as 339K jobs created in May but unemployment rate rises to 3.7% – Kitco NEWS

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13 hours ago

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June 2, 2023

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Editor note Get all the essential market news and expert opinions in one place with our daily newsletter. Receive a comprehensive recap of the day’s top stories directly to your inbox. Sign up here!

(Kitco News) – The gold market is trying to hold its ground within striking distance of $2,000 but could face an uphill battle as the U.S. labor market remains healthy and robust.  

U.S. nonfarm payrolls rose by 339,000 last month, according to the Bureau of Labor Statistics. The monthly figure was significantly above the market consensus estimate of 193,000. April’s employment data was revised up to 294,000 jobs.

However, looking past the headline number, the report said the unemployment rate rose sharply to 3.7% missing market consensus calls of 3.5% for May. The unemployment rate it at its highest level since December 2022.

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The gold market is seeing some selling pressure in initial reaction to the latest employment data. August gold futures last traded at $1,993.90 an ounce, down 0.08% on the day.

The report also said that wage growth rose in line with expectations, rising by 11 cents or 0.3% to 33.44 in May.

“Over the past 12 months, average hourly earnings have increased by 4.3 percent,” the report said.

While the gold market is seeing rising selling pressure, the latest employment data is not having much impact on interest rate expectations. According to the CME FedWatch Tool, markets still see a more than 65% chance that the central bank leaves interest rates unchanged when it meets later this month.

However, according to some analysts, the robust employment data indicates that while the central bank could pause, it has not yet finished raising interest rates. Some analysts have that this this longer-term shift in rate expectations could weigh on gold.

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One-quarter of Air Canada flights delayed Friday as schedule recovers from IT issue – Yahoo Canada Finance

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14 hours ago

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June 2, 2023

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More than one-quarter of Air Canada flights experienced delays on Friday as the airline worked to return service to normal following a technical malfunction the previous day.

Air Canada had warned travellers early Friday morning they should be prepared for further flight disruptions. In its daily travel outlook, the carrier said that while its IT system was stable, flights may be affected at nine of Canada’s busiest airports, including Toronto’s Pearson, Montreal, Vancouver and Calgary.

Thursday’s outage led to more than 500 flights — over three quarters of its trips — to be delayed or cancelled on the day, creating what the airline said were “rollover effects” just prior to the weekend.

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A total of 144 Air Canada flights, or 27 per cent of the airline’s scheduled load, had been delayed Friday as of around 4:30 p.m. EDT, along with 33 cancellations, according to tracking service FlightAware.com.

An additional 56 flights with Air Canada Rouge saw delays, one-third of its daily load, plus 23 cancellations.

“Air Canada has stabilized its communicator system and it is functioning normally. However, due to the effects of Thursday’s IT issues on our schedule, some flights may be delayed this morning as we reposition aircraft and crew,” it said in an emailed statement.

“Customers are advised to check the status of their flight before going to the airport. Our flexible travel policy remains in effect for customers to change their travel plans at no charge.”

The airline did not clarify when it expected its flight schedule to fully return to normal.

Thursday’s disruption, sourced to the system used by the airline to communicate with aircraft and monitor their performance, came one week after Air Canada grounded its planes for about an hour when the same system experienced a separate issue.

That day, 241 Air Canada flights — 46 per cent of its trips — were delayed, according to FlightAware. Another 19 flights were also cancelled.

Air Canada said it has been in the process of upgrading the communicator system.

This report by The Canadian Press was first published June 2, 2023.

Companies in this story: (TSX:AC)

Sammy Hudes, The Canadian Press

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