Here are five things you need to know this morning:
Correcting the correction: Earnings season has not been a saviour to equity markets. The S&P 500 and the NASDAQ are in official correction territory (a pullback of 10 per cent or more from recent peak). Even though the TSX is trading at the lowest level in a year, it is technically not a correction with only a pullback of 9.77 per cent from the January peak. However, the damage has been done under the hood. Around 84 per cent of TSX composite stocks are down 10 per cent or more from their 52-week high, while nearly 60 per cent are in a bear market (a 20 per cent pullback from 52-week high). Earnings will continue to pour out this week and today we will watch for Air Canada, Dye and Durham and TMX Group (the latter two report after the close today). It’s a big week on the macro front as well. The U.S. Federal Reserve will make its interest rate decision Wednesday. There is a near-certain likelihood of no hike at this meeting and the market is pricing in a 76 per cent chance that they are done raising. Then jobs data on Friday in both Canada and the U.S.
On the runway: Air Canada blew past profit and sales expectations this quarter. The airline delivered earnings of $3.41 per share versus the $2.10 per share expected. It also reiterated its profit forecast for the year and suggested the company is likely to come in at the high end of their forecast. I’ll watch for how investors react to this news as nervousness builds in the sector. On one hand, maintaining the forecast could be viewed as positive, given the higher fuel costs and concerns about demand picture after the Israel-Gaza war. On the other hand, Fadi Chamoun at BMO is concerned that if the company’s forecast for 2023 holds true, it implies a weaker fourth quarter. I’m listening to the conference call as I type and it’s worth noting that management just said they are still seeing strong demand for Q4 and they aren’t seeing any major slowdown at this point in time.
Strike that: Unifor says it has reached a tentative agreement with Stellantis here in Canada. Workers had gone on strike early this morning after negotiators failed to reach a deal by the midnight deadline. Unifor has been trying to get Stellantis to agree to the same core economic terms the union reached with Ford and GM. Stellantis has more than 8,000 unionized workers in Canada. Unifor has also reached a tentative agreement with the managers of the St. Lawrence Seaway, ending an eight-day strike. The seaway management company says ship traffic is resuming gradually. About 350 seaway workers went on strike after the two sides failed to agree on wages and working conditions. The strike halted shipments of western wheat, road salt and other commodities.
Super size: Shares of McDonald’s are rallying in the pre-market after the fast-food giant grew sales and profit more than expected. Same-store sales rose 8.8 per cent, better than the 7.8 per cent forecast, thanks to higher prices. However, it is worth noting the pace of sales growth is the slowest rate so far this year. This is one of those stocks that have been caught up on concerns that Ozempic-like drugs are going to crush demand. Shares of McDonald’s are down nearly 15 per cent from their peak this summer.
Central bank show: Bank of Canada Governor Tiff Macklem and Senior Deputy Governor Carolyn Roges will appear at the House of Commons Finance Committee this afternoon. Opening remarks will be published at 3:30 p.m. EDT. We will monitor for any further details about the path of monetary policy. While central bankers are loathe to be dragged into political conversations, it will likely be unavoidable at today’s appearance. I’ll watch for any commentary about mortgage payment risk especially in 2024 and 2025. RBC is out with a new report that says around 60 per cent of all mortgages are coming due in the next three years and a payment shock could be a significant risk to the Canadian banks.
Notable Guest:
Exclusive: Don’t miss my exclusive interview with David Ricks, CEO of Eli Lilly, on the demand for obesity drugs, testing on children and the impact to other industries. We will also talk AI and what he thinks it can do for the discovery of new medicines. It’s a two-parter with part one airing at 10:30 a.m. EDT and part two at 11:50 a.m. EDT.