Today’s top headlines
Markets close: Stocks end upbeat week on bet central banks done hiking rates
Markets closed on an exuberant note in Canada and on Wall Street as weak jobs data bolstered investor sentiment that central banks are done hiking rates.
All across Wall Street, the superlatives piled up on Friday, with the S&P 500 rising about one per cent and notching its best week in 2023. The market’s “fear gauge” — the VIX — saw its biggest five-day plunge in 21 months. Treasuries climbed across the curve, with two-year yields dropping 16 basis points to 4.83 per cent.
The Dow Jones Industrial Average jumped 0.66 per cent to 34,061.32 and the Nasdaq composite rose 1.38 per cent to close at 13,478.29.
In Toronto, the S&P/TSX composite index surged 1.01 per cent to 19,824.85. The index is now up 2.27 per cent year to date.
“The Canadian economy added fewer than expected jobs in October, and so did the U.S.,” said Anish Chopra, managing director with Portfolio Management Corp.
“You’ve got less wage pressure in the economy, so fewer jobs, less wage pressure. That could translate into lower inflation numbers,” he said.
Canada’s unemployment rate rose to 5.7 per cent in October, while the economy added 18,000 jobs. The report marked the fourth increase in the jobless rate over the past six months, adding to the picture of a labour market that’s continuing to soften.
Meanwhile, the U.S. economy added 150,000 jobs, down from the gain of 297,000 in September. The unemployment rate rose to 3.9 per cent.
As investors celebrated the data they’ve been waiting for, Lawrence Summers, former U.S. treasury secretary, warned against exuberance taking hold in financial markets that the United States Federal Reserve has effectively won the war on inflation.
“People are a little bit in too much of a hurry to declare that we’ve done all the monetary policy that we need to do,” Summers said on Bloomberg Television’s Wall Street Week with David Westin. “The very dramatic response we’ve seen” this week with rallies in Treasuries and stocks “make me not as certain as many people that the job of containing inflation is over and that the war is done.”
For the week, the top three performers on the TSX were Shopify Inc., up 30.63 per cent, Brookfield Infrastructure Partners LP, up 24.65 per cent and Dye & Durham Ltd., up 22.32 per cent.
Shopify leapt the most after it reported strong earnings in the wake of a 20 per cent cut to its workforce earlier this year.
The Canadian dollar traded for 73.08 cents U.S. compared with 72.58 cents U.S. on Thursday.
The December crude contract was down US$1.95 at US$80.51 per barrel and the December natural gas contract was up four cents at US$3.52 per mmBTU.
The December gold contract was up US$5.70 at US$1,999.20 an ounce and the December copper contract was up one cent at US$3.68 a pound.
The Canadian Press, Financial Post, Bloomberg
BofA bull and bear both prophesize year-end rally for S&P 500
Two of Bank of America Corp.’s leading markets strategists struck a rare agreeable tone on Friday, each prophesying gains ahead for equities — at least in the near term.
Chief investment strategist Michael Hartnett broke from his usual bearish view to say technicals no longer stand in the way of a year-end rally for the S&P 500 Index. And Savita Subramanian, head of U.S. equity and quantitative strategy and an optimist on stocks this year, said now was a better time to buy the U.S. benchmark relative to its July peak, noting the frequency of clients asking whether they should wait longer for an entry point has increased.
“Extreme fear can be just as costly as greed,” Subramanian wrote Friday in a note to clients.
Earlier in the day, Hartnett said equity positioning could pick up in stocks, with oil under US$100 a barrel, yields below five per cent and the S&P 500 now trading above 4,200 points, seen as an important support level by traders. “But note, everyone now expects a big year-end rally,” he added.
While it is not unusual for strategists under the same roof to have diverging views, the contrast in perspectives between Hartnett and Subramanian this year has reflected the uncertainty about what’s ahead for equity markets in a higher-for-longer interest-rate environment.
Despite his technical view on a year-end rally, Hartnett has remained bearish throughout 2023, even as the S&P 500 rallied in the first half and is up more than 13 per cent this year. Subramanian, on the other hand, was one of the first Wall Street prognosticators to flip to a bullish outlook in May as stocks gained, though just before a three-month slump.
After falling from July’s peak, the S&P 500 is now set for its best week in a year, lifted by an oil price retreat and hints from Federal Reserve Chair Jerome Powell that the US central bank may be finished with the most aggressive tightening cycle in four decades.
U.S. stocks rallied Friday as data showed job growth moderated in October by more than expected and the unemployment rate rose to an almost two-year high, prompting traders to bring forward their expectations for the first Fed rate cut to June from July. That’s a sharp reversal in trend from last week, when the index briefly dipped below the key 4,200 level.
Enbridge beats third-quarter estimates, boosts holdings in two renewable projects
Enbridge Inc. chief executive Greg Ebel said the slump in renewable-energy stocks is likely to be limited to companies that sell green energy into wholesale markets, rather than providers with long-term contracts.
Enbridge — which operates a range of energy assets from oil and gas pipelines to solar power projects — said Friday that it had boosted its ownership in the Hohe See and Albatros offshore wind farms in Germany by 24 per cent for about 625 million euros (US$670 million). The Calgary-based company also agreed to buy seven operating landfill-based renewable gas assets in Texas and Arkansas for US$1.2 billion.
“Investors are starting to figure out that renewables are not all built the same,” Ebel said in an interview on Bloomberg Radio. “Those that have long-term contracts — for 10 or 15 years with great counterparties like large utilities or big industrials — those are the ones you want to participate in.”
This week, Orsted A/S dropped two U.S. wind projects and recorded 28.4 billion kroner (US$4 billion) in impairments, the latest development in the burgeoning crisis in the offshore wind industry. Surging costs and rising interest rates have led to project delays in the sector.
Developers have been rapidly backpedalling on their plans for wind farms or asking to re-negotiate their deals. Some of those companies were locked into long-term contracts to deliver power at specific prices, and those deals became unviable after development costs surged.
The German wind farms Enbridge boosted its stake in have long-term, government-backed power purchase agreements, while the renewable gas assets it bought have long-term, full-volume offtake deals with Shell PLC and BP PLC, executives said on a conference call on Friday.
Enbridge also on Friday reported adjusted third-quarter earnings of 62 Canadian cents a share, topping analysts’ 58-cent average estimate. The shares were up 0.76 per cent to $46.42 at 2:33 p.m. in Toronto.
Alberta would need to negotiate international agreements if it quits CPP: Freeland
Federal Finance Minister Chrystia Freeland says if Alberta were to quit the Canada Pension Plan, it would need to launch a “complex and multi-year process” of negotiating international social security agreements to deal with contributors who work abroad.
Freeland listed that effort among other steps she says the Alberta government, as well as the federal government, would need to take if Premier Danielle Smith decides to withdraw the province from the federal retirement plan and set up its own program.
Her remarks came after a virtual meeting today with provincial finance ministers, in which she says they discussed the consequences of Alberta going ahead with its proposal.
Freeland, who called herself a “proud daughter of Alberta,” says she is hearing from Albertans who are concerned about the idea and is asking the chief actuary to look into the details of such an asset transfer.
The Alberta government argues that its workers have contributed an oversized share to the national fund and would be in line for big savings and payouts if it were to leave the CPP.
Alberta Premier Danielle Smith had planned to hold a possible referendum on leaving the CPP in 2025, but now says she won’t go ahead with such a vote until governments or the courts deliver a hard number on how much Alberta will get if it leaves the plan.
The Canadian Press
DBRS puts Laurentian Bank’s credit rating under review with ‘negative implications’
Laurentian Bank, which was on the block but did not sell, and then suffered a tech outage and parted ways with its CEO and chair less than two years into a multi-year turnaround plan, has had its credit ratings placed under review with “negative implications” by DBRS Morningstar.
In a Nov. 3 report, DBRS analysts said the ratings action stemmed from “recent adverse developments” that, in aggregate, have weakened Laurentian’s franchise strength and future growth prospects, putting pressure on the credit ratings.
The personal banking business, already a weaker earnings producer than peers, has been under pressure in recent years with issues including customer attrition, shrinking loans, and stagnant deposits, according to the report.
“In DBRS Morningstar’s view, the mainframe outage that disrupted online access to retail and business accounts for four days could make it even more difficult for current management to turn around the important Personal Banking segment,” the analysts wrote.
DBRS Morningstar’s review will also assess the impact of the rapid succession of executive departures and operational missteps on the Bank’s franchise and risk profile, and size up the bank’s ability to improve earnings and its future prospects “in light of the uncertainty of its strategic direction moving forward.”
Laurentian is Canada’s eighth-largest bank with assets of $50.6 billion as at July 31, 2023. The bank has retail operations in Québec through a branch network as well as commercial lending across Canada and in the U.S. It also distributes financial products to brokers and financial advisers across Canada through its wholesale arm, B2B Bank.
The credit ratings under review include Laurentian’s long-term issuer rating, which sits at A (low). DBRS could confirm the current ratings with stable trends if it is determined that recent events will have no impact on the bank’s financial performance or franchise. However, the credit ratings will be downgraded if it is determined that the executive departures and operational risks exposed by the extended mainframe outage will negatively affect the franchise and the bank’s ability to produce sustained improvement in its financial performance.
“Increased pressures on funding and liquidity or additional operational missteps would also result in a credit rating downgrade,” the analysts said in their report.
Barbara Shecter, Financial Post
Business insolvencies climb almost 42% from last year
Canadian business insolvencies were up 41.8 per cent from a year earlier in the third quarter, surpassing pre-pandemic levels.
The Office of the Superintendent of Bankruptcy says 1,129 businesses filed for a bankruptcy or proposal in the third quarter, up 3.6 per cent from the second quarter.
That’s compared with 827 filings in the third quarter of 2019.
Consumer insolvency filings were up 17.8 per cent from last year, but down 2.4 per cent from the second quarter. They were still lower than pre-pandemic levels, however.
The Canadian Association of Insolvency and Restructuring Professionals says businesses are being hit by the withdrawal of COVID-19 support, higher interest rates and softening consumer spending.
The Canadian Press
Midday markets: Stocks continue winning streak
Strength in the financial services market and base metals helped lead Canada’s main stock index higher in midday trading, while U.S. stock markets also rose.
The S&P/TSX composite index was up 146.34 points at 19,772.68.
In New York, the Dow Jones industrial average was up 160.68 points at 33,999.76. The S&P 500 index was up 33.62 points at 4,351.40, while the Nasdaq composite was up 117.85 points at 13,412.04.
The Canadian Press
Telus profits plunge 74% on restructuring costs
Telus Corp. is reporting a 74 per cent year-over-year drop in profits in its latest quarter, despite a solid revenue boost and record customer growth.
The telecommunications company says net income attributable to shareholders fell to $136 million in the quarter ended Sept. 30 from $514 million in the same period the year before.
Telus attributes the plunge to costs related to restructuring after it announced in August it would cut 6,000 jobs due to issues around regulation and competition.
The Vancouver-based company says operating revenues rose 7.5 per cent in its third quarter to $4.99 billion from $4.64 billion a year earlier.
Adjusted basic earnings fell nearly 27 per cent to 25 cents per share from 34 cents per share, but slightly beat analyst expectations of 24 cents per share, according to financial markets data firm Refinitiv.
Telus says net customer growth hit a quarterly record of 406,000, an increase of 59,000 from the year before that it says was driven by demand for bundled services.
The Canadian Press
U.S. stock markets headed for best week of the year
Wall Street’s best week of the year is getting even better Friday following a cooler-than-expected report on the job market.
The S&P 500 was 0.9 per cent higher in early trading and on track to rise every day this week. The Dow Jones industrial average was up 182 points, or 0.5 per cent, as of 9:45 a.m., and the Nasdaq composite was 0.9 per cent higher.
In Canada, the S&P/TSX composite index was up 0.96 per cent.
Stocks have surged more than five per cent this week on rising hopes the United States Federal Reserve is finally done with its market-crunching hikes to interest rates, which were meant to get inflation under control. Friday’s jobs report underscored that pressure is easing on inflation after it showed employers hired fewer workers last month than economists expected.
The Associated Press
U.S. jobs market cools after run of surprise strength
United States job growth slowed in October by more than expected and the unemployment rate rose to an almost two-year high of 3.9 per cent, indicating that employers’ strong demand for workers is beginning to cool.
Nonfarm payrolls increased 150,000 last month following a downwardly revised 297,000 in September, a Bureau of Labor Statistics report showed Friday. Monthly wage growth slowed.
The latest figures suggest some cracks are beginning to form in a jobs market that has been gradually normalizing thanks to an improvement in labour supply over the past year and a tempering of demand for workers.
Stock futures and Treasuries rallied after the report, while the dollar weakened. Traders marked down chances of a United States Federal Reserve interest-rate hike in coming months.
The rise in unemployment suggests a pickup in layoffs — a development employers had so far broadly avoided. The survey of households showed a more than 200,000 increase in those who lost their job or completed a temporary one.
Health care and social assistance, as well as government, drove the payrolls gain. Other categories, however, showed tepid growth or outright declines. Manufacturing payrolls fell by 35,000 in October, largely a reflection of the United Auto Workers union strike. The hit will prove temporary though, given union members have since struck tentative deals with the nation’s largest automakers.
Looking ahead, sustained setbacks in the labour market — the bedrock of consumer spending and the broader economy — risk raising concerns about the nation’s ability to weather high interest rates without falling into recession.
Average hourly earnings rose 0.2 per cent last month and were up 4.1 per cent from a year earlier, the smallest annual advance since mid-2021. Earnings for nonsupervisory employees, who make up the majority of workers, increased 0.3 per cent for a second month.
In a departure from the recent trend, the supply of labour declined, prompting a drop in the participation rate — the share of the population that is working or looking for work — to 62.7 per cent. For those ages 25-54, participation decreased to a six-month low, driven by men.
Canadian unemployment rate rises to 5.7%
The Canadian economy added 18,000 jobs in October, Statistics Canada said. The unemployment rate rose to 5.7 per cent, up from 5.5 per cent in September.
Wage increases moderated in October, rising 4.8 per cent after rising five per cent in September.
Employment rose in construction and information, culture and recreation, but the increase was offset by declines in wholesale and retail trade as well as manufacturing.
The latest job numbers come as high interest rates are slowing down the Canadian economy. The Bank of Canada opted to hold its key interest rate steady at five per cent during its last two decision meetings, largely due to growing evidence that the economy is feeling the impact of higher rates.
Gross domestic product data showed the economy shrank in the second quarter and a preliminary estimate from Statistics Canada suggests another contraction in the third quarter.
The labour market has remained relatively resilient since interest rates started to rise in March 2022 as employers maintained their appetite for hiring post-pandemic.
But job vacancies have been on the decline this year and Friday’s report suggests job prospects are continuing to dwindle. Among those who were unemployed in September, a larger proportion stayed unemployed in October than 12 months prior, suggesting “job seekers are facing more difficulties finding employment than a year ago.”
Employment opportunities are expected to become even more sparse as the effect of previous rate hikes increasingly filter through the economy.
The Canadian Press, Financial Post
Read the full story here.
Tim Hortons parent RBI reports $364-million profit despite rising costs
Restaurant Brands International Inc. recorded a US$364 million profit in its most recent quarter as it continued to warn of increases in commodity, labour, and energy costs.
The Toronto-based owner of Tim Hortons, Burger King, Popeyes Louisiana Kitchen and Firehouse Subs says its third quarter net income compared with a profit of US$530 million a year earlier.
It says the decrease seen over the period ended Sept. 30 was primarily driven by income tax expenses and an increase in share-based compensation, non-cash incentive compensation expense and interest expenses.
The fast-food parent company, which reports in U.S. dollars, is also posting a revenue boost to US$1.83 billion from US$1.72 billion a year earlier.
The rise in revenue came even as RBI says it has seen the war in Ukraine and COVID-19 trigger increases in inflation, foreign exchange volatility and rising interest rates which may be exacerbated by the conflict in the Middle East.
It warns the geopolitical tensions could have an adverse impact on its business, if the company and its franchisees are not able to adjust prices sufficiently without negatively impacting consumer demand.
The Canadian Press
3 Scotiabank executives depart in latest shakeup under CEO Scott Thomson
Bank of Nova Scotia’s Dan Rees, who runs the domestic retail banking business, is leaving along with investment banking chief James Neate and chief technology officer Shawn Rose.
Rees, a 25-year veteran of the company, will be succeeded as group head of Canadian banking by Aris Bogdaneris, effective Friday, the bank said in a statement. Rose and Neate’s departures were disclosed Thursday in an internal memo seen by Bloomberg.
Chief executive Scott Thomson continues to shake up his management team after taking the reins of Canada’s third-biggest bank by assets in February. Scotiabank, which is in the process of cutting three per cent of its global workforce, announced several other changes to its senior leadership in late August.
“I recognize that there have been many changes across our bank in recent weeks and I want to acknowledge and express my appreciation to all of you throughout this period,” Thomson said Thursday in the memo to staff.
The Toronto-based bank didn’t comment on the memo.
Rees, who was seen as a potential CEO candidate, was awarded $1.5 million in restricted stock as a retention bonus after Thomson won the job. The shares vest next November.
Rees “made the decision to leave the bank to pursue other opportunities,” Scotiabank said in the statement. It declined to comment on how his departure would affect the award.
Christine Dobby, Bloomberg
Read the full story here.
Before the opening bell: Stock markets slip after Thursday’s gains
Markets were subdued on Friday as traders awaited U.S. jobs numbers that will test optimism over whether the United States Federal Reserve’s tightening cycle is nearing an end.
U.S. equity futures slipped after the S&P 500 posted its biggest weekly gain in a year, of about five per cent. Apple Inc. fell as much as 3.1 per cent in premarket trading after the iPhone maker’s results were dragged down by weaker-than-expected revenue out of the greater China region. Treasury yields steadied, with the 10-year at 4.65 per cent after tumbling 18 basis points this week.
In Canada, the S&P/TSX composite index closed up 547.34 points, or 2.9 per cent, at 19,626.34, on Thursday.
What to watch today
Statistics Canada releases its Labour Force Survey data for October at 8:30 this morning. The U.S. employment report will also be released today.
Immigration Minister Marc Miller is participating in a roundtable discussion with the Greater Vancouver Board of Trade this afternoon.
On the earnings front, expect reports from Telus Inc., Magna International Inc., Tim Hortons’ parent Restaurant Brands International Inc., Enbridge Inc. and AltaGas.
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Need a refresher on yesterday’s top headlines? Get caught up here.
Additional reporting by The Canadian Press, Associated Press and Bloomberg
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