Business
TSX, Wall Street futures fade as earnings dominate, Fed awaited
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Equities
Wall Street futures steadied Tuesday with a earnings remaining in focus ahead of tomorrow’s Federal Reserve rate decision. Major European markets were down. TSX futures were also little changed as traders weigh the latest reading on Canada’s broad economic health.
In the early premarket period, futures linked to the key U.S. indexes had been in the red but found their footing as the North American open approached. All three saw weaker finishes on Monday but are on track for solid gains heading for the month. The S&P 500 is up more than 4 per cent for the month so far while the Nasdaq has gained more than 8 per cent. The S&P/TSX Composite Index ended down 0.7 per cent on Monday.
“The January rally has hit a wall and probably won’t have a chance of returning until we get beyond Wednesday’s Fed press conference and Apple’s results after the Thursday close,” OANDA senior analyst Ed Moya said.
On Tuesday, U.S. markets get quarterly earnings from McDonald’s, General Motors, Caterpillar and Pfizer. Snap reports after the close.
GM shares jumped in premarket trading after the auto maker posted adjusted earnings per share of US2.12 in the fourth quarter, topping analysts’ forecasts of US$1.69. Quarterly revenue came in at US$43.11-billion, also beating market expectations.
In Canada, Imperial Oil reported this morning while Canadian Pacific Railway posts results after the close of trading.
Calgary-based Imperial Oil reported higher fourth-quarter profit helped by higher prices and tighter supply. Imperial reported net income of $1.7-billion, or $2.86 per share, for the three months ended Dec. 31, up from $813-million or $1.18 per share, a year earlier.
On the economic side, Canadian investors got a reading on November gross domestic product from Statistics Canada before the start of trading. Statscan says the economy grew by 0.1 per cent in the quarter, in line with market forecasts. A preliminary estimate from the agency also suggests real gross domestic product grew by an annualized rate of 1.6 per cent in the fourth quarter, above the Bank of Canada’s forecast of 1.3 per cent.
“This report isn’t likely to cause the BoC to have any second thoughts regarding its recent pause,” TD senior economist James Orlando said. “The economy hasn’t yet absorbed the impact of past rate hikes. Though we are seeing the beginning of this, there is more to come, with GDP and employment growth set to stall in the coming months.”
Overseas, the pan-European STOXX 600 was down 0.68 per cent by midday. Britain’s FTSE 100 slid 0.73 per cent. Germany’s DAX and France’s CAC 40 were off 0.46 per cent and 0.37 per cent, respectively. New figures released Tuesday showed GDP in the euro zone expanded by 0.1 per cent in the fourth quarter. Markets had been expecting a contraction of 0.1 per cent.
In Asia, Japan’s Nikkei closed down 0.39 per cent. Hong Kong’s Hang Seng lost 1.03 per cent.
Commodities
Crude prices were weaker as markets remain cautious ahead of Wednesday’s Fed rate decision and traders weigh oil outflows from Russia.
The day range on Brent was US$85.73 to US$85.25 in the early premarket period. The range on West Texas Intermediate was US$76.63 to US$78.14.
“Oil prices remain soggy despite Asia’s unquenching thirst for all things oil,” Stephen Innes, managing partner with SPI Asset Management, said in a note.
“The problem for the oil bull is that thirst is getting satiated by discount Russian barrels.”
Reuters reports that Russia’s oil loadings from its Ust-Luga port are expected to rise at the beginning of February, despite western sanctions imposed over its invasion of Ukraine.
As well, traders remain wary of the midweek policy announcement from the Federal Reserve and a rate decision Thursday by the European Central Bank. Concerns remain that rising rates will temper economic growth and weigh on global demand.
However, the International Monetary Fund (IMF) has raised its 2023 global growth outlook slightly due to “surprisingly resilient” demand in the United States and Europe, an easing of energy costs and the reopening of China’s economy after Beijing abandoned its strict COVID-19 restrictions, according to Reuters.
Gold prices hit a one-week low as the U.S. dollar firmed ahead of tomorrow’s Fed decision.
Spot gold was down 0.8 per cent at US$1,906.51 per ounce by early Tuesday morning, its lowest level since Jan. 19. Still, gold is up more than 4 per cent on the month and remains headed for its third consecutive monthly increase.
U.S. gold futures were down 0.9 per cent at $1,922.00.
“Gold’s main kryptonite is if the Fed can’t control inflation and they need to tighten much more than markets are expecting,” OANDA’s Ed Moya said.
“Gold could enter the ‘danger zone’ if we get a couple more hotter-than-expected inflation reports and a robust [U.S. non-farm payrolls] report that suggests wage pressures will be here for a while.”
Currencies
The Canadian dollar was down while its U.S. counterpart advanced against a group of currencies but still looked set for its fourth monthly decline in a row.
The day range on the loonie was 74.30 US cents to 74.76 US cents in the early hours.
“The CAD gains are hard to come by but are easily conceded still, it seems, even if movement is driven mainly by external factors,” Shaun Osborne, chief FX strategist with Scotiabank, said, noting risk aversion and a strong U.S. dollar are both weighing on the loonie this morning.
On world markets, the U.S. dollar index, which weighs the currency against a group of peers, was up 0.31 per cent at 102.56 early Tuesday morning.
However, the index was down nearly 1 per cent for the month. A January decline would mark the fourth straight down month.
Elsewhere, the euro slid in early trading in Europe and was last down 0.41 per cent at US$1.081, according to figures from Reuters.
Britain’s pound was down 0.29 per cent at US$1.231, but was on track for its fourth monthly increase. The yen gained 0.1% at 130.34 per U.S. dollar and was set for its third monthly gain.
In bonds, the yield on the U.S. 10-year note was lower at 3.531 per cent in the predawn period.
More company news
Caterpillar Inc on Tuesday reported a lower-than-expected quarterly profit as increasing manufacturing costs related to materials and freight pressured the heavy machinery maker’s margins. Adjusted profit for the quarter ended December rose to $3.86 share from $2.69 a year earlier. Analysts on average had expected a profit of $4.02 per share, according to Refinitiv IBES data. –Reuters
Exxon Mobil Corp posted $59-billion in adjusted profit for 2022, the company said on Tuesday, taking home more than $6.7-million per hour last year, and setting not only a company record but a historic high for the Western oil industry. Oil majors are expected to break their own annual records on high prices and soaring demand, pushing their combined take to near $200-billion. The scale has renewed criticism of the oil industry and sparked calls for more countries to levy windfall profit taxes on the companies. Exxon’s results far exceeded the then-record $45.2 billion net profit it reported in 2008, when oil hit $142 per barrel, 30% above last year’s average price. Deep cost cuts during the pandemic helped supercharge last year’s earnings. -Reuters
Volkswagen is looking at setting up a battery cell factory in Ontario, the Handelsblatt business daily reported on Tuesday, adding that the province had offered investments and other incentives. Five entries from this month are listed in a lobby register of the province for Volkswagen, including one that mentions Chief Executive Oliver Blume by name, the report said, citing the documents. –Reuters
General Motors Co and Lithium Americas Corp on Tuesday announced they would jointly invest to develop the Thacker Pass mine in Nevada. Under the agreement, GM will make an equity investment of $650-million in Lithium Americas. -Reuters
Pfizer Inc. forecast 2023 sales of its COVID-19 products of $21.5-billion that fell short of Wall Street expectations, hit by lower demand in international markets and slower uptake of booster vaccines. The U.S. drugmaker said it expects sales of $13.5-billion from the vaccine for 2023, below Refinitiv estimates of $14.39-billion, and projected $8-billion in sales of its antiviral pill, Paxlovid, short of $10.33-billion the Street expects. –Reuters
McDonald’s Corp beat Wall Street estimates for quarterly comparable sales on Tuesday, boosted by higher menu prices, increased restaurant traffic and gains in most major markets. The burger chain’s global same-store sales increased 12.6% in the fourth quarter ended Dec. 31, compared with estimates for an 8.6% rise, according to IBES data from Refinitiv. Sales in the UK, Germany and France rose despite fears of a recession in Europe. -Reuters
Economic news
(8:30 a.m. ET) Canada’s monthly real GDP for November.
(8:30 a.m. ET) U.S. employment cost index for Q4.
(9 a.m. ET) S&P CoreLogic Case-Shiller Home Price Index (20 city) for November.
(9 a.m. ET) U.S. FHFA House Price Index.
(9:45 a.m. ET) U.S. Chicago PMI for January.
(10 a.m. ET) U.S. Conference Board Consumer Confidence for January.
Also: U.S. Fed meeting begins.
With Reuters and The Canadian Press
Business
Roof blown off Mercedes-Benz dealership in Regent Park, police urge caution in the area – CP24
Part of the roof of the Mercedes-Benz dealership in Regent Park has blown off and landed on a nearby roadway, according to Toronto police.
The dealership is on the southwest corner of Dundas Street East and Bayview Avenue, near the Don River and Don Valley Parkway.
Police say it happened just after 11:30 a.m. and are urging drivers and pedestrians to use caution in the area and consider using alternate routes.
Dundas Street East is closed in the area in both directions, as is the southbound lane of Bayview Avenue.
Police say all Don Valley Parkway on-ramps remain open.
It’s unclear what exactly caused the dealership’s roof to become detached, however a special weather statement remains in effect for Toronto due to rain and high winds gusting at up to 80 km/h.
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Chapter Two Brewing Company in Windsor is celebrating a milestone this weekend.
“Five years! We’re pretty pumped that we got this far and we’re still going strong,” said brewery co-owner and general manager, Cheryl Watson. “It’s good news, I mean, we’ve gone through a lot.”
From the impact of lockdowns during the pandemic to recent inflationary pressures and wage increases, Watson notes the cost of doing business has been steep.
And that anniversary celebration will clouded by a looming alcohol excise tax increase on all alcohol producers.
“I think everything is just, it’s been unpredictable for suppliers and buyers alike,” Watson said. “We have to look at and figure out what part of it you’re going to cover and what part of it you’re going to ask your customer to cover.”
That question will get harder on April 1 when the 6.3 per cent federal excise tax goes into effect on beer, wine and spirits producers.
Taxes already make up 50 per cent of the cost of beer, 65 per cent of the cost of wine and 75 per cent spirits, according to the Canadian Taxpayers Federation.
“The screws are tightening and we don’t have as many places to play anymore,” said Watson.
The increase on the table is triple the usual jump — a number tied directly to inflation — and has alcohol manufacturers wondering who is going to pick up the tab.
“You’re going to see probably a six to 10 per cent increase on the price of your beer,” said Shane Meloche, the owner of Frank Brewing Company in Windsor. He’s weathered the storm that is the past few years in the hospitality industry and doesn’t want to raise prices but worries this time, he may have no choice.
“We’re here to make money. We’ve got 20 to 30 people that work here. We need to stay in business,” Meloche said. “We want to keep everybody employed. So the only way to do that is to pass along that price to the consumer.”
Restaurants who sell alcohol will also feel the effects. A recent Restaurants Canada survey found about half of Canadian restaurants are operating just at or below profitability levels, noting the tax increase will cost Canada’s food-service industry about $750 million a year.
“Their profit margins are very slim. And then when you have a six per cent increase, it’s slimmer,” said Paul Boots, who along with business partner John Conlon launched Suds Runner just a few months back.
It’s a licensed manufacturing representative retailer for nine different Breweries in Ontario where customers can go online and order flights of beer from them that you can’t get at the LCBO or Beer Store — and they bring it to your door.
They started the venture to support local breweries and give their less popular brews more exposure for customers who can’t make it out to craft breweries as often as they’d like.
They hope the increase doesn’t crush their suppliers, customers, or them.
“It’s important, I think, for people to understand that if the price is going up a little bit, it’s not because they’re making more money,” said Conlon.
“They’re just trying to work, trying to make it work.”
Tumbling stocks dragged down other major banks across Europe, fuelling fears about a banking sector crisis.
Shares in Deutsche Bank have fallen sharply, dragging down other major European banks and reigniting fears about a widening banking sector crisis.
Germany’s biggest lender dropped more than 14 percent on the Frankfurt Stock Exchange in Friday morning trading before clawing back ground in the afternoon to trade 9.5 percent lower, at 8.43 euros ($9.07) a share.
Tumbling bank stocks dragged down markets across Europe on Friday with Germany’s Commerzbank down 7.5 percent, France’s Societe Generale off 5.9 percent and Austria’s Raiffaisen down 5.9 percent.
Deutsche Bank is one of 30 banks considered globally significant financial institutions, so international rules require it to hold higher levels of capital reserves because its failure could cause widespread losses.
The long-troubled bank has become the focus of investor concerns after the collapse of three regional US lenders and the Swiss government-brokered takeover of Credit Suisse by rival UBS triggered market turmoil this month.
The cost of insuring the bank’s debt against a risk of defaulting, known as credit default swaps, has surged as investors fret about the banking sector’s health.
Rising costs on insuring debt were a prelude to Credit Suisse‘s rescue by UBS. That hastily arranged takeover on Sunday and jitters about Credit Suisse’s long-running troubles led its shares to tank and customers to pull out their money.
Asked whether Deutsche Bank could be the next Credit Suisse, German Chancellor Olaf Scholz said, “There is no reason to be concerned.”
Scholz expressed confidence in Deutsche Bank, saying it had “modernised and organised the way it works. It’s a very profitable bank.”
Speaking in Brussels after a summit of EU leaders, he also said the European banking system was “stable” with strict rules and regulations.
Deutsche Bank said on Friday that it would redeem $1.5bn in tier 2 bonds early. Such a move is normally aimed at boosting confidence in a bank although its shares plunged regardless.
The bank was hit by a string of problems linked to its attempts before the 2008 global financial crisis to compete with Wall Street investment banking giants.
But it launched a major restructuring, which involved thousands of job cuts and a greater focus on Europe, and has returned to financial health. Last year, it booked its highest annual profit since 2007.
European officials said banks in the European Union’s regulatory system, which does not include Credit Suisse, are resilient and have no direct exposure to the failed California-based Silicon Valley Bank and little to Credit Suisse.
Efforts to strengthen banking regulation in recent years “puts us all in a position to say that European banking supervision and the financial system are robust and stable and that we have resilient capitalisation of European banks”, Scholz said.
European leaders, who played down any risk of a possible banking crisis at their summit on Friday, said the financial system is in good shape because they require broad adherence to tougher requirements to keep ready cash on hand to cover deposits.
International negotiators agreed to those rules after the 2008 financial crisis, triggered by the failure of US investment bank Lehman Brothers. US regulators exempted midsized banks, including Silicon Valley Bank, from those safeguards.
CDIC covers bank deposits, but who protects your investments if your broker goes bust? – The Globe and Mail
Your Saturday UK Briefing: Brighter Days Ahead for Economy, Sunak – Bloomberg
A closer look at MP Han Dong’s voting record on China – Global News
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