Traders to watch energy, airline earnings; look for improvement in job creation

TORONTO - Traders have plenty to focus on this week, including the latest employment data from Canada and the United States, following a disappointing January on stock markets.

It is also a heavy earnings week as traders get some of the first results from the Canadian oilpatch and wait to see how a lower loonie has impacted the results of the country's major airlines.

Suncor (TSX:SU) issues earnings on Monday and analysts are expecting a generally positive run of earnings from the big energy producers as oil prices held steady in the mid- to high-US$90 range for much of late last year.

The price spread between Western Canadian Select — the oil produced in the oilsands — and West Texas Intermediate crude has also narrowed to less than $20.

"I’m thinking positive things for the group as a whole," said Chris King, portfolio manager at Morgan, Meighen and Associates.

"I’m expecting a decent quarter. We’re going to hopefully look at some more returns to shareholders through buybacks and possible dividend boosts."

He noted that many of the big energy stocks are trading at attractive valuations as investors wait to see how the oilpatch will work out transportation issues, including the controversial Keystone XL pipeline, which would carry crude from Alberta and the northern U.S. to Texas refineries.

"What they don’t know is that the industry is finding other solutions and if Keystone XL doesn’t get approved, it’s not the end of the world," King said.

Air Canada (TSX:AC.B) and WestJet (TSX:WJA) post earnings Tuesday, a week after taking sharp hits to their share prices over concerns about the impact of the falling loonie.

The currency lost five per cent in January alone, falling below the 90-cent US level.

Fuel prices, one of the largest costs for an airline, are up 8.9 per cent over the last three months in U.S. dollars, but up 13.2 per cent in Canadian currency.

"There is definitely an impact in terms of foreign exchange to costs but, by the same token, these companies do hedge and we will have to wait and see how effectively they hedged their positions," added King.

The TSX ended January up 0.53 per cent while the Dow industrials fell 5.3 per cent as emerging market currency worries helped persuade investors to take some profits from a strong rally last year that saw the blue chip index charge ahead more than 25 per cent.

The major economic data for the week comes out on Friday — the employment reports for January for both the United States and Canada.

Markets have high hopes for U.S. data after December job creation came in at a meagre 74,000, with much of the poor showing blamed on fierce winter weather.

"We are expecting a sharp rebound in January — our January figure we have pencilled in for about 190,000, said Andrew Grantham," economist at CIBC World Markets.

Besides the weather effect, he warned that job creation numbers are volatile "so you can never read much into one month in the payrolls survey."

Canadian job numbers also disappointed last month with a loss of 44,000 positions in December. But markets are hoping for a bounce in January in the neighbourhood of 18,000.