#5things to know @baystreetamber
Inflation higher, TD under pressure, elections & air travel
When you think of quantifying hurricane impact you probably rely on the rating system that categorizes them 1 through 5. It surprised me to learn that FEMA uses a slightly different metric: The Waffle House Index. Since Waffle Houses in the US operate 24/7 and all year round the thinking is that you know its bad when one of them is closed. They have a colour coded system and everything. Green means the restaurant is serving a full menu, yellow means they are likely using a generator to stay open, red means closed. Former FEMA administrator Craig Fugate said they would set to work in the red zones first. Naturally, I wonder what the Canadian equivalent would be. Tim Hortons Index anyone?
Inflatable: US inflation just dropped and its hotter than expected across the board. Headline CPI is 2.4% against the expectations of 2.3%. Inflation excluding food and energy re-accelerated to 3.3% against expectations of 3.2%. AS of this writing markets are taking it in stride with only a mild drift lower in futures. Let’s see what the day has in store. Are we still going to get all these interest rate cuts with job growth robust and inflation sporting a 3-handle? That’s the big question for the day.
Growth cap: Shares of TD are down 6% in the pre-market on reports the bank will be hit with a $3 billion fine and face an asset cap. This is of course in reaction to failures on its anti-money laundering controls. The size of the fine isn’t a surprise and is less than what TD provisioned for (they provisioned $4 billion). However, investors are likely flinching at the cap on asset growth. This will mean growth by acquisition is unlikely. This is quite a parting gift by Bharat Masrani who has taken full responsibility for the money laundering issues that occurred on his watch. But it will be Raymond Chun who will have to chart a path forward when he becomes CEO next year under a very onerous constraint. John Aiken at Jefferies wrote in a note to clients this morning: “TD will need to find a new avenue for growth from its traditional reliance on U.S. retail banking.” For background an asset cap can persist for some time, in fact Wells Fargo is still under restrictions going back to 2018. A bank must apply to get them removed. TD will be holding a call today but hasn’t confirmed the time.
A pizza my mind: Shares of Domino’s Pizza are flipping around in the pre-market after earnings beat but sales missed. The stock initially sold off but is now up as investors weigh less than expected US sales growth and a trimming of its global sales growth against better margins and profit. They were also aggressively buying back stock. I’m watching this trend of disappointing sales against better profit. We saw this with Pepsi earlier in the week. Signs of a slowing consumer, but businesses managing through cost cutting.
Buckle up: Shares of Delta Airlines are under pressure in the pre-market as earnings, sales and its forecast missed expectations. The stock is down about 3% in the pre-market, but keep in mind it rallied going into the quarter. Interestingly the reduced sales forecast has to do with the US election. The CEO said that they notice consumer travel takes a pause around November “due to the level of uncertainty.” This quarter also reflected that giant CrowdStrike outage which cost the company $380 million in revenue. Sticking with airlines, watch Air Canada today as later this morning we expect to find out if the pilots ratified their latest contracts.
Notable Calls: RBC is upgrading CN Rail to outperform. It’s the second upgrade on the struggle rail stock this week. RBC says the valuation is inexpensive relative to history and its peers and that they believe it has an attractive growth outlook. Nutrien was downgraded at UBS. The analyst is warning that a weaker agriculture market will remain an overhang for Nutrien.