Business
Before the Bell: What every Canadian investor needs to know today – The Globe and Mail
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Equities
Canada’s main stock index opened lower Thursday morning with weaker crude prices weighing on energy stocks. Wall Street, meanwhile, saw a mixed start with the Nasdaq gaining, helped by a rise in shares of electric vehicle maker Tesla in the wake of the company’s latest results.
At 9:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 66.69 points, or 0.35 per cent, at 18,953.98.
In the U.S., the Dow Jones Industrial Average fell 48.35 points, or 0.15 per cent, at the open to 31,826.49.
The S&P 500 opened lower by 4.43 points, or 0.11 per cent, at 3,955.47, while the Nasdaq Composite gained 16.50 points, or 0.14 per cent, to 11,914.15 at the opening bell.
“The overall lack of fireworks on earnings means boring is beautiful,” Stephen Innes, managing partner with SPI Asset Management, said.
“And while supply chain and inflation conversations are improving, a significant consumer-driven earnings headwind remains.”
Shares of Tesla Inc. were up about 5 per cent just after the opening bell after the company reported a smaller-than-expected drop in quarterly profit, beating market forecasts. The company posted an adjusted profit of US$2.27 per share for the second quarter ended June versus analysts’ consensus estimates of US$1.81.
“As Netflix, the Tesla results were worse than the previous quarter,” Swissquote analyst Ipek Ozkardeskaya said.
“The company announced the first sequential decline in profit since the end of 2020, but revealed that it nailed the highest vehicle production in its history despite the shutdown of the Shanghai mega factory due to the COVID restrictions and maintained its annual production growth target unchanged at 50 per cent.”
Elsewhere, United Airlines saw its stock drop about 7 per cent in premarket action after the U.S. airline reported its first quarterly profit since the onset of the pandemic but also fell short of market forecasts. The company reported adjusted profit of US$1.43 per share in the most recent quarter. Analysts had been looking for adjusted earnings per share of US$1.95, according to Refinitiv.
U.S. companies reporting on Thursday include American Airlines and AT&T.
In Canada, The Globe’s Andrew Willis and Alexandra Posadzki report Rogers Communications has a new chief technology officer, veteran telecom executive Ron McKenzie, in a wake of a nationwide outage earlier this month that resulted in the company promising change and investment to ensure network reliability. Canada’s largest cell phone company handed responsibility for the systems that support 12 million customers to Mr. McKenzie after a 19-hour shutdown of wireless in internet services on July 8 outraged customers.
Overseas, the pan-European STOXX 600 was down 0.02 per cent by midday. The ECB raised its deposit rate by 50 basis zero. It was the first increase by the central bank in 11 years.
Britain’s FTSE 100 fell 0.41 per cent. Germany’s DAX lost 0.54 per cent while France’s CAC 40 edged up 0.24 per cent.
In Asia, Japan’s Nikkei finished up 0.44 per cent. Hong Kong’s Hang Seng lost 1.51 per cent.
Commodities
Crude prices slid for a second session after a rising in U.S. gasoline stockpiles fuelled demand concerns.
The day range on Brent is US$102.70 to US$106.78. The range on West Texas Intermediate is US$95.57 to US$99.99.
Figures this week from the U.S. Energy Information Administration showed U.S. gasoline inventories rose 3.5 million barrels last week, more than analysts had been forecasting.
“Oil is trading off intersession highs on the back of the weekly EIA report showing back-to-back higher gasoline inventories and typically read as an indicator of lower consumer demand,” SPI Asset Management’s Stephen Innes said.
“And even more within the context of a seasonal counter-trend. Gasoline demand usually is quite strong during the U.S. mid-summer months.”
Meanwhile, Russia resumed shipping natural gas to Europe via the Nord Stream 1 pipeline after a 10-day maintenance outage. Markets had been concerned that Moscow could delay resumption of shipments as a tactic in the war in Ukraine.
On Thursday, flows were back at 40 per cent of the pipeline’s capacity, similar to the level seen before the maintenance shutdown, according to Reuters.
In other commodities, gold prices were down as markets anticipate more rate hikes from the world’s central banks as they look to battle high inflation.
Spot gold was down 0.2 per cent at US$1,692.80 per ounce by early Thursday, after falling to its lowest since early August 2021 at $1,689.40 earlier in the session.
U.S. gold futures fell 0.6 per cent to US$1,689.50 per ounce.
Currencies
The Canadian dollar was weaker as risk sentiment pulled back and crude prices slid.
The day range on the loonie is 77.37 US cents to 77.77 US cents.
There were no major Canadian economic releases on Thursday’s calendar.
On world markets, the euro initially slid early Thursday, weighed down by political uncertainty in Italy. However it gained versus the U.S. dollar after the ECB’s rate decision. The euro was trading at US1.025 shortly after the ECB’s policy announcement.
The Associated Press reports that Italian Premier Mario Draghi resigned Thursday after key coalition allies boycotted a confidence vote, signaling the likelihood of an early election.
The U.S. dollar was up at 138.575 yen, consolidating below the 24-year high at 139.38 seen one week ago, after the Bank of Japan held to its ultra-easy monetary policy position.
The risk-sensitive Australian dollar reversed course dipping 0.2 per cent to US$0.6875, while the New Zealand dollar did the same falling 0.5 per cent to US$0.6201, according to figures from Reuters.
More company news
Amazon.com Inc said on Thursday it would buy One Medical for US$3.49-billion in an all-cash deal.
American Airlines Group Inc posted its first adjusted quarterly profit since the onset of the COVID-19 pandemic as a boom in travel demand more than offset higher costs. The lifting of coronavirus curbs and bottled-up travel demand have sparked the strongest summer for U.S. carriers in three years, putting them on track for a profitable quarter despite a larger fuel bill. American Airlines reported an adjusted profit of US$533-million, or US$0.76 per share, for the quarter ended June 30, compared with a loss of US$1.09-billion, or US$1.69 per share, a year earlier.
AT&T Inc on Thursday raised its forecast for annual revenue growth at its wireless service business on solid subscriber additions as more people travel during the summer and use the company’s roaming services. AT&T has been focusing on making its 5G and fiber internet services widely available and has doubled down on promotional activities to gain subscribers. The company added 813,000 net new monthly bill paying wireless phone subscribers in the second quarter, benefiting from the expansion of its 5G network, compared with 691,000 additions in the first quarter.
Microsoft Corp’s MS Teams was back up for most users, the company said on Thursday, after an hours-long outage that disrupted the chat application for tens of thousands of customers globally. The company cited a disruption on a recent software update that “contained a broken connection to an internal storage service”. “We’re addressing any residual impact related to this event. Additionally, we are monitoring for any signs of failure until we’re confident that all functions of the service are fully recovered,” the company said on its website.
Economic news
ECB Monetary Policy Meeting
(830 am ET) U.S. initial jobless claims for last week.
(830 am ET) U.S. Philadelphia Fed Index.
(10 am ET) U.S. leading indicator.
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.
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