Top of the morning
In his final post at Business Insider, Joe Weisenthal explains why covering financial markets is so enjoyable — and tricky:
When things start getting bad, people buy gold, because duh, that’s what you do when there’s panic: you buy gold! But when people REALLY start to freak the heck out, they dump gold, because if everything’s falling apart, and you’re worried about losing your job, and and your bill collector is going to be calling you up soon, are you going to pay your debts and rent in gold? No, you need cash. So you sell gold and get dollars.
Financial markets are filled with non-intuitive relationships, and what’s awesome is things are always changing. It’s kind of like that poem about the blind men feeling different parts of the elephant and coming to different conclusions about what they’re touching. Except in this case, they’re touching some kind of shape-shifting animal, so that not only are they all only getting small parts of the picture at any moment, the picture never stays the same.
On the homefront
TSX’s winning streak snapped. Four sessions of consecutive triple-digit gains on Bay Street ended Wednesday, as the TSX plunged by more than 200 points. While traders attributed some of the drop-off to a “sell first, ask questions later” reaction to the shootings on Parliament Hill, more fundamental factors were working against Canada’s benchmark index. The price of WTI crude oil tumbled; by and large, the TSX tanked in tandem with the commodity. “The drop in crude prices began with a sharp negative reaction to a report by the EIA that U.S. crude inventories increased 7.11 million barrels to 377.7 million for the week ended Oct. 17 with the market expecting an increase of 3.0 million,” writes Adrian Miller, director of fixed income at GMP Securities. “The upside surprise comes as refinery utilization rates dropped to March lows that served to cut gasoline inventories and boost crude inventories.” However, stocks seemed poised to reverse at least a portion of yesterday’s loss, as TSX 60 futures are moving higher ahead of the open.
The Canadian dollar is up marginally against the greenback this morning to trade at 0.891.
Earnings. Two giant Canadian companies, one in the energy and another in the materials sector, reported earnings before the market opened this morning. Cenovus Energy (CVE) posted a bottom-line beat, with operating earnings per share coming in at $0.49, seven cents above the consensus estimate. Another company in the space, Husky Energy (HSE), didn’t do nearly as well; adjusted earnings per share were $0.50 on the quarter compared to the consensus estimate of $0.59. Similarly, Potash Corp. (POT) was rather disappointing: earnings per share of $0.38 were four cents below what analysts were looking for, and narrowed its full-year guidance from a range of $1.70 to $1.90 per share by five cents on each end. Rogers (RCI.B) posted a heftier, ten-cent miss as it reported adjusted EPS of $0.78, though revenues were in line with expectations.
Bank of Canada stands pat. As expected, the Bank of Canada left the overnight rate at one per cent following its latest meeting, and made only marginal adjustments to its forecasts. The statement was largely hailed as hawkish due to the removal of language characterizing the bank’s stance as neutral, but governor Stephen Poloz had telegraphed such a shift through his discussion paper indicating that forward guidance was on its way out. Due to the tumult in Ottawa, yesterday’s press conference and testimony before the House of Commons standing committee on finance were cancelled. One fun thing we did learn: it seems as though the governor is a fan of The Lord of the Rings.
Canadian software giant sees profits double. After the close on Wednesday, Open Text (OTC) released Q1 earnings for its fiscal 2015. At $64.6 million, net income was more than twice what it was in the same period last year; adjusted earnings per share also handedly beat analysts’ estimates. Notably, revenue in cloud services soared by 260 per cent.
Japan’s finance ministry auctioned short-term debt with a negative yield while North America slept. In other words, for the first time on record, investors effectively paid the Japanese government for the opportunity to give it money for three months.
China’s latest manufacturing survey was a mixed bag: the HSBC Flash Manufacturing PMI rose to a three-month high of 50.4, which was better than economists had forecast, but the output sub-index dipped to a five-month low (while remaining in positive territory).
Likewise, the eurozone flash manufacturing PMI rose to 50.7 from 50.3, but the headline — “Stable PMI masks steepest fall in output prices since global crisis and renewed job losses” — suggests there’s little to celebrate. For most countries, that’s the case. Germany is a notable exception: its print rebounded from contractionary to expansionary territory. In France, the flash manufacturing PMI plunged to 47.3, with the rate of decline in the employment sub-index hitting its worst level since April 2013.