Hanging at all-time highs, Scotia’s miss, oil pops, FedEx downgraded
I discovered a flaw in our Christmas tree operation yesterday. The person in charge of taking down the tree lights (husband) is not the same person who puts up the tree lights (me). I’m not exactly sure what his process was but from the 45 minutes I spent untangling the mess I can only assume it involved triple knotting two sets of lights together at random points before throwing them into a box where they can spend the next year co-mingling further.
Mixed: Like most Marvel movies, the markets have no real plot today. Futures are flat as they coalesce around all-time highs. Tech stocks led the rally south of the border, but were weaker in Canada led by Lightspeed which announced layoffs. We will get a read of job openings in the US at 10amET, Jerome Powell speaks tomorrow, and there is a small crisis brewing in France (more below. Tonight, we get Salesforce earnings after the bell. Scotia has kicked off bank earnings this week in Canada.
Yes, but: Scotiabank is falling 3% in the pre-market after a miss on earnings. There was a blemish on nearly every positive factor. Adjusted profit grew 23%, but that was less than expected. There was also a write-down in the value of its holdings in a Chinese bank by about 30% (but this wasn’t included in the adjusted profit number). Canadian banking profit was higher, but net interest margins fell from last quarter. International banking profit was higher but loan growth was tepid. Trading revenue surged but overall capital markets profit fell on weaker investment banking. Provisions for credit losses were less than expected, but that was due to recoveries in performing provisions. Impaired provisions rose. “As the market parses through the numbers,” wrote John Aiken at Barclays, “the fact that the bulk of the disappointment centres around a higher-than-expected tax rate should garner some relief.” Investors may also take comfort in the fact that there were no credit surprises according to Doug Young at Desjardins. Worth remembering the stock was trading at a 2-year high into the results, so a miss is an easy excuse to take profits.
Motion de censure: It looks increasingly likely that the French government will succumb to a non-confidence motion tomorrow. This would be the first time since 1962. Marine Le Pen announced her party would support the motion along with left-wing parties to bring down Prime Minister Michel Barnier. French bonds sold off and are trading at the widest spread relative to German bonds since the euro crisis in 2012. In fact the French 10-year yield is now only just below the Greek 10-year yield, notes Jim Reid at Deutsche Bank. “Just goes to show how investors’ assessment of sovereign risk has shifted over the last decade,” Reid wrote in a note to clients. French stocks have been melting down over the last few months and are down about 13% from their peak this year. One strategist says this could be an opportunity. “Crisis equals opportunities that will allow some investors to buy French, and broader European assets at discounted prices,” wrote Ipek Ozkardeskaya at Swissquote, “…The widening valuation gap between the US and European equities looks interesting for those who believe that the two continents can not diverge forever.”
Energized: Oil prices are up nearly 2% ahead of a crucial OPEC+ meeting Thursday. Recall, members were supposed to start increasing production. However, oil prices have come under renewed pressure and members are now reportedly working on another 3-month extension to production curbs. While OPEC is trying to keep a lid on oil production, worth noting that Alberta has been going full steam. Year-to-date production is at a record high, according to ATB Capital. “With President-Elect Trump proposing a 25% tariff on Canadian goods last week, it’s extra notable that Alberta broke yet another oil production record because the main market for that oil is the United States,” ATB wrote.
Sell the rally: FedEx was downgraded on fears it will cut its forecast when it reports quarterly results later this month. Bernstein is downgrading the stock saying the first and second quarter’s disappointing results suggest there would need to be a “heroic” earnings ramp in the back half of the year. The analyst also warns that potential tariffs are not good for the freight and shipping company. Shares have rallied 16% since the September low and the analyst suggests taking profits here.
