May 9, 2016
Nearing the end of earnings season
Today at 1 p.m. (ET or 10 a.m. PT), the tickets for the concert of the decade go on sale. Friday night – Bob Dylan and the Rolling Stones; Saturday night – Paul McCartney and Neil Young; Sunday night – Roger Waters and The Who. It is happening in Indio, California the first weekend of October. Maybe I’ll see you there. What a trip – what a desert trip!
The week is long and busy. There are about 70 Canadian companies reporting results including a number of REITs, utilities and pipelines including IPL and Enbridge, while Sun Life also reports tomorrow and Open Text has an investor day. We’re near the end of the U.S. reporting season with only 61 of the S&P 500 left to report including 19 this week such as Tyson Foods today, Walt Disney tomorrow, Macy’s on Wednesday, Perrigo and Nvidia on Thursday. The scorecard for the quarter – 73 per cent have beat on earnings (with a 5.1 per cent decline reported) and 40 companies have provided negative guidance versus 19 with a positive outlook. The economic calendar includes the weekend’s Chinese data (imports were very weak and exports didn’t match estimates either) as well as Canadian housing starts – and U.S. retail sales and consumer sentiment at the end of the week. Oil traders will continue to watch the constrained production from the fire ravaged Northern Alberta but also the new oil minister in Saudi Arabia (RBC’s analytical conclusions it this appointment “does not represent a shift in the Kingdom’s current oil policy” which is to maintain market share versus Iran and shift the kingdom’s dependence away from hydrocarbons in the future. Oil prices are higher ($1+) while gold falls as does the yen.
Barron’s
Highlights include commentary that stocks could go down in the event of more QE, Boeing is having an analyst day this week, the put: call ratio still suggests caution, insiders remain bearish but their sentiment is improving, rice could double in price and Trump should check his facts on the currency (the Chinese real effective exchange rate – REER – is up 40 per cent versus 2008 and 2x higher than it was 20 years ago). Positively reviewed: Visteon (auto parts), the Aussie dollar (cover story), Intercontinental Exchange, and bullish recommendations from the Sohn Conference including General Motors, Amazon and Hyatt. Negative overviews include the GAAP-non-GAAP discussion at Valeant and Perrigo, as well as short recommendations such as Caterpillar and the Utilities SPDR (XLU.TO). Boeing is previewed in the options column in advance of Tuesday’s investor day – and Goldman Sachs is positioning its clients for a negative tone recommending the purchase of puts.
Positioning
According to the latest CFTC data (as summarized by Scotiabank), bullish positions are rising for the Canadian dollar (with net longs at the larges position since August 2014) and in oil (the largest long position in a year but it did trim back a little in the most recent week). The U.S. dollar positioning is net short versus one year ago when it was the most crowded trade on the planet.
Markets getting complicated
According to the latest polls, the decision to whether Brexit or Britin is in a dead heat at 50:50. The latest average of polls in the Trump-Clinton presidential race has Hillary by 6.5 points with five polls showing her in the lead and only one with Trump winning. The Australians are going to the polls (again) for a new government on July 2. Bank of America is out with a sell crude call (at US$45.75) with a downside target of $38.50 and possibly $35.25 with an upside stop at $48.25. The most recent number from Alberta is that 1.1 million barrels of oil/day have been shut in with no facilities damaged. There has been rising anxiety in the junk bond market as two energy companies filed for bankruptcy last week (Ultra and MidStates Petroleum) with more expected. The largest ETF that tracks high yield, Blackrock’s iBoxx (HYG) is seeing accelerated redemptions including $2.6 billion in the last four days (and mutual funds in the space have also seen big redemptions) and, according to Bloomberg, the short interest on HYG has risen 80 per cent since mid-April. Andrew Brenner at National Alliance highlights his view this morning in his daily notes that the high-yield tightening has peaked. With currency volatility rising and high yield risk aversion rising – this could complicate market direction. These are things to pay attention to.
On BNN
We’ll have continuing coverage of the Fort McMurray fires (Premier Notley will be visiting the city today) as well as the implications for energy and rebuilding. We’ll look at the earnings from companies like Ensign, Ritchie Bros (beat) and Silver Wheaton (slight miss). We’ll discuss what’s moving gold (down) and the yen (down). We’ll get a top analysts view on the REIT sector in Canada as the earnings calendar is filled with reports from this sector this week. We’ll head to Montreal for the 69th annual CFA Institute conference.
Every morning Business Day Host Frances Horodelski writes a "chase note" to BNN's editorial staff listing the stories and events that will be in the spotlight that day. Have it delivered to your inbox before the trading day begins.