Traders look to heavy slate of energy earnings, data on economic growth, jobs


TORONTO – Investors will have their hands full this week amid a heavy roster of corporate earnings and top-drawer economic data, including the latest growth figures in Canada and the United States and American jobless data.

Geopolitical concerns will also rank high as traders look to new developments in the Russia-Ukraine crisis.

Worries about a worsening in tensions eroded market gains at the end of last week and indexes closed little changed with the TSX up 33 points and the Dow industrials down 47 points.

Indexes had been modestly higher in the wake of a string of positive earnings reports.

“Markets have reacted very well to (earnings),” said Gareth Watson, vice-president investment management and research, Richardson GMP Ltd., adding that it was particularly gratifying that there haven’t been any massive downgrades to corporate guidance.

“Earnings are doing well; probably revenue not as well so there are still concerns over the top line growth to a large degree. But obviously bottom line growth has been coming in better than expected.”

Oilpatch earnings will be closely watched since that sector is the best-performing group on the TSX year to date, up about 15 per cent. Companies reporting include Imperial Oil (TSX:IMO), Suncor (TSX:SU) Cenovus Energy (TSX:CVE) and Canadian Natural Resources (TSX:CNQ).

Analysts say oilsands producers, in particular, will benefit from an improvement in pricing for the heavy oil known as Western Canadian Select. It currently has a discount of only US$18.68 compared with West Texas Intermediate crude, the North American benchmark, giving it a price of about US$83 a barrel. That is a huge improvement from a year ago when the price was US$69.

One reason for the improvement is that a BP refinery in Whiting, Ind., that processes heavy crude has reopened after being taken offline for refurbishment.

“Because of the shutdown, you didn’t have the demand and so, as a consequence of that, it’s one of the big reasons why Canadian feedstock fell,” said Bob Gorman, chief portfolio strategist at TD Waterhouse.

“Now the refinery is back online, that supply-demand imbalance has diminished a lot and so the price the producers are getting for heavy oil is significantly better than it was. So Canadian Natural Resources is quite big in this space (and) last year their quarter was about 37 cents (EPS). I think you will have a number that may be close to double that.”

On the economic front, traders will look to a two-day meeting of the Federal Reserve’s Open Market Committee for the latest word on interest rates. Chairwoman Janet Yellen indicated after the last meeting that short-term rates currently near zero could start to increase six months after the central bank ends its bond buying program, meaning rates could start to rise in mid-2015. But that didn’t quite match the message in the Fed’s communique and markets will be looking for some clarification.

“There was quite the mixed message between the statement and Yellen’s press conference, and speeches by other Fed officials,” said Doug Porter, chief economist for BMO Capital Markets.

“I suspect they will try to keep it relatively clean this time. I think the last thing they want to is confuse the message even further.”

In the past, the Fed had indicated rates could rise once the U.S. jobless rate got below 6.5 per cent. But Porter said the Fed has abandoned that message now that the rate is at 6.7 per cent and could hit the 6.5 figure when the April jobs data is released Friday.

“I think they have had a reassessment of exactly what exactly is going on with the participation rate and I think they likely do not believe 6.5 per cent is any kind of significant threshold anymore,” he said.

Porter added he expects the U.S. economy should have added about 200,000 jobs in April.

Meanwhile, investors will take in the first reading on American first-quarter gross domestic product growth on Wednesday. Porter is looking at growth to come in at 1.2 per cent as severe winter weather likely cut GDP growth by a full percentage point.

For that reason, he expects a big bounce back in the second quarter when growth could jump as high as three per cent or more.

Canadian GDP data for February comes out Tuesday and Porter thinks growth for that month came in at 0.2 per cent.

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