Author: Consultant

April 20, 2022 AM

EQUITIES Wall Street futures steadied early Wednesday with Netflix shares under pressure after the streaming giant’s lasts subscriber numbers disappointed. Major European markets firmed as the session progressed. TSX futures were modestly lower despite a gains in crude prices.

Futures linked to the big U.S. indexes were all in the red in the early premarket period but recouped some losses as the North American open neared. A day earlier, all three finished up with the Nasdaq adding more than 2 per cent. The S&P/TSX Composite Index added 0.6 per cent with consumer discretionary sector, tech and industrial stocks among the day’s winners.

On Wednesday, Netflix stock will be in focus after weak subscriber numbers sent the shares into a tailspin after the close of trading. In the early premarket period, Netflix shares were down more than 25 per cent.

In the latest quarter, the company posted its first loss in worldwide subscribes in its history. The company’s customer base fell by 200,000 subscribers during the January-March period. Analysts were looking for a gain of 2.5 million subscribers.

“The biggest challenge going forward will not just be a more intensive landscape competition wise, but also the rising cost of living, as well as starting to hit critical mass in some of its key markets,” CMC Markets chief market analyst Michael Hewson said.

“This in turn will prompt a sharp reassessment of future subscriber growth estimates, across the sector, with Disney, Apple TV+ and Amazon Prime expected to come under similar scrutiny in the days ahead, although at least on their part at least they have other revenue streams to fall back on.”

Investors were also keeping a close eye on bond yields, with the yield on the U.S. 10-year note holding just below 3 per cent on Tuesday. Canadian bond yields tracked U.S. yields higher, with the five-year bond yield – which has a significant influence on fixed mortgage rates – hitting a fresh 11-year high of more than 2.7 per cent. By early Wednesday morning, the yield on the U.S. 10-year note was down at 2.872 per cent.

In this country, investors got results from Rogers Communications before the start of trading. The telecom company reported a 4-per-cent increase in fourth quarter revenue to $3.62-billion in the quarter ended March 31, compared with analysts’ average estimates of $3.63-billion, according to IBES data from Refinitiv.

Meanwhile, the Globe’s Alexandra Posadzki and Andrew Willis report that Rogers Communications Inc. has presented the federal government with a deal that would see rural internet provider Xplornet Communications Inc. acquire wireless carrier Freedom Mobile in an attempt to win approval for Rogers’s $26-billion takeover of Shaw Communications Inc., according to sources.

Canadian investors will also get a fresh reading on inflation Wednesday morning with the release of March consumer price index figures from Statistics Canada. Economists are expecting to see consumer prices spike above 6 per cent for the year, marking a three-decade high. The annual rate of inflation hit 5.7 per cent in February.

“Soaring gasoline prices are expected to account for almost a quarter of the increase — and half of the price rise from February as energy surged higher on the Russian invasion of Ukraine,” RBC chief currency strategist Adam Cole said.

On Wall Street, earnings continue to roll in with results due from Tesla Inc. after the close of trading.

Overseas, the pan-European STOXX 600 rose 0.51 per cent in morning trading. Britain’s FTSE 100 gained 0.28 per cent. Germany’s DAX and France’s CAC 40 advanced 0.51 per cent and 0.90 per cent, respectively.

In Asia, Japan’s Nikkei rose 0.86 per cent. Hong Kong’s Hang Seng fell 0.40 per cent.

Commodities

Crude prices recouped some of the previous session’s sharp losses in early going helped by continued supply concerns amid the Russia-Ukraine war and fresh U.S. figures showing a decline in weekly U.S. inventories.

The day range on Brent is US$106.96 to US$108.81. The range on West Texas Intermediate is US$102.53 to US$104.

Both bench marks fell more than 5 per cent on Tuesday after the International Monetary Fund cut its global growth outlook for the year.

“There remain plenty of upside risks to the oil price, even at these levels, which makes [Tuesday’s] large declines all the more interesting,” OANDA senior analyst Craig Erlam said.

“Protests in Libya have knocked out around half a million barrels per day of output which contributed to Monday’s rally. While this is only a temporary hit, it comes at a bad time as far as global supply is concerned.”

Prices drew some support early Wednesday from new data from the American Petroleum Institute showing that U.S. crude stocks fell by 4.5 million barrels last week. Analysts had been expecting to see an increase in inventories.

More official numbers are due later in the morning from the U.S. Energy Information Administration.

In other commodities, gold prices fell to a two-week low, hit by a strong U.S. dollar and rising Treasury yields.

Spot gold was down 0.4 per cent at US$1,941.40 per ounce by early Wednesday morning, after hitting its lowest since April 8. U.S. gold futures fell 0.7 per cent to US$1,944.80.

Currencies

The Canadian dollar was higher in early trading while its U.S. counterpart held near its best level in two years against a basket of global currencies.

The day range on the loonie is 79.21 US cents to 79.66 US cents.

Canadian investors get new inflation figures before the start of trading, which are expected to show the annual rate of inflation topped 6 per cent in March.

“Headline inflation is set to rise from 5.7 per cent to 6.1 per cent, with the core measures also set to increase due to second round effects,” Jay Zhao-Murray, FX market analyst with Monex Canada, said.

“A slight miss in the inflation data will spell trouble for CAD bulls, however, as markets will begin to price out expectations of a successive 50bp hike by the Bank of Canada in June.”

On world markets, the U.S. dollar index, which measures the currency against six major peers including the yen, early in the day matched Tuesday’s high at 101.03 – a level not seen since March 2020 – before easing to 100.76, down 0.3 per cent in the day, according to Reuters.

Japan’s yen, meanwhile, hit a two-decade low against the greenback. The U.S. dollar reached 129.43 yen for the first time since April 2002 in Asian trading before easing to last trade 0.21 per cent lower at 128.615, the news agency reported.

More company news

Lululemon Inc. says it aims to double its revenue to US$6.25-billion by 2026 under a new five-year growth plan. The Vancouver-based yoga-wear maker said it expects significant growth across key pillars including product innovation, guest experience, and market expansion.

Economic news

(8:30 a.m. ET) Canadian CPI for March.

(8:30 a.m. ET) Canada’s new housing price index for March.

(10 a.m. ET) U.S. existing home sales for March.

(2 p.m. ET) U.S. Beige Book released.

Also: G20 finance ministers and central bank governors meet in Washington.

Natural gas drops as much as 11%, pulls back from more than 13-year high

U.S. natural gas futures plunged more than 11% at the lows Tuesday, reversing Monday’s surge which saw the contract rally more than 10% at one point to break above $8 per million British thermal units and hit the highest level since September 2008.

Henry Hub prices declined 11.1% at the session low to trade at $6.95. However the contract made back some of those losses during afternoon trading, and ultimately settled 8.24% lower at $7.176.

From Monday’s high to Tuesday’s low the May contract shed 13.8%.

Natural gas prices have been on a tear since Russia’s invasion of Ukraine in late February. The contract is coming off five straight weeks of gains and is up nearly 90% for the year.

Matt Maley, chief market strategist at Miller Tabak, said Monday that natural gas looked ripe for a pullback from a technical perspective. Pointing to the relative strength index, a momentum indicator, Maley said the commodity was second-most overbought since 2003.

“Its RSI chart is now up to levels that have been followed by short-term pullbacks in the past,” he noted Thursday. “We are still bullish on natural gas (and natural gas-related stocks), so we’re not saying that investors should take profits right here. Instead, we [are] merely saying that investors should avoid chasing these assets over the near term.”

Prices surged Monday on forecasts for colder spring temperatures, fuel switching from coal to natural gas, as well as the U.S. sending record amounts of LNG to Europe.

What is a poison pill? How Twitter’s plan to block Elon Musk’s hostile takeover bid would work

Last week, Twitter announced a “poison pill” plan in response to Tesla CEO Elon Musk’s offer to buy Twitter outright and take it private. But what exactly is a poison pill?

In this video, you’ll not only get a crash course in the latest round of “Elon Musk vs. Twitter”, you’ll find out exactly how the poison pill Twitter has implemented is designed to work. You’ll also learn the history of when the corporate poison pill was invented, and that during the period of 1997 to 2001 – the Dot Com era – for every company that successfully used a poison pill defence to deter a takeover, a full twenty companies ended up getting taken over.https://www.youtube.com/embed/82pr19jgov0?feature=oembed&enablejsapi=1&origin=https:%2F%2Fwww.theglobeandmail.com

While the name does indeed come from the use of poison pills by captured spies to avoid interrogation, a corporate poison pill is not designed to kill a company. It’s more formally known as a shareholder rights plan, and only gets triggered when a potential acquirer crosses a certain ownership threshold – 15 per cent in the case of Twitter.

Once triggered, it allows all the other shareholders – except the acquirer – to buy more shares at a deep discount. In Twitter’s TWTR-N -0.78%decrease plan, they will let everyone buy a newly created class of preferred shares: 1/1000th of a preferred share per common share they already own. But these new fractions of a share have the same voting power as a full common share.

And because we apparently can’t get enough of the 4/20 obsession (a meme associated with cannabis culture): the exercise price to buy 1/1000th of these new preferred shares will be $210 and their value will be set at twice that amount which is … $420.

If the poison pill gets triggered, it will have the effect of diluting the acquirer’s position and therefore the acquirer may think twice about simply buying more shares. What it also does is buy time and leverage.

The board can use the existence of a poison pill to drive a better deal with the acquirer. But in the end, it’s the shareholders who have the final say. They could be persuaded to vote against the board because Twitter’s share price hasn’t really done much since its IPO in 2013.

Maybe it is indeed time for new management. Whether that ends up happening, and whether or not it’s Mr. Musk at the helm, is still unknown.

Musk says Twitter board will be paid nothing if he acquires the company

Elon Musk said Monday that Twitter’s board of directors won’t be compensated for serving if he acquires the company.

“Board salary will be $0 if my bid succeeds, so that’s ~$3M/year saved right there,” Musk said in a tweet.

It’s not clear who would be appointed to serve the board of a Musk-owned Twitter. Currently, Twitter spends about $2.9 million in cash and stock awards to board members, according to a filing with the SEC. Executives do not receive additional compensation for their seats, so that does not include payments for CEO Parag Agrawal and former chief Jack Dorsey.

The Tesla and SpaceX CEO has been on a tear to acquire Twitter. After building up more than 9% in stock, Musk offered to buy Twitter in a deal valued at about $43 billion. In response, Twitter adopted a limited duration shareholder rights plan, often referred to as a “poison pill,” in an effort to fend off a potential hostile takeover. Musk may also be considering a potential tender offer to Twitter shareholders to take control of the company.

The outspoken executive has argued Twitter needs to be “transformed” into a private company so it can become a forum for free speech. He’s also said that Twitter’s board members’ interests “are simply not aligned with shareholders” and that the board “owns almost no shares” of the company.

Asia stocks decline as investors react to mixed Chinese economic data

• Shares in Asia slipped in Monday morning trade.
• China saw a faster-than-expected GDP growth in the first quarter, data released by the National Bureau of Statistics showed Monday, despite parts of the country being hit by Covid lockdowns in March.
• Markets in Australia and Hong Kong are closed on Monday for a holiday.

https://www.cnbc.com/2022/04/18/asia-markets-investors-await-chinas-first-quarter-gdp.html

China’s first quarter GDP beats expectations to grow 4.8% year-on-year

BEIJING — China’s first quarter GDP grew faster than expected despite the impact of Covid lockdowns in parts of the country in March, according to data released by the National Bureau of Statistics Monday.

First quarter GDP rose by 4.8%, topping expectations of a 4.4% increase from a year ago.

Fixed asset investment for the first quarter rose by 9.3% from a year ago, topping expectations for 8.5% growth. Industrial production in March rose by 5%, beating the forecast for 4.5% growth.

However, retail sales in March fell by a more-than-expected 3.5% from a year earlier. Analysts polled by Reuters anticipated a 1.6% decline.

Beginning in March, the country has struggled to contain its worst Covid outbreak since the initial phase of the pandemic in 2020. Back then, lockdowns across more than half the country resulted in a 6.8% contraction in first quarter growth from a year earlier.

“We must be aware that with the domestic and international environment becoming increasingly complicated and uncertain, the economic development is facing significant difficulties and challenges,” the bureau said in a statement.

The urban unemployment rate ticked higher in March to 5.8%, up from 5.5% in February. The unemployment rate for those aged 16 to 24 remained far higher at 16%.

Retail sales grew by 3.3% in the first quarter from a year ago, but the apparel, autos and furniture subcategories still posted declines for the period.

Within retail sales, jewelry declined the most and was down by 17.9% in March from a year ago. It was followed by a 16.4% decline in catering and a 12.7% decline in clothing and shoes, the data showed.

“We must coordinate the efforts of Covid-19 prevention and control and economic and social development, make economic stability our top priority and pursue progress while ensuring stability, and put the task of ensuring stable growth in an even more prominent position,” the bureau said.

Although economic figures released for January and February beat expectations, figures for March have begun to reflect the impact of stay-home orders and travel restrictions around economic centers like the coastal metropolis of Shanghai.

Exports, a major driver of China’s growth, rose by a more-than-expected 14.7% in March, but imports unexpectedly fell, down by 0.1% from a year ago, according to data released last week.

APRIL 18, 2022 Oil prices rise; weak OPEC production in focus

Oil prices moved higher in early Asian trade, with weak crude production from OPEC supporting prices, Oanda market analyst Ed Moya said in a note. Although the IEA’s oil-reserve release is weighing on sentiment, Moya says this already looks priced in. Click on Link Below

Oil prices rise; weak OPEC production in focus | Fox Business

Wells Fargo’s quarterly profit tops expectations as lower costs blunt hit from weak mortgage lending

Wells Fargo & Co’s WFC-N +0.25%increase first-quarter profit dropped 21 per cent but beat Wall Street expectations on Thursday as top boss Charlie Scharf plans to keep a tight rein on costs cushioned a drop in mortgage lending.

Overall average loans grew 3 per cent in the quarter, largely helped by credit card and auto lending. Mortgage loans, however, fell 33 per cent from a year ago on lower originations as the Federal Reserve raised interest rates to tame soaring inflation.

“Our internal indicators continue to point towards the strength of our customers’ financial position, but the Federal Reserve has made it clear that it will take actions necessary to reduce inflation and this will certainly reduce economic growth,” Chief Executive Charlie Scharf said.

“In addition, the war in Ukraine adds additional risk to the downside.”

Wells Fargo leans heavily on revenue from its consumer and corporate banking business, as it does not have a large capital markets division compared with Wall Street rivals Goldman Sachs Group Inc and Morgan Stanley.

Non-interest expenses fell 1 per cent on lower personnel and divestitures, in line with Scharf’s plan to turn around the bank and save about $10-billion annually over the longer term.

Net interest income rose 5 per cent during the quarter helped by higher loan balances and a decrease in long-term debt, among others. Overall average loans grew to $898-billion in the past quarter, up from $873.4-billion a year earlier.

Consumer spending has been on the rise for months, as the United States emerges from the COVID-19 pandemic and many make up for lost time travelling, shopping and dining out.

Top executives at some of the big U.S. banks had said early in the first quarter that consumer have healthy cash balances in their banks and are eager to spend and borrow.

The fourth-largest U.S. lender posted a profit of $3.67-billion, or 88 cents per share, for the three months ended March 31, compared with $4.64-billion, or $1.02 per share, a year earlier.

Cogeco’s second-quarter profit rises 7.8% to $118.8-million on revenue boost

Cogeco Inc. CGO-T -0.04%decrease says its net profit increased nearly eight per cent in its second quarter on a boost in revenues.

The Montreal-based company says its net income attributable to shareholders was $118.8-million or $2.29 per diluted share, up from $110.2-million or $2.11 per share a year earlier.

Revenues for the three months ended Feb. 18 increased 14.5 per cent to $748.1-million, from $653.2-million in the second quarter of 2021.

Cogeco was expected to earn $2.27 per share on $741.2-million of revenues, according to financial data firm Refinitiv.

American broadband services revenue increased 31 per cent in constant currency while Canadian broadband services revenue was up 2.1 per cent mainly due to the DERYtelecom acquisition in December 2020 and organic growth.

Media activities revenue was up 4.9 per cent following an easing of COVID-19 public health restrictions.

“For our radio business, our revenue has grown despite a weaker advertising market due to sudden lockdowns brought on by the Omicron variant, however signs have been positive for the economy as public health measures are being lifted,” stated CEO Philippe Jette in a news release.