This is a massive week for market: 40% of the S&P 500 is reporting, 30% of the TSX, the Bank of Canada and the Federal Reserve make interest rate decisions, and the week ends with GDP data in Canada and jobs data in the US. For the full scoop of what to expect read my weekly Globe and Mail column.
Art of the deal: US futures are advancing after the S&P 500 hit record highs every single day last week. The catalyst today is a trade deal between the US and the EU that would levy 15% tariff on goods coming from the bloc into the United States. This is being greeted as good news because it is lower than levels that were threatened and it applies to most goods across the board (not stacked on top of other industry specific tariffs.) The US will not be subject to any tariffs on imports into the EU and the region pledged to buy $750 billion worth of energy and invest $600 billion into the economy. Art is in the eye of the beholder, but that looks like a pretty good art of the deal for Americans. The caveat is that this is all words, nothing has been put into legal text. China and US remained locked in negotiations and could be extended for another 90 days. The question is whether this changes things for the Federal Reserve which makes its decision on rates this Wednesday. The Fed has been stubborn about waiting for the tariff chips to fall into place before cutting rates. With a major deal in the rearview, does this move up the timeline for a rate cut? Many suggest US Fed Chair Jerome Powell will lay the ground work for a September rate cut.
Smith School of Business: Brookfield and Birch Hill are buying First National Financial for a 14% premium in a nearly $3 billion deal. The offer price of $48/share would be a four-year high for the mortgage insurance company. Billionaire co-founder Stephen Smith will maintain a 19% interest in the company. The premium isn’t the most exciting thing in the world, but it is unlikely to be topped. First National said that they came to this deal after speaking with a “broad pool” of potential buyers and entertained “multiple acquisition proposals.”
Relief: Interfor may trade higher this morning after securing some relief on its debt convenants. The lumber producer is languishing around a four-year low as the US housing market remains anemic. “We would still expect a moderately positive reaction in Interfor’s shares today given the improved financial flexibility the company should now have to navigate uncertain markets,” wrote RBC’s Matthew McKellar.
Deal flow: Shares of ASML are up 4% in the pre-market after its big customer signed a deal with Tesla to make their AI chips. Samsung will make the chips for Tesla in a $16.5 billion deal. In addition it looks like semiconductor tool makers, like ASML, may be extempt from any tariffs between the EU and the US. Recall when ASML reported quarterly results a few weeks ago the company noted that customers were withholding purchases to see how tariffs would shake out. Shares are down about 13% since that earnings report. Now that it looks like these semiconductors will be exempt this could alleviate concerns investors had about demand growth.
Notable calls: Nike is popping 4% in the pre-market after JP Morgan upgraded to stock to buy. While I want to be excited because I am down bad on the stock, I should point out the upgrade is not based on evidence of an actual turnaround rather modeling that suggests it should work and lead to sales and earnings growth. So the call may prove to be a bit early, but the stock has found some believers recently with it trading at a four month high. Shares of Cisco are getting capped after Evercore calls time on the big +40% rally over the past year. This is a “no drama downgrade” wrote Evercore’s Amit Darayanani. He says the company has wins in AI but better disclosure is needed around what it means for the business. “We think Cisco will struggle to get credited as an AI winner without disclosing AI revenue numbers. Thus far, they have only disclosed AI orders and it does not look as though they plan to disclose revenue,” wrote Daryanani in the downgrade. Teck Resources is being cut at B. Riley on bottlenecks from their Quebrada Blanca mine. “Following two downward revisions to QB guidance over the past three quarters, we are moving to the sidelines until there is more certainty in achieving steady state operations,” wrote B. Riley’s Nicholas Giles.
