We’re looking ahead to the crucial Fed decision next week — and the central bank may be on a collision course with the market, with inflation, and possibly with its own incoming leadership. Amber sits down with Dustin Reid, Chief Strategist, Fixed Income at Mackenzie Investments and he explains why he thinks the Fed will be done cutting rates after December and why the Bank of Canada won’t be. Tune in to these out of consensus calls now!
Here are five things to know this morning:
Let the record show: Canadian markets enjoyed a rip roaring session hitting fresh records on the back of strength in the banks post-earnings and a nearly 13% gain for EQB (!!). US markets were more muted, but still finished in the green for the S&P 500 and the NASDAQ. This morning futures are in the green and within spitting distance of reclaiming records last set in October. Stocks sold off in November until the 20th when NY Fed Governor Williams signaled a rate cut would be coming. The markets turned on a dime and have marched higher since. This has been driven by uneven performance in big tech: Tesla, Meta and Alphabet have ripped higher while Microsoft and Nvidia have lagged. Retail stocks have also been strong. On the TSX, gold stocks have taken a back seat to silver stocks which have been on a tear. Later today Prime Minister Mark Carney and US President Donald Trump will meet in Washington for the World Cup coin toss. It is unclear whether any trade talks will take place after being placed on indefinite hiatus because of ads Ontario ran in the US which upset Trump. The threats are already flying with respect to Nafta 2.0 with the deal set to expire next year. For now markets are one foot in front of the other and looking ahead to next week’s rate decision by the Federal Reserve.
Defying gravity: Another surprise surge in Canadian employment for a third month in a row. Canada added 53,600 jobs in November compared to estimated loss of 2,500 jobs. This is higher than any economist estimate. The unemployment down came down to 6.5% from 6.9% (!!). The blemish on the report is that the gains were mostly part-time (+63,000) while full time employment fell (-9,400). However, private sector drove most of the gains (+52,200) while public sector employment only rose by 16,300. The Canadian dollar spiked higher and yields rose as the Bank of Canada is widely expected to keep rates unchanged at their meeting next week. With job gains of 180,000 over the past three months, this print doesn’t suggest more rate cuts are imminent. There will be questions about data reliability especially as a competing survey of job growth that comes from businesses suggests weakness. We had a robust discussion about this with Dustin on the podcast this week and you can listen to that part here. Economists this morning are skeptical about the strength given the business survey of job growth has been so weak. “While we doubt that the labour market is quite as strong as today’s headline data suggests (given the somewhat concentrated job gains and decline in participation that flattered the unemployment rate),” wrote CIBC’s Andrew Grantham, “Today’s release is still supportive of our assumption that the Bank of Canada’s rate cutting cycle has ended.”
That’s showbusiness: Netflix is buying Warner Brothers in a massive deal with a transactional value of $98 billion. This would be the biggest deal in America since that last time someone bought these assets: AT&T bought Time Warner in 2016. That didn’t pan out so well for them and Warner Brothers exists as its own company because AT&T spun it back out again after failing to realize synergies from the vertical integration. Netflix is down 2% on the deal news and shares are trading at a 7-month low because of its pursuit of Warner Brothers. This is the biggest deal Netflix has ever done by a long shot. Before this the biggest deal was worth less than $100 million. This was a dramatic M&A story that drew in Larry Ellison’s Skydance and Comcast. Netflix will get Warner Brothers studio and its HBO Max streaming service. Warner Brothers will spin off its network division which owns CNN prior to the deal closing. It is a major consolidation of American media and one that will have Hollywood thinking about the future of movies. Netflix says it is committed to theatrical releases, but one can’t help but notice that their whole business model is about viewing at home. The deal will need regulatory approval and Ellison’s Skydance has complained that Warner Brothers was tipping the scales in favour of Netflix in the bidding process and their concerns may have more weight considering Ellison has the ear of President Trump. This may be far from a done deal.
Last look: Laurentian Bank missed sales and profit expectations in results that don’t matter now that the embattled bank has agreed to a takeover by Fairstone Bank. Still, they give a window into the struggles. Profit dropped 16% from last year, margins were worse than expected and provisions for loans that could go bad were higher than expected. Earlier this week Laurentian agreed to a 20% premium takeover offer.
Secret is out: Shares of Victoria’s Secret are popping 13% in the pre-market after sales surged more than expected and it posted a much smaller loss than forecast. Comparable sales jumped 8% from last year vs the 4% estimated growth. This is the strongest pace of quarterly growth in four years. After years of disappointing sales Victoria’s Secret is getting her groove back and the retailer is boosting its sales and profit forecast. It is also trimming its forecast for the costs associated with tariffs. Victoria’s Secret struggled as competitors came in and stole market share. Recently the company has done away with its inclusive embrace, recently bringing back the Victoria’s Secret show.
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