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CANADIAN EQUITIES
The S&P/TSX Composite Index gained 236 points or 1.7% to close at 14,607 on Thursday, as nine of ten sectors ended up in positive territory. The 2008 trend continued, as Energy and Materials drove the Composite’s rise, while Financials held it back. With the US dollar holding steady against the Euro, Oil continued its trend of setting new records on a daily basis rising $1.07/barrel to close at $124.60/barrel. Recommendations by US brokers on Uranium drove the metals space in addition to Gold’s $13.20/oz rise, to close at $881.95/oz. The Energy index rose 2.9%, on Oil’s rise, as the top three contributors to the Composite were all Energy companies led by Suncor’s (SU) $5.25 (4.3%) rise, followed by Canadian Natural Resources (CNQ) and EnCana’s (ECA) gain of $4.19 (4.6%) and $2.91 (3.4%). The Materials index rose 3.4%, on Gold and Uranium’s rise. Barrick (ABX) Goldcrop (G) and Cameco (CCO) were the top three contributors in the sector rising $1.81 (4.6%), $3.00 (8.0%) and $2.76 (7.3%). Yamana Gold (YRI) also rose $1.11 (8.0%) after reporting Q1 earnings ahead of consensus. The Telecom index gained 2.1%, after Telus (T) surprised the market, with stronger earnings than expected, which moved its shares up $1.80 (4.0%). The Financial index dropped 0.7% after Manulife (MFC) reported Q1 core EPS below consensus, sending its shares down $1.97 (5.1%). Similarly, Kingsway Financial (KFS) reported a loss in Q1, while the street was expecting a gain, and this pounded its shares down $4.29 (30.1%). The big five banks moved in opposite directions, as Bank of Montreal (BMO) dropped $0.76 (1.5%), while Royal Bank (RY) rose $0.54 (1.1%).
Industry Canada confirmed it will block the sale of MacDonald Dettwiler (MDA)‘s Information Systems Group to US-based Alliant Techsystems (ATK). Industry Minister Jim Prentice said he still felt the proposed sale would not be of any net benefit to Canada and that while foreign investment plays an important role in the Canadian economy, "where a significant transaction does not demonstrate net benefit to Canada, it cannot be approved under the Investment Canada Act."
Company |
Earnings Result |
Price Target and Rating |
Canadian Tire Corp (CTC.A) - $64.24 |
Canadian Tire released lower-than-expected Q1 results. EPS ex-items of $0.68 was lower than the $0.71 (restated) earned in the same period last year, and below consensus estimates. |
Outperform, Average Risk Price Target: $83.00 |
FNX Mining Co. (FNX) - $27.75 |
Reported Q1 results with EPS of $0.28, which was below the consensus. |
Outperform, Above Average Risk Price Target:$34.00 (prev $42.00) |
NuVista Energy (NVA) - $18.20 |
Reported Q1 results that were well above expectations with CFPS of $0.87 compared to the consensus estimate of $0.77. |
Outperform, Average Risk Price Target:$21.00 (prev $20.00) |
Canadian Natural Resources (CNQ) - $96.00 |
CNRL reported Q1 cash flow per share of $3.19, higher than the consensus estimate of $2.69. |
Sector Perform, Above Average Risk Price Target:$95.00 (prev $80.00) |
Manulife Financial (MFC) - $36.90 |
Manulife reported EPS of $0.57 per share vs. consensus at $0.72. |
Outperform, Average Risk Price Target:$41.00 (prev $42.00) |
Aeroplan (AER.UN) convert to a corporation. AER.UN received board approval to reorganize its income trust structure into a growth oriented, dividend paying corporation. The proposed reorganization is subject to unitholder approval. Upon completion of the reorganization, it is anticipated that the dividend policy will initially be set at $0.125 per common share per quarter (annualized at $0.50 compared to the current distribution of $0.84). Due in part to the current foreign ownership limitations applicable to the Fund and the increasing level of non-resident ownership in the Fund, the new tax treatment of publicly traded mutual fund trusts, including limitations regarding normal growth and undue expansion, as well as the evolution of the Fund's growth strategy, on March 4, 2008, the Board of Trustees and the Board of Directors requested that management formally retain financial advisors to conduct and in-depth analysis of the Fund's capital structure and its viability moving forward in the context of the Fund's strategy to become the global leader in loyalty management. It is expected that distributions to be paid to unitholders for the months of May and June 2008 will not be affected by the Arrangement. Accordingly, unitholders of record on May 30, 2008 and on the day preceding the closing of the reorganization will receive their regular monthly cash distribution of $0.07 per unit.
US & INTERNATIONAL EQUITIES
What moved the market yesterday…
U.S. markets were modestly higher on Thursday, despite the fact that crude oil closed at another record high of US$124.28/barrel. Investors shrugged off higher energy prices and instead focused on a positive weekly jobless claims report and solid same-store-sales-growth from Wal-Mart (WMT) and McDonalds (MCD). Nine of the ten sectors of the S&P 500 were higher, led by Materials (+2.33), while Financials (-1.23%) were the sole laggard. The Materials sector rallied on a strong day for most commodities, including another positive day for crude oil and agriculture futures. The Financial sector was once again weak, as investors remained nervous ahead of results from American International Group (AIG). After the close, AIG released financial results that were below consensus forecasts. AIG reported adjusted EPS of ($1.41), which was below consensus estimates of ($0.76). The company also announced plans to raise USD$12.5 billion of additional capital.
What moved the market overnight…
European shares declined on Friday morning, with financials under pressure after American International Group (AIG) unveiled plans to raise more capital after a steep quarterly loss and as Citigroup (C) may unveil a plan to sell $400 billion worth of assets. The losses came amid fresh evidence that credit market turmoil is still a problem for the financial sector. London-listed lenders under pressure included Royal Bank of Scotland (RBS), down 1.8% and HBOS, down 2%. Meanwhile, German insurer Allianz (AZ) reported a 65% decline in final first-quarter net profit, dragged down by substantial mark-downs on structured products due to the financial crisis, which kept the group's banking arm in the red for the third consecutive quarter, and on lower realized gains from investments. AZ also cast doubt on its medium term outlook, although it still considers it achievable. The company had pre-announced these results last week.
Meanwhile, in Asia, the yen headed for its biggest weekly gain in three months versus the euro as renewed concern about credit-market losses caused stocks to fall and spurred investors to sell higher-yielding assets funded with loans from Japan. The currency was also set for the first five-day advance in a month versus the dollar. Shares in Hong Kong were lower on China inflation concerns as some investors offloaded positions to take profit ahead of China's CPI data due Monday.
American International Group (AIG) reported a $7.81 billion first-quarter net loss driven by a $9.11 billion write-down on a credit derivatives portfolio and $6.09 billion of net realized losses from AIG’s investment portfolio. AIG plans to raise $12.5 billion by selling new shares, equity-linked securities and fixed-income securities with a large equity component included. Still, AIG increased its dividend by 10%. S&P downgraded the company and several subsidiaries to AA- from AA. AIG’s big aircraft leasing business was cut to A+ from AA-. MarketWatch
Citigroup Inc (C ) will hold their analyst meeting today. The meeting should help to identify which parts of Citi are considered core versus legacy, how much of the company will get downsized and expectations of Citi’s core earnings power. Citi still has exposure to an estimated $80 billion of mortgage related assets, suggest more write-downs and C might have to raise even more capital. MarketWatch
Allianz (AZ) Reported a 65% decline in final first-quarter net profit, dragged down by substantial mark-downs on structured products due to the financial crisis which kept the group’s banking arm in the red for the third consecutive quarter and on lower realized gains from investments. AZ also cast doubts on its medium term outlook. Briefing.com
Texas Instruments (TXN) began their 2 day analyst meeting yesterday. The main message was that the company is now focused on top-line growth, as compared to margin expansion last year. TXN is positive on their high-end analog chips believing that analog has the ability to be the most important driver for growth. Analog is a $36 billion market and is growing slightly faster than the rest of the semiconductor industry. Briefing.com
Bristol Myers (BMY) along with Sanofi-Aventis are facing possible generic competition in Europe to the world’s second biggest selling drug, Plavix, less than a year after they beat back generic competition in the US. Schweizerhall Holding AG, said that is expects imminent approval from regulators in Germany and in Luxembourg for a generic version of Plavix, and that it expects to begin selling the anticlotting drug with one or two large partners in the second quarter. WSJ
The number of financial bets on crude oil prices hitting $200 before the end of this year have spiked almost 40 per cent since the start of May, a further sign of growing concern that oil prices will continue to rise sharply in the near term. Financial Times
The global surge in food and energy prices is being driven primarily by fundamental market conditions, rather than an investment bubble, say the majority of economists in the latest Wall Street Journal forecasting survey. WSJ
India suspends futures trading in soybean oil, potatoes, rubber and chick peas, as its government struggles to stem soaring inflation at a time when global food and energy prices are skyrocket MarketWatch
Edison International (EIX) reported Q1 operating EPS of $0.92, in-line with estimates and $0.09.
FIXED INCOME, CURRENCIES AND COMMODITIES
In the U.S., bonds traded higher as investor appetite for U.S. Treasuries was fuelled by high oil prices and weaker than expected corporate earnings news. A stronger than expected jobless claims number couldn’t halt the fall in bond yields, as claims fell to 365k from 383k the week prior. The less volatile 4-week moving average rose slightly to 367k from 364k. In a separate report, data from retailers were mixed but 68% of U.S. retailers reported better-than-expected sales. Lastly, a strong wholesale sales number(+1.6%) pushed the inventory-to-sales ratio down to 1.09. The accompanying report suggested that sales growth remains in healthy enough territory to avoid any cut back in production and inventory levels in the months ahead. In Canada, April’s housing starts fell 12.0% to an annualized 214k units. The decline was led by the multiples component but weakness was broad based. Four of the five major regions showed declines in the month with only B.C. managing an increase. On the day, the yield on the 10-year Treasury finished down 8bps to 3.78% while the 2-year yield closed at 2.22%, off 9 bps. Government of Canada bonds were less volatile on the day with the 2-year yield falling only 3 bps to 2.77% and the 10-year yield finishing off 2bps to 3.65%.
The Canadian dollar fell versus the U.S. dollar on Thursday on the weaker than expected housing starts, but the move was muted ahead of tomorrow’s jobs number. The CAD finished the day at C$1.0168.
This morning, a stronger than expected payroll report for April was released in Canada which saw 19.2K jobs created and the unemployment rate edge up to 6.1%. The details of the report showed that manufacturing employment remained weak (-15k) while construction hiring (+16k) rebounded and service producing jobs maintained their healthy status rising by 22.9k. Regionally, job weakness was concentrated in Quebec (-20k), with scattered gains elsewhere (Ontario up 12k).
Crude oil futures for June delivery gained 0.1% to $123.72/barrel Thursday on the New York Mercantile Exchange. Natural gas futures declined $0.12 to $11.24/mmbtu.
Gold futures rose 1.3% to $882.10/ounce as record oil prices and a weak US dollar increased demand for the metal as a hedge against inflation. Silver futures added 1% to $16.87/ounce.
Copper for July delivery slid 1.2% to $3.78/pound on the Comex.
CALENDAR OF EVENTS
NUMBER CRUNCHING
| Equity Indices | Index Level | Change | Change % | MTD % | 1 Month % | YTD* | 2007 | 2006 | 2005 |
| S&P/TSX Composite Index | 14,607.99 | 236.46 | 1.6% | 4.8% | 6.2% | 5.6% | 7.2% | 14.5% | 21.9% |
| S&P/TSX Composite Index TR | 36,519.55 | 591.54 | 1.6% | 4.8% | 6.4% | 6.5% | 9.8% | 17.3% | 24.1% |
| S&P/TSX Equity Index | 15,137.94 | 249.47 | 1.7% | 4.7% | 6.1% | 4.8% | 10.2% | 20.2% | 24.2% |
| S&P/TSX Capped Income Trust Index | 163.45 | 2.23 | 1.4% | 5.6% | 7.3% | 13.4% | 6.6% | -2.9% | 29.8% |
| Dow Jones Industrial Average | 12,866.78 | 52.43 | 0.4% | 0.4% | 2.7% | -3.0% | 8.9% | 19.0% | 1.7% |
| S&P 500 Index | 1,397.68 | 5.11 | 0.4% | 0.9% | 3.2% | -4.8% | 5.5% | 15.8% | 4.9% |
| NASDAQ Composite Index | 2,451.24 | 12.75 | 0.5% | 1.6% | 5.6% | -7.6% | 9.8% | 9.5% | 1.4% |
| MSCI World | 1,527.52 | 4.25 | 0.3% | 1.2% | 3.4% | -3.9% | 9.7% | 20.7% | 4.0% |
| MSCI EAFE | 2,164.79 | 2.38 | 0.1% | 1.2% | 3.2% | -3.9% | 11.8% | 27.0% | 7.2% |
| Dow Jones Euro Stoxx 50 | 3,219.15 | -56.48 | -1.7% | -0.6% | 1.7% | -12.6% | -4.5% | 14.3% | 2.0% |
| FTSE 100 | 6,191.40 | -79.40 | -1.3% | 1.7% | 3.5% | -4.1% | 7.8% | 14.8% | 1.3% |
| CAC 40 Index | 4,933.43 | -122.15 | -2.4% | -1.3% | 1.2% | -12.1% | 4.2% | 20.9% | 4.3% |
| DAX Index | 6,976.55 | -95.35 | -1.3% | 0.4% | 3.8% | -13.5% | 22.3% | 22.0% | 7.4% |
| Nikkei 225 | 13,655.34 | -287.92 | -2.1% | -1.4% | 4.1% | -10.8% | -10.2% | 7.9% | 22.2% |
| MSCI World TR | 4,756.26 | 13.64 | 0.3% | 1.3% | 3.1% | -2.81% | - | 27.1% | 17.1% |
| Shanghai Stock Exchange Composite | 3,613.49 | -43.35 | -1.2% | -2.2% | 5.8% | -31.32% | 97.9% | 136.1% | -5.6% |
| S&P/TSX Sector Performance | Index Level | Change | Change % | MTD % | 1 Month % | YTD* | 2007 | 2006 | 2005 |
| S&P/TSX Financials | 1,736.59 | -11.63 | -0.7% | -0.8% | 3.4% | -6.6% | -1.6% | 19.2% | 23.9% |
| S&P/TSX Energy | 3,941.11 | 112.61 | 2.9% | 8.8% | 12.9% | 18.6% | 8.2% | 6.1% | 63.4% |
| S&P/TSX Materials | 3,562.54 | 115.87 | 3.4% | 8.9% | 1.3% | 14.7% | 30.3% | 39.8% | 15.3% |
| S&P/TSX Industrials | 1,351.18 | 18.60 | 1.4% | 3.9% | 7.4% | 7.8% | 10.5% | 14.7% | 17.9% |
| S&P/TSX Consumer Discretionary | 1,109.13 | 6.75 | 0.6% | 2.0% | 0.7% | -14.4% | 4.2% | 15.7% | 9.8% |
| S&P/TSX Telecom Services | 960.61 | 19.26 | 2.0% | 1.5% | 4.6% | -3.2% | 19.9% | 20.1% | 13.5% |
| S&P/TSX Information Technology | 443.87 | 6.63 | 1.5% | 6.8% | 9.7% | 12.5% | 48.2% | 27.3% | -15.8% |
| S&P/TSX Consumer Staples | 1,502.65 | 6.49 | 0.4% | 2.8% | 1.7% | -5.0% | -5.3% | 5.5% | -1.1% |
| S&P/TSX Utilities | 1,937.71 | 14.37 | 0.7% | 2.1% | 6.1% | -2.4% | 11.9% | 7.0% | 38.3% |
| S&P/TSX Healthcare | 381.34 | 4.87 | 1.3% | 3.4% | 3.5% | -0.9% | -24.2% | 0.7% | -2.6% |
| Currencies (in Canadian Dollars) | Index Level | Change | Change % | MTD % | 1 Month % | YTD* | 2007 | 2006 | 2005 |
| US Dollar | 1.0086 | -0.01 | -0.8% | 0.1% | -1.0% | 1.0% | -14.7% | 0.3% | -3.3% |
| Euro | 1.5591 | -0.01 | -0.4% | -1.0% | -3.3% | 7.0% | -4.4% | 11.8% | -15.5% |
| British Pound | 1.9645 | -0.02 | -1.2% | -1.9% | -2.4% | -0.9% | -13.6% | 14.1% | -13.2% |
| Japanese Yen | 0.9814 | 0.00 | 0.1% | 1.2% | -2.0% | 9.8% | -7.7% | -0.7% | -15.7% |
| Energy Commodities (US$) | Index Level | Change | Change % | MTD % | 1 Month % | YTD* | 2007 | 2006 | 2005 |
| Crude Oil (WTI per barrel) | $125.23 | 1.54 | 1.2% | 10.4% | 13.0% | 30.5% | 57.2% | 0.0% | 40.5% |
| Natural Gas (per million btu) | $11.37 | 0.11 | 1.0% | 4.9% | 13.1% | 52.0% | 18.8% | -43.9% | 82.6% |
| 3-2-1 Crack Spread | $13.78 | 0.47 | 3.6% | 13.6% | 14.0% | 27.0% | 49.1% | -39.8% | 108.4% |
| Metal Prices (US$) | Index Level | Change | Change % | MTD % | 1 Month % | YTD* | 2007 | 2006 | 2005 |
| Gold (per ounce) | $885.90 | 4.05 | 0.5% | 1.0% | -5.2% | 6.2% | 31.0% | 23.2% | 17.9% |
| Silver (per ounce) | $16.96 | 0.14 | 0.8% | 0.6% | -6.8% | 14.6% | 14.7% | 46.4% | 29.3% |
| Copper (per pound) | $3.83 | -0.07 | -1.8% | -3.0% | -2.8% | 27.0% | 5.3% | 38.9% | 39.2% |
| Nickel (per pound) | $12.38 | -0.50 | -3.9% | -3.9% | -4.8% | 4.9% | -23.6% | 154.5% | -10.1% |
| Aluminum (per pound) | $1.28 | -0.02 | -1.5% | -1.1% | -3.5% | 20.0% | -16.7% | 24.2% | 16.2% |
| Zinc (per pound) | $1.01 | -0.02 | -1.6% | -0.5% | -5.6% | -6.4% | -45.1% | 121.6% | 53.2% |
| Index | Index Level | Change | Change % | MTD % | 1 Month % | YTD* | 2007 | 2006 | 2005 |
| DJIA in Cdn$ | 12977.69 | -56.04 | -0.4% | 0.4% | 1.7% | -2.0% | -6.8% | 16.6% | -1.7% |
| S&P 500 in Cdn$ | 1409.73 | -6.68 | -0.5% | 0.9% | 2.2% | -3.8% | -9.7% | 13.9% | 1.4% |
| NASDAQ in Cdn$ | 2472.37 | -7.87 | -0.3% | 1.7% | 4.5% | -6.6% | -6.0% | 9.8% | -2.0% |
| MSCI World in Cdn$ | 1540.69 | -8.66 | -0.6% | 1.3% | 2.4% | -2.9% | -8.3% | 18.2% | 4.0% |
| MSCI EAFE in Cdn$ | 2183.45 | -15.98 | -0.7% | 1.2% | 2.2% | -2.9% | -7.0% | 23.8% | 7.2% |
| S&P 500 Performance | Index Level | Change | Change % | MTD % | 1 Month % | YTD* | 2007 | 2006 | 2005 |
| Financials | 350.88 | -4.37 | -1.23% | -1.38% | 1.74% | -10.51% | -20.8% | 16.2% | 3.7% |
| Health Care | 366.70 | 1.13 | 0.31% | 0.21% | -0.43% | -10.50% | 5.4% | 5.8% | 4.9% |
| Technology | 382.18 | 2.48 | 0.65% | 2.62% | 7.73% | -7.15% | 15.5% | 7.7% | 0.4% |
| Industrials | 345.68 | 2.06 | 0.60% | 0.77% | 0.95% | -2.45% | 9.8% | 11.0% | 0.4% |
| Consumer Discretionary | 255.18 | -0.68 | -0.27% | 0.62% | 3.74% | -1.68% | -14.3% | 17.2% | -7.4% |
| Energy | 634.68 | 12.08 | 1.94% | 2.66% | 7.22% | 5.25% | 32.4% | 22.2% | 29.1% |
| Consumer Staples | 289.61 | 0.49 | 0.17% | -0.17% | -0.37% | -3.32% | 11.6% | 11.8% | 1.3% |
| Telecom | 150.67 | -0.10 | -0.07% | 0.89% | 5.29% | -10.45% | 8.5% | 32.1% | -9.0% |
| Materials | 274.81 | 6.26 | 2.33% | 4.11% | 3.80% | 5.76% | 20.0% | 15.7% | 2.2% |
| Utilities | 202.48 | 0.86 | 0.43% | -0.30% | 0.99% | -6.31% | 15.8% | 16.9% | 12.8% |
| *Total return data for 2002, 2003, 2004 & 2005 as per RBC CM Quantitative Research – Global Benchmarks. YTD return data is simple price return. | |||||||||
BOND MARKET
MONEY MARKET
ECONOMIC INDICATORS
** Source: RBC Economics
