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Noah Zivitz

Managing Editor, BNN Bloomberg

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Investors’ attention has flipped back to China this morning, after that country’s National Health Commission cut the mandatory quarantine time for inbound travelers in half (to seven days). That’s apparently boosting sentiment, as commodity prices, global equity markets, and U.S. futures rally. The gains in metals and energy prices bodes well for the S&P/TSX Composite Index, which has closed higher in the last two sessions. A third consecutive day of gains would represent the longest winning streak in a month. 

SOME HOT TAKES FROM ANALYST COMMUNITY

The common denominator here is recession fear:

Scotia Analyst Konark Gupta cut his price target on Air Canada while maintaining a sector outperform recommendation. Why? In part because he thinks “industry issues” and the well-known problems at Canadian airports and passport offices are likely going to extend the recovery timeline, and as such he reckons Air Canada’s earnings “are more likely to grow than decline” next year. Gupta’s outlook is based on an assumption that there could be a recession that is slightly worse than the downturn the industry suffered through in 2003 and 2009.

Manav Gupta at Credit Suisse published on the energy sector last night. “We see this pullback (in the last two weeks) as an attractive buying opportunity,” he said, while acknowledging the persistent recession worries. The thesis boils down to a view that the world is facing a supply deficit. His favourite names among the integrated companies are Exxon, Chevron, Suncor, and Cenovus.

Gabriel Dechaine from National Bank of Canada Financial Markets said in a report last night that the Big Six banks “are trading on fear,” rather than the potential for upside profit-estimate revisions as a result of rate hikes by the central banks. All told, he said he thinks there is more downside risk than upside potential for the stocks until recession fears fade, inflation cools down, or housing recovers.

G7 TALKS TOUGH ON RUSSIA, CLIMATE

The closing communiqué from the G7 summit in Germany includes a call for oil-producing nations to boost output “to decrease the tension in energy markets” (including a nudge for OPEC “to continue action in this regard”), and talk of (but no firm agreement on) price caps on Russian energy exports. The group of leading developed economies also said they “note with concern that currently neither global ambition nor implementation is sufficient to achieve the goals of the Paris Agreement.”

ALBERTA FISCAL UPDATE

Finance Minister Jason Nixon will provide a final report today on the fiscal year that ended in March. It’s his first major event since he officially succeeded Travis Toews as the province’s finance minister. Last time we heard from the province in March, it was expecting to post a $3.4 billion deficit for fiscal 2021-22. Recall, however, that in February it forecast a surplus for this fiscal year (and the two that follow) thanks to the surge in oil and gas prices. Also keep in mind: the budget was built on assumptions including West Texas Intermediate at $74.00 and $70.00 in fiscal years 21-22 and 22-23, respectively. 

DIVIDEND BONANZA

U.S. banks opened the floodgates for dividend hikes and share buybacks after markets closed yesterday, as expected, after the U.S. Federal Reserve said last week almost three dozen institutions sailed through the central bank’s latest round of stress tests. Morgan Stanley is looking like the standout this morning, with its shares rising about three per cent in pre-market trading, after announcing an 11 per cent dividend hike and US$20-billion buyback program. Goldman, Bank of America, and Wells Fargo are among the other big names that said they’ll boost their payouts. There are some notable holdouts: JPMorgan Chase & Co. and Citigroup said they’re standing pat on dividend payments, while pointing to higher capital requirements. 

OTHER NOTABLE STORIES

  • Bank of Nova Scotia is putting its marketing money where its mouth is. CEO Brian Porter said in an open letter his bank is pausing sponsorship of Hockey Canada as a result of recent assault allegations, which Porter said he was “appalled by.” He stated the sponsorship suspension will remain in plan until Scotia is “confident the right steps are being taken to improve the culture within the sport — both on and off the ice.”
  • Bombardier Chief Financial Officer Bart Demosky said today the jet maker is “ahead of where we thought we’d be” in chipping away at the company’s debt burden. That’s after announcing the outcome of a debt tender. All told, Demosky said Bombardier is on track for about US$60 million in annual savings on interest payments.
  • China was a problematic market for Nike in the latest quarter. The shoe and apparel maker said its revenue in that country sank 19 per cent year-over-year in the fiscal fourth quarter. In its release, Nike said there was “high inventory obsolescence” in China during the quarter, which sounds to me like too much out-of-date product. On the upside, revenue surged in other overseas markets, which helped Nike narrowly outpace top-line expectations. In addition to the problems in China, Nike’s profit was also held back by inflation, and a six per cent rise in what it calls “demand creation expenses” (ie, marketing). 
  • AutoCanada announced this morning it’s planning to repurchase up to $100 million of its shares in a range of $22 to $25 a piece. Through the close of trading yesterday, the auto dealership owner/operator’s shares have tumbled 43.6 per cent this year.
  • A deal of note for Bay Street: Toronto-based independent investment bank Origin Merchant Partners is expanding into the United States by tying up with InterOcean Advisors.
  • Yikes! The U.S. Securities and Exchange Commission this morning announced charges against Ernst & Young after finding some staffers cheated on an ethics exam and that the firm hindered the investigation. “It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things,” said the head of the SEC’s enforcement division in a release. The regulator said EY has admitted to the facts of its probe and agreed to pay a US$100-million penalty.

NOTABLE RELEASES/EVENTS

  • Notable data: U.S. Conference Board consumer confidence index
  • Notable earnings: Alimentation Couche-Tard
  • 800: Great-West Lifeco IFRS 17 information session for investors and analysts
  • 900: Kinross managements hosts virtual briefing to provide updates on Great Bear, Manh Choh and Curlew projects
  • 1130: Office of the Superintendent of Financial Institutions holds briefing to “discuss its expectations regarding real estate secured lending products”
  • 1200: Alberta Finance Minister Jason Nixon holds news conference on year-end fiscal update (embargoed briefing at 1015)