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Big Tech is strengthening its hold on the US economy – CNN

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Big Tech is strengthening its hold on the US economy – CNN
A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here.
What’s happening: Apple (AAPL), Amazon (AMZN), Facebook (FB) and Alphabet (GOOGL) all reported impressive results on Thursday for the July to September period. Their ability to generate tens of billions of dollars in revenue during a pandemic has made these companies the envy of Wall Street, which predicts Big Tech will continue to benefit from changes to daily life caused by Covid-19.
Expectations are so high for these companies, however, that their stocks are extremely sensitive. Shares of Apple are down 4% in premarket trading, while Facebook and Amazon are off about 1%. Google’s stock is rallying 7%.
Breaking it down:
  • Apple: The iPhone maker reported nearly $65 billion in revenue for the quarter, up 1% from the same period last year and $1 billion ahead of what analysts had expected. But iPhone sales disappointed due to a delay in the release of the iPhone 12, which is expected to drive a wave of new purchases.
  • Facebook: Facebook’s revenue jumped 22% over the previous year to $21.5 billion, also beating analysts’ forecasts. Yet the huge bump in usage that the company experienced early in the pandemic appears to be waning. Daily and monthly active users in the US and Canada, a core market, declined slightly in the third quarter.
  • Amazon: Amazon’s sales grew 37% to $96 billion year-over-year (yes, you read that correctly). Profit increased 197% to more than $6 billion. “There is no doubt that Amazon’s latest results show it continues to be a winner from disruption caused by the pandemic,” Neil Saunders, analyst at GlobalData Retail, told clients.
  • Google: Parent Alphabet reported revenue of $46 billion — a 14% increase from the same period last year. The company made more than $11 billion in profit. The report marks a strong turnaround from the previous quarter, when Alphabet posted its first revenue decline in history as online ad spending dropped in the early days of the pandemic. Between July and September, Google’s advertising revenue jumped nearly 10% year-on-year, with search advertising revenue growing 6.5% and YouTube ad revenue surging 32%.
Big picture: Even if some results aren’t playing as well this morning, on a macro level, tech’s top companies are clearly emerging from a tumultuous economic period with even more clout. This helps justify their growing importance to US stock markets, but likely won’t stop warnings that their dominance creates vulnerabilities. (Just think: If Apple were to really tumble, it could take the market down with it.)
On the radar: Strong earnings in a tough environment could also ramp up calls in Washington for greater regulation.
Google’s results are particularly awkward given that the US Justice Department has brought a huge antitrust lawsuit against the company. One has to wonder: Will blockbuster revenue make it harder for Google to argue that it doesn’t have a lock on the search market?

Stocks are set for another choppy session

A volatile week could end with another bumpy trading day.
The latest: US stock futures are lower again after the Dow, S&P 500 and Nasdaq Composite gained ground on Thursday. Concerns about rising Covid-19 cases in North America and Europe have sent the S&P 500 down 4.5% this week, putting the index on track for its second straight month of losses.
One warning sign has been the price of oil. West Texas Intermediate futures, the US benchmark, have shed more than 10% this week, with oil now trading around $36 per barrel.
The worst drop in US oil prices since March reflects growing fears that the demand outlook could be hit by another wave of shutdowns. France and Germany will enact tight new restrictions on Friday and Monday that echo the strict measures taken earlier this year.
“Many nations with high oil consumption across the world are seeing infection levels that they didn’t have even during the first wave,” said Paola Rodriguez-Masiu, senior analyst at Rystad Energy. “Demand will not fall as much as during the pandemic’s first wave as the world is now better prepared, but is sure to take a hit.”
Watch this space: Analysts expect markets to experience a relief rally once a winner emerges in the US presidential election, since that will eliminate a major area of uncertainty. But that outcome may take time given the complexities of tallying votes during a pandemic and a tense political environment. Next week could be turbulent, too.

The truth about a record economic bounce

There’s plenty to celebrate in the latest GDP reports out of the United States and Europe.
Over the summer, the US economy grew at a record annualized rate of 33.1%, while the 19 countries that use the euro saw output jump 12.7% compared to the previous quarter, the fastest growth rate going back to 1995.
But the reality of what could happen to the economy during the fourth quarter means few people (other than the US president) are cheering the results. Economies are still well behind where they were before the crisis, and fresh restrictions in the fall and winter could stall or reverse early progress, economists warn.
“Incoming information signals that the euro area economic recovery is losing momentum more rapidly than expected after a strong yet partial and uneven rebound in economic activity over the summer months,” European Central Bank President Christine Lagarde said Thursday.
With Europe staring at a potential double-dip recession, anxiety is rising that the United States isn’t far behind. The Back-to-Normal Index from CNN Business and Moody’s Analytics edged higher in October, but some view new social distancing rules as inevitable as coronavirus cases spike. An inability to agree on another stimulus package in Congress could make matters worse.
“An intensifying pandemic and probable lack of another round of fiscal aid this year will almost certainly dampen overall economic activity to close the year and to begin 2021,” said Joseph Brusuelas, chief economist at RSM US.

The truth about a record economic bounce

There’s plenty to celebrate in the latest GDP reports out of the United States and Europe.
Over the summer, the US economy grew at a record annualized rate of 33.1%, while the 19 countries that use the euro saw output jump 12.7% compared to the previous quarter, the fastest growth rate going back to 1995.
But the reality of what could happen to the economy during the fourth quarter means few people (other than the US president) are cheering the results. Economies are still well behind where they were before the crisis, and fresh restrictions in the fall and winter could stall or reverse early progress, economists warn.
“Incoming information signals that the euro area economic recovery is losing momentum more rapidly than expected after a strong yet partial and uneven rebound in economic activity over the summer months,” European Central Bank President Christine Lagarde said Thursday.
With Europe staring at a potential double-dip recession, anxiety is rising that the United States isn’t far behind. The Back-to-Normal Index from CNN Business and Moody’s Analytics edged higher in October, but some view new social distancing rules as inevitable as coronavirus cases spike. An inability to agree on another stimulus package in Congress could make matters worse.
“An intensifying pandemic and probable lack of another round of fiscal aid this year will almost certainly dampen overall economic activity to close the year and to begin 2021,” said Joseph Brusuelas, chief economist at RSM US.
Altria (MO), Chevron (CVX), Colgate-Palmolive (CL), ExxonMobil (XOM), Honeywell (HON), Newell Brands (NWL), Phillips 66 (PSX) and Under Armour (UA) report results before US markets open.
Also today: US personal income and spending data post at 8:30 a.m. ET, along with the PCE Price Index, a crucial reading of US inflation.
Coming up: The US election, now just five days away, will dominate markets next week. Want to stay in the loop? Special editions of Before the Bell will hit your inbox starting Sunday.

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Economy

Canadian regulator lifts banks’ capital buffer to record, priming for post-pandemic world

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Banks in Canada

Canada‘s financial regulator raised the amount of capital the country’s biggest lenders must hold to guard against risks to a record 2.5% of risk-weighted assets, from 1% currently, in a surprise move that could pave the way for them to resume dividend increases and share buybacks.

The new measures, which take effect on Oct. 31, is a sign that the economic and market disruptions stemming from the coronavirus pandemic have abated and banks’ capital levels have been resilient, the Office of the Superintendent of Financial Institutions (OSFI) said in a statement.

But the regulator acknowledged that key vulnerabilities, including household and corporate debt levels, as well as asset imbalances caused by steep increase in home prices over the past year, remain.

In a sign of concern about the housing market, OSFI and the Canadian government raised the benchmark to determine the minimum qualifying rate for mortgages, starting June 1.

The increase in the Domestic Stability Buffer (DSB) to the highest possible level raises the Common Equity Tier 1 (CET1) capital – the core bank capital measure – to 10.5% of risk-weighted assets; a 4.5% base level, a “capital conservation buffer” of 2.5%, and a 1% surcharge for systemically important banks, plus the DSB.

The change “gives OSFI more leeway to loosen a restriction down the road, namely the freeze on buybacks and dividend increases,” National Bank Financial Analyst Gabriel Dechaine said.

OSFI felt it was “useful for the banks to understand what our minimal capital expectations are and to give them time to adjust to that… ahead of any lifting of the temporary capital distribution restrictions,” Assistant Superintendent Jamey Hubbs said on a media call.

Even with the higher requirement, Canada‘s six biggest banks would have excess capital of about C$51 billion, dropping from C$82 billion as of April 30, according to Reuters calculations.

That was driven in part by a moratorium on dividend increases and share buybacks imposed by OSFI in March 2020, although a pandemic-driven surge in loan losses has so far failed to materialize.

The Canadian banks index slipped 0.25% in morning trading in Toronto, while the Toronto stock benchmark fell 0.1%.

The increase is the first since the last one announced in December 2019, which did not come into effect as planned in April 2020, as OSFI made an out-of-schedule change https://www.reuters.com/article/canada-mortgages-regulation-idUSL1N2B636J that dropped the rate to 1% in March. It has maintained that level at its twice yearly reviews.

Prior to that, OSFI had raised the required level by 25 basis points at every twice yearly review since it was introduced at 1.5% in June 2018.

($1 = 1.2326 Canadian dollars)

 

(Reporting By Nichola Saminather; Editing by Marguerita Choy and Jonathan Oatis)

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Economy

Canada Economic Indicators

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Fed to focus on next steps to save economy – BNNBloomberg.ca

The economic indicators used to gauge the performance of an economy and its outlook are the same across most nations. What differs is the relative importance of certain indicators to a specific economy at various points in time (for instance, housing indicators are closely watched when the housing market is booming or slumping), and the bodies or organizations compiling and disseminating these indicators in each nation.

Here are the 12 key economic indicators for Canada, the world’s 10th-largest economy:1

GDP Growth

Canada's GDP grew by 3% in July as more sectors reopened – CBC.ca

Statistics Canada, a national agency, publishes growth statistics on the Canadian economy on monthly and quarterly bases. The report shows the real gross domestic product (GDP) for the overall economy and broken down by industry. It is an accurate monthly/quarterly status report on the Canadian economy and each industry within it.2

 

Employment Change and Unemployment

Key data on the Canadian employment market, such as the net change in employment, the unemployment rate, and participation rate, is contained in the monthly Labour Force Survey, released by Statistics Canada. The report contains a wealth of information about the Canadian job market, categorized by the demographic, class of worker (private sector employee, public sector employee, self-employed), industry, and province.3

Consumer Price Index

Statistics Canada releases a monthly report on the consumer price index (CPI) that measures inflation at the consumer level. The index is constructed by comparing changes over time in a fixed basket of goods and services purchased by consumers. The report shows the change in CPI monthly and over the past 12 months, on an overall and core (excluding food and energy prices) basis.4

International Merchandise Trade

This monthly report from Statistics Canada shows the nation’s imports and exports, as well as the net merchandise trade surplus or deficit. The report also compares the most current data with that for the preceding month. Exports and imports are shown by product category, and also for Canada’s top ten trading partners.5

Teranet – National Bank House Price Index

This composite index of house prices across Canada was developed by Teranet and the National Bank of Canada and represents average home prices in Canada’s six largest metropolitan areas. A monthly report shows the change in the index monthly and over the past 12 months, as well as monthly and 12-month changes in Canada’s six and 11 largest metropolitan areas.6

RBC Manufacturing Purchasing Managers’ Index – PMI

Released on the first business day of each month, this indicator of trends in the Canadian manufacturing sector was launched in June 2011 by Royal Bank of Canada, in association with Markit and the Purchasing Management Association of Canada. RBC PMI readings above 50 signal expansion as compared to the previous month, while readings below 50 signal contraction. The monthly survey also tracks other information pertinent to the manufacturing sector, such as changes in output, new orders, employment, inventories, prices, and supplier delivery times.7

The Conference Board’s Consumer Confidence Index

The Conference Board of Canada’s Index of Consumer Confidence measures consumers’ levels of optimism in the state of the economy. It is a crucial indicator of near-term sales for consumer product companies in Canada, as well as an indicator of the outlook for the broad economy since consumer demand comprises such a significant part of it. The index is constructed on the basis of responses to four questions by a random sampling of Canadian households. Survey participants are asked how they view their households’ current and expected financial positions, their short-term employment outlook, and whether now is a good time to make a major purchase.8

Ivey Purchasing Managers Index – PMI

 An index prepared by the Ivey Business School at Western University, the Ivey PMI measures the monthly variation in economic activity, as indicated by a panel of purchasing managers across Canada. It is based on responses by these purchasing managers to a single question: “Were your purchases last month in dollars higher, the same, or lower than in the previous month?” An index reading below 50 shows a decrease; a reading above 50 shows an increase. Panel members indicate changes in their organization’s activity over five broad categories: purchases, employment, inventories, supplier deliveries, and prices.9

Housing Starts

Canada Mortgage and Housing Corporation (CMHC) issues a monthly report on the sixth working day of every month, showing the previous month’s new residential construction activity. The data is presented by region, province, census metropolitan area, and dwelling type (single-detached or multiple-unit). The indicator is an important gauge of the state of the Canadian housing market.10

Home Sales

This key indicator of housing activity is compiled by the Canadian Real Estate Association (CREA) and is based on the number of home sales processed through the MLS (Multiple Listing Service) Systems of real estate boards and associations in Canada. The monthly report from the CREA shows the change in home sales across Canada, as well as for major markets, from month to month. The report also includes other important housing-related information, such as the change (as a percentage) in newly listed homes, the national sales-to-new listings ratio, months of housing inventory, the change in the MLS Home Price Index, and the national average price for homes sold within the month.11

Retail Sales

Statistics Canada releases a monthly report on retail sales activity across Canada, with changes shown on month-over-month and year-over-year bases. The headline number shows the percentage change in national retail sales on a dollar basis; the percentage change in volume terms is also shown. The retail sales figures are shown by industry and for each province or territory, and provide insights into Canadian consumer spending.12

Building Permits 

The building permits survey conducted monthly by Statistics Canada collects data on the value of permits issued by Canadian municipalities for residential and non-residential buildings, as well as the number of residential dwellings authorized. Since building permit issuance is one of the very first steps in the process of construction, the aggregate building permits data are very useful as a leading indicator for assessing the state of the construction industry.13

The Bottom Line

The 12 economic indicators briefly described above show the health of key aspects of Canada’s economy: consumer spending, housing, manufacturing, employment, inflation, external trade, and economic growth. Taken together, they provide a comprehensive picture of the state of the Canadian economy.

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Economy

Canada adds jobs for fourth straight month in May

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B.C. saw close to 55000 new jobs in Septmber

Canada added 101,600 jobs in May, the fourth consecutive month of gains, led by hiring in the education and health services sector as well as in professional and business services, a report from payroll services provider ADP showed on Thursday.

The April data was revised to show 101,300 jobs were gained, rather than an increase of 351,300. The report, which is derived from ADP’s payrolls data, measures the change in total nonfarm payroll employment each month on a seasonally-adjusted basis.

 

(Reporting by Fergal Smith; Editing by Alex Richardson)

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