Recession Not Necessary to Rein in Inflation: Tribeca Investment Partners
Canada's annual inflation rate cooled exactly as anticipated last month, as Statistics Canada's consumer price index rose 7.6 per cent year-over-year, compared to June's 8.1 per cent surge in the cost of living. Let's not pretend this is cause for celebration though. The headline figure is still almost quadruple the Bank of Canada's target (and if we strip out gasoline, the annual rate rose a tick to 6.6 per cent). And two of the core CPI metrics accelerated in July. We'll have in-depth analysis throughout the day on what the data will mean for the Bank of Canada's policy meeting next month.
We start today with BofA’s new global fund manager survey, which shows sentiment has improved a bit from the “apocalyptically bearish” trough in July. It’s all relative, however: recession expectations are at the highest level since May 2020, and check the – ahem – bounce in the net percentage of respondents who expect global profits will deteriorate:
Importantly for the S&P/TSX Composite Index: the survey shows long oil/commodities is no longer as crowded a trade as it was in July. And on that note, it’s worth underscoring that the TSX managed to extend its winning streak yesterday (in what amounted to a rounding error) despite steep declines for the energy and materials subgroups.
‘OMINOUS’ SIGNAL FOR CANADA’S ECONOMY
That’s the warning in a new C.D. Howe Institute report that explores why business investment in this country is lagging so far behind the U.S. and other developed economies. While the report notes that the gap had been narrowing before 2015; since then, it has “become a chasm” that is jeopardizing our economic prosperity. We’ll chase Bill Robson.
Walmart has done exactly that, reporting second-quarter profit this morning that exceeded the average analyst estimate after the retailer warned on its outlook just a few weeks ago. Sales also surpassed expectations in the quarter and the company is now forecasting a shallower drop in full-year adjusted earnings per share. Walmart CEO Doug McMillon said in a release his company “made good progress” on cost-management “and that work is ongoing.” As for the other big retail name that reported today: Home Depot posted record sales and profit in the second quarter and reaffirmed its outlook.
MICHAEL BURRY GOES ALL IN ON PRISON OPERATOR
Perhaps the most interesting investment decision in yesterday’s avalanche of 13F filings by institutional investors was the move by Michael Burry’s Scion Asset Management, which dumped all of its previous U.S. equity holdings during the quarter, and ended the period with just one new holding: Geo Group, which owns and/or operates 102 prisons and other facilities, according to its website. As for the world’s most famous investor: Warren Buffett’s Berkshire Hathaway exited its position in Verizon during the second quarter, and boosted positions in Activision Blizzard, Celanese, and Occidental Petroleum (the latter of which was previously widely reported).
OTHER NOTABLE STORIES
- BHP chief executive Mike Henry today said he expects China will “emerge as a source of stability for commodity demand in the year ahead,” which is either encouraging or optimistic (depending on your point of view), particularly after yesterday’s data that revived concern about the economic slowdown. Henry also warned that labour constraints will continue to be a challenge. But BHP seemed to manage that just fine in its latest reporting year, as adjusted profit hit a record US$23.8 billion. We’ll speak with BHP’s head of minerals in the Americas today at 9:40 a.m. ET.
- Canadian Pacific and Kansas City Southern announced they’ve cleared a regulatory hurdle after the U.S. Committee on Foreign Investment in the United States gave its blessing to the deal. The takeover of KCS still requires a go-ahead from the U.S. Surface Transportation Board.
- Seven Canadian citizens are among the accused in an alleged fraudulent hacking scheme that generated more than US$1 million in illicit profits, according to a complaint by the U.S. Securities and Exchange Commission.
- We’ll watch shares in Exchange Income after the company announced it’s raising about $100 million in a bought-deal sale of 2.05 million shares priced at $48.70 apiece (roughly five per cent discount to yesterday’s closing price). Proceeds are essentially dry powder for M&A. “We are examining multiple accretive acquisition opportunities,” the Winnipeg-based roll-up firm said in its release.
- Enthusiast Gaming reported a 38 per cent jump in second-quarter revenue after markets closed yesterday. However, its expenses surged almost 50 per cent year-over-year, and so the net loss widened. In a note to clients, RBC Capital Markets analyst Drew McReynolds said “considering possible disruption associated with the recent board and management transition, we view results as better than feared.” He and the five other analysts tracked by Bloomberg all have a buy recommendation on Enthusiast.
- Notable data: Canadian housing starts, CPI and international securities transactions; U.S. building permits and housing starts
- Notable earnings: Walmart, Home Depot
- 1530: U.S. President Joe Biden delivers remarks and signs Inflation Reduction Act into law