Before the Bell: Futures dip ahead of Powell testimony - The Globe and Mail

Equities

Wall Street futures steadied early Wednesday as traders brace for the first of two days of testimony from Federal Reserve chair Jerome Powell. Major European markets were narrowly mixed after a weak start. TSX futures were steady.

In the early premarket period, futures tied to the Dow, S&P and Nasdaq wavered near break even. On Tuesday, all three saw losses. Canada’s S&P/TSX Composite Index finished yesterday down 0.9 per cent to hit its lowest closing level in nearly three weeks.

On Wednesday, traders will be parsing comments from Mr. Powell after the Federal Reserve delivered a hawkish pause last week, holding interest rates steady but also signalling more increases on the horizon. Markets have priced in a more than 70-per-cent chance of a hike next month, although whether the Fed moves again after that remains up for debate.

“We believe that the Fed Chairman is going to give the message simple and loud, and that is that he is not going to move away from the general view, which is that the Fed is highly data dependent, inflation is way too sticky, but improvements are taking place, and there are higher chances for more rate hikes this year as that is the necessary thing to do,” Naeem Aslam, chief investment officer with Zaye Capital Markets, said in a note.

“But it is all about reading between the lines, which means that everything is data-dependent, and this means that if the data improves, the interest rates are likely to stay where they are. In fact, there are chances that we may begin to talk about bringing things back to normal, which may mean moving the rates lower as early as next year.”

Mr. Powell is scheduled to speak today at 10 a.m. ET. He will also testify again on Thursday.

In Canada, interest rates will also be in the spotlight with the afternoon release of the Bank of Canada’s deliberations from its most recent meeting. The deliberations will be released at 1:30 p.m. ET and come after the central bank surprised markets earlier this month by hiking rates by a quarter percentage point after moving to the sidelines earlier in the year.

Ahead of that, Canadian investors will get the latest reading on retail sales from Statistics Canada. The agency’s early forecast suggested an increase of 0.3 per cent in April.

“Our economists expect today’s retail sales data to show further softening in consumer spending for April,” RBC chief currency strategist Adam Cole said.

“Consumer spending was surprisingly resilient early in 2023, with a 5.7-per-cent annualized increase in the first quarter,” he said. “But most of that boost came from strong spending in January. Our own tracking of spending is pointing to a stronger increase May, and spending on services (not counted in the retail sales data) has remained firm. That resilience was cited by the Bank of Canada in its decision to hike interest rates in June for the first time since January.”

On the corporate side, shares of FedEx were down roughly 3 per cent in premarket trading after the delivery giant reported a decline in fourth-quarter adjusted profit after a bigger-than-expected drop in e-commerce delivery demand offset its $4 billion cost-cutting plan aimed at sheltering margins. The company posted an adjusted profit of US$4.94 per share for the quarter ended May 31, compared with US$6.87 per share a year earlier, Reuters reported.

Overseas, the pan-European STOXX 600 was down 0.16 per cent in morning trading. Britain’s FTSE 100 slid 0.17 per cent. New figures showed U.K. inflation held at 8.7 per cent in May. Economists had been expecting to see a slowdown in price pressures for the month. The Bank of England is scheduled to release its next policy decision on Thursday and was already expected to again hike rates even before the latest inflation numbers were released.

Germany’s DAX added 0.14 per cent. France’s CAC 40 was off 0.11 per cent.

In Asia, Japan’s Nikkei ended up 0.56 per cent. Hong Kong’s Hang Seng dropped 1.98 per cent on weakness in tech and healthcare stocks.

Commodities

Crude prices were choppy in early trading after two sessions of losses as traders await the latest Fed comments and the first of two weekly U.S. inventory reports.

The day range on Brent was US$75.52 to US$76.39 in the early premarket period. The range on West Texas Intermediate was US$70.80 to US$71.73.

“Oil prices have been very choppy at the start of the week as traders digest weaker economic prospects against higher Iranian output and a slightly more modest rate cut in China,” OANDA senior analyst Craig Erlam said.

“There are so many moving parts at this stage but at this point in time, there’s more negative than positive as far as the crude price is concerned.”

Later Wednesday, traders will get fresh weekly inventory figures from the American Petroleum Institute. More official U.S. government figures will follow on Thursday morning.

Analysts polled by Reuters are expecting crude inventories to have fall by about 400,000 barrels last week.

Gold prices, meanwhile, were little changed after two sessions of losses. Spot gold was flat at US$1,934.89 per ounce early Wednesday morning. U.S. gold futures dipped 0.1 per cent to US$1,945.90.

Currencies

The Canadian dollar was little changed while its U.S. counterpart held steady against a group of world currencies ahead of comments from the Fed’s Jerome Powell.

The day range on the loonie was 75.49 US cents to 75.71 US cents in the early premarket period. The Canadian dollar is up 0.69 per cent against the greenback over the last five days.

On world markets, the U.S. dollar index, which weighs the greenback against a group of currencies, was up slightly to 102.60.

Britain’s pound was last down 0.34 per cent down against the U.S. dollar at US$1.2723. The pound briefly rose as highs as US$1.2803 in the wake of a disappointing reading on U.K. inflation.

The euro was up 0.1 per cent at US$1.0926.

In bonds, the yield on the U.S. 10-year note was slightly higher at 3.738 per cent in the early premarket period.

More company news

Allied Properties Real Estate Investment Trust says it has signed a deal to sell its urban data centre portfolio in downtown Toronto to Japanese telecommunications company KDDI Corp. for $1.35 billion. The portfolio includes freehold interests in 151 Front St. West and 905 King St. West and a leasehold interest in 250 Front St. West. KDDI owns and operates data centres in Asia, Europe and the United States through its subsidiary, Telehouse. -The Canadian Press

Economic news

(8:30 a.m. ET) Canadian retail sales for April.

(8:30 a.m. ET) Canada’s new housing price index for May.

(10 a.m. ET) U.S. Fed Chair Jerome Powell testifies on Monetary Policy Report to the House Financial Services Committee.

(1:30 p.m. ET) Bank of Canada Summary of Deliberations for the June 7 decision is released.

With Reuters and The Canadian Press

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2023-06-21 09:33:05Z
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