Equities
U.S. stock futures inched higher early Wednesday as world markets drifted ahead of the Federal Reserve’s expected interest-rate increase later in the day. On Bay Street, futures were firmer even as oil prices slipped. MSCI’s all-country share index, which measures stocks in 47 countries, was down 0.2 per cent early on, although global tech stocks rallied.
“A largely uninspiring start to trade today has seen European markets treading water as we head into a three day period that will be dominated by central banks and monetary policy,” IG market analyst Joshua Mahony said. “With the Fed expected to raise rates later today, it comes as no surprise that we are seeing the (U.S.) dollar strengthening in early trade.”
With a rate hike widely expected, “the focus for traders will be on the dot plot for 2018, with just one more vote needed to shift from three to four rate hikes this year,” he said.
Wednesday’s Fed decision is followed Thursday by the European Central Bank’s policy announcement, which is expected to begin laying out the groundwork for winding down that central bank’s massive bond-buying program.
On Bay Street, look for Shaw Communications to get some attention. The Globe’s Andrew Willis and Christine Dobby report that the company is attempting to sell its stake in broadcaster Corus Entertainment as it focuses on its Freedom Mobile wireless network. The report notes that Shaw recently hired investment bank TD Securities Inc. to find a buyer for its 38-per-cent-stake in Corus.
Elsewhere, retailer Roots said first-quarter same-store sales rose 6.4 per cent. The retailer posted a quarterly loss of 13 cents a share and an adjusted loss per share of 11 cents. Analysts had been expecting a loss closer to 9 cents a share. Overall first-quarter sales rose 5.8 per cent to $51-million.
On Wall Street, AT&T stock was down about 2 per cent in premarket trading after a U.S. federal judge ruled in favour of its bid to buy Time Warner Inc. for about US$85-billion. The purchase had been challenged by U.S. President Donald Trump’s administration, which argued the move could harm consumers. The deal could close as early as next week. Analysts have suggested clearance for the deal could set off a wave of consolidation in the U.S. sector. Time Warner shares were up more than 4 per cent in premarket trading.
Overseas, markets in Europe showed little conviction as traders await central bank news. The pan-European STOXX 600 was up 0.23 per cent at last check. Britain’s FSTE was up 0.12 per cent. Germany’s DAX gained 0.15 per cent and France’s CAC 40 rose 0.22 per cent.
In Asia, Japan’s Nikkei ended up 0.38 per cent with shipping and real estate stocks trading higher. Hong Kong’s Hang Seng fell 1.22 per cent. Telecom equipment maker ZTE saw its stock fall about 40 per cent in Hong Kong in its first day of trading after agreeing to pay US$1.4-billion in penalties to the U.S. government. The payment is part of a deal with the U.S. to life a seven-year supplier bank that had crippled the company.
Commodities
Crude prices were lower ahead of the start of trading in North America on rising U.S. inventories and continued concerns that OPEC and non-OPEC producers could ease production caps. Brent crude was down in early going and had a range for the day so far of US$75.26 to US$75.75. West Texas Intermediate was also weaker although off early lows and had a range of US$65.52 to US$66.34.
Market sentiment came under pressure after the American Petroleum Institute reported that crude inventories rose by 830,000 barrels last week to 433.7 million. The increase comes alongside rising U.S. production, which has grown by about a third over the past two years.
More official inventory figures are due Wednesday morning from the U.S. Energy Information Administration. In its previous report, the EIA showed a 2.072 million increase in crude inventories. Wednesday’s report is expected to show a draw of about 2.9 million barrels.
Also weighing Wednesday is the continued expectation that OPEC will pull back on supply caps that have been in place since last year. OPEC and other producers meet in Vienna on June 22 and 23 to discussion future production.
“More oil from OPEC+ is the base case,” Bjarne Schieldrop, chief commodities analyst at Swedish bank SEB, said.
“Saudi Arabia and Russia have already started to lift production,” he said. “Unofficial sources have said that Russia will propose to return production back to the October 2016 (level), i.e. removing the cap altogether over a period of three months.”
In other commodities, gold prices were little changed as traders await the Fed announcement. Spot gold was a touch lower in early going Wednesday, holding below the US$1,300 an ounce mark. Gold futures for August delivery were also weaker.
Currencies and bonds
The Canadian dollar was weaker as its U.S. counterpart edged higher ahead of an expected interest-rate increase later in the day. Overnight, the loonie moved in a fairly narrow spread and has a range for the day so far of 76.65 US cents to 76.86 US cents.
RBC chief currency strategist Adam Cole said overnight markets were seeing a mix of “mild U.S. dollar strength (into the FOMC) and risk-on sentiment (S&P futures +0.2 per cent.”
He noted the markets have priced in an 80 per cent chance of a rate hike from the Fed on Wednesday afternoon.
“The immediate market reaction is likely to coloured by whether the median forecast in the dot plot moves to four hikes this year,” he said in an early note. “We think it will, but would caution against reading too much into this measure which is always prone to discrete jumps.”
Overnight, the U.S. dollar was slightly higher against the euro. The greenback also managed a three-week high against the yen. The U.S. dollar index, which weighs the currency against a basket of global counterparts, had pulled back slightly and sat at 93.794 at last check. The index rose about a quarter of a percentage point in the previous session.
In bonds, U.S. Treasury yields wavered as investors looked ahead to the Fed decision. The yield on the 10-year note was little changed at 2.957 per cent. The yield on the 30-year note was lower at 3.088 per cent.
Stocks set to see action
AltaGas said it is selling a 35-per-cent interest in the Northwest British Columbia Hydro Electric Facilities for more than $920-million. The company says the sale is part of a larger funding strategy related to its purchase of WGL Holdings.
Nissan Motor Co Ltd said on Wednesday it expects vehicle sales in some markets to beat industry growth, driven by countries including Saudi Arabia - crucial for the Japanese firm that is struggling with slowing sales in the United States. Nissan, Japan’s second-largest automaker, focused on the United States for the past few years, and roughly doubled car sales there since 2010, as it aimed to corner a 10-per-cent share of the market.
Investors wiped about $3-billion off embattled Chinese telecommunications giant ZTE Corp’s market value as it resumed trade on Wednesday after agreeing to pay up to $1.4 billion in penalties to the U.S. government. China’s No. 2 telecommunications equipment maker was crippled when the United States imposed a seven-year supplier ban on the company in April after it broke an agreement to discipline executives who conspired to evade U.S. sanctions on Iran and North Korea. The ban, which has prevented ZTE from buying the U.S. components it relies on to make smartphones and other devices, will not be lifted until ZTE pays a fine and places $400-million more in an escrow account in a U.S.-approved bank. It was also ordered to radically overhaul its management.
Toyota Motor Corp has agreed to buy a US$1-billion stake in Southeast Asia’s Grab in the biggest investment by a car maker into a ride-hailing firm, at a time when traditional automakers are racing to team up with disruptive tech companies. The value of six-year-old Grab will be just over US$10-billion after the investment, according to Reuters.
The Globe’s Jeff Lewis reports Canada’s biggest oil and gas producer is pushing regulators to block deals it says expose the energy industry to billions of dollars in new liabilities, in an extraordinary bid to shield itself from a spike in cleanup costs. Canadian Natural Resources Ltd. has raised objections this year to dozens of asset deals before the Alberta Energy Regulator (AER) and pressed the watchdog to crack down on buyers with shaky finances, according to industry officials and company documents seen by The Globe and Mail.
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Economic news
The U.S. Labor Department said its producer price index for final demand rose 0.5 per cent in May. For the 12 months through May, the PPI increased 3.1 per cent. That was its biggest increase since early 2012. Economists polled by Reuters had forecast the PPI gaining 0.3 per cent from the month before and rising 2.8 per cent from a year ago.
(10:30 a.m. ET) EIA Petroleum status report
(2 p.m. ET) U.S. Fed meeting announcement. Press conference with Chair Jerome Powell to follow at 2:30 p.m.
With Reuters and The Canadian Press