Global markets have been mixed overnight. Asia Pacific markets sold off in reaction as a big loss and a 75% dividend cut from BHP Billiton (L:BLT) brought a recent rally in mining stocks to a screeching halt for now. A weakening in CNY also attracted some of the blame in what has otherwise been a slow night for news.
US and European markets have been trading close to flat this morning. US index futures have rallied toward positive territory since 6:00 am when Home Depot (N:HD) reported stronger than expected sales and earnings and raised its dividend by 16%. Retailers may remain a key focus in US trading with Macy's (N:M) just out above street as well but guiding a bit soft.
Today’s trading in mining stocks in both the US and Canada could be active once again as it may give an indication of how sustainable recent gains may be. The recent rally in mining has been driving by improving gold and copper prices and expectations of an improving environment. The BHP results, however were based on past prices and its 3.8% decline in London today appears moderate relative to its recent gains let alone the 10% rallies put up by Alcoa (N:AA), Teck (TO:TCKb) and others yesterday. Copper is trading slightly lower while gold is slightly higher so we could see some rotation within the mining group.
Canadian bank stocks could also be active as Bank of Montreal (TO:BMO) and National Bank (TO:NA) kicked off earnings week by beating the street. Banks had rallied yesterday ahead of these reports and could carry their momentum today on the results with CIBC, RBC (TO:RY) and TO:TD all due to report later in the week. Bank results this quarter may give a better indication of how the rebalancing of the Canadian economy is progressing. The banks’ exposure to the oil sector though both direct lending to energy companies and to real estate in oil producing regions may remain a key focus. The big question is whether other industries and regions that can benefit from the lower loonie have bounced back enough to offset the energy sector’s struggles and reduce the banks’ exposure to the sector. Remember the negative effects of the oil crash have been front ended while the benefits and rebalancing of lower oil prices and the lower CAD can take longer to materialize.
Speaking of oil, prices have stabilized overnight with WTI near $31.00 and Brent near $34.50. CAD is down marginally against USD as it consolidates recent gains.
We have seen somewhat of a reversal of capital flows in currency markets overnight with defensive havens like gold, JPY and CHF outperforming again. Overnight Bank of Japan Governor Kuroda was talking about keeping negative interest rates until inflation rises in what appears to be an attempt to talk down or at least cap the rise of the yen.
European currencies like GBP and EUR are down again today but at a more moderate pace than yesterday. Bank of England Governor Carney commented today that the bank is treating the Brexit debate just like any other event (uh huh) while he and Deputy Governor Shafik both indicated they expect the Bank’s next move to be a rate hike eventually. Meanwhile MPC member Weale suggested recent strength in demand could generate slightly more inflation. In other words, it seems like the Bank of England is trying to stay out of the debate, but at the same time trying to stop recent vote related weakness in GBP from snowballing into a free fall. Meanwhile, in Europe, soft German exports and a weak expectations component of the IFO survey keep the pressure on the ECB to do something at its March meetings and EUR on the back foot.