Author: Consultant

BRP Inc.DOO-T -0.83%decreaseDOO-T -0.83%decrease has deeply slashed its profit forecast for the year as the Canadian maker of Ski-Doo snowmobiles and Can-Am off-road vehicles grapples with softer consumer demand and heightened competition.

Its shares fell 4.5 per cent to $85.30 in Friday trading on the Toronto Stock Exchange.

Valcourt, Que.-based BRP reported net income of $7.2-million or 9 cents a share for its second quarter ended July 31. On an adjusted basis and not including restructuring costs, it generated normalized diluted earnings of $0.61 a share compared with the $0.35 analysts had predicted. Revenue came in at $1.84-billion, in step with the $1.88-billion analysts expected.

But the company cut its earnings guidance for the full year by 54 per cent, saying it now expects earnings per share to come in between $2.75 and $3.25. That’s down from a previous forecast of $6 to $7. The manufacturer also lowered its revenue forecast for the year to between $7.8-billion and $8-billion, down from $8.6-billion to $8.9-billion.

“Our results were in line with expectations and reflect our ongoing focus on reducing network inventory to maintain our dealer value proposition. We have made great strides on that front, but the retail environment is more challenging with the economic context pressuring consumer demand,” BRP chief executive José Boisjoli said in a statement. “As such, our priority is to continue to proactively manage production and inventory levels, which leads us to revise our year-end guidance.”

Investor sentiment on BRP was quite bearish heading into the results release, with most expecting a guidance cut, Desjardins analyst Benoît Poirier said in a research note. But he said the magnitude of the cut is “significantly worse than expected.”

The revision represents a stunning turn of events in a short period of time. A year ago, expectations for BRP’s earnings per share for fiscal 2025 were about $14. Now they’re barely a quarter of that amount.

“Unfortunately, this extreme volatility could spook investors, resulting in lower valuation multiples,” Stifel analyst Martin Landry said in a note Friday. BRP has had to boost its promotional activity in the face of softer demand and to compete with the discounts rivals are offering, he said.

Powersports vehicles are considered to be highly discretionary and are often the first thing that gets cut when consumers are watching their spending or lose their jobs. As a result, dealers are offering sweeter deals to stoke sales and get inventory out the door.

Sales as measured in individual vehicles fell by high single-digits during the last quarter in North America. BRP’s unit sales were down 18 per cent, suggesting it lost market share.

“We believe that difficult industry conditions could be present next year as well as it may take time for consumer demand to return and for the excess inventory to clear,” Mr. Landry said.

In the United States, the biggest market for powersports vehicles, consumers reported higher optimism and a greater willingness to spend in the third quarter as confidence in their household finances grew, according to McKinsey & Co.’s latest sentiment survey. But the consultancy warned emerging economic indicators could dampen this newfound optimism.

“The next few months may be turbulent,” McKinsey’s ConsumerWise team said in a report published late last month. “Market uncertainty, the upcoming US general election, and ongoing geopolitical conflicts may test US consumers’ faith in the economy.”

BRP is controlled by Bombardier Inc.’s founding family and Bain Capital, which together held roughly 56 per cent of the total voting power as of April this year. Caisse de dépôt et placement du Québec is also a major shareholder.

U.S. private payrolls increased more than expected in September, further evidence that labour market conditions were not deteriorating.

Private payrolls increased by 143,000 jobs last month after rising by an upwardly revised 103,000 in August, the ADP National Employment Report showed on Wednesday.

Economists polled by Reuters had forecast private employment increasing by 120,000 positions after a previously reported gain of 99,000 in August.

The ADP report, jointly developed with the Stanford Digital Economy Lab, was published ahead of Friday’s more comprehensive and closely watched employment report for September from the Labor Department’s Bureau of Labor Statistics.

There is not much correlation between the ADP and BLS employment report. Initial ADP prints have mostly understated private payroll growth this year.

Government data on Tuesday showed the labour market continues to hum along, with 1.13 job openings for every unemployed person in August compared to 1.08 in July. Sluggish hiring against the backdrop of an immigration-driven surge in labour supply is behind the labour market slowdown.

The Federal Reserve last month cut its benchmark interest rate by an unusually large 50 basis points to the 4.75 per cent-5.00 per cent range, the first reduction in borrowing costs since 2020, in a nod to rising concerns over the labour market’s health.

The U.S. central bank is expected to cut interest rates again in November and December.

Private payrolls likely increased by 125,000 in September after rising by 118,000 in August, a Reuters survey of economists showed. With solid gains in government employment expected, nonfarm payrolls are forecast to have increased by 140,000 last month after advancing by 142,000 in August The unemployment rate is forecast unchanged at 4.2 per cent. It has increased from 3.4 per cent in April 2023.

Canada’s main stock index opened higher on Wednesday, tracking the heavyweight energy sector as escalating conflict in the Middle East pushed oil prices higher.

At 9:31 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 35.97 points, or 0.15%, at 24,069.96.

Wall Street’s main indexes started lower on Wednesday as investors priced in a possible escalation in geopolitical tensions in the Middle East, while a survey allayed concerns about a rapid cooldown in the labor market.

The Dow Jones Industrial Average fell 31.8 points, or 0.08%, at the open to 42,125.14. The S&P 500 fell 10.6 points, or 0.19%, at the open to 5,698.14, while the Nasdaq Composite dropped 43.2 points, or 0.24%, to 17,867.124 at the opening bell.

While Israel is not a major producer of oil, Iran is OPEC’s third largest producer and the potential for a wider, sustained conflict raises the risk of disruptions to supplies by neighboring producers of crude. However, some analysts have been skeptical that the U.S. would experience massive oil shortages, since U.S. oil production is at an all-time high.

Early Wednesday, U.S. crude was up $2.11, or 3%, to $71.94 per barrel. Brent crude climbed $1.96 to $75.52 per barrel.

Israeli Prime Minister Benjamin Netanyahu vowed to retaliate against Iran, which he said “made a big mistake tonight and it will pay for it.” An Iranian commander threatened wider strikes on infrastructure if Israel retaliates.

Nike shares tumbled 7.3% in early trading after the shoe giant posted lackluster first-quarter results, including sales that came in lower than Wall Street was expecting. Nike, which is in the middle of a CEO transition, also pulled its full-year guidance and postponed its investors day conference. Its shares are down about 22% this year.

Shares of Humana shed close to 22% early Wednesday after the health insurer said a Medicare Advantage quality rating drop will hurt future bonus payments the company receives.

On Monday, the S&P 500 set an all-time high for the 43rd time this year. Stocks had been jumping on hopes the U.S. economy can continue to grow despite a slowdown in the job market, as the Federal Reserve cuts interest rates to give it more juice. The Fed last month lowered its main interest rate for the first time in more than four years, and it’s indicated it will deliver more cuts through next year.

The dominant question hanging over Wall Street is whether the cuts will ultimately prove to be too little, too late after the Fed earlier kept rates at a two-decade high in hopes of braking on the economy enough to stamp out high inflation.

Another threat to the economy could lie in a strike by dockworkers at 36 ports across the eastern United States that could snarl supply chains and drive up inflation.

The workers are asking for a labor contract that doesn’t allow automation to take their jobs, among other things. Supply chain experts say consumers won’t see an immediate impact because most retailers have stocked up on goods, moving ahead shipments of holiday gift items.

A debate Tuesday night between vice presidential candidates Democratic Gov. of Minnesota Tim Walz and Republican senator JD Vance drew scant market attention, analysts said.

“The market’s muted reaction says it all — traders are far more focused on pressing economic concerns and geopolitical risks than on the vice presidential showdown,” Stephen Innes of SPI Asset Management said in a commentary.

In Europe at midday, Germany’s DAX rose 0.7% and the FTSE 100 in London ticked up 0.1%. In Paris, the CAC 40 picked up 0.2%.

Tokyo’s Nikkei 225 lost 2.2% to 37,808.76. It has retreated since the ruling Liberal Democratic Party chose Shigeru Ishiba to lead the government, replacing Fumio Kishida, who stepped aside on Tuesday. Higher energy prices in Japan, which relies heavily on imported oil, gas and coal to power its industries, would add to Ishiba’s burdens as he works to pep up the economy.

Hong Kong’s Hang Seng roared 6.2% higher to 22,443.73, riding a wave of investor enthusiasm over recent moves by Beijing to rev up the Chinese economy with policies aimed at reviving the ailing property sector and supporting financial markets. With Shanghai and other markets in China closed, trading crowded into Hong Kong.

Reuters and The Associated Press

https://www.cnn.com/world/live-news/israel-lebanon-war-hezbollah-10-1-24-intl-hnk/index.html

Monday September 30

China PMI and current account surplus

Japan industrial production and retail sales

Canada’s National Day for Truth and Reconciliation (stock markets open; bond markets closed)

(9:45 a.m. ET) U.S. Chicago PMI for September.

(1:55 p.m. ET) U.S. Fed chair Jerome Powell gives luncheon address at NABE conference.

Earnings include: Carnival Corp.

—

Tuesday October 1

China’s markets closed (through Friday)

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Japan jobless rate and manufacturing PMI

Euro zone CPI and manufacturing PMI

(9:30 a.m. ET) Canada’s S&P Global Manufacturing PMI for September.

(9:45 a.m. ET) U.S. S&P Global Manufacturing PMI for September.

(10 a.m. ET) U.S. ISM Manufacturing PMI for September.

(10 a.m. ET) U.S. construction spending for August. The Street is projecting a month-over-month rise of 0.1 per cent.

(10 a.m. ET) U.S. Job Openings & Labor Turnover Survey for August..

Also: Canadian and U.S. auto sales for September.

Earnings include: Nike Corp.; Paychex Inc.

—

Wednesday October 2

Euro zone jobless rate

(8:15 a.m. ET) U.S. ADP National Employment Report for September.

Also: OPEC JMMC meeting

Earnings include: NovaGold Resources Inc.; Tilray Inc.

—

Thursday October 3

Japan services and composite PMI and consumer confidence

Euro zone services and composite PMI

(8:30 a.m. ET) U.S. initial jobless claims for week of Sept. 27. Estimate is 220,000, up 2,000 from the previous week.

(9:30 a.m. ET) Canada’s S&P Global Services PMI for September.

(9:45 a.m. ET) U.S. S&P Global Services/Composite PMI for September.

(10 a.m. ET) U.S. ISM Services PMI for September.

(10 a.m. ET) U.S. factory orders for August. Consensus is a month-over-month rise of 0.1 per cent.

Earnings include: Constellation Brands Inc.; Richelieu Hardware Ltd.

—

Friday October 4

(8:30 a.m. ET) U.S. nonfarm payrolls for September. The Street is expecting a rise of 130,000 jobs from August with the unemployment rate remaining 4.2 per cent and average hourly earnings up 0.3 per cent (and 3.8 per cent year-over-year).

(10 a.m. ET) Canada’s Ivey PMI for September.

An inflation gauge closely watched by Federal Reserve policymakers continued to slow in August as the pace of price growth trended closer to the Fed’s target.

The Commerce Department reported Friday that the personal consumption expenditures (PCE) price index rose 0.1% from the prior month and 2.2% year over year. The annual figure came in cooler than the estimates of economists polled by LSEG.

Core PCE, which excludes volatile food and energy prices, rose 0.1% for the month and increased 2.7% from a year ago, in line with estimates and little changed from a month ago.

The Federal Reserve is focusing on the PCE headline figure as it tries to bring the pace of price increases back to 2%, although policymakers view the core data as a better indicator of inflation. Both the core and headline figures suggest that inflation is continuing to cool.

https://www.foxbusiness.com/economy/inflation-measure-closely-watched-fed-fell-2-2-august

Canada’s gross domestic product expanded at a faster-than-expected 0.2 per cent rate in July, but an advance estimate indicated that growth likely stalled in August, data showed on Friday, bolstering hopes for a supersized interest rate cut next month.

Economists welcomed the July growth but looked at it mostly as a blip sandwiched between two months in which activity was flat and reiterated that GDP would fall well below the Bank of Canada’s third-quarter estimate.

“Growth appears to be tracking just over 1 per cent for Q3, well below the Bank of Canada’s 2.8 per cent forecast,” Royce Mendes, head of macro strategy at Desjardins Group, wrote in a note.

He said he expected the Canadian central bank would deliver a 50-basis-point rate cut on Oct. 23.

Analysts polled by Reuters had forecast GDP would rise 0.1 per cent in July, after zero growth in June.

The economy grew in July despite the negative impact of wildfires on several industries, with growth driven by services-producing industries, primarily retail trade, public sectors and finance and insurance, Statistics Canada said.

The expected economic weakness in August likely is due to a contraction in manufacturing, transportation and warehousing which would essentially offset growth in oil and gas extraction and the public sector, Statscan said.

The BoC forecast in July that the economy would grow 2.8 per cent in the third quarter, but data released since then have led economists to predict growth of about half that figure.

“The preliminary estimate of unchanged GDP in August suggests that the momentum was short-lived and puts third-quarter growth on track to surprise marginally to the downside of our already downbeat forecast of 1.2 per cent annualized,” said Olivia Cross, North America economist at Capital Economics.

She expects a 50-basis-point rate cut next month.

The BoC has cut interest rates three times since June, moving in quarter-percentage-point steps, but has said it could shift to larger cuts if the economy needs a boost.

Money markets see just over a 50 per cent chance of a half-percentage-point reduction in borrowing costs at the central bank’s next announcement and are fully pricing in another 25-basis-point cut in December.

The Canadian dollar was trading down 0.08 per cent to 1.3475 to the U.S. dollar, or 74.21 U.S. cents, after the data. Yields on the two-year Canadian government bonds were down 3.4 basis points to 3.07 per cent.

On Tuesday, BoC Governor Tiff Macklem said it was reasonable to expect more rate cuts given the progress made in cooling inflation and reiterated that the central bank wanted to see growth pick up to absorb economic slack.

Economic growth in July was driven by increases in both services, which grew by 0.2 per cent, and goods industries, which rose by 0.1 per cent, Statscan said.

The American economy expanded at a healthy 3 per cent annual pace from April through June, boosted by strong consumer spending and business investment, the government said Thursday, leaving its previous estimate unchanged.

The Commerce Department reported that the nation’s gross domestic product – the nation’s total output of goods and services – picked up sharply in the second quarter from the tepid 1.6 per cent annual rate in the first three months of the year.

Consumer spending, the primary driver of the economy, grew last quarter at a 2.8 per cent pace, down slightly from the 2.9 per cent rate the government had previously estimated. Business investment was also solid: It increased at a vigorous 8.3 per cent annual pace last quarter, led by a 9.8 per cent rise in investment in equipment.

The third and final GDP estimate for the April-June quarter included figures showing that inflation continues to ease, to just above the Federal Reserve’s 2 per cent target. The central bank’s favoured inflation gauge – the personal consumption expenditures index, or PCE – rose at a 2.5 per cent annual rate last quarter, down from 3 per cent in the first quarter of the year. Excluding volatile food and energy prices, so-called core PCE inflation grew at a 2.8 per cent pace, down from 3.7 per cent from January through March.

The U.S. economy, the world’s biggest, displayed remarkable resilience in the face of the 11 interest rate hikes the Fed carried out in 2022 and 2023 to fight the worst bout of inflation in four decades. Since peaking at 9.1 per cent in mid-2022, annual inflation as measured by the consumer price index has tumbled to 2.5 per cent.

Despite the surge in borrowing rates, the economy kept growing and employers kept hiring. Still, the job market has shown signs of weakness in recent months. From June through August, America’s employers added an average of just 116,000 jobs a month, the lowest three-month average since mid-2020, when the COVID-19 pandemic had paralyzed the economy. The unemployment rate has ticked up from a half-century low 3.4 per cent last year to 4.2 per cent, still relatively low.

Last week, responding to the steady drop in inflation and growing evidence of a more sluggish job market, the Fed cut its benchmark interest rate by an unusually large half-point. The rate cut, the Fed’s first in more than four years, reflected its new focus on shoring up the job market now that inflation has largely been tamed.

“The economy is in pretty good shape,” Bill Adams, chief economist at Comerica Bank, wrote in a commentary.

“After a big rate cut in September and considerable further cuts expected by early 2025, interest-rate-sensitive sectors like housing, manufacturing, auto sales, and retailing of other big-ticket consumer goods should pick up over the next year. Lower rates will fuel a recovery of job growth and likely stabilize the unemployment rate around its current level in 2025.”

Several barometers of the economy still look healthy. Americans last month increased their spending at retailers, for example, suggesting that consumers are still able and willing to spend more despite the cumulative impact of three years of excess inflation and high borrowing rates. The nation’s industrial production rebounded. The pace of single-family-home construction rose sharply from the pace a year earlier.

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And this month, consumer sentiment rose for a third straight month, according to preliminary figures from the University of Michigan. The brighter outlook was driven by “more favourable prices as perceived by consumers” for cars, appliances, furniture and other long-lasting goods.

A category within GDP that measures the economy’s underlying strength rose at a solid 2.7 per cent annual rate, though that was down from 2.9 per cent in the first quarter. This category includes consumer spending and private investment but excludes volatile items like exports, inventories and government spending.

Though the Fed now believes inflation is largely defeated, many Americans remain upset with still-high prices for groceries, gas, rent and other necessities. Former President Donald Trump blames the Biden-Harris administration for sparking an inflationary surge. Vice President Kamala Harris, in turn, has charged that Trump’s promise to slap tariffs on all imports would raise prices for consumers even further.

On Thursday, the Commerce Department also issued revisions to previous GDP estimates. From 2018 through 2023, growth was mostly higher – an average annual rate of 2.3 per cent, up from a previously reported 2.1 per cent – largely because of upward revisions to consumer spending. The revisions showed that GDP grew 2.9 per cent last year, up from the 2.5 per cent previously reported.

Thursday’s report was the government’s third and final estimate of GDP growth for the April-June quarter. It will release its initial estimate of July-September GDP growth on Oct. 30. A forecasting tool from the Federal Reserve Bank of Atlanta projects that the economy will have expanded at a 2.9 per cent annual pace from July through September.

U.S. oil inventories fell across the board last week, the Energy Information Administration said on Wednesday, drawing down more than expected and with crude oil stockpiles hitting their lowest level in nearly 2-1/2 years.

Crude stocks dropped by 4.5 million barrels to 413 million barrels in the week ended Sept. 20, the EIA said, compared with analysts’ expectations in a Reuters poll for a 1.4 million-barrel draw.

U.S. crude inventories, excluding those in the Strategic Petroleum Reserve, were at their lowest last week since April 2022.

Stocks at the Cushing, Oklahoma, delivery hub for U.S. crude futures rose by 116,000 barrels, marking their first increase since the beginning of August, the EIA said.

“Even oil bears acknowledge that the market is currently under supplied,” said Josh Young, chief investment officer for Bison Interests. He warned there is still strong sentiment in the market that stocks will be over supplied next year.

Oil futures pared losses following the report. Brent crude was at $74.82 a barrel, down roughly 35 cents by 11:06 a.m. EDT (1506 GMT), while U.S. West Texas Intermediate crude was off 49 cents to $71.06 a barrel.

Refinery crude runs fell by 124,000 barrels per day, while utilization rates dropped by 1.2 percentage points to 90.9 per cent of total capacity.

Gasoline stocks fell by 1.5 million barrels in the week to 220.1 million barrels, the EIA said, compared with expectations for a 21,000-barrel draw.

Distillate stockpiles, which include diesel and heating oil, fell by 2.2 million barrels in the week to 122.9 million barrels, more than expectations for a 1.6 million-barrel drop, the EIA data showed.

Distillate inventories on the U.S. Gulf Coast declined by the most last week since September 2021.

“The trend of falling supplies is getting too big to ignore. We hear how bad demand can be and have mixed signals” said Phil Flynn, an analyst with Price Futures Group. “The weakness of demand doesn’t fit with this falling inventory situation,” he added.

Net U.S. crude imports rose last week by 826,000 barrels per day, EIA said, while exports declined by 692,000 bpd to 3.9 million bpd