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Equity Markets

U.S. stock futures point to a strong opening on Wednesday, with the potential for a triple-digit gain at the opening bell, as investors turn their attention to better than expected corporate earnings from companies including Bank of America and Goldman Sachs, which both posted a sharp drop in profit due to charges related to the new tax law but surpassed expectations when those charges were excluded. There's also a slate of economic news slated to be released, on industrial production and housing.

On Bay Street, all eyes will be on the Bank of Canada's rate announcement, where there are expectations that Governor Stephen Poloz will raise rates by a quarter point to 1.25 per cent. Already the potential hike has had an impact on mortgage and other borrowing rates in Canada. A hike could also bolster the Canadian dollar.

On Tuesday, Canada's main stock index fell as a drop in commodity prices weighed on the shares of materials and energy companies and stocks in the U.S. also finished the trading day lower even after the Dow broke through the 26,000 milestone. Concerns regarding a possible government shutdown weighed on market sentiment. By the end of Friday Congress needs to pass a spending bill to prevent a government shutdown but the Democrats and Republicans are still trying to find common ground on an immigration bill.

Overseas, world shares pulled back from record highs on Wednesday, set for only their second day of losses in the new year as lower commodity prices and a string of downbeat updates from companies dampened the mood in global markets.

European bourses opened lower, mirroring moves in Asia and Wall Street overnight, as earnings updates from companies weighed. The pan European STOXX 600 index was down 0.2 per cent, but still close to a 2-1/2 year high hit earlier this month.

Britain's FTSE was down 0.22 per cent, Germany's DAX was off 0.26 per cent and France's CAC slipped 0.07 per cent.

Asian equities stepped back from a record high as the region's resource shares were knocked by falling oil and commodity prices. Oil prices have retreated from the $70 (U.S.) a barrel mark hit last week, while metals such as aluminium and copper and nickel all fell on Wednesday.

Japan's Nikkei fell 0.4 per cent from its 26-year peak reached the previous day. Hong Kong's Hang Seng added 0.25 per cent and China's Shanghai index gained 0.26 per cent.

Commodities

Oil prices weakened following early gains on Wednesday, but remained underpinned by tightening supply and strong global demand.

Tighter fundamentals have lifted both crude futures benchmarks about 13 per cent above levels in early December, helped by production curbs by OPEC and Russia, as well as by healthy demand growth.

Brent crude futures were at $69.94 (U.S.) a barrel, down 21 cents from the last close, after hitting $69.37. Brent on Monday rose to $70.37 a barrel, its highest since December, 2014.

U.S. West Texas Intermediate (WTI) crude futures were at $63.60 a barrel, down 13 cents on the day and down from $63.89 earlier. WTI hit $64.89 on Tuesday, also the highest since December, 2014.

"Currently there is no reason to believe that there has been a significant change in the underlying fundamental sentiment and the sell-off is, so far, viewed as a technical correction," said Tamas Varga, analyst with PVM Oil Associates in London.

The Organization of the Petroleum Exporting Countries and Russia have been curbing production since January last year and the cuts are set to last through 2018.

The curbs have coincided with healthy demand and solid economic growth, and as a result the market has tightened, helping to push prices up more than 50 per cent from June, 2017.

Gold prices held near four-month highs on Wednesday even as a stronger dollar made bullion more expensive for holders of other currencies.

The price of gold has risen by about 8 per cent since mid-December, helped by a weakening of the dollar to a three-year low against a basket of major currencies.

But the euro gave up its three-year high against the dollar on Wednesday after comments by European Central Bank officials suggested they may be concerned by the strength of the European single currency.

"The euro is down a bit against the dollar today, which has led to gold coming off its highs," said Mitsubishi analyst Jonathan Butler.

Spot gold was down 0.1 per cent at $1,337.22 (U.S.) an ounce, close to Monday's peak of $1,344.44, its highest since Sept. 8.  U.S. gold futures were flat at $1,337.30.

Butler said that gold is likely to remain within a range of $1,300-$1,340 in the short term as the dollar remained weak.

However, the risk that global share prices could fall from record highs and strong growth around the world could stoke inflation would support gold in the longer term, he said.

"Concerns regarding [share price] overvaluations and the possibility of rising inflation have reignited interest in gold," Standard Chartered analysts said, raising their forecast for the average gold price this year to $1,324 from $1,285.

In other precious metals, silver was flat at $17.20 an ounce while platinum rose 0.3 per cent to $1,001.30 after touching its highest since Sept. 8 at $1,006.60.

Palladium was up 0.9 per cent at $1,104, close to the $1,138 record high hit on Monday.

Currencies and bonds

In currencies, the Canadian dollar was down slightly but still above the 80-cent (U.S.) mark ahead of the Bank of Canada announcement.

The euro fell after rocketing to a fresh three-year high in early trades, above the $1.23 mark.

Over all, U.S. dollar weakness and growing optimism about the outlook of the European economy in 2018 has lent fresh legs to the euro's rally after it gained more than 10 per cent last year.

But the speed of the rise in the opening days of 2018 -- up more than 3 per cent in the last two weeks -- has invited some comments from ECB officials this week, highlighting some growing concerns, according to analysts.

"The ECB is playing the good cop and the bad cop in terms of their comments over the euro but there is no doubt the currency's rally has sowed the seeds of uncertainty in the ids of ECB policy makers," said Viraj Patel, an FX strategist at ING in London.

Against a basket of currencies, the U.S. dollar was up 0.3 per cent, but not far from its lowest level since early 2015.

Bitcoin extended its sharp tumble of the past 24 hours, skidding more than 11 per cent on Wednesday as investors were spooked by fears regulators might clamp down on the digital currency.

The price of the world's biggest and best known cryptocurrency fell to as low as $10,567 (U.S.) on the Luxembourg-based Bitstamp exchange.

Most euro zone government bond yields inched down on Wednesday, as jittery investors took comfort from signs that European Central Bank rate-setters are in no rush to signal an imminent change in the bank's policy stance.

U.S. Treasury yields were mixed as investors waited to hear from the U.S. Federal Reserve later Wednesday, with several members set to make speeches on Wednesday and with the Beige Book comments set to be released at 2 p.m. ET.

The 2-year U.S. Treasury yield hit its highest level since late 2008, at 2.039 per cent, 30-year Treasury bonds were lower at 2.829 per cent. Canada 10-year bonds were lower at 2.18 per cent.

Stocks set to see action

Bank of America says its fourth-quarter profit fell by nearly half from a year ago, as the bank had to book $2.9-billion in charges related to the new tax law. The consumer banking giant said it earned $2.37-billion, or 20 cents a share, down from $4.54-billion, or 39 cents a share, from the same period a year ago. Like other banks this quarter, Bank of America had to write down $2.9 billion in deferred tax assets and other investments to comply with the new tax law. However the bank, like its competitors, says it expects to benefit from lower tax rates going forward. Total revenue at the bank was $20.44-billion, up from $19.99 billion in the same period a year earlier. Its shares were up 0.4 per cent in premarket trading.

Goldman Sachs says it lost $1.93-billion in the fourth quarter, as the bank had to record more than $4-billion in charges related to the new tax law. Goldman had a net loss of $5.51 a share, compared with a profit of $2.35-billion, or $5.08 a share, in the same period a year earlier. Excluding the one-time charges, the bank earned $5.68 a share, beating analysts' estimates. Like other banks, Goldman wrote down billions in assets impacted by the new tax law. It had $3.32-billion in charges related to foreign earnings now taxable under the law and $1.1-billion in charges for deferred tax assets it stockpiled after the financial crisis. Firm-wide, net revenues at Goldman were $7.83 billion versus $8.17-billion a year earlier. Its shares fell 0.3 per cent in premarket trading.

Tiffany & Co. said its same-store sales in the Americas rose 6 per cent in the holiday months of November and December, helping the upscale jeweler raise its 2017 full-year forecast for sales and earnings. Tiffany said it now expects worldwide sales to increase 4 per cent, or about $4.16-billion, for the year ending Jan. 31. Analysts on an average were expecting sales of $4.11-billion, according to Thomson Reuters I/B/E/S. Its shares slipped 1 per cent in premarket trading.

Canada's largest construction companies are urging the federal government to block the proposed $1.5-billion acquisition of Aecon Group Inc., a major domestic rival, by a state-controlled Chinese firm. Aecon's competitors are asking Ottawa to block the takeover on the grounds that China Communications Construction Co. Ltd. (CCCC) – which is one of the world's largest infrastructure companies – has a poor track record when it comes to safety and corruption, and that a state-controlled Chinese entity is not suited to work on projects with security concerns, such as the refurbishment of Ontario nuclear power stations and building military facilities.

Apple shares fell 0.33 per cent after Longbow Research downgraded the company's stock to "neutral", saying it forecasts only a "good, not great iPhone cycle".

Ford slipped 3.2 per cent after the automaker reported full-year 2017 profit below estimates and provided a downbeat forecast.

IBM shares rose 1.8 per cent after Barclays analysts upgraded its stock to "overweight" and hiked price target by $59 to $192.

Juno Therapeutics is in talks to be bought by drugmaker Celgene, according to a report by The Wall Street Journal. Juno's shares soared 54 per cent in premarket trading and Celgene shares slipped 1.7 per cent.

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Economic News

U.S. industrial production increased more than expected in December as unseasonably cold weather toward the end of the month boosted demand for heating, but manufacturing output slowed further. The Federal Reserve said on Wednesday industrial output surged 0.9 per cent last month also buoyed by robust gains in mining production after a downwardly revised 0.1 per cent decline in November. Economists polled by Reuters had forecast industrial production advancing 0.4 per cent last month after a previously reported 0.2 per cent increase in November. Industrial production rose at an annual rate of 8.2 per cent in the fourth quarter, the biggest gain since the second quarter of 2010. For all of 2017, industrial output rose 1.8 per cent, the first and largest increase since 2014.

(10 a.m. ET) Bank of Canada's rate announcement is made. The Street is expected an increase of 1.25 per cent.

(10 a.m. ET) U.S. Housing Market Index for January is announced. Consensus is 72.0, down from 74.0 in December

(2 p.m. ET) U.S. Beige Book is released.

(4 p.m. ET) U.S. treasury international capital flows for November are revealed.

With files from Reuters and Bloomberg