Central bank week is here! From the Fed to the Bank of Canada, everything you need to know about the week ahead in my Globe and Mail column.
Here are five things to know today:
Mondays: US futures are peppy this morning ahead of expected rate cuts by the Federal Reserve this week. This morning shares of Tesla are helping to support markets while Nvidia is under pressure (more on that below). The TSX continues to enjoy records and just put in its sixth weekly gain. The Bank of Canada is also expected to cut rates this week. Strategists are warning this morning that stocks may slow down after the rate cuts are delivered as focus turns to a slowing economy in the US. “Once the easing resumes, equities could turn more cautious for a bit, and price in some more downside risk, in effect repricing the current, potentially complacent, stance,” according to a report by JPMorgan.
No means no: MEG Energy is formally recommending investors reject Strathcona’s hostile bid for the company and tender to Cenovus’s mostly cash offer instead. While Strathcona’s all-stock deal is higher than Cenovus’s offer, MEG calls it “fundamentally unattractive” in a release this morning. “MEG shareholders would be exposed to inferior assets, an unproven track record, an overvalued Strathcona share price, significant overhang risk, and governance risk,” said MEG Chair James McFarland. As of Friday, Strathcona’s all-stock offer values MEG Energy at about $29.97/share while Cenovus’s offer values MEG at $28.18/share. MEG closed at $28.76, slightly above the Cenovus offer. Recall, Cenovus said they wouldn’t be increasing their bid in an interview with Bloomberg News last week. A reminder Adam Waterous came on the podcast last week and made his pitch for buying the company including addressing the pushback against his offer. He also took shots at MEG’s board and their governance. “The fact pattern here is grim,” said Waterous on the podcast, “This is what happened. We made an offer. The board refused to engage with us. They accepted a lower price than ours. They provided a break fee to that buyer when our bid was out there.” We have requested interviews with both MEG Energy and Cenovus leadership.
Targeted: Shares of Nvidia are slipping 1.5% in the pre-market after China ruled the chipmaker violated anti-monopoly laws with an acquisition it made in 2020. The ruling is a bit of a surprise given that the US and China are currently locked in negotiations around tariffs in Madrid. There is also uncertainty regarding penalties or remedies that Nvidia might face because those were not specified in the ruling. Having said that, the stock was down much more in the pre-market and is off the lows. Back in December, China opened an investigation into Nvidia’s 2020 acquisition of Mellanox which China greenlit provided Nvidia wouldn’t discriminate against Chinese companies.
Money talks: Tesla is helping to support the market, rallying 7.5% after Elon Musk bought $1 billion worth of stock. This comes shortly after the board agreed to a pay package that could be worth $1 trillion if a series of ambitious goals are met. This is the first time Musk has bought shares since 2020. If the gains hold this morning it would mean Tesla shares would be breakeven for 2025. No small feat considering it dropped more than 40% in the first four months of the year.
The office: There are two conflicting calls on Allied Properties REIT this morning. It is not every day that you’ve got one analyst cutting a stock to sell and another upgrading it to buy. Desjardin’s Lorne Kutner is cutting Allied to sell saying the stock looks expensive on its recent run up. Shares of the office REIT are up 45% from the April low, above the 20% gain for the index. “In our view, the stock’s re-rate has been driven by sentiment and ignores several important realities,” wrote Kutner in the downgrade. He argues that return to work policies won’t materially benefit Allied because of where its locations are and that it needs a rebound in “office-using employment” as well. On the flip side, Canaccord’s Mark Rothschild upgraded the stock to buy. The upgrade is based on a “substantial signs” of recovery in office. It is part of a broader upgrade on office real estate with Rothschild upgrading Allied, Dream Office and True North Commercial. These stocks have rallied recently, but are still majorly off their 2022 peak. If you are interested in the space, catch our candid interview with Michael Cooper of Dream Office who was optimistic for the first time in years about the recovery.
Don’t miss our next episode talking about Canadian value stocks with 40-year investing veteran Kim Shannon.
