Before the Bell: Sept 23

Before the Bell: Sept 23

Equities

Wall Street futures were down early Friday with all three main indexes facing weekly losses as concerns over higher interest rates and a weaker global economy rattle markets. Major European markets were also weaker in morning trading. TSX futures were negative.

In the early premarket period, Dow, S&P and Nasdaq futures were all underwater. All three saw losses during a choppy session Thursday and are now on track for weekly declines. Heading into Friday’s session, the Dow is off more than 2 per cent for the week while the S&P and Nasdaq are both down more than 3 per cent. The S&P/TSX composite index ended down nearly 1 per cent on Thursday, its weakest closing level since July 26.

“The prospect of much more [monetary policy] tightening and a recession weighs on sentiment,” OANDA senior analyst Craig Erlam said.

“The last 48 hours have seen central banks around the world aggressively tightening as they continue their fight against high inflation.

The Federal Reserve hiked rates by three-quarters of a percentage point this week, as expected, but also struck a more hawkish stand on future moves. Other global central banks, including the Bank of England, followed suit through the week, also raising key policy rates.

In this country, investors will get a fresh reading on Canadian retail sales before the start of trading.

“RBC Economics expects Canadian retail sales to have declined 2 per cent in July, in line with Statcan’s preliminary estimate,” Elsa Lignos, global head of FX strategy for RBC, said in a note.

“That’s due to lower sales at gasoline stations. Sales for other goods have stayed mostly flat through the month, according to our own tracking of RBC spending data.”

Friday’s analyst upgrades and downgrades

On Wall Street, shares of retailer Costco were down more than 1 per cent in premarket trading after the company topped analysts’ estimates in the latest quarter but also reported gross margins were hit by higher freight and labour costs. Excluding one-time items, Costco earned US$4.20 per share, beating estimates of US$4.17 per share. The company’s gross margin on a reported basis came in at 10.18 per cent, compared to 10.92 per cent, a year earlier.

Overseas, the pan-European STOXX 600 was down 0.91 per cent. Britain’s FTSE 100 fell 0.87 per cent. Early Friday, Britain’s finance minister Kwasi Kwarteng delivered a mini-budget with the aim of cutting taxes and energy bills for households and businesses to try to drive economic growth.

Germany’s DAX fell 0.87 per cent. France’s CAC 40 was off 0.97 per cent.

In Asia, Hong Kong’s Hang Seng lost 1.18 per cent. Markets in Japan were closed.

Commodities

Crude prices were on track for weekly losses as recession fears and a strong U.S. dollar continue to weigh on sentiment.

The day range on Brent was US$88.51 to US$90.84 in the early premarket period. The range on West Texas Intermediate was US$81.51 to US$83.92.

Brent is down more than 1 per cent for the week so far. WTI is off more than 2 per cent.

“The threat of a global recession continues to weigh on oil prices, with widespread monetary tightening over the last couple of days fueling fears of a significant hit to growth,” OANDA’s Craig Erlam said in an early note.

“Central banks now appear to accept that a recession is the price to pay for getting a grip on inflation, which could weigh on demand next year.”

Still, he said, markets remain tight and OPEC+ is ready to restrict supply further to shore up prices even as it fails to deliver on quotas it has set for itself so far.

“What’s more, a nuclear deal between the U.S. and Iran looks no closer and Russia’s mobilization could pose a risk to its supply,” Mr. Erlam said.

In other commodities, gold prices slid.

Spot gold was down 0.4 per cent at US$1,664.39 per ounce by early Friday morning and was heading for its second straight weekly decline, down 0.6 per cent. U.S. gold futures fell 0.5 per cent to US$1,672.10.

Currencies

The Canadian dollar was down, dipping below 74 US cents in the early hours, amid weak risk sentiment and falling crude prices.

The day range on the loonie is 73.86 US cents to 74.26 US cents. On Thursday, the loonie hit its lowest level in two years against the U.S. dollar.

“The CAD is weaker but it is holding up relatively well against the USD amid sharper G10/commodity FX losses elsewhere,” Shaun Osborne, chief FX strategist with Scotiabank, said, also noting “it will be the risk backdrop, not domestic fundamentals, that drive the CAD.”

On world markets, the U.S. dollar index rose 0.16 per cent to 111.40, hovering near a two-decade high of 111.81 hit in the previous session, and is on track for a weekly gain of 1.5 per cent, according to figures from Reuters.

The euro fell 0.11 per cent to US$0.9823, close to a 20-year low of $0.9807 hit overnight.

Japan’s yen, meanwhile, was on track for its first weekly gain against the U.S. dollar after officials intervened in the markets this week to shore up Japan’s currency.

The yen was up about 0.1 per cent at 142.22 per U.S. dollar in Asia, after a more than 1 per cent rally in the previous session, Reuters reported.

In bonds, the yield on the U.S. 10-year note was higher at 3.748 per cent in the predawn period.

Economic news

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

(8:30 a.m. ET) Canadian manufacturing sales for August.

(2 p.m. ET) U.S. Fed chair Jerome Powell delivers opening remarks at a Fed Listens webinar.


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