Futures mixed, China stimulus, AMD downgraded, Quantum computing rips
Greetings from Miami. A place of sun, sand and marital bliss. Which clearly means we didn’t bring the kids. Yesterday, I slept in until 10am but I didn’t let that stop me from taking a nap several hours later. Refreshed, I am willing to try this survey business again. Let me know what you think of the newsletter so far!
Tug of war: Futures are mixed this morning as they balance stimulus in China against the unknown in Syria. China vowed “moderately loose” monetary policy and “more proactive” fiscal policy. Chinese stocks like Alibaba, JD.com, and Baidu are all higher in the pre-market. Gold is also getting a lift as the central bank resumed buying bullion for the first time in 7 months. It is also benefitting from safe haven demand on the back of a power vacuum in Syria. Over the weekend, Syria’s brutal dictator Bashar al-Assad was toppled by rebels and fled the country. While that is cause for celebration, it also leaves a power vacuum and a risk of extremists taking hold. Oil is getting a lift this morning, but still trading below $70/barrel. A rally in gold and oil could support the TSX this morning, which is on a 5-week hot streak. This week we get the Bank of Canada rate decision (Wednesday), CPI in the US (Wednesday), and the ECB rate decision (Thursday). The ECB is expected to cut rates and in the US the market pricing in 87% chance of a rate cut on December 18th.
The first cut was not the deepest: The Bank of Canada is expected to cut interest rates by 50 basis points on Wednesday. This would leave the trend-setting rate at 3.25% and would be the second consecutive 50 basis point rate cut. This comes after the unemployment rate jumped to 6.8%, the highest in three years and highest since 2017 if you exclude the pandemic. BMO switched its called to a 50 basis point rate cut after the data on Friday. However, they warn that these larger moves come with risks. “Among the biggest ones are increasing divergence with the Fed (and further depreciation in the loonie) as well as the possibility of reigniting the housing market,” summarized Shelly Kaushik in BMO’s morning economic note. The Canadian dollar is trading a little higher this morning but bouncing off the lowest level in 4.5 years.
Notable calls: Shares of AMD are slipping in the pre-market after Bank of America cut the stock to neutral. AMD has always been a distant second when it comes to AI chips and Bank of America is warning that they are continuing to lose ground against Nvidia and now possibly Marvell. Shares of Reddit are popping in the pre-market after Morgan Stanley upgraded the stock. You could argue that after 380% gain since going public, they are a bit late to the party. But they are making it up by putting a street-high price target of $200/share, implying 20% upside from here. The analyst admits he was wrong but says he doesn’t think he has fully missed the upside potential. Lastly, a contrarian call on lumber stocks. Ben Isaacson at Scotia says there could be a near-term buying opportunity in lumber stocks because of tariffs. “We think investors should be long the Trees ahead of any tariff risk,” Isaacson wrote in a note to clients. While tariffs are negative longer term, he thinks there is a short term trading opportunity because it will be difficult to replace Canadian lumber and prices will remain higher. He sees Interfor, West Fraser Timber, and Canfor as best ways to play it.
Quantum gains: Shares of D-Wave Quantum are up again this morning and the company its on its way to a $1 billion valuation. The Burnaby, BC company that offers quantum computing systems has seen its shares triple in the last month alone. Quantum computing has long held the promise of being able to solve giant problems that regular computers can’t easily handle. It seems there is finally momentum in the sector. In November, Amazon Web Services announced a new quantum computing advisory program. Last week, the US introduced $2.7 billion in funding for quantum computing research. This seems to be all the sector needs right now to run. Seven analysts cover D-Wave, all with buy ratings. However, the stock’s explosive gains means it has blown through all the price targets.
The end of an era: Taylor Swift’s record smashing tour came to an end in Vancouver. And the tally is in. It raised a record $2 billion in ticket sales (double the previous record) and had a total of 10 million concert goers. That figure doesn’t even capture the re-sale which often went for 5-10x higher than face value. It also doesn’t include merchandise sales. Taylor Swift has been a one-woman stimulus machine providing cities with an economic boost and good vibes. Maybe she should be in the running for a Nobel in economics. Certainly no other economic discoveries have been as entertaining.
