The Bank of Canada held its benchmark interest rate at 5% but left the door open to further hikes considering ongoing pressures. Indeed, while inflation has slowed, it’s possible to rise again on higher oil prices. An unexpected contraction in Canada’s Q2 GDP suggests an overheated economy is starting to cool off and interest rates are likely already “restrictive enough. In Canada, employment is still rising, but so is the unemployment rate with job demand no longer strong enough to keep up with a rising supply of workers from surging population growth. We continue to expect that the recent soft patch in economic data will continue. If Tiff Macklem proceeds with more rate raises, he will run the risk of having a catastrophically negative impact on our economy and the financial security of Canadians. RBC Economics expects the BoC to hold rates steady through 2023.

Should you have any questions or concerns, please feel free to reach out.

Portfolio Notes

(+) indicates a positive development, (-) indicates negative, and (~) indicates neutral

(-) Apple (AAPL-US) People familiar with the matter said China has ordered officials at central government agencies and some regulators not to use foreign-branded devices for work or bring them into the office. Experts think Beijing’s move is likely motivated by both national security and economic concerns. The news that China is banning government officials from using iPhones and other foreign-branded devices at offices does not come as a surprise to us given the country’s push to reduce its dependence on foreign technologies. The action by China seems to mirror the U.S. ban against smartphone maker Huawei Technologies and the short video platform TikTok. Furthermore, the news will likely drive companies to both diversify their supply chain and customer concentrations to be less dependent on China over time. While China accounts for roughly 18% of AAPL’s revenues, we believe the restrictions will likely not have a material impact on the company’s earnings given the popularity of the iPhone in China. Hence, we would use any weakness in the stock as a buying opportunity for patient long-term oriented investors. Owned in Core, Cash Flow and US Portfolios.

(+) Alimentation Couche-Tard (ATD-T) Adjusted EPS increased 1% to $0.85, better than consensus of $0.78. EBITDA increased by 1.2% to US$1.51 billion due to higher road transportation fuel gross profit, partly offset by a 3.7% increase in normalized operating expense. U.S. fuel margins increased by 2% to a record high of US$0.505/gallon despite a 23% YoY decline in fuel price. Canadian fuel margins declined only 5.6% despite a 20% decline in fuel price. Fuel margins remain robust in North America due to favourable market conditions and continued supply chain optimization. Same-store transportation fuel volume increased by 0.7% and 7.2% in the U.S. and Canada, respectively, due to a 20%-24% decline in fuel price and promotional offers such as Circle K fuel days. Europe fuel price and fuel margin declined by 24% and 33%, respectively, due to fuel price volatility. Same-store merchandise revenue increased by 2.1% in the U.S., 6.4% in Canada and 2.7% in Europe, driven by the Fresh Food, Fast program and private label brands. ATD is hosting an investor day on Wed., Oct. 11, in Arizona and will unveil a new multi-year strategic plan with a focus on cost reduction initiatives. Owned in Core Portfolio.

(-) ChargePoint Holdings (CHPT-US) Shares of ChargePoint Holdings plunged after the electric vehicle charging infrastructure company missed fiscal second-quarter revenue estimates. ChargePoint posted $150 million in revenue, weaker than the $153 million forecasted by analysts polled by LSEG. Separately, the company announced it would cut about 10% of its global workforce. On Friday, RBC initiated coverage of ChargePoint with an Outperform rating and $9 price target or 43% upside. Owned in Core ESG+ Portfolio.

(-) Enbridge (ENB-T) fell after announcing three deals with Dominion Energy. It will buy East Ohio Gas Co., Questar Gas and Public Service Company of North Carolina for a combined value of $14B, creating the biggest natural gas utility in North America. Enbridge also announced a C$4B equity issuance, a portion of which will be used for acquiring the utilities. The deal comes 10 months after Dominion said it would review its business to improve results. Moody's revised its outlook on Enbridge to negative from stable, saying the deals would add pressure to the company's already weak financial profile. The deal will take the gas distribution business to a bit less than a fourth of Enbridge’s overall business mix. Shares now yield over 8.00%. Owned in Cash Flow Portfolio.

(+) Eli Lilly (LLY-US) JPMorgan reiterated a $600-per-share price target on pharmaceuticals firm Eli Lilly, while raising its sales estimates for weight-loss and diabetes treatment Mounjaro. The firm now estimates Mounjaro sales for diabetes will be $8.2 billion in 2024, up from $4.7 billion in 2023, growing to $24 billion in 2030. For weight loss, Mounjaro should generate $1 billion in sales in 2024, growing to $22 billion by the end of the decade, JPMorgan said. The firm also predicted that the GLP-1 drug category, which includes Mounjaro, could exceed $100 billion in sales over time. Owned in US Portfolio.

(+) Verizon Communications (VZ-US) declared a quarterly dividend of 66.50 cents per outstanding share, an increase of 1.25 cents per share from the previous quarter. This is the 17th consecutive year Verizon's Board has approved a quarterly dividend increase. "Our consistently disciplined approach to driving strong cash flow, operating the business, and serving our customers has once again put the Board in a position to raise the dividend," said Chairman and CEO Hans Vestberg. "We continue to deliver value to our shareholders as we execute our network-as-a-service strategy." Verizon has 4.2 billion shares of common stock outstanding. The company made approximately $5.5 billion in cash dividend payments in the first half of 2023. Shares yield 7.8%. Owned in Cash Flow Portfolio.

New Buys in Opportunity Portfolio We initiated new positions in Intuitive Surgical ISRG-US, Super Micro SMCI-US, Cava Group CAVA-US, Draft Kings DKNG-US and Alpha Metallurgical AMR-US.

Weekend Reading

Inflation crunches today's post-secondary students Almost half now living at home while attending school and assuming their parents will take care of their financial needs. RBC

I, Exponential: Building Modern Cathedrals Pretty amazing blog post. We should celebrate our progress, not for technology’s sake, but because it’s taken the work of billions of people over millennia to get here. So today, we’ll do that. NOT BORING

How The NFL Became A $20 Billion Annual Business HUDDLE UP

The Unemployment Rate just signaled that a recession may occur within the next 6 months. The “issue” isn’t the 3.8% Unemployment Rate itself, but instead, the change in the number and specifically, where the current 3.8% is relative to its 18-month moving average. JIM COLQUITT

The Unclaimed Properties Office (UPO) provides Canadians with information and tools to access unclaimed properties held by the Bank of Canada, including unclaimed bank balances, Canada Savings Bonds and Government of Canada bonds, The Canada RSP and The Canada RIF. BANK OF CANADA

The OmbudService for Life & Health Insurance’s (OLHI) search tool will list a deceased person’s insurance policy if no more than two years have passed since the person’s death. Nearly all Canadian insurance companies are OLHI members, but policies issued by non-member companies and group policies won’t be listed. OLHI

The Rise and Fall of ESPN’s Leverage Re-bundling is better for everyone; it’s Disney’s fault that the entities best-placed to pull that off no longer need it. STRATECHERY