First Look With Surveillance: Treasuries Slump, Oil Rises
It’s looking like tech stocks are going to get punished at the start of trading as investors push up bond yields in anticipation of central banks raising rates to contain inflation. Futures are pointing to a sharply lower open for the Nasdaq Composite Index, which has already slid six per cent since the start of the year. Meanwhile, the U.S. 10-year treasury yield has climbed to 1.854 per cent, which is the highest since January 2020. And the yield on 10-year Government of Canada bonds pushed through 1.8 per cent today for the first time since November amid a widening view that the Bank of Canada will raise its benchmark rate next week. Market data is now putting the odds of a hike on Jan. 26 at 71 per cent. But as CIBC’s Benjamin Tal explained to us yesterday, it’s no slam dunk given the “madness” that our central bank is navigating.
NO QUICK HOUSING FIX
As if we needed to be reminded about that, we’ve got data from Canada Mortgage and Housing Corporation showing the seasonally adjusted annual rate of housing starts plunged 22 per cent in December to 236,106. The pace of activity in Ontario was nearly cut in half.
MICROSOFT BULKS UP IN GAMING
The maker of Xbox video game consoles is loading up on games themselves. Microsoft announced this morning it struck a deal to buy Activision Blizzard for almost US$70 billion in cash. In a release, Microsoft pointed out the deal will also serve as “building blocks” for its entry into the metaverse. Activision is home to some of the best known franchises in gaming, including Call of Duty. It should also be pointed out here that it was the subject of a misconduct scandal last year.
TOURMALINE DISHING OUT MORE CASH
The oil and gas producer is sharing more of its wealth with investors. It announced late yesterday that its quarterly dividend is rising 11 per cent to $0.20 per share, and it’s tossing in a special dividend of $1.25 per share. This follows a special dividend of $0.75 per share that was paid out in October, and there’s more to come, as Tourmaline stated it’s planning additional special payouts this year. No wonder it’s a consensus buy, with all 14 analysts tracked by Bloomberg telling clients to pick up the stock.
FROM FOOD KITS TO FOOD COURTS
We’re getting a better understanding this morning of how some companies that’ve been riding the wave (for better or worse) of COVID-19 are faring. The booming growth may have faded for Goodfood Market, but the meal kit service provider is at least showing some stabilization. On a sequential basis, its gross margin improved, its net loss narrowed, and its active customer base expanded in the first quarter. But this is a company that’s still deeply unprofitable and has seen sales plunge from a year ago. We’ll see how investors interpret the performance. Meanwhile, MTY Food Group is raising its quarterly dividend 14 per cent to $0.21 per share, with its CEO pointing to “robust” free cash flow despite pandemic restrictions.
WHY BMO ISN’T BAILING ON FOSSIL FUEL INDUSTRY
If you missed it, check out Greg’s discussion with BMO Capital Markets CEO Dan Barclay, in which he explained why he’s not following the herd that’s cutting ties with the oil and gas industry. “We need to have a very, very thoughtful and progressive transition … So we’ll continue to support our clients in the energy business,” he said.
The Wall Street giant fell short of expectations in its latest quarter as trading activity struggled. Revenue from its global markets operations fell seven per cent year-over-year to US$3.99 billion amid weakness on its equities desks in particular. The bright side for Goldman was its investment banking business, where revenue surged 45 per cent. But that’s being overshadowed as the company’s shares fall in pre-market trading.
IN CONVERSATION WITH ELEMENT FLEET'S CEO
We've been aiming to book Jay Forbes ever since his company landed in RBC Capital Markets' top 30 global investing ideas for 2022. At the time, RBC cited valuation and the fleet management industry's high barriers to entry among reasons to like Element. But what about challenges like supply chain management? We'll find out how the company is navigating that, and growth opportunities ahead, when Forbes joins us at 10:30 a.m.
OTHER NOTABLE STORIES
- First Quantum Minerals is forecasting sharply higher capital expenditures as a result of inflationary pressures. Spending is seen at US$1.25 billion this year and next; the miner previously pegged this year’s capex at US$950 million and next year’s at US$1.05 billion. The company also forecast continued growth in copper production after record output last year and said it’s planning to pay biannual dividends of US$0.05 per share. Interestingly, the new forecasts are assuming no change in royalty payments in Panama, despite that country’s recent proposals.
- We’ll watch shares of AutoCanada today after the deal-hungry dealership owner said it’s expecting to report $1.13 to $1.17 billion in fourth-quarter revenue. The average analyst estimate is for $1.03 billion.
- Transalta is forecasting a drop in free cash flow this year (to as little as $455 million, compared to last year’s target of $500-$560 million) and that’s not even including the hit from the wind turbine fiasco in New Brunswick.
- The brand that’s synonymous with ballpoint pens is broadening its expansion into body ink. Bic announced this morning it agreed to buy Toronto-based Inkbox, a maker of semi-permanent tattoos. The deal is worth US$65 million.
- Wheaton Precious Metals is paying $175.5 million up front for a stream of gold and silver produced at Adventus Mining’s Curipamba project in Ecuador.
- Notable data: Canadian housing starts
- Notable earnings: Goodfood Market, Goldman Sachs, BHP