US markets rally with earnings and lumber tariffs in focus ahead of tax reform
It’s been a banner day for stock markets in North America with the NASADQ Composite breaking through the 6,000 barrier for the first time while the Dow regained 21,000. Capital continues to flow into risk markets as traders abandon defensive havens like gold and JPY following the first round of French voting.
Traders have responded positively to a series of strong earnings reports from companies in the Industrials, Materials and Consumer sectors, indicating that the current strength in the US economy and corporate earnings is broad based, not just being driven by the banks. Some of the leading advancers on the day include Caterpillar (which beat the street by a country mile and raised its guidance by 30% indicating a positive outlook for heavy equipment and capital investment) up 7.5%, Netflix up 6.3%, Freeport up 5.9%, McDonalds up 5.4% and Whirlpool up 4.1%. In Canada, Finning, a Caterpillar dealer, rallied 5.0%.
It was a volatile day for trading in Canada, with a very mixed reaction to the news that President Trump has decided to slap a 24% tariff on US imports of Canadian softwood lumber. This dispute has been on and off for decades and looks like it’s back on as countries posture ahead of NAFTA renegotiation talks. Bank of Canada Governor Poloz has indicated he is ready to cut interest rates if Canada’s economy gets impacted by a trade dispute so this news pushed the loonie significantly lower. President Trump also rattled his sabre at the Canadian dairy industry through a tweet. This didn't help sentiment toward CAD and also impacted NZD due to rising concerns about the potential for a trade war in the dairy sector.
The Mexican Peso also took a hit today. Although signs have appeared to suggest President Trump may be willing to push off his demand for border wall funding to keep the government running until the fall, MXN was impacted by a WTO settlement. Although the WTO allowed Mexico to impose $163M per year of tuna trade restrictions on the US way, that amount was way below the $472M Mexico had asked for.
Perhaps the most surprising thing about today’s trading was that Canadian softwood lumber producers rallied on the Trump tariff news. West Fraser Timber rallied 9.3% while Canfor gained 7.2% It appears that traders had been fearing an even larger tariff could have been imposed on the sector and this development was actually seen as good news.
Late in the day, WTI crude oil has started to tumble again after API reported a 0.9 mmbbl increase in crude oil inventories and a 4.4 mmbbl increase in gasoline inventories. That could impact trading in energy commodities and energy stocks through to tomorrow’s DOE reports.
Looking forward, political tensions could attract attention today with the US Air craft Carrier Vinson scheduled to arrive in the waters off Korea today. Australia inflation and Singapore industrial production may also have an impact on trading. Tomorrow brings President Trump’s announcement on tax reform and another round of big company earnings reports led by Boeing which could influence whether the current market rally has the strength to continue or not.
Texas Instruments $0.91 vs street $0.83, guides next Q EPS to $0.89-$1.01 vs street $0.91
Chipotle Mexican $1.60 vs street $1.29, same store sales 17.8% above street 14.9%
Capital One $1.75 vs street $1.93
Significant announcements released overnight include:
US API crude oil inventories 0.9 mmbbls
US new home sales 621K vs street 584K
US consumer confidence 120.3 vs street 123.0 vs previous 125.6
US Richmond Fed 20 vs street 16 vs previous 22
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
11:30 am AEDT Australia consumer prices street 2.2% vs previous 1.5%
3:00 pm AEDT Singapore industrial production street 5.6%
8:30 am EDT Canada retail sales street 0.0% vs previous 2.2%
8:30 am EDT Canada retail ex auto street (0.3%) vs previous 1.7%
10:30 am EDT US DOE Crude oil inventories street (1.8 mmbbls)
10:30 am EDT US DOE Gasoline inventories street 0.25 mmbbls
10:30 am EDT US DOE Distillate inventories street (1.25 mmbbls)
TBA US Aircraft Carrier Carl Vinson to arrive in waters off Korea
TBA US President Trump to unveil tax reform plans