Below is a summary of some of the relevant news items from the Capital Markets and the Economy from the past week extracted from RBC Global Insights and FactSet Research.

 

Markets

Market scorecard as of close on Friday October 28, 2022.

Equity Indices	Level	1 week	YTD
S&P/TSX Composite	19,471	3.2%	-8.3%
S&P 500	3,901	4.0%	-18.2%
NASDAQ	11,102	2.2%	-29.0%
Euro Stoxx 50	3,613	3.9%	-15.9%
Hang Seng	14,863	-8.3%	-36.5%

Source: Bloomberg, RBC Wealth Management

• TSX finished higher Friday, near best levels in a fairly range-bound session. Most sectors higher with tech, consumer discretionary, staples, health care, utilities, financial and industrials the leaders, materials and communication services lone decliners. Canadian equities logged a 3.2% weekly gain, adding to a similar-sized gain in the prior week.

• US equities higher in Friday midday trading, near best levels. Major indices on track for another round of big weekly gains. Tough week for big tech has continued with the disappointing guidance and AWS slowdown at Amazon. Highlights both the pickup in macro uncertainty flagged during Q3 earnings season and the earnings headwinds for the S&P 500 from economic normalization. However, some cushion from Apple, where iPhone demand commentary was upbeat.

• Market helped over last couple of weeks by a new policy "pivot" narrative. While the earlier summer narrative conflated peak inflation hints with a meaningful 2023 swing to Fed rate cuts, this one revolves around a slowdown in the pace of tightening, as evidenced by the smaller-than-expected rate increases from the RBA (Australia) and Bank of Canada (BoC). It also embeds expectations for a move to the sidelines in the next few months, with more acknowledgement of the lagged effects of policy tightening and the downside risks to growth from doing too much, along with the potential for some hints of flexibility on the inflation target.

• Markets will be focusing on this week’s FOMC meeting, where overnight index swaps have been pricing in another 75 bps hike, however, the BoC’s first smaller than expected rate hike could offer an early sign that central banks are beginning to slow their hawkish rhetoric down.

 

Economy

Canada

• The Bank of Canada (BoC) has eased off the accelerator, raising its policy rate by 50 basis points (bps) last week, rather than the 75 bps the market had been expecting. Despite making a smaller-than-expected move, and acknowledging that a lot has already been done, the BoC reiterated that additional hikes would be needed to address lingering excess demand and tightness in labour markets.

• The BoC has revised its economic projections, and now expects GDP growth to slow to just under 1% in 2023 from 3.25% in 2022. The central bank also revised its inflation forecast for 2023 downward, to 4.1% from 4.6%, in line with the expectation that price increases should ease further towards the 2% target by 2024 as tighter financial conditions work their way through the economy.

• StatCan reported real GDP edged up by 0.1% in August, roughly in line with consensus and a touch better than its prior estimate for growth essentially unchanged. Increase was fairly broad based, with 14 of 20 industries higher.

 U.S.

• Economic data has been mixed last week. The FHFA House Price index, which measures changes in single-family home values, reported that prices in August fell 0.7% compared to July. This marked the second consecutive month of declines—and the first consecutive monthly declines since March 2011—as soaring mortgage rates continued to weigh on affordability.

• Friday morning’s better-than-expected GDP data showed the U.S. economy grew at an annualized rate of 2.6% in Q3, ahead of economists’ 2.0% consensus forecast, driven by resilient consumer spending and a narrowing of the trade deficit.

Further Afield

• In Europe, unseasonably warm autumn temperatures and storage levels nearing full capacity have enabled natural gas prices to retreat. Natural gas prices for delivery in Europe within a month are down 70% from their summer peak and back to their levels before the start of the Russia-Ukraine conflict.

• In the UK, the appointment of Rishi Sunak as prime minister was greeted with relief in financial markets. Even the announcement that Chancellor Jeremy Hunt’s debt reduction plan would be delayed by two weeks (to November 17) was shrugged off.

 

Notes About Companies in Model Portfolio

Despite relatively disappointing results from the likes of Alphabet, Microsoft, and Meta, Q3 earnings season is off to a relatively solid start overall with 45% of the S&P 500 having already reported. Of the companies that have announced, over 55% have reported sales that exceeded analyst expectations, beating by an average of 1.4%. From an earnings perspective, 72% have beaten expectations, though the average earnings beat of 1.6% is lower than the long-term average.

• Apple (AAPL) announced financial results for its fiscal 2022 fourth quarter ended September 24, 2022. The Company posted a September quarter record revenue of $90.1 billion, up 8 percent year over year, and quarterly earnings per diluted share of $1.29, up 4 percent year over year. Annual revenue was $394.3 billion, up 8 percent year over year, and annual earnings per diluted share were $6.11, up 9 percent year over year. Analysts flagged meaningful FX pressure, which hit revenue by more than 600 bp in the Sep Q and is expected to represent a 10pt headwind in Q4. Also some focus on management commentary about how iPhone 14 Pro and Pro Max models remain supply constrained.

• CN Rail (CNR) reported on Tuesday its financial and operating results for the third quarter ended September 30, 2022 record revenues of C$4,513 million, an increase of 26%, mainly due to higher fuel surcharge revenue driven by higher fuel prices, freight rate increases and the positive translation impact of a weaker Canadian dollar. Operating income was C$1,932 million, an increase of 44%.

• Fortis (FTS) released its third quarter results and 2023-2027 capital investment plan. Third quarter net earnings of $326 million, up from $295 million in 2021. Increased fourth quarter common share dividend by approximately 6%, marking 49 years of consecutive increases.

• Microsoft (MSFT) reported solid fiscal first-quarter 2023 results, including revenue and EPS results. For the September quarter, revenue grew 11% year over year as reported, or 16% in constant currency, to $50.12 billion.

• TELUS Corporation (T) and TELUS International are pleased to announce a definitive agreement to acquire WillowTree, a premier, full-service digital product provider focused on end user experiences, such as native mobile applications and unified web interfaces. Under the agreement, TELUS International will acquire WillowTree for a total enterprise value of US$1.225 billion, inclusive of US$210 million of assumed debt.

• Visa (V) reported fourth quarter revenues of $7.79B. Payments Volume +10% y/y; cross-Border Volume Total +36% y/y with processed transactions +12% y/y. Although management acknowledges that consumer behavior is changing in terms of spending categories, the aggregate spending levels have not, thus encouraging investors that the networks remain the way to play aggregate consumption and travel.

 

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