TodayFutures are little changed this morning after investors weighed the earnings reports from two key retailers, Walmart and Home Depot. U.S. stocks rose for a second day in a row yesterday reversing losses from the opening while the TSX closed flat for the day. Equities are coming off a fourth straight weekly gain, the longest run this year, with sentiment buoyed by signs of slowing price pressures. The positive economic news has stirred hopes of a shift by the Fed to be less aggressive with rate hikes going forward, but that has yet to be confirmed, leaving the market vulnerable to a pullback.
Canadian CPI decelerated in July, rising 7.6% YoY but down from the prior print of 8.1%. The decline from last month came as gasoline prices fell by the most since the start of the pandemic. Core inflation numbers, however, climbed to 5.3%, a record in data dated back to 1990. While yearly inflation has possibly peaked, the persistently broad upward pressures could still prompt the BoC to deliver another 75 bps increase at its Sept. 7 decision. In other economic news, manufacturing sales in Canada fell 0.8% to $71.8 billion in June with the petroleum and coal product sector leading the decline. The move lower came as sales fell in eight of the 21 industries tracked by Stats Canada and followed a 1.1% drop in May.
Canadian investors seem a little more optimistic these days as better-than-expected earnings and data pointing to easing inflation in the U.S. have helped boost the performance of three cyclical sectors (which typically falter during an economic downturn). Tech stocks have climbed the most, rising over 16% since mid-July, followed by industrials and consumer discretionary, both up over 12%. Whether Canada’s market will end the year higher than the U.S. remains unknown, however in doing so, it would be the first time since 2016. The TSX is down roughly 5% this year, vs. the S&P 500 Index’s decline of 10%.
The real estate market in Canada continues to cool, with prices falling for a fourth straight month. Benchmark home prices declined 1.7% in July, to $789,600, bringing the cumulative drop from February’s peak to nearly 6%. The number of sales also continued to slide, falling 5.3% from June and 29.3% from a year earlier. The resulting home-price declines so far have been sharpest in markets with the biggest run-ups, mainly Toronto and the communities around it, but that weakness is now spreading across the country. The declines are expected to continue as the BoC signals further rate hikes.
Big Pharma is feeling the (heart)burn now as legal proceedings stemming from the drug Zantac are set to begin this month. Shares of pharmaceutical companies such as GlaxoSmithKline, Sanofi, and Haleon sold off sharply last week, shedding tens of billions in market value, over fear of potential U.S. litigation charges. In 2019, regulators launched a safety review due to concerns the drug can be linked to cancer, prompting manufacturers to pull it from shelves. By 2020, the F.D.A. and the European Medicines Agency asked all versions be withdrawn from the market. Since then, more than 2,000 cases have been filed in the U.S. with the first case beginning this month.
Is it time to buy? Saudi Arabia’s sovereign wealth fund thinks so. The $620 billion Public Investment Fund (PIF) is investing more than $7 billion to build new positions in U.S. stocks including Amazon.com Inc., Alphabet Inc., BlackRock Inc. and JPMorgan Chase & Co. as markets were battered by recession fears. The PIF is engaging deeper into public markets to reach its goal of more than doubling its assets by 2025. The fund is diversifying into equities as Saudi Arabia’s income from oil almost doubled in the second quarter.
Diversion: Heist gone wrong.