A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Royal Bank reported weaker-than-expected quarterly profits Wednesday, and, while I’d prefer to feature a domestic analyst’s reaction here, all I have so far is Citi’s Maria Semikhatova,
“RBC 3Q19 diluted [adjusted earnings per share] of C$2.26 is -1% vs consensus and +6% yoy, driven by strong performances in [personal banking] (+4% vs cons), [wealth management] (+2%) and insurance (+8%) offset by a weaker result in I&T Services (-26%), Capital Markets (-9%) and Corporate Centre. Cost growth slowed down to 2% yoy despite continued investments in talent and technology and came 1% below (better) vs cons… We view the results as largely neutral and expect the markets to focus on margin outlook given the recent interest rate cut in the US and the possibility of rate cuts in Canada.”
“@SBarlow_ROB C on RBC earnings” – (research excerpt) Twitter
Update: The globe’s James Bradshaw has just published on RBC earnings in “RBC hikes dividend, posts profit gain as bank earnings kick off”
Nomura’s chief economist Richard Koo is always interesting,
“The question then becomes, what factors did Chair Powell and President Williams overlook in trying to find the cause of the economic slowdown? The answer … is that businesses and households have stopped borrowing and spending in spite of ultra-low interest rates…
"There were two reasons why businesses and households stopped borrowing and investing in the wake of the GFC. One was that the bubble’s collapse plunged many leveraged borrowers into technical insolvency, forcing them to undertake desperate efforts to repair their balance sheets.
"The other was that globalization caused returns on capital in the newly emerging economies to exceed those in the developed world … As a result, they no longer need to borrow money domestically. These two factors have been largely ignored in economics. Japan encountered the first issue—balance sheet problems—when its asset bubble collapsed in 1990. Cleaning up the resulting mess took over two decades. Now the second issue—unattractive domestic returns on capital—has come to the fore.”
The lack of developed world borrowing clearly does not apply to Canada.
“@SBarlow_ROB Koo: “There were two reasons why businesses and households stopped borrowing and investing in the wake of the GFC” – (research excerpt) Twitter
TD chief economist Beata Caranci published a report wondering if the imposition of new tariffs on Chinese goods imported to the U.S. represents the global economy’s ‘KerPlunk Moment,"
“A tariff of 10% hardly seems like a high threshold to kick the legs out of business and market confidence… But, this time the consequences could be different. The latest trade action may simply have pulled too many straws from underneath market and business confidence. The base has become steadily more fragile with a lengthy disruption to trade flows undermining global growth prospects. This time last year, we were predicting global growth of 3.6%. Today, that forecast has been whittled down to 2.9%, the weakest pace in a decade.”
“@SBarlow_ROB TD’s Caranci wonders if latest tariffs are markets’ ‘Kerplunk’ moment” – (research excerpt) Twitter
The Financial Times discusses the revival of the notorious “widow-maker” trade, which underscores the similarities between Japan’s economy in the 1990s and the developed world now,
“The most famous ‘widow-maker’ trade in financial markets — one that has frustrated generations of money managers — is betting against Japanese government bonds… Many investors point out that just because bonds are expensive, it does not mean that they cannot become even more expensive. But it is clear that government debt has rarely been this pricey — if ever. .. BlueBay Asset Management, which manages $64bn in assets, is betting against short-dated US Treasuries and 10-year UK gilts. “We think yields are too low in the US, as we feel that recession risk is overpriced,” said Mark Dowding, BlueBay’s chief investment officer. “In the UK, yields also look too low as we see fiscal stimulus and a possible election that could lead to a change of government.”
“Rip-roaring bond rally revives talk of ‘widow-maker’ trade” – Financial Times (paywall)
Tweet of the Day:
Diversion: Steve Randy Waldman is a wise man, “Predatory precarity” – interfluidity (some NSFW language)