Before the Bell: Futures down as markets await rate clues - The Globe and Mail

Equities

Wall Street futures were lower early Tuesday as economic and interest rate concerns continue to dominate sentiment. Major European markets were mixed after a weaker start. TSX futures down slightly.

In the early premarket period, Dow, S&P and Nasdaq futures were all in the red. U.S. markets were closed Monday and are coming off a winning week. Canada’s S&P/TSX Composite Index finished yesterday down 0.21 per cent.

“The focus this week remains on the central banks and whether we are as close to the end of the tightening cycle as everyone wants to believe,” OANDA senior analyst Craig Erlam said.

“While there is the temptation to take what the Fed and others say with a small pinch of salt given their record over the last couple of years and the fact that any pivot was always likely to come late, they have been proven more accurate recently on their assertion that rates need to keep rising.”

Traders are awaiting comments from Fed chair Jerome Powell on Wednesday and Thursday for clues about the central bank’s next moves after it held rates this month but signalled more hikes to come. On Wednesday, markets also get deliberations from the Bank of Canada’s last meeting, when the central bank surprised with a quarter point rate hike. Later in the week, the Bank of England makes its next policy announcement and is expected to continue raising borrowing costs.

In Canada, the Office of the Superintendent of Financial Institutions said early Tuesday it was raising the domestic stability buffer for banks to 3.5 per cent from 3 per cent. The buffer dictates how much capital banks need on hand. The change is effective Nov. 1.

“Current vulnerabilities, including high household and corporate debt levels, the rising cost of debt, and increased global uncertainty around fiscal and monetary policy, coupled with Canada’s financial sector showing strength throughout the winter and spring has presented the opportunity for OSFI to build more resiliency in the system,” OSFI said in a statement.

On the corporate side, The Globe’s James Bradshaw, Tim Kiladze and Stefanie Marotta report this morning that Canadian Imperial Bank of Commerce has been under remediation orders from Canada’s banking regulator for more than a year after an audit of its mortgage portfolio uncovered breaches of rules that limit how indebted borrowers can be, sources say. The problems surfaced last year in a routine regulatory audit of the bank’s mortgage portfolio conducted by the Office of the Superintendent of Financial Institutions (OSFI), which regulates large banks in Canada, according to two sources with direct knowledge of the issue.

In earnings, Wall Street will get results from FedEx after the close of trading.

Overseas, the pan-European STOXX 600 was down 0.26 per cent by midday. Britain’s FTSE 100 added 0.08 per cent. Germany’s DAX fell 0.18 per cent while France’s CAC 40 rose 0.01 per cent.

In Asia, Japan’s Nikkei edged up 0.06 per cent, recouping early losses. Hong Kong’s Hang Seng slumped 1.54 per cent.

Meanwhile, China cut its lending benchmarks on Tuesday in the first such easing in 10 months, as authorities seek to shore up a slowing recovery in the world’s second-largest economy, with more stimulus expected, Reuters reported. The latest monetary easing comes as China’s post-pandemic recovery shows signs of losing steam after some initial momentum in the first quarter of this year.

Commodities

Crude prices were mixed after cuts to China’s key lending rates stoked concerns about demand in one of the world’s biggest consumers of oil.

The day range on Brent was US$75.64 to US$76.75. The range on West Texas Intermediate was US$70.63 to US$72.02.

“Oil prices are relatively flat today, mirroring yesterday’s session which was broadly choppy but ultimately directionless,” OANDA’s Craig Erlam said in an early note.

“Crude has rebounded strongly since falling toward its 2023 lows early last week but remains in its lower range, roughly between $70-$80 per barrel and it’s showing little sign of breaking that in the short term.”

He said, while Saudi-driven OPEC+ production cuts could support prices in the months ahead, the economy remains one significant downside risk “amid an adjustment in the markets toward higher rates for longer.”

Meanwhile, China’s cuts to its one-year loan prime rate and the five-year rate by 10 basis points each were below some forecasts. China has seen weakness in recent factory and retail sales reports, raising concerns about the state of its economic recovery.

“Oil traders may need to see a materialized strong economic rebound in China to improve their outlook on oil demand,” Tina Teng, a markets analyst at CMC Markets, said.

In other commodities, spot gold was up 0.1 per cent at US$1,952.74 per ounce by early Tuesday morning. U.S. gold futures fell 0.3 per cent to US$1,964.60.

“Gold has started the week slightly softer but very little has changed, in that it remains in the $1,940-$1,980 range that it has spent the vast majority of the last month,” Mr. Erlam said.

“It was a very quiet start to the week which is why gold has basically continued to drift and that may continue until we see a significant change in the data.”

Currencies

The Canadian dollar was modestly lower in early trading while its U.S. counterpart was little changed against a group of world currencies.

The day range on the loonie was 75.53 US cents to 75.73 US cents in the early premarket period. The Canadian dollar is up more than 2 per cent against the greenback over the past month.

On world markets, the U.S. dollar index, which weighs the greenback against a group of world currencies, was down 0.1 per cent at 102.34 early Tuesday morning. The index is down about 1 per cent over the past month.

The euro rose 0.1 per cent to US$1.0936, supported by a still-hawkish European Central Bank after two policymakers on Monday said the bank should err on the side of further rate increases in the fight against inflation, Reuters reported.

Britain’s pound was little changed at US$1.2799, ahead of British inflation data on Wednesday and the Bank of England’s interest rate decision on Thursday.

In bonds, the yield on the U.S. 10-year note was slightly higher at 3.794 per cent.

More company news

The Globe’s Nicolas Van Praet reports the professional order that oversees engineering in Quebec says it has called a disciplinary hearing to question formerSNC-Lavalin Group Inc. chief executive Jacques Lamarre, thrusting the company’s dealings in Libya back into the spotlight. L’Ordre des ingénieurs du Québec confirmed in an e-mailed statement Monday that its Office of the Syndic filed a formal complaint against Mr. Lamarre June 15 after an investigation it conducted. It said a hearing of its disciplinary council, an independent administrative tribunal, would be held to consider whether Mr. Lamarre infringed the organization’s code of ethics and professional duties.

Alibaba Group on Tuesday said its CEO and chairman Daniel Zhang will step down from the roles to focus on its cloud division as the Chinese e-commerce giant moves ahead with a plan to split into six business units. Zhang has been concurrently serving in three roles since December when he took over as head of the cloud unit after it suffered an outage that it described as its “longest major-scale failure” for over a decade. -Reuters

Economic news

(8:30 a.m. ET) Canadian CPI basket weights updated.

(8:30 a.m. ET) U.S. housing starts for May.

(8:30 a.m. ET) U.S. building permits for May.

With Reuters and The Canadian Press

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2023-06-20 09:33:49Z
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