Equities
U.S. stock futures broke higher Friday with the latest U.S. jobs numbers suggesting the Federal Reserve could take a more conservative approach to raising interest. On Bay Street, futures also turned positive just ahead of the open as oil prices strengthened as Russia and major OPEC producers neared an agreement to cut production.
On Wall Street, Dow futures had been negative throughout the predawn period, but pushed higher with about an hour to go before the opening bell after the release of the November employment figures. On Thursday, the Dow was down almost 800 points at one point before an afternoon rally clawed back most of those losses.
Overseas, markets were firmer ahead of the start of North American trading with MSCI’s all-country index up 0.3 per cent. That index, however, still appeared headed for a weekly drop of about 0.2 per cent.
“These wild swings that we are seeing show just how unsure investors are regarding the future direction of this long-in-the-tooth bull market,” Jasper Lawler, head of research for London Capital Group, said. “As far as the day’s new, a more cautious Fed went some way to alleviating concerns over where exactly relations stood between the U.S. and China.”
Thursday’s losses were limited by reports that the U.S. Federal Reserve is weighing whether to signal a wait-and-see approach to rate hikes in the new year. In remarks late Thursday, Fed chair Jerome Powell said the U.S. economy is performing “very well overall” although the benefits have not been spread evenly across the country. Mr. Powell was speaking at a rural housing conference in Washington.
Before the start of trading Friday, investors on both sides of the border got figures on November hiring. In Canada, the gains came in much stronger than expected, with the economy generating 94,100 positions, pushing the jobless rate to 5.6 per cent, the lowest since 1976.
In the U.S., meanwhile, job creation was a bit softer than forecast with nonfarm payrolls climbing by 155,000. The markets had been looking for an increase of 198,000. Unemployment held at 3.7 per cent.
In corporate news, B.C.-based athletic wear maker Lululemon Inc.'s stock was up modestly in premarket trading after the retailer topped analysts' forecasts in the third quarter. he company’s net income rose to US$94.4-million, or 71 US cents per share, in the quarter ended Oct.28, from US$58.9-million, or 43 US cents, a year earlier. Total revenue rose to US$747.7-million from US$619-million a year ago. Excluding items, Lululemon earnings 75 US cents a share, ahead of the 70 US cents analysts had forecast. The company also issued revenue guidance roughly in line with analysts' forecasts.
Marlboro-maker Altria Group Inc. is making a $2.4-billion investment in Canadian cannabis company Cronos Group Inc. The investment will give Altria a 45-per-cent stake in Cronos. Cronos said the deal gives it additional financial resources, production development capabilities and regulatory expertise. “Altria is the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth,” Cronos CEO Mike Gorenstein said in a statement. “The proceeds from Altria’s investment will enable us to more quickly expand our global infrastructure and distribution footprint, while also increasing investments in R&D and brands that resonate with our consumers." Cronos stock shot up on the news. The company’s U.S.-listed shares were 24 per cent higher in premarket trading.
Overseas, the pan-European STOXX 600 - which fell as much as 3.2 per cent during Thursday’s rout - was 1.26 per cent with most sectors in positive territory. Britain’s FTSE 100 rose 1.56 per cent while Germany’s DAX gained 0.68 per cent and France’s CAC 40 added 1.46 per cent.
“European stocks have rallied this morning following the impressive comeback that U.S. markets underwent [on Thursday],” CMC Markets analyst David Madden said in an early note. "The huge swing we saw in U.S. markets yesterday underlines the volatility in markets, and that nervousness still exists. "
In Asia, markets finished the week’s final session mostly higher. Japan’s Nikkei rose 0.82 per cent. The Shanghai Composite Index was up 0.03 per cent. Hong Kong’s Hang Seng ended down 0.35 per cent.
Commodities
Crude prices jumped just ahead of the North American open on reports that Russia and major OPEC producers were near a deal to cut output. Brent crude was up nearly 3 per cent while West Texas Intermediate gained nearly 2 per cent. The day range on Brent so far is US$59.10 to US$61.86. The range on WTI is US$50.60 to US$52.68. Both were near the upper end of those ranges.
Oil prices found their footing overnight after reports suggested Russia was likely to contribute a bigger output in an agreement with OPEC and its allies. However, sentiment was tempered by indications from Saudi Arabia remained unconvinced that an agreement could be reached because Iran was insisting on an exemption to the reductions.
Crude prices fell nearly 3 per cent on Thursday when the OPEC meeting in Vienna ended without an agreement. OPEC sources cited by Reuters said Friday that Iran appeared to be the main obstacle to an agreement to curb production with Saudi Arabia having yet to agree to an exemption for Tehran, which faces U.S. sanctions.
“The terms of the cut appear to hang on Russia, with Energy Minister Alexander Novak reportedly seeking sign-off on the agreement from President Putin before agreeing,” OANDA analyst Craig Erlam said in a note ahead of the OPEC meeting.
"This clearly highlights the difficulty with negotiations this time around, with Libya and Nigeria also requested exemptions and Iran refusing to take part while under sanctions. This also comes after Qatar announced it will leave the cartel after 57 years of membership."
Gold prices, meanwhile, traded near their best levels in five months on expectations that the Fed could take a break from hiking interest rates next year. Gold now looked set for a weekly gain of about 1.5 per cent, its best showing for any week since August. Spot gold was up 0.2 per cent at US$1,240.38 per ounce by late morning in Europe, having hit US$1,244.32 per ounce in the previous session, its best level since July 17.
Currencies and bonds
The Canadian dollar popped above 75 US cents early Friday after Statistics Canada said employment growth in November far exceeded market forecasts. The day range on the loonie so far is 74.63 US cents to 75.16 US cents, with the dollar holding close to the upper end shortly after the latest figures were released.
The loonie has been struggling near 18-month lows this week, slammed by weak crude prices and growing expectations that the central bank won’t go ahead with a rate hike at its January meeting. That came after the Bank of Canada struck a more dovish tone in its policy announcement on Wednesday. Before that, markets had priced in about a 60-per-cent chance of an interest rate increase in January. The odds fell dramatically after the announcement.
“The random-number generator that is the Canadian Labour Force Survey spat out a massive reading for November,” CIBC economist Royce Mendes said. "The increase of 94,000 jobs is essentially the largest monthly gain since 2012 and left the unemployment rate at 5.6 per cent, the lowest on record ."
The details, he said, were also “very constructive” with nearly all of the jobs created in the full-time category and labour participation climbing. The only sore spot, he said, was the deceleration of wages, which fell 1.5 per cent on an annual basis. He noted the report also said Alberta was a major contributor to the monthly increase, adding 24,000 jobs.
“That will create more concerns than usual surrounding the sustainability of the November jobs reading,” Mr. Mendes said. “Still, the large gain in jobs will keep a January rate hike on the table for now, but we’ll need to see similarly positive evidence from other indicators and no major reversal in the next jobs report.”
In other currencies, the U.S. dollar fell overnight although it had recovered to trade mostly flat against a basket of currencies ahead of the North American open. Reuters notes that the index is on track for its biggest weekly decline in about two months.
“The dollar has come under renewed pressure as market hopes of peak U.S. interest rates have grown and the only reason the dollar is not much weaker from current levels is because global growth concerns have also grown,” Ulrich Leuchtmann, an FX strategist at Commerzbank in Frankfurt, told the news agency.
In bonds, U.S. yields were little changed ahead of the latest U.S. employment figures. The yield on the 10-year note was marginally higher at 2.886 per cent. The yield on the 30-year note was also up slightly at 3.145 per cent.
Stocks set to see action
Tesla Inc will pay a 50-50 mix of stock and cash to holders of its bonds due in March, if they elect to convert the debt, Bloomberg reported, citing a copy of the settlement notice. Tesla has 0.25 per cent convertible senior notes coming due in March. As of September 2018, it had an unpaid principal balance of $920,000.
A Brazilian federal court on Thursday granted an injunction blocking the proposed tie-up between plane makers Boeing Co and Embraer SA, according to a court document seen by Reuters. The decision, which can be appealed, forbids Embraer’s board of directors from signing the deal with Boeing. Boeing declined to comment and Embraer did not immediately reply to a request for comment. The legal action was brought by four congressmen with Brazil’s left-wing Workers Party, which is opposed to the deal.
Fiat Chrysler Automobiles plans to build Jeep Grand Cherokee SUVs in a mothballed Detroit plant in 2020, four people familiar with the plans told Reuters. News of the Fiat Chrysler’s new plant leaked on the same day General Motors Co Chief Executive Mary Barra was finishing a two-day visit in Washington with lawmakers furious over the car maker’s plan to close five North American assembly plants next year and cut up to 15,000 jobs due to weak demand for sedans and small cars in the U.S. market.
More reading:
Friday’s small-cap stocks to watch
Friday’s analyst upgrades and downgrades
Economic news
Statistics Canada says the Canadian economy generated 94,100 new jobs in November. The market had been expecting an increase closer to 10,000 jobs. The jobless rate fell to 5.6 per cent, from 5.8 per cent in October.
The U.S. economy added 155,000 new jobs last month, short of the 198,000 positions markets had been forecasting. Unemployment held at 3.7 per cent.
(10 a.m. ET) U.S. wholesale trade for October. Consensus is for an increase of 0.7 per cent.
(10 a.m. ET) U.S. University of Michigan Consumer Sentiment Index for December (preliminary). Consensus is for a reading of 97, down form 97.5 last month.
With Reuters and The Canadian Press
Terry Weber