Morning Minutes 9/12/2019

Morning Minutes

European Stimulus and American Olive Branch Spark Stock Rally

September 12, 2019
8:45 am EDT

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

Equity indices in North America and Europe are off to a strong start this morning. Dow futures are up about 225 points or 0.8%, which NASDAQ futures are up 1.0%, the Dax is up 0.6% and the FTSE is up 0.3%.

Investors have cheered the news that the US has pushed off the implementation of new tariffs against China to October 15th, which has been seen as reciprocating China’s goodwill gesture of some tariff delays earlier in the week, both of which are being seen by investors as promising signs heading into the next round of face-to-face talks next month.

Meanwhile, across the pond, the European Central Bank has announced plans to step in and provide additional monetary support to the struggling EU economy. President Draghi and co cut the deposit rate deeper into negative territory to -0.5% from -0.4% but held the benchmark lending rate at 0%. The ECB also announced plans to restart its QE program at €20B per month starting in November (which would align with the current Brexit timeline) and run indefinitely (or until inflation gets closer to its 2% target).

The ECB’s new stimulus could help pave the way for another rate cut at next week’s Fed meeting. That being said, despite growing political pressure to move aggressively, a US rate cut of more than 0.25% looks less likely after today’s US consumer inflation report. Although the headline number was slightly below expectations at 1.7%, core inflation (excluding food and energy) increased by 2.4%, above the 2.3% street estimate and the Fed’s 2.0% long-term objective.

Energy prices are under pressure for a second straight day. Oil turned lower yesterday as reports surfaced that following cabinet changes the US may be open to meeting with Iran and potentially lifting sanctions which could put new supply back in the market. Meanwhile, at today’s OPEC+ meeting talk of further cuts has been pushed off to December with Saudi Arabia focusing on cracking down on countries cheating on current quotas. Note, however, that oil may only fall so far with the US having reported big inventory drawdowns this week and Saudi Arabia motivated to support the price with the Saudi Aramco IPO apparently imminent.

It’s a busy morning for earnings from Canadian retailers. Results suggest a shift of spending down market with staples and discount chains outperforming mid/high end department stores.

Hudson’s Bay Company reported a loss of $984 million for last quarter and a normalized loss of $171M which was double the $85M normalized loss of the same quarter last year. Same store sales fell 3.4% from a year ago at Hudson’s Bay stores, rose 0.6% at Saks Fifth Avenue and rose 3.4% at Saks Off Fifth.

On the other hand, Sobeys’ parent Empire Company reported adjusted EPS of $0.49 up from $0.37 a year ago and a penny above street estimates as same store sales increased by 2.4%.

Dollarama reported EPS of $0.45, up 7.1% over year as sales rose 9.0% to $946M and sale store sales increased by 4.7%.

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