#5things: Before the Bell
A long 8 days, oil down, Trump trade up, Canadian banks & elections
There are many signs of aging. Wrinkles, joint pain, grey hair, general grumpiness. For me it is all those and a new expensive habit: supplements. I used to only need food and water to survive. Now it seems it takes a medley of pills, powder and drops just to stay alive. The rational part of me knows I am being taken, but there is a desperate part of me that needs to believe this powdered slippery elm bark that tastes like ground chalk can revive what used to be a general ease with eating and breathing.
A long road: Futures took their supplements this morning ahead of what is likely to be the longest eight days of our lives. The end of the eight days will be punctuated by the US election but in the meantime, there are a million things happening. This week features 170 companies reporting in the US including Apple, Alphabet, Amazon, Meta and Microsoft. Aside from earnings from the largest companies on the planet we will get an advance read of GDP in the US, the Fed’s preferred inflation gauge and then jobs data on Friday. Each on its own can swing the markets.
Selective strikes: Oil is down about 6% after Israel’s retaliatory attacks on Iran avoided any key oil and nuclear sites. As supply disruptions look unlikely, the demand side also took a hit with Chinese industrial profits falling the most since the pandemic. Citi is using this as an opportunity to double down on their bearish call on oil. “The recent military action…is not likely to result in an imminent escalation in geopolitical tensions that may affect oil supply, and as such we expect a lower risk premium in the near term,” they wrote in a note to clients this morning.
In stride: Investors are taking Boeing’s plan to raise up to $19 billion in new shares in stride this morning. The stock is barely down in the pre-market, although it is down 40% so far this year and languishing around a two-year low. Perhaps the damage has been done. The move is aimed at repairing the balance sheet and avoiding a debt downgrade to junk status. Boeing has been dealing with years of production mishaps, including most recently a door panel flying off mid-flight. It is also grappling with a strike, which is now in its seventh week, and is affecting manufacturing of its 737 Max jet.
Trumpdate: While many pan the rhetoric coming out of Donald Trump’s rally in New York last night, investors are continuing to bet Trump will become president. Shares of Trump Media are up again in the pre-market and poised to open at the highest since July. The betting markets still favour Trump to win. Citi strategists are noticing that other Trump trades are picking up (long dollar, short rates, long US vs rest of the world) and say the upside could be limited if he wins. “With market consensus seemingly coalescing around a ‘Red Sweep’, this may limit near-term upside on Trump trades, while leaving room for rotation in a Harris win,” they wrote. Below is a look at assets Citi thinks will do well and suffer under each candidate.
Notable call: A Donald Trump presidency could be positive for Canadian banks, argues Scotia in a note to clients this morning. This is because global coordination around raising capital levels for banks seems to be faltering, according to Scotia’s Meny Grauman. While Canada’s banking regulator OSFI would like to see capital levels increase, even they have acknowledged OSFI can not proceed in a vacuum. These higher capital requirements have been putting pressure on Canadian banks’ return on equity and thus reprieve could be positive for the sector. “…there is a clear acknowledgment that Canadian capital rules cannot live in a vacuum and will need to be revisited if other key banking jurisdictions don’t institute similar rules.” Grauman wrote in a note to clients, “In our view this is an outcome that’s becoming increasingly likely, especially if Trump wins the White House.”