Here are five things you need to know this morning:
Technically speaking: Canada is headed for a technical recession, according to the latest data from Statistics Canada. This morning, StatCan revealed no growth in Canada’s economy from July to August, and also offered preliminary estimate for Q3 growth. The estimate suggests that Canada’s economy contracted by 0.1 per cent in the third quarter which would meet the technical definition of a recession (two consecutive quarters of negative growth). Of course, Canada is meeting this definition by a hair, but in some ways the market has reflected this view. The Canadian dollar has been languishing at a seven-month low despite a hawkish bias at the Bank of Canada and higher oil prices. The unemployment rate, however, has painted a more complex picture. While historically low at 5.5 per cent, it has been trending up all year. CIBC says the fact that we appear so close to tipping into a recession reduces the likelihood of any further interest rate hikes and “will likely see financial markets pulling forward expectations for rate cuts which will weigh on the Canadian dollar.”
Trick or treat: Investors are wading through a grab-bag of macro data this morning. The Bank of Japan left interest rates unchanged, but signalled more flexibility when it comes to their yield-curve control efforts. This sent Japanese 10-year bond yields to the highest level since 2012. However, we aren’t seeing a bond sell-off across the world in part because of weaker inflation data out of the EU (inflation at just 2.9 per cent!) and China’s manufacturing sector unexpectedly contracting to a three-month low. This should keep those central bank hawks at bay. And then there are earnings. BP shares are under pressure on an earnings miss. We will get reaction to TMX Group earnings (beat), Dye & Durham (beat) and Toromont (bottom line beat).
Cocooning: Shares of Caterpillar are under pressure as part of the macro pressures I described above are showing up in the heavy equipment dealer’s backlog. While the company managed to grow sales more than expected, boosted by higher prices, investors are worried about a decline in its order backlog. We will watch for how this weighs on the Dow and knocks down other industrials, especially equipment dealer Finning on the TSX.
Buckle up: I’ll watch for how the airline sector responds today from a big profit miss and profit warning from JetBlue. While the stock is under pressure, I am not sure there are read-throughs for the entire sector. JetBlue blames the miss on “staggering” operational challenges like air traffic control and weather delays. The airline didn’t really signal waning demand, per se, but did suggest that capacity growth is outpacing demand. One bright spot was international travel, which would actually have positive read-throughs for Air Canada. Despite beating expectations, Air Canada shares fell yesterday. Veritas views this as a buying opportunity and upgraded Air Canada, noting that the operating environment appears to be stable and it is trading at a discount to its historical multiple.
Glowing: Shares of Cameco could rally this morning after boosting its sales forecast for the year. The uranium giant says higher prices are fueling the brighter outlook. The stock is already a standout on the TSX with a gain of 70 per cent so far this year.