Author: train2invest Admins

Suncor shakeup should have been led by the board, not an activist hedge fund

In boxing terms, U.S. activist Elliott Investment Management LP scored a knockout on Monday in its bout with one of Canada’s largest oil and gas companies, Suncor Energy Inc. SU-T +1.07%increase

What’s absurd about this brawl is that it had to happen at all.

If the Suncor board and executives – and its institutional investor owners – were doing what they’re paid to do, the Calgary-based company wouldn’t need a scrappy fund manager from Florida pounding away at common-sense themes. The folks charged with running Suncor, along with its shareholders, would ensure workplace safety was a priority, and occasionally revisit the company’s strategy to see if it suits the time.

Yet it took the arrival in April of Elliott founder Paul Singer – who previously won dust-ups with blue-chip U.S. companies such as AT&T Inc. T-N -0.19%decrease and Marathon Petroleum Corp. MPC-N +0.96%increase – to point out simple truths.

Elliott pushed for boardroom renewal because Suncor’s track record as an operator is appalling. And Elliott advocated for reviewing an outdated, conglomerate-style structure, with an eye to selling off the company’s 1,800-outlet Petro-Canada gas station chain.

On Monday, Elliott got pretty much everything it asked for. The fund manager signed off on three new directors – all industry veterans – with the potential for adding a fourth person to the 13-member board if Suncor continues to underperform. The company also agreed to a strategic review of its Petro-Canada division, which analysts and Elliott estimate could fetch up to $9-billion.

If you’re a director, executive or institutional investor in an underperforming company, here’s a key take-away from Suncor’s experience: How can I do better, and avoid the cost and embarrassment of having Elliott arrive to do my job?

There’s nothing new in the Suncor problems Elliott targeted this spring. In recent years, the company’s share price lagged peers such as Canadian Natural Resources Ltd. CNQ-T +2.84%increase, Cenovus Energy Inc. CVE-T +2.87%increase and Imperial Oil Ltd. IMO-A +2.04%increase because of its operational woes.

Workplace fatalities sum up the problem. Since 2014, at least 12 people have died at Suncor sites, more than all of the company’s oil sands peers combined. Suncor chief executive Mark Little resigned earlier this month after the latest fatality, but his departure alone doesn’t solve deep-rooted cultural issues.

One of Suncor’s new directors endorsed by Elliott is former BHP Group Ltd. executive Ian Ashby. He comes from a mining company that’s far larger than Suncor and hasn’t had a workplace fatality in more than three years. That’s expertise the energy company clearly needs. Why did it take the arrival of an activist to find a board member with Mr. Ashby’s credentials?

When it comes to the company’s structure, Mr. Little insisted Suncor was best served by continuing to own its retail division. Numerous energy companies – including domestic players such as Imperial Oil and Cenovus and former Elliott target Marathon – opted instead to divest gas stations, in part because we’re all soon going to be driving electric vehicles that can fuel up anywhere.

As of Monday, Suncor has a five-member board committee – including Elliott-backed oil patch veterans Chris Seasons and Jackie Sheppard – reviewing the retail operations “with the goal of unlocking shareholder value.” The group expects to finish this work by December and Suncor’s agreement with Elliott states their findings will be made public. Where was this sort of urgency prior to the Florida fund manager’s campaign?

When Elliott arrived at Suncor, it encountered a board chockablock with retired CEOs. The activist arrived at a company owned by major institutions – Fidelity, Mackenzie and RBC Global Asset Management. Those two groups – directors and institutional shareholders – are charged with overseeing governance at Suncor. In the wake of Elliott’s successful campaign, they now look complacent.

Mr. Singer, Elliott’s 77-year-old co-CEO, has made a US$4-billion-plus fortune over four decades by shaking up companies. After a three-month battle with Suncor, he’s claimed another prize. How can activists like Mr. Singer keep winning showdowns when all they’re doing is posing the questions that boards and long-term shareholders are meant to ask?

The case for Canada: A BlackRock senior strategist on energy, banks, bonds and why our market rules in 2022

This remarkably bad year for investing still has almost six months to go. Both stocks and bonds have already fallen by double digits. Inflation is raging, interest rates are rising and economists are assessing the risk of recession ahead. For help in navigating the twists and turns still ahead in 2022, I spoke this week with Kurt Reiman, BlackRock’s senior strategist for North America. Here’s an edited transcript of our conversation:

Kurt, we spoke previously in the summers of 2021 and 2020 and your market outlooks now look prescient. The view from here seems more challenging than before, though. Have you seen a time when investors faced more adversity?

I think that there are more headwinds today. The overarching theme is that the period of steady growth, declining inflation and lengthening business cycles is over. We’re bracing for volatility. We think that central banks are going to have to veer between focusing on the politics of inflation and focusing on the economic consequences of controlling inflation. And that means the bull market in stocks and bonds that prevailed for most of the past four decades is unlikely to repeat itself.

BlackRock’s midyear outlook sums up this view as the end of the Great Moderation, a term economists use for the years of stable inflation and growth from the mid-1980s to 2019. How should investors adjust their approach?

Risk models and the standard 60-40 portfolio allocation [to stocks and bonds] are based on historical data. They might not work. I think investors are going to have to become more granular, selective, more tactical.

Can you give us an example of being more granular, selective and tactical?

The corporate bond market has priced in a recession outcome. You’re now getting a [higher] yield on corporate bonds that’s equivalent to what you would have found, say, 20 years ago. That’s a tactical opportunity that we are taking over six to 12 months to augment returns.

Your outlook talks about bracing for volatility, which has been a constant in the pandemic years. Where will we see the most pronounced volatility in the next six months?

We will have quite a bit of volatility in stocks. We don’t think that the stock market fully reflects the downshift in economic activity. Volatility is not just on the downside and I think we’re going to see stocks oscillate on the idea that while central banks are tightening, there are still signs of economic momentum from the restart [after pandemic economic lockdowns]. There’s also the potential for certain sectors to show earnings resilience relative to expectations.

Can you give us an example of resilient sectors?

Two that stand out are energy and materials. Next year’s earnings are expected to decline, but we think commodity prices are going to be elevated. Investors have not reflected that in prices for either of these two sectors. They’re still cheap relative to their long-term history, they’re still cheap relative to the broad market.

Inflation seems to be a driver of so much in the financial world today. Which investments are performing well as inflation hedges?

Commodities are the top-performing asset this year, and commodity stocks as well.

What’s your take on how long inflation will remain at levels above the 2-per-cent mark that seemed normal in the prepandemic world?

As far as the eye can see. Let’s say that in our five-year estimates for returns and risk for a range of asset classes, we assume that inflation will be above 2 per cent – close to 3 per cent – for the U.S.

The word ‘recession’ crops up more and more in financial outlooks. What’s the view at BlackRock on the potential for a recession in Canada and the United States in the next 12 or so months?

If we get a recession, in our view it’s likely to be more muted. Some might call it a technical recession, meaning that you get a contraction of economic output for a couple of quarters. But because people are employed and unemployment rates are low, it doesn’t necessarily feel like a traditional economic decline.

How should investors construct a portfolio, given the tug of war between inflation and recession? In particular, how should those who see themselves as candidates for a balanced portfolio choose stocks and bonds?

Assuming the traditional historical split of 60 per cent stocks and 40 per cent bonds, I think there’s a tilt within bonds away from government bonds towards inflation-linked bonds and towards investment-grade corporate bonds. Within stocks, the focus is on earnings quality and resilience.

Do bonds at some point become a ‘buy low’ candidate?

We’ve been asking the question of when we are going to love bonds again and the answer is, not yet. Oddly, we really haven’t seen inflation be fully priced in with both the inflation-protected bond market and the rest of the bond market. Bond yields have room to rise.

For stocks, how bullish are you on Canada versus the U.S. market?

The U.S. market has fewer resources and more interest rate-sensitive growth. We expect further outperformance from Canadian stocks versus what you might find in the U.S. or Europe.

Bank stocks have been a disappointment in the past year – what’s the outlook in that sector?

There’s pressure on financials globally from concerns about overtightening – potentially either stalling economic activity or causing a recession. In the near term, that’s a pressure point. But we also have to reflect on the fact that the banks globally have already priced for substantial bad news. If you get a dovish pivot from central banks, it’s financials that are going to be first out of the gate.

You singled out energy stocks earlier for their resilience. What more can you tell us about the outlook for energy?

We think the price of oil and natural gas are structurally elevated and that the risk of recession could for a time cause periodic weakness. But we see a higher floor for energy prices, and for broader metals and materials as well. Energy companies are generating outsize free cash flows because they’re not incentivized to grow production in the same way as a rise in oil prices in the past would have triggered. We think this continues even if, in a recession, we see a decline in oil prices. If companies aren’t using free cash flow to invest in new production, they have to do something with it. Likely, they’ll use it to either buy back shares or increase dividends.

In closing, what’s your top piece of advice for investors concerned about how their portfolio will bear up to what’s ahead?

The way investors today are going to succeed is not with a ‘set it and forget’ approach or by abandoning assets and moving to cash. Rather, it’s about being more granular – in bonds, that means finding exposures that are better; by being more selective – looking at Canadian stocks versus U.S. stocks; and, by being more tactical. Making changes to a portfolio in a more volatile world will help to improve outcomes.

Bank of America revenue tops expectations as lender benefits from higher interest rates

• Bank of America earnings dropped 32% to $6.25 billion, or 73 cents a share, from a year earlier as the firm took a $523 million provision for credit losses.
• Revenue climbed 5.6% to $22.79 billion, edging out analysts’ expectations, as net interest income surged 22% to $12.4 billion on rising interest rates and loan growth.
• Shares of the lender fell more than 1% in premarket trading.

https://www.cnbc.com/2022/07/18/bank-of-america-bac-2q-2022-earnings-.html

Goldman Sachs crushes analysts’ expectations on strong bond trading results, shares rise 3%

• Second-quarter profit fell 48% to $2.79 billion, or $7.73 a share, driven by industrywide declines in investment banking revenue. Still, the results were more than a dollar higher than the average analyst estimate reported by Refinitiv.
• Revenue fell 23% to $11.86 billion, which was a full $1 billion more than analysts had expected, driven by a 55% surge in fixed income revenue.
• The bank’s fixed income operations generated $3.61 billion in revenue, topping the $2.89 billion StreetAccount estimate, on “significantly higher” trading activity in interest rates, commodities and currencies.

https://www.cnbc.com/2022/07/18/goldman-sachs-gs-2q-2022-earnings.html

Before the Bell: July 18

Equities

Wall Street futures gained early Monday on easing concerns about aggressive rate hikes from the Federal Reserve as traders weigh more earnings from U.S. banks. Key European markets were also up in morning trading. TSX futures advanced with fresh inflation figures due midweek.

In the early premarket period, futures linked to the three main U.S. indexes were all up roughly 1 per cent. The Dow, Nasdaq and S&P 500 are coming off a losing week despite a relief rally on Friday’s session. The S&P/TSX Composite Index ended Friday up 0.36 per cent.

“Investors remain focused on earnings this week, to determine which companies are in a better position to weather the difficult macroeconomic environment, and the rising interest rates,” Swissquote senior analyst Ipek Ozkardeskaya said in an early note.

“Good news is that, the week starts with improved odds of seeing a 75-basis-point hike at the next FOMC meeting, rather than a 100-basis-point hike. The probability of a 75-basis-point hike is back to 70 per cent, up from around 20 per cent following the scary inflation report that was released last week in the U.S.”

On Monday, U.S. investors got more U.S. bank earnings ahead of the start of trading.

Goldman Sachs posted profit of US$2.8-billion, or US$7.73 per share, for the quarter ended June 30 compared with US$5.3-billion, or $15.02 per share, a year earlier. However, the latest result handily topped market forecasts. Analysts had been expecting earnings per share in the most recent quarter of US$6.58, according to Refinitiv. Shares were up more than 3 per cent in premarket trading.

Bank of America reported a drop in profit, hit by weaker investment banking revenue. Profit applicable to common shareholders fell to US$5.93-billion, or 73 US cents per share, for the quarter ended June 30, from US$8.96-billion, or US$1.03 per share, a year earlier.

Later in the week, Netflix reports Tuesday, with markets closely watching how the streaming giant’s latest subscriber numbers stack up. Tesla reports on Wednesday.

In this country, Suncor Energy Inc. says it has struck a deal with activist investor Elliott Investment Management LP that will see it undertake a strategic review of its downstream retail business with the goal of “unlocking shareholder value.” The agreement will also see three new independent directors join the company’s board.

Meanwhile, Canada Mortgage and Housing Corp. said the standalone monthly seasonally adjusted annual rate of housing starts in the country was 273,841 units in June, down 3 per cent from May.

The week’s key economic release comes Wednesday when Statistics Canada delivers June inflation figures. Earlier this month, the Bank of Canada surprised by hiking interest rates by a full percentage point in an effort to curb high price pressures. The annual rate of inflation in May hit a decades high of 7.7 per cent.

“RBC Economics anticipates that the CPI inflation rate will edge up to 8.0 per cent year-over-year,” Alvin Tan, Asia FX strategist with Royal Bank, said.

“This continued acceleration was likely largely driven by higher food and energy prices. Roughly half of inflation recently has been driven by global external forces.”

Overseas, the pan-European STOXX gained 1.41 per cent. Britain’s FTSE 100 rose 1.40 per cent. Germany’s DAX and France’s CAC 40 were up 1.41 per cent and 1.29 per cent, respectively. The European Central Bank makes its next policy decision on Thursday. Markets are expecting the central bank to raise interest rates for the first time in a decade.

In Asia, Hong Kong’s Hang Seng added 2.70 per cent, helped by gains in tech stocks. Markets in Japan were closed.

TSX 60 FUTURES

1,123.40+9.20 (0.83%)

DOW FUTURES

31,502.00+255.00 (0.82%)

S&P 500 FUTURES

3,892.75+27.75 (0.72%)

PAST DAY

0.83%0.82%0.72%

CLOSE, JULY 15

7:32 A.M., JULY 18

SOURCE: BARCHART

Commodities

Crude prices gained in early going as tight supply helped offset concerns about the health of the global economy and the potential impact of COVID-19 restrictions in China.

The day range on Brent is US$99.46 to US$104.36. The range on West Texas Intermediate is US$95.85 to US$100.57. Both benchmarks saw weekly declines last week.

“Supply risks remain evident in international markets, and futures curves remain in backwardation,” OANDA senior analyst Jeffrey Halley said.

“Despite the ructions in the speculative futures markets, the real-world dynamic remains as supportive of oil prices as ever. If Russian doesn’t switch gas exports back on to Europe at the end of the week, Brent crude could once again, find itself back near US$110 a barrel.”

Russia is scheduled to finish maintenance on the Nord Stream 1 pipeline on July 21, although many fear the resumption of gas flows could be delayed as a tactic in Moscow’s attack on Ukraine.

Meanwhile, Reuters reports U.S. Treasury Secretary Janet Yellen said on Saturday she had productive meetings about a proposed price cap on Russian oil with a host of countries on the sidelines of a meeting of the finance chiefs of the Group of 20 major economies.

In China, mass COVID-19 testing in parts of the country this week is again raising concerns that lockdowns could follow, hitting demand from one of the world’s top oil consumers.

In other commodities, gold prices gained as the U.S. dollar pulled back from 20-year highs.

Spot gold rose 0.7 per cent to US$1,719.49 per ounce by early Monday morning, after falling to its lowest in nearly a year last week. U.S. gold futures gained 0.6 per cent to US$1,714.30.

“Overall, gold’s price action continues to be uninspiring with recoveries limited in scope, while the falls, when they do occur, are much larger and faster in scope,” Mr. Halley said.

“Gold’s fate this week rests on the hopes that the investor sentiment rally seen elsewhere, inspires more U.S’ dollar weakness.”

HIGH GRADE COPPER

US$3.32+0.09 (2.72%)

WTI

US$99.60+2.01 (2.06%)

SPOT GOLD

US$1,710.40+6.80 (0.40%)

PAST DAY

2.72%2.06%0.40%

CLOSE, JULY 15

7:12 A.M., JULY 18

SOURCE: BARCHART

Currencies

The Canadian dollar advanced in early morning trading, supported by positive risk sentiment, improved crude prices and a pullback in its U.S. counterpart.

The day range on the loonie is 76.71 US cents to 77.11 US cents.

“The CAD is a middling performer on the session despite stronger stocks and firmer crude oil on the session,” Shaun Osborne, chief FX strategist with Scotiabank, said.

“Even with risk appetite up, commodities firmer and the BoC having hiked 100 basis points, the CAD can’t seem to gain much traction,” he said in a note. “Domestic growth concerns likely account for some of the CAD’s lagging performance.”

The week’s key event for the loonie will be Wednesday’s inflation report. Investors will also get fresh retail sales numbers at the end of the week.

On world markets, the U.S. dollar index, which weighs the greenback against a basket of currencies, was 0.35 per cent lower at 107.48 and down 1.8 per cent from last week’s two-decade highs, according to figures from Reuters.

The euro rose 0.5 per cent at US$1.0149 after falling below parity with the U.S. dollar last week for the first time since 2002.

Other risk-sensitive currencies were also higher.

The New Zealand dollar hit a 10-day high against the greenback of US$0.62, up 0.4 per cent.

The Australian dollar also touched a one-week high, according to Reuters.

In bonds, the yield on the U.S. 10-year note was up at 2.961 per cent in the predawn period.

CANADIAN DOLLAR/U.S. DOLLAR

US$0.7700+0.0022 (0.2892%)

PAST DAY

PREV. CLOSE

0:00 A.M., JULY 18

US$0.7694

7:12 A.M., JULY 18

US$0.7700

SOURCE: BARCHART

More company news

Delta Air Lines will buy 100 Boeing MAX 10 jets worth about US$13.5-billion at list prices and has options to buy another 30, it said on Monday. Reuters reported in March that Delta was edging towards an order for 100 MAX 10 planes and reported last week that Airbus was in talks for Delta to expand an existing order of A220 planes. Delta, which made the announcement at the Farnborough air show, said it would start taking deliveries in 2025.

Economic news

(815 am ET) Canada housing starts for June.

(10 am ET) US National Association of Home Builders housing market index.

With Reuters and The Canadian Press

BMO expects big bounce-back in TSX stocks.

The S&P/TSX Composite Index is trading at recessionary valuation levels and that, combined with the extreme breadth of weakness and the dramatic underperformance of cyclical stocks, has BMO chief strategist Brian Belski expecting a strong rally in Canadian stocks.

Mr. Belski calculates that Canadian stocks are trading at an average trailing price to earnings ratio last seen during the depths of the financial crisis and during the recession of the early 1990s. He notes that the S&P/TSX Composite is hovering within 5 per cent of its pre-Covid peak, yet profits are fully 40 per cent higher.

These recessionary valuation levels assume a sharp decline in earnings ahead but Mr. Belski does not expect this to be the case. He adds that these are likely trough valuations, or extremely close to them, and that historically this indicates strong returns for the next 12 months.

Mr. Belski also emphasizes that the extreme breadth of the recent sell-off – the sheer number of companies hitting new 52-week lows – implies that a bounceback is probable.

Significantly more than half of non-resource index stocks are at 52-week lows and less than 5 per cent of non-resource stocks are making new highs. The strategist notes that both of these results are two standard deviations from their historical averages.

“This type of indiscriminate selling is another strong contrarian indicator,” writes Mr. Belski. “Our work shows the S&P/TSX price performance 12 months after the breadth of companies hitting new lows to this extreme is almost 15%.”

Economically-sensitive, cyclical market sectors have significantly underperformed defensive sectors, providing another sign the market is in oversold territory, according to BMO. Mr. Belski noted that the performance spread between cyclical sectors like consumer discretionary, industrials and technology and defensive industries like consumer staples and utilities is at extreme highs.

Mr. Belski’s analysis indicates that when cyclical underperformance reaches current stretched levels, the market as a whole tends to rebound by more than 10 per cent in the following year. In the current case, he believes investors are over-estimating the pace of the global economic slowdown.

Mr. Belski has made a plausible argument here that domestic equities are a bit of a coiled spring after a 15 per cent sell-off since the end of March. Importantly, his perspective is bullish from both a fundamental standpoint – valuations – and also the technical factor of market breadth.

Rattled by recession talk? Railway stocks can get you through the volatility

Canadian railway stocks have been cruising through this year’s market volatility, suggesting the sector is a safe bet amid a backdrop of soaring inflation and concerns about declining economic activity. Some observers expect that railway stocks will remain attractive as uncertainty lingers – not because they are cheap or out of favour (they are neither), but because they can withstand the challenges that are weighing on many other sectors right now.

Canadian home prices spiral down in June

Canada’s housing market slowed for the third straight month in June, with home prices cratering – the largest monthly decline on record – as borrowing costs soar and buyers struggle to qualify for a mortgage.

The national home price index, which adjusts for pricing volatility, dropped 1.9 per cent to $807,400 on a seasonally adjusted basis, according to the Canadian Real Estate Association (CREA). It follows the April-to-May decline of 0.8 per cent and the March-to-April drop of 0.6 per cent.

Home prices tumbled across the country, especially in the B.C. Interior and throughout Ontario, including cottage country and smaller cities, where property values had almost doubled over the first two years of the pandemic. In Ontario, the home price index for the Kawartha Lakes region fell almost 11 per cent from May to June, while Woodstock-Ingersoll, Simcoe and London each lost more than 5 per cent over the same period.

From peak prices in March, the national home price index is down 3.3 per cent. But unadjusted numbers show even greater declines. In Toronto, the country’s largest real estate market, the index fell almost 10 per cent over three months.

CREA senior economist Shaun Cathcart said he was not surprised to see property values drop by this magnitude given that they are up 50 per cent since the beginning of the pandemic. “To give back 3.3 per cent since March is still pretty small potatoes,” he said.

The number of home resales fell 5.6 per cent from May to June on a seasonally adjusted basis. Activity was down in three-quarters of the country, with the largest declines in the major urban centres of Toronto, Vancouver, Calgary, Edmonton and Ottawa. Resales also dropped significantly in Toronto suburbs such as Burlington and the nearby city of Hamilton.

The country’s housing market started slowing after the Bank of Canada embarked on mission to hike interest rates to tamp down inflation. Last month’s housing activity does not reflect the central bank’s July hike of one percentage point. The benchmark interest rate is now 2.5 per cent, up from 0.25 per cent in early March. That has increased interest payments for variable-rate mortgage holders and has made it harder for would-be buyers to qualify for a mortgage.

Under federal banking rules, borrowers must prove they can make their monthly mortgage payments at an interest rate that is at least two percentage points higher than that of their actual loan contract; for instance, with a five-year fixed rate of almost 5 per cent, a borrower would have to show they can make their payments with an interest rate of almost 7 per cent.

This has made it particularly difficult for first-time homebuyers, especially those in expensive markets such as most of Southern Ontario and B.C.

Kristina Legault, a realtor with Century 21 Creekside Realty, which serves the Chilliwack area in B.C., said some buyers simply cannot get financing now. “The interest rate really has an effect on them,” she said.

But it’s not just interest rates making housing increasingly unaffordable for Canadian residents. Ms. Legault said the higher costs of goods and services are giving homebuyers pause.

Properties are taking longer to sell, even as more people are putting their homes up for sale. The number of new listings across the country increased 4.1 per cent from May to June. Phil Soper, the president of Royal LePage, said he will be watching the pace of new listings; if it spikes relative to weakening demand, it will lead to a drop in prices, he said.

Compared with June of last year, the home price index is still 15-per-cent higher. Private-sector economists predict prices will fall as much as 20 per cent from the record highs of the first quarter by early next year.

However, many economists believe the country’s robust jobs market and the steady flow of immigrants will sustain demand for housing and prevent prices from plunging. Farah Omran, an economist with Bank of Nova Scotia, said that would “set a floor” on home prices in the longer term.

Economic Calendar (July 18 – July 22)

Monday July 18

(815 am ET) Canada housing starts for June. Consensus is a fall of 4.1% to an annualized rate of 275,600.

(10 am ET) US National Association of Home Builders housing market index.

Earnings include: Bank of America; Charles Schwab; Goldman Sachs; Mueller Industries; PrairieSky Royalty

—

Tuesday July 19

Euro area consumer price index for June. UK releases employment numbers.

(830 am ET) U.S. housing starts for June. Consensus is a 2.7% rise to an annualized rate of 1.59 million.

(830 am ET) U.S. building permits for June. Consensus is they will see a 2.2% drop.

Earnings include: First Bancorp, Halliburton; Lockhead Martin; Hasbro; Netflix; Johnson & Johnson

—

Wednesday July 20

Euro area consumer confidence; Germany producer price index; UK consumer prices and produce price index.

Bank of Japan Monetary Policy Meeting and outlook (through Thursday)

(830 am ET) Canada consumer price index for June. Consensus is for a 0.9% monthly rise, which would be less than May’s 1.4%. On an annualized basis though, it’s expected to be up 8.4%, accelerating from May’s 7.7% jump. Core CPI is expected to rise 4.9% from a year earlier.

(830 am ET) Canada industrial product price index for June and raw materials price index. BMO expects monthly declines of 0.5% and 0.2%, respectively.

(830 am ET) Canada household and mortgage debt.

(10 am ET) U.S. existing home sales for June. Consensus is for a 0.2% decline to an annualized rate of 5.4 million.

Earnings include: United Airlines Holdings; Abbott Laboratories; Alcoa; Baker Hughes; Biogen; CSX; Las Vegas Sands; Steel Dynamics; Tesla, Nasdaq; Kinder Morgan; A&W Revenue Royalties Income Fund

—

Thursday July 21

Japan trade balance and machine tool orders

ECB Monetary Policy Meeting

(830 am ET) Canada new housing price index for June. It’s expected to be up 8% from a year ago, according to BMO. In May it was up 8.4%.

(830 am ET) U.S. initial jobless claims for last week.

(830 am ET) U.S. Philadelphia Fed Index.

(10 am ET) U.S. leading indicator.

Earnings include: Alaska Air Group; American Airlines Group; AT&T; Blackstone; Travelers Companies; Union Pacific; Capital One Financial; Choice Properties REIT; Nucor; Domino’s Pizza; D R Horton; Freeport-McMoRan; Mullen Group; Philip Morris International; Snap; Mattel; Mainstreet Equity

—

Friday July 22

Japan CPI and manufacturing PMI.

Euro area manufacturing, services and composite PMIs. UK releases consumer confidence, retail sales and PMIs.

(830 am ET) Canada retail sales for May. Consensus is for a 1.6% rise – higher than April’s 0.9% rise – or up 2.3% when excluding autos.

(945 am ET) U.S. S&P global PMIs for July.

Earnings include: American Express; Verizon Communications; HCA Healthcare; Twitter

Citigroup’s quarterly profit tops expectations on trading boom

Citigroup Inc C-N +10.17%increase posted a smaller-than-expected 27 per cent drop in quarterly profit on Friday as the third-largest U.S. bank’s trading desk cashed in on increased market volatility, cushioning a slump in investment banking.

Revenue at the markets business jumped by a quarter to $5.3-billion, thanks to volatility in the commodities and foreign exchange markets – a particularly strong segment for the bank.

Trading has emerged as a bright spot for Wall Street banks this quarter as clients look to rebalance their portfolios in the face of geopolitical tension, surging inflation and fears that aggressive Federal Reserve policy tightening could plunge the economy into a recession.

Citi shares rose 5 per cent shortly after the market opened.

The bank’s profit fell to $4.5-billion, or $2.19 a share, in the quarter ended June 30, from $6.2-billion, or $2.85 a share, a year earlier.

Excluding items, Citi earned $2.30 per share, according to Refinitiv calculations, beating the average analyst estimate of $1.68 per share.

The profit drop also reflected a $375-million increase in reserves for potentially sour loss loans as the economic outlook darkens. A year earlier, exceptional government stimulus and the economy’s recovery from the pandemic had allowed it to release $2.4-billion of reserves.

That pushed up credit costs to $1.3-billion, a sharp contrast to the $1.07-billion benefit a year earlier.

Citigroup will suspend share buybacks in the face of threats to the economy and the need to build up a key regulatory capital ratio, which is increasing, Chief Financial Officer Mark Mason told reporters.

The move confirmed expectations of analysts and followed a similar move by JPMorgan Chase & Co on Thursday.

Investment banking revenue fell 46 per cent to $805-million as the volatility in markets dried up underwriting and advisory fees for investment bankers who drove Wall Street’s profit during the depths of COVID-19.

The Treasury and Trade Solutions business – Citi’s crown jewel – posted a 33 per cent jump in revenue to $3-billion on the back of higher net interest income and fee growth.

The bank, which disclosed an exposure of $8.4-billion to Russia as of the second quarter, said it was mulling options to exit its consumer and commercial banking business in the country.

Major U.S. banks and securities firms are intent on exiting their Russia businesses as they work to comply with U.S. sanctions imposed after the invasion of Ukraine.

Retail sales rose more than expected in June as consumers remain resilient despite inflation

• Retail sales rose 1% in June, slightly better than the 0.9% estimate.
• The numbers are not adjusted for inflation, which rose 1.3% on a monthly basis, indicating that real sales still were slightly negative.
• Gasoline stations, online sales, and bars and restaurants were some of the biggest contributors.

https://www.cnbc.com/2022/07/15/retail-sales-june-2022-.html