News Column

TSX heads for positive open, traders eye earnings reports, Yellen testimony

July 14, 2014

Malcolm Morrison, The Canadian Press

TORONTO - The Toronto stock market looked to open positive Monday as traders focused on corporate earnings to reinforce the view that the American economy is recovering from a dismal first quarter.

The Canadian dollar was down a slight 0.02 of a cent to 93.14 cents US after tumbling about 3/4 of a U.S. cent Friday in the wake of a disappointing jobs report for June. On Wednesday, the Bank of Canada makes its next interest rate announcement and releases its new Monetary Policy Report.

U.S. futures were higher as investors looked ahead to key earnings from the financial and tech sectors this week. The Dow Jones industrial futures gained 60 points to 16,941, the Nasdaq futures advanced 17.5 points to 3,915 while the S&P 500 futures were ahead 6.5 points to 1,968.9.

The flood of Canadian corporate earnings reports generally lags the U.S. by a few weeks. The major domestic report of the week comes from Canadian Pacific Railway (TSX:CP) on Thursday. Walter Spracklin at RBC Capital Markets has reduced his earnings per share forecast for the second quarter to $2.13 from $2.16, reflecting higher costs and lower per-tonne grain revenue. In a research note, he raised his forecast for 2015 to $9.75 a share from $9.48 "on the expectation for grain volume strength to continue, which lifts our price target to $175 (from $171)."

In the U.S., investors took in earnings from Citigroup that beat expectations. The bank posted quarterly earnings per share of $1.24, beating forecasts of $1.06 a share. The bank also said Monday it will pay US$7 billion to settle an investigation into risky subprime mortgages, the type that helped fuel the financial crisis.

Bank of America also reports earnings on Wednesday.

On the tech front, chip giant Intel posts results Tuesday while Google reports on Thursday. The week is capped by earnings from General Electric on Friday.

Investors will also focus on monetary policy testimony from U.S. Federal Reserve chair Janet Yellen on Tuesday and Wednesday.

"Yellen will likely stress that, while the economy can get by with less accommodative policy now, it is still some ways off from standing on its own two feet," said BMO Capital Markets senior economist Sal Guatieri.

"She is neither likely to provide a clear timeline on rate liftoff, nor ratify recent comments from some Fed presidents about a possible earlier rate increase."

Elsewhere on the corporate front, Bombardier Aerospace (TSX:BBD.B) has signed a number of agreements at the Farnborough International Airshow for its new C Series aircraft. Bombardier says Chinese company Zhejiang Loong Airlines Co. has signed a letter of intent for 20 CS100 airliners that would be worth US$1.28 billion if all the orders were exercised. Before the show began, Bombardier had announced on Saturday that U.K-based Falko Regional Aircraft Ltd. signed letters of intent for up to 24 C S100 jets.

The TSX finished last week with a 0.6 per cent loss, amid jitters about a struggling Portuguese bank. Espirito Santo International reportedly missed a debt payment last week, echoing issues that spawned Europe’s debt crisis. Investors appeared to have been reassured any problems would be contained by the end of the week. The Dow industrials eased 0.7 per cent.

The Toronto market will likely feel pressure from lower commodity prices as August crude on the New York Mercantile Exchange slipped 16 cents to US$100.67 a barrel.

Metals also declined with September copper down to US$ a pound while August bullion dropped $19.50 to US$1,317.90 an ounce.

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Source: Canadian Press DataFile

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