U.S. stock futures pushed higher after Federal Reserve chair Janet Yellen said the U.S. economy is healthy enough to absorb more gradual rate increases and the slow unwinding of the massive bond portfolio. On Wall Street, stock futures added to early gains after the release of Ms. Yellen’s remarks ahead of her testimony on Capitol Hill. Dow futures – which were already positive in the early hours – were up by triple digits in the wake of Ms. Yellen’s comments. In Canada, futures also suggested a positive start on Bay Street as traders await an expected rate hike from the bank of Canada. Higher oil prices are also likely to underpin positive sentiment.
The Bank of Canada’s rate decision – the markets have already priced in the first increase in seven years – is due at 10 a.m. The bank will also update its monetary policy report, offering an indication of where the central bank sees the economy heading in the near future. Traders will be watching for hints on when another rate hike could be in the offing.
"The big concern here (for the Bank of Canada) is the lack of inflation particularly since the Canadian dollar is very susceptible to moves in the oil price, and the big question will not be around whether or not the Bank of Canada hikes, but what their forward guidance will be with respect to future moves," CMC chief market analyst Michael Hewson said in a morning note.
"Certainly the economy in Canada is not doing too badly so a reversal of one of the 2015 rate cuts needn’t be viewed as a cause for alarm, rather a reflection of an economy that is not as weak as it was and is now stronger than it was when rates were cut previously."
On Monday, the S&P/TSX composite index advanced 0.29 per cent, with six of the index’s 10 main groups finishing in positive territory. U.S. stocks ended near flat as political news – including e-mails disclosed by President Donald Trump’s oldest son – tempering sentiment. The Dow finished up roughly half a point at 21,409.07, the S&P 500 lost 1.9 points, or 0.08 per cent, to 2,425.53 and the Nasdaq Composite added 16.91 points, or 0.27 per cent, to 6,193.31.
In addition to the morning’s central bank news, the Fed also releases its Beige Book at 2 p.m. In earnings, Alimentation Couche-Tard posted quarterly earnings per share of 49 cents. Analysts had been expecting earnings of 46 cents. On an adjusted basis, Couche-Tard’s earnings were 52 cents a share. Retailer Aritzia also reports results. release results.
Overseas, European markets moved higher, with Burberry shares jumping more than 3 per cent after the luxury retailer posted better-than-expected sales. In Britain, the blue-chip FTSE 100 rose nearly 1 per cent to 7,399.47 in early going. German’s DAX was up 0.67 per cent and France’s CAC 40 advanced 0.93 per cent.
In Asia, markets finished mostly lower. Japan’s Nikkei fell 0.48 per cent. The Shanghai composite index was down 0.16 per cent. Hong Kong’s Hang Seng edged up 0.64 per cent.
Oil prices rose early on as traders took comfort in figures showing a drop in U.S. inventories and a U.S. government forecast that predicted a decline in crude production next year.
West Texas Intermediate was sitting well above $45 (U.S.) a barrel in early going. Brent crude was also higher. Both were up more than 1 per cent ahead of the North American opening bell. Crude prices got a lift after the American Petroleum Institute said Tuesday that U.S. crude inventories fell by 8.1 million barrels last week. Figures from the Energy Information Administration are due later Wednesday.
The EIA said Tuesday that it expects U.S. crude production to climb by less than previously forecast next year because of a lower price outlook, according to Reuters. The 2018 forecast now stands at 9.9 million barrels. An oversupplied market has continued to hold back prices, even as OPEC pledged to keep supply cuts in place through to next year. Reuters also points out that the 9.9 million-barrel forecast for next year would still mark record U.S. production.
LCG senior market analyst Ipek Ozkardeskaya said Wednesday’s EIA data are expected to show a decline of 3.2 million barrels in inventory last week.
"Lower U.S, stockpiles and a softer (U.S. dollar) could underpin a temporary positive development toward $46.50/46.55 and $48.05," she said. "Yet the medium term view remains comfortably bearish due to difficulties to drain the global supply glut. In this respect, Saudi said to have surpassed its production limit."
In other commodities, gold was steady as traders assessed Ms. Yellen’s comments and weighed the potential impact of central bank rate hikes.
“Gold’s near-term direction will now be at the mercy of whether we get a hawkish Yellen on the Hill,” Jeffrey Halley, senior market analyst at OANDA, told Reuters.
Spot gold and gold futures for August delivery were both modestly higher. Silver prices were also in positive territory. Copper prices in Asia rose to their highest prices in two weeks on a softer U.S. dollar and concerns after workers at a mine in Chile voted in favour of strike action.
Currencies and bonds
The Canadian dollar was in a holding pattern ahead of the Bank of Canada decision, trading close to Tuesday’s Bank of Canada closing price of 77.40 cents (U.S.). The day’s range so far is a fairly narrow 77.28 cents to 77.55 cents. Higher oil prices should help keep the loonie on firmer footing while the markets await the flurry of central bank news later in the morning. The loonie reacted positively to Ms. Yellen’s remarks, moving slightly higher after their release.
RBC Capital Markets chief currency strategist Adam Cole said in a note that, in addition to pricing in a rate hike on Tuesday, the markets are now coming close to expecting a second increase by year’s end.
"Our economists forecast a further hike in October that would erase the 2015 cuts in aid of the oil price adjustment by the end of this year.," he said. "Framing the cuts as ‘insurance removal’ alleviates some pressure the bank may face in light of weak, current inflation readings."
Elsewhere, the U.S. dollar declined against a basket of currencies and U.S. Treasuries fell following Ms. Yellen’s remarks. While Ms. Yellen said the U.S. economy was strong enough to withstand more rate hikes, she also noted that borrowing costs would not need to rise "all that much further."
"Yellen’s testimony emphasises the Fed’s gradualist approach to rate hikes ahead, but overall keeps her pointing towards higher rates," CIBC Capital Markets chief economist Avery Shenfeld said. "The recent dip in inflation is said to be "partly" coming from a "few unusual reductions in certain categories" rather than a change in fundamentals, although she concedes that there is uncertainty about how prices will respond to economic tightening."
In early going, the greenback had been down against the yen and near 14-month lows against the euro.
Stocks set to see action
Home Capital Group Inc.announced that Yousry Bissada has been named its new president and chief executive officer, effective Aug. 3. The company said Mr. Bissada has worked in the industry for 30 years.
Luxury brand Burberry reported better-than-expected same-store sales in its first quarterly report under new CEO Marco Gobbetti, helped by a rebound in Chinese demand and another good performance in its home British market. Shares in the group, known for its trench coats lined in its camel, red and black check, topped the FTSE 100 index on Wednesday, as analysts said a 4 per cent rise in like-for-like sales was double the expected rate.
Building maintenance and janitorial services provider ABM Industries Inc. said it would buy privately held rival GCA Services Group for about $1.25-billion in cash and stock to enhance its presence in the education and commercial markets. New York-based ABM’s offer for GCA Services — owned by Goldman Sachs Group Inc and private equity firm Thomas H Lee Partners LP — includes $851-million in cash and $399-million in ABM common stock, ABM said. The deal will provide revenue contribution of about $1.1 billion, with $600 million coming from the education industry, after the first full year of ownership, ABM said.
Spotify has reached a licensing deal with a second major label, Sony Music Entertainment, according to media reports, setting the stage for a U.S. stock market listing by the music streaming leader. Recently valued at $13-billion, Sweden’s Spotify is planning a direct listing on the New York Stock Exchange later this year or in early 2018, sources told Reuters in May. Sony agreed to reduce royalties that Spotify must pay in return for the streaming service restricting new albums to paying subscribers for two weeks before offering access to free users, the Financial Times reported, citing a single source.
(8:30 a.m. ET) U.S. Federal Reserve chair Janet Yellen’s testimony to Congress will be published.
(10 a.m. ET) The Bank of Canada will issue its interest rate policy decision.
(10 a.m. ET) U.S. Federal Reserve chair Janet Yellen testifies before the House Financial Services Committee.
(10:30 a.m. ET) EIA Petroleum Status Report, expectations for oil inventories to be down 6.3 million barrels from the previous week.
(11:15 a.m.) Bank of Canada Governor Stephen Poloz holds a press conference about the Bank’s interest rate decision.
(2 p.m.) Fed’s Beige Book is released.
Canadian home prices rose in June as the cities of Toronto and Hamilton led the way with record increases despite provincial government efforts to rein in demand in the hot markets, data showed on Wednesday. The Teranet-National Bank Composite House Price Index, which measures changes for repeat sales of single-family homes, showed prices rose 2.6 per cent from May. It was the largest increase for the month of June in the 19-year history of the index, and took it to a record for the seventeenth month in a row.
With files from Reuters