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Read about the week ahead in my Globe and Mail column
Here are five things to know:
Here we go again: The strength of last week’s rally will be tested as Iran tensions are thrust back into focus. Just days after Iran declared the Strait of Hormuz is open, it has been closed again and renewed peace talks elusive. Futures are under pressure, oil is up 6% and gold is down nearly 2%. At the same time it is a busy week for earnings which have been very strong. Of the companies that have reported so far, 81% have beat profit expectations. There are some bright spots in tech with shares of Marvell up 6% on reports it is close to a deal to develop custom AI chips for Google. “Tech-heavy indices, in particular, are doing just fine this morning—despite the jump in energy prices—as news on the AI front has been very encouraging,” wrote Ipek Ozkardeskaya of Swissquote Bank, “As long as oil prices remain below the $100pb level, investors seem willing to maintain—and even increase—exposure to technology names.” As an aside, the NASDAQ has rallied for 13 session in a row, which is the longest win streak since 1992 and has only occurred 4 times in the index’s history. If the NASDAQ rallies for a 14th session in a row, that would be the best streak since June 1987.
Pressure at the pump: Prices in Canada increased less than expected in March despite a record increase in gas prices. Headline CPI advanced 2.4% in March compared to last year, which is better than the 2.6% estimated. However, it does represent a large jump from February’s 1.8% year-over-year advance thanks to fuel price increases. Gas prices surged 21% compared to last year – which is the largest increase on record. Food prices also increased with fresh vegetable prices surging 7.8% – the biggest increase in nearly 3 years. If you exclude food and energy (which is something only economists can do), inflation eased slightly to 1.9%. Gas prices may not be the only shock Canadians need to endure as we head toward the renegotiation of USMCA. Prime Minister Mark Carney gave a nearly 10-minute address over the weekend in which he said Canada’s ties to the US have become a weakness. He referenced the days of “forward guidance” during the Great Financial Crisis to keep investors up to date on the tools available to deal with a crisis, implicitly suggesting the crisis we are heading toward could be on that scale. Later this morning, we will get a sense of how businesses are feeling with the Bank of Canada’s Business Outlook Survey. Although depending on the time the survey was taken it may not fully capture the jump in prices due to the Iran war.
New high: Shares of psychedelic drug makers are surging in the pre-market after US President Donald Trump signed an executive order to increase access for patients with serious mental illness. Shares of Compass Pathways (+25%), AtaiBeckley (+26%), Definium Theraputics (+14%) and GH Research (+18%) are all pumping on the news with smaller caps like Psyence surging 78% in the pre-market. None of these companies have generated meaningful, if any, revenue yet as most are still going through clinical trials. “While the administration won’t be immediately re-scheduling the drug, we think this drafting points to continuing acceptance from regulatory authorities for the use of psychedelics in the treatment of various psychiatric indications,” wrote RBC’s Leonid Timashev before the Executive Order.
Pipe dreams: Goldman Sachs started covering South Bow with a sell but upgraded its former parent company, TC Energy, to neutral from sell. Shares of South Bow have rallied hard on rosy expectations for their Prairie Connector (essentially Keystone XL). Goldman’s John Mackay warns the rally is premature. He also says that the company doesn’t have capital allocation flexibility and thinks shareholder returns will be limited until 2029. Meanwhile, Mackay says now that TC Energy is rid of South Bow it has become a pure-play natural gas and power infrastructure business which makes it more attractive. He says the company now has a “utility-like” risk profile which could benefit from the current volatile environment.
Going nuclear: Watch AtkinsRealis at the open after a report suggests their new nuclear reactor design had lower output than promised. The Globe and Mail is reporting that ATRL’s MONARK reactor will only produce 850MW of power compared to the initial expectation of 1,000MW when it was announced in 2023. The fear is that if ATRL’s reactor design can’t live up to expectations it will lose out on future projects. However, ATRL is disputing the report saying it can generate 925MW. “We see this news as likely to weigh on the stock near term (less output may be seen affecting ATRL’s prospects on Ontario new-build opportunities), but we continue to see CANDU as well-positioned for various reasons,” wrote TD’s Michael Tupholme.
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