It’s fitting that Cineplex Inc. is among the many companies reporting quarterly results this week because investors are going to be on the edge of their seats for five days running.
The theatre chain joins about 65 other companies listed on the Toronto Stock Exchange and almost 145 on the S&P 500, as first-quarter earnings season nears its climax.
“The U.S. reporting season has delivered strong earnings beats and surprises, with 36 per cent of S&P 500 companies having reported thus far,” John Normand of JPMorgan Chase said.
About 80 per cent of those have topped the profit estimates of analysts and 68 per cent have eclipsed revenue projections, he noted.
“Blended 1Q revenue growth [reported + estimate] is now 7.4 per cent and earnings growth is 21.1 per cent [vs. 17.6 per cent last week].”
There’s more than just earnings to keep us entertained, with some key economic readings and expected developments as movie trailers.
“The looming [May 1] expiration of temporary exemptions to U.S. steel and aluminum import tariffs for the group of countries that includes Canada is sure to keep some investors on edge,” Bank of Montreal economist Carl Campus said.
“Combine these forces with a relatively strong earnings season and a U.S. 10-year Treasury yield that briefly held above 3 per cent for the first time in over four years and the result was a very mixed week for stocks [last week],” Mr. Campus said.
So sit back and enjoy the show:
MONDAY: SUPER SIZE ME
There are some lesser-tier economic readings, but McDonald’s Corp., Air Canada and Allergan PLC share the week’s opening credits.
Read more
- Canadian airline profits projected to fall in 2018 on increased costs
- Greg Keenan: Air Canada to offer lie-flat seats on some North American routes
TUESDAY: THE EXORCIST
Bank of Canada governor Stephen Poloz speaks in Yellowknife to the chamber of commerce about just how big the household debt problem is in Canada.
Spoiler alert: Big.
Derek Holt, head of capital markets economics at Bank of Nova Scotia, said he’d be surprised if Mr. Poloz doesn’t reiterate what senior deputy governor Carolyn Wilkins said in late March as he helps us exorcise our debt demons.
“With high levels of household debt and the Canadian economy operating close to capacity, monetary policy actions to achieve the inflation target and support financial stability are currently complementary. The Bank of Canada has underscored that there is nonetheless a fine balance to be struck here: While moving too slowly would allow more time for financial vulnerabilities to build, moving too quickly could have outsized effects, given the high level of household indebtedness.”
It’s actually a double feature on economics as Statistics Canada precedes Mr. Poloz with a reading on economic growth in February.
Economists expect the report to show a rebound of 0.3 per cent after January’s dip.
Nonetheless, just one thumb up here.
“A weak 0.3-per-cent reading will leave us tracking 1.7 per cent for Q1, matching the rate seen in the fourth quarter of last year,” Royce Mendes of CIBC World Markets said.
“That leaves some elbow room for the Bank of Canada to leave rates unchanged at its May meeting, using that time to monitor the myriad of headwinds facing the economy.”
The Reserve Bank of Australia is meeting, meanwhile, and is expected to keep its benchmark rate steady at 1.5 per cent.
“And the central bank may well revise down its GDP growth forecasts in May’s statement on monetary policy [Friday],” said Paul Dales of Capital Economics.
There are also manufacturing purchasing managers index readings from around the world and a long list of earnings, one of the stars being Apple Inc. We’ll see what the reviewers say about its performance.
And just think of how much easier this all would have been had they had an iPhone:
“When Apple announced the launch of the £1,000 [$1,768] iPhone X last year, there was some skepticism about the sustainability of a pricing policy which, while aimed at a loyal audience, could prompt a significant slowdown in the longer term,” CMC Markets chief analyst Michael Hewson said.
“When paying that sort of money for a device, it is highly likely that the churn rate will slow,” he added.
“A lot of people wouldn’t pay that much for a computer, let alone a phone. Despite a positive start at the end of last year, the high price points do appear to be starting to have an effect on handset sales, if recent warnings from Apple suppliers are any guide.”
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WEDNESDAY: THE GODFATHER (AND BRIAN)
Federal Reserve chief Jerome Powell, the godfather of central bankers, announces his rate decision, along with the rest of his cast.
Spoiler alert: Unlike the actual movie, this is likely to be boring, with no change expected after the Fed raised rates in March.
“To be sure, interest rates are likely to grind higher but the ‘gradual’ pace expected probably means not at back-to-back policy meetings,” Royal Bank of Canada economists said in their plot summary.
“Attention will be more focused on indications of the likely pace of future hikes. The economic backdrop still looks solid – and with a boost from tax cuts earlier this year and higher federal discretionary spending still largely to come.”
Indeed, this week marks the beginning of a key, if uncertain, month for the Fed, not to mention markets and the world in general.
Negotiators are rushing to reach a deal to overhaul the North American free-trade agreement. Also on the horizon is a U.S. deadline on Chinese import tariffs. U.S. President Donald Trump is going to meet at some point with the newly warm and fuzzy Kim Jong-un and also must decide soon whether to stand by Iran’s nuclear agreement, which could unsettle the oil market.
And given the, um, messiah complex in the White House, there’s no telling what could happen.
“Anything could happen over this time frame, but say that – come June 13 – a harsher shock to oil and gasoline prices, a significant escalation of U.S.-China trade tensions and a failed attempt at securing greater stability on the Korean peninsula combined to impair financial stability, and possibly to the detriment of global growth,” Scotiabank’s Mr. Holt said.
“Does the Fed still hike? At a minimum, I would think market conviction would decline. Taken further, what’s the enormous rush for the Fed to deliver its projected two more hikes this year — or maybe three — over the remaining six meetings in the face of such uncertainty?”
Markets will also be treated to European economic readings, which Jack Allen of Capital Economics expects to show slower first-quarter growth in the euro zone. He expects an accompanying reading to show a further easing in unemployment to 8.4 per cent in March.
This is also the day that Cineplex reports results, as do several others, including Kraft Heinz Co., Loblaw Cos. Ltd., Manulife Financial Corp. and Mastercard Inc.
Read more
- Rising costs, inflation on radar as U.S. earnings season unfolds
- Sean Silcoff: Person involved in price-fixing scheme fights to keep name out of spotlight
THURSDAY: EUROTRIP
Spoiler alert: Mr. Allen expects inflation in the euro zone to come in at 1.3 per cent for April, unchanged from March.
Get a large popcorn, because there’s a lot more:
Economists expect Statistics Canada’s monthly look at trade to show the deficit narrowed to somewhere between $2-billion and $2.3-billion in March from February’s $2.7-billion.
“Export growth will be led by agricultural products after transportation bottlenecks led to an unprecedented 17-per-cent decline in February, concentrated in grains,” Toronto-Dominion Bank economists said.
″[Canadian dollar] depreciation should also lend a hand, with the cumulative decline from the Q1 highs reaching 6.7 per cent by mid-March,” they added.
“However, energy products represent a downside risk on maintenance shutdowns that were pulled forward due to market conditions. On the other side of the ledger, imports should see a more modest increase after a 1.9-per-cent advance in February.”
The United States also reports its trade deficit, expected to show a narrower US$55.6-billion.
Opening and closing credits: BCE Inc., Berkshire Hathaway Inc., Bombardier Inc., Canadian Natural Resources Ltd., Crescent Point Energy Corp., Fairfax Financial Holdings Inc. and SNC-Lavalin Group Inc., among others.
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FRIDAY: OFFICE SPACE
Markets are awaiting the key U.S. labour report, which economists expect to show net job creation of 185,000, give or take a few, and a dip in unemployment to 4 per cent in April.
“A slightly cooler gain in jobs than the average seen in Q1 shouldn’t change what’s a largely positive outlook for household incomes and consumer spending,” Andrew Grantham of CIBC said.
“Should business investment start to pick up again later in the year following the tax cut and other incentives given to companies to make such investments, that should restrengthen the trend in construction and manufacturing employment growth.”
So, is it safe to go back in the market?
