The Daily Chase: Canadian banks in bear territory; China’s economy is slowing down

Wither away Canadian banks? That’s the question this morning after Big Five stocks led the S&P/TSX Composite Index lower as investor sentiment rattled on recession fears stemming from bank earnings south of the border. To wit: TSX financials fell 3.19% on the day – the biggest drop since June 11, 2020 – led by the 5.63% drop in Royal Bank of Canada (itself the biggest down since the dark days of March 2020.) Of note, yesterday’s decision puts Canada’s top five banking stocks in bearish territory from their 2022 highs, with CIBC’s 28.8% decline leading the group on the decline. We’ll be keeping a close eye on financials and whether results from Wells Fargo and Citi fuel the fire in terms of negative sentiment.



ANOTHER U.S. BANK’S GAINS MISS…

Speaking of major US banks, Wells Fargo came out of the gate with results that largely echoed those of JPMorgan and Morgan Stanley, missing analyst estimates on the top and bottom numbers. Investment banking revenue fell 45% year-on-year and the bank set aside US$580 million to cover loans that could potentially deteriorate. And Wells Fargo CEO Charlie Scharf warns there could be something of a tough road ahead, telling investors “we expect credit losses to rise from these incredibly low levels, but we have yet to see any significant deterioration in our consumer or commercial portfolios.The shares fell 3.5% in premarket trading.

…FOLLOWED BY A BEAT

Citigroup has bucked the trend so far among major U.S. banks, beating expectations for second-quarter earnings and revenue. The lender, which has more exposure to international markets than its peers, benefited from better-than-expected results from its trading division, helping to offset a 46% decline in investment banking revenue in the quarter. The shares rose 3.2% in premarket trading.

CHINA’S GROWTH IS SLOWING SIGNIFICANTLY

There are growing signs that China’s COVID Zero policy has taken a heavy toll on the world’s second-largest economy, with growth slowing to just 0.4% in the second quarter, marking the slowest pace since the country was first hit by COVID two years ago. The 0.4% figure is the second lowest on record following Beijing’s decision to essentially freeze activity in dozens of cities, including Shanghai. The slowdown prompted Goldman Sachs to cut its Chinese growth forecast for the full year to 3.3%, well below Beijing’s official target of 5.5%.

OTHER NOTABLE STORIES

  • Oil prices are stabilizing after yesterday’s frantic run – where prices swung US$6 a barrel in either direction – as Bloomberg News reported that US President Joe Biden will leave the Middle East without an announcement. increased oil production
  • Pinterest shares are soaring in the pre-market, up 15% after the Wall Street Journal reported that activist Elliott Management had acquired a more than 9% stake in the company. To bring him back to Canada, remember that Elliott is the activist campaigning for change at Suncor
  • Copper prices fall to a 20-month low amid fears a global recession could hurt demand
  • Methanex will be a stock to watch after the company raised its quarterly dividend by 20% to US$0.175 per share

NEWS RELEASES / NOTABLE EVENTS

  • Notable data: Canadian international transactions in securities and wholesale trade; US retail sales and the University of Michigan Consumer Confidence Index; China’s GDP, Industrial Production, Retail Sales and Fixed Asset Investment
  • Notable profits: Wells Fargo, Citigroup, BlackRock
  • Deadline for Rogers Communications, Shaw Communications and Quebecor to reach a definitive agreement for the sale of Freedom Mobile
  • G20 finance ministers and central bank governors begin two-day meeting in Bali

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