Morning Minutes

Stocks Sink Amid Central Bank Decisions, Banking Woes and Earnings Reports




Adding to yesterday’s US index losses of 0.5% to 0.8%, US index futures are trading down 0.2%-0.4% this morning, while major European indices are down 0.8%-1.0%. Crude oil has stabilized, while metals are climbing with Gold and Copper both up 0.5%.

A number of factors have combined to weigh on stocks this morning.

First, central banks continue to raise interest rates with the Fed (to 5.25%) and the European Central Bank (to 3.75%) both raising their benchmark rates by 0.25% as had been widely expected. While the Fed did leave the door open to a pause at its next meeting, the statement was noncommittal overall, except for commentary about being prepared to step in and deal with any emergencies that may flare up. While the ECB did slow the pace of its rate hike program, like the Australians showed earlier this week, it still has a way to go to catch up to the Fed and the Bank of Canada in terms of tightening.

Second, the US regional banking sector remains in crisis. First Horizon (down 42.8% premarket) and TD Bank (up 1.7% premarket) have called off their planned $13.4B merger. Pacwest Bancorp also remains in the crosshairs, down another 38.6% premarket.

Market reaction to overnight earnings reports has been mixed. Shopify* is up 17.5% premarket after beating expectations on EPS ($0.05 vs street -$0.04) and announcing plans to sell its logistics division. Qualcomm is down 7.4% premarket after reporting in-line EPS. In Canada this morning, both BCE ($0.85 vs street $0.78) and Telus ($0.27 vs street $0.26) both exceeded expectations. After the close today, results are due from Apple and Booking Holdings.

Tomorrow is another big day for economic news headlined by US Nonfarm Payrolls (street 179K vs previous 236K), and Canada employment (street 20K vs previous 37K) looking to repeat yesterday’s strong ADP payroll surprise). Wage inflation reports for the US (street 4.2%) and Canada (previous 5.21%) may also attract attention.

*Shares of Shopify and Booking Holdings are held in some portfolios managed by SIA Wealth Management.

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Colin Cieszynski, Chief Market Strategist

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

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