Recession risk is limited, more upside for equities ahead: Martin Pelletier
The magnitude of Walmart’s second profit warning in barely two months makes you wonder how other retailers will manage their way through inflationary turmoil. The world’s largest retailer is now forecasting its operating profit will slide about 13 per cent in the second quarter and full year as food inflation wallops shoppers, leaving them with less to spend on general merchandise, which Walmart says left it with bloated inventories of general merchandise. Its shares have tumbled upward of 10 per cent in pre-market trading.
The global screen of commodity prices on the Bloomberg terminal bodes well for the S&P/TSX Composite Index this morning amid a sea of green. The price of West Texas Intermediate crude has been up about 2.4 per cent, building on yesterday’s gains which propelled the energy subgroup higher. In the U.S., futures are suggesting the major indices will open lower as earnings season ramps up and as the U.S. Federal Reserve begins a two-day policy meeting, with another three-quarter-point rate hike expected tomorrow. Big Tech will steal the spotlight in today’s after-hours session as Microsoft and Alphabet release quarterly results. Not to be overlooked: Canadian National Railway also reports after the closing bell.
EMERGENCY MEETING ON EUROPEAN ENERGY CRISIS
Energy ministers from European Union nations are attempting to hammer out a formal political agreement today on the bloc’s proposal to cut natural gas consumption 15 per cent by the end of March. No doubt yesterday’s news that the flow of shipments in the Nord Stream 1 pipeline was further curbed adds even more urgency to the discussion. Our Bloomberg partners have noted encouraging tweets by some participants at the meeting.
SHOPIFY SLASHING HEADCOUNT
Tobi Lütke says his bet on a permanent sea change in consumers’ habits didn’t pay off, and so Shopify — the company he founded and leads as CEO — is cutting its workforce about 10 per cent today, which works out to roughly 1,000 employees. In his memo to staff announcing the move, Lütke said Shopify “threw away [its] roadmaps” when the pandemic hit and reckoned the pivot from brick-and-mortar to e-commerce would “permanently leap ahead by five or even 10 years.” That bet didn’t work out, which brings us to today’s news.
OTHER NOTABLE STORIES
- General Electric trounced profit expectations in the second quarter (US$0.78 per share versus est. US$0.37) as the conglomerate’s aerospace division powered growth. Its shares have been up about four per cent in pre-market trading, notwithstanding a warning that it’s trending toward the low end of its full-year forecasts.
- McDonald’s said its sales at stores that were open at least a year in the second quarter jumped 9.7 per cent, led by international gains and “strategic menu price increases” in the U.S. However, its chief executive said “the competitive landscape remains challenging.”
- 3M cut its full-year sales and profit forecasts this morning, owing to the U.S. dollar’s appreciation and “the current uncertain macroeconomic environment.” Nonetheless, its shares are rising in pre-market trading, which might be because it announced plans to spin off its health-care unit.
- General Motors isn’t going as far as Ford’s layoff strategy that was recently reported by our Bloomberg News partners; however, GM made it clear today it’s prepared to take action if conditions deteriorate. In a letter to investors, Chair and CEO Mary Barra said GM has cut discretionary spending and “limited hiring to critical needs,” while stating the automaker has modeled a range of possible downturns and is ready “to take deliberate action when and if necessary.” As for the quarter that just wrapped, GM missed profit expectations by a wide margin amid persistent supply chain problem.
- Alibaba Group Holding shares are rallying in New York pre-market trading and jumped as much as 6.5 per cent in Hong Kong after the e-commerce giant announced it’s planning to seek a primary listing in Hong Kong (as opposed to the current secondary listing), which would effectively boost its liquidity by opening it up to more investors in mainland China.
- Notable data: Canadian wholesale trade (June early indicator), U.S. new home sales and Conference Board consumer confidence index
- Notable earnings: Canadian National Railway, First National Financial, Trican Well Service, Alphabet, Microsoft, General Motors, General Electric, Visa, McDonald's, The Coca-Cola Co., United Parcel Service, 3M, Kimberly-Clark, Mondelez, Texas Instruments
- 900: International Monetary Fund releases World Economic Outlook update
- ~1000: News conference at meeting of EU energy ministers
- U.S. Federal Reserve begins two-day policy meeting