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U.S. and Canadian stocks slumped on Tuesday, at the start of one of the market’s historically worst months, ahead of data likely to influence how much the Federal Reserve will lower interest rates.

All three U.S. major indexes and the S&P/TSX Composite Index recorded their biggest daily percentage declines since early August. The CBOE Volatility Index, Wall Street’s fear gauge that measures market expectations of stock market swings, jumped 33.2% to 20.72, the biggest daily percentage gain and highest close since early August.

Market sentiment weakened as Institute for Supply Management data on Tuesday showed U.S. manufacturing remained subdued despite a modest improvement in August from an eight-month low in July.

September is widely regarded as one of the worst months for stock market performance based on data stretching back to the 1950s, said Jason Browne, president at Alexis Investment Partners in Montgomery, Texas.

“We had a weak ISM report come out [Tuesday] morning, but we do believe seasonality is a big factor here especially when you’ve had such a solid performance for the year until the end of last month,” Browne said. “Everybody is reporting about how September is such a horrible month and that tends to feed on itself.”

The so-called Magnificent Seven megacap technology stocks, which have led this year’s rally, slumped. Nvidia dropped nearly 10%, shedding US$279 billion from its market capitalization, which finished at US$2.65 trillion.

Alphabet fell 3.6%, Apple lost 2.7% and Microsoft shed 1.8%. The Philadelphia SE Semiconductor index fell 7.8%.

Nine out of 11 S&P 500 sectors fell, led by declines in technology, energy, communication services and materials.

Traders are awaiting several labor market reports ahead of Friday’s non-farm payrolls data for August.

The Fed’s meeting on Sept. 17-18 will be closely observed following Chair Jerome Powell’s recent support for easing monetary policy.

Odds of a 25-basis point interest rate cut are at 63%, the CME Group’s FedWatch Tool showed, while those for a bigger 50 bps reduction are at 37%.

The Dow fell 626.15 points, or 1.51%, to 40,936.93, the S&P 500 dropped 119.47 points, or 2.12%, to 5,528.93 and the Nasdaq Composite slid 577.33 points, or 3.26%, to 17,136.30.

Boeing dropped 7.3% after Wells Fargo downgraded the aircraft manufacturer’s shares to “underweight” from “equal weight.”

The Canadian benchmark index ended down 303.73 points, or 1.3%, at 23,042.45, its worst day since Aug. 2.

Materials led sectoral losses with a 4.2% drop as gold prices declined. Copper prices fell to a two-week low and the energy sector fell 2.1% after oil prices dropped more than 3% on news of sluggish economic growth in China.

China’s manufacturing activity sank to a six-month low in August as factory gate prices tumbled and owners struggled for orders, an official survey showed.

Markets will be watching the Bank of Canada’s policy meeting on Wednesday, in which it is widely expected to lower its policy rate by 25 basis points for the third time in a row.

In Canadian economic data Tuesday, manufacturing activity rose to a five-month high to 49.5 in August as production and new orders fell at slower rates.

Declining issues outnumbered advancers by a 2.52-to-1 ratio on the NYSE, which had 297 new highs and 83 new lows. On the Nasdaq, 946 stocks rose and 3,315 fell as declining issues outnumbered advancers by 3.5 to 1.

Volume across U.S. exchanges totaled 12 billion shares, up from nearly 11 billion for the 20-day moving average.

Reuters, Globe staff

The economy grew at an annualized rate of 2.1 per cent in the second quarter – beating the Bank of Canada’s forecast – but continued to shrink on a per-person basis.

Statistics Canada’s real gross domestic product report on Friday said growth was supported by higher government spending, business investment in engineering structures as well as machinery and equipment and household spending on services.

Meanwhile, the economy posted declines in exports, residential construction and household spending on goods.

Economic growth halted toward the end of the quarter as the real gross domestic product was essentially unchanged for June. A preliminary estimate suggested the economy remained flat in July as well.

The data comes ahead of the Bank of Canada’s interest rate decision on Wednesday.

Economists are widely expecting the central bank to lower its key policy rate by a quarter of a percentage point, which would bring it to 4.25 per cent.

Bank of Canada governor Tiff Macklem said at the last interest rate announcement that the central bank was cutting interest rates in part to help the economy bounce back.

While high interest rates have not pushed the economy into a recession, it continues to lag strong population growth.

On a per person basis, the economy shrank for a fifth consecutive quarter.

The labour market is also showing signs of economic weakness as the unemployment rate keeps trending higher.

Canada’s unemployment rate was 6.4 per cent in July, with youth and recent immigrants disproportionately affected by the slowing job market.

Canadian Imperial Bank of Commerce CM-T -0.84%decrease reported a rise in third-quarter profit on Thursday, as the lender set aside smaller funds to cover potential loan losses.

Provision for credit losses was $483-million in the quarter, down $253-million compared with a year earlier.

Credit trends have been improving over the past few quarters in CIBC’s U.S. office portfolio.

The bank set aside lower provisions in its commercial banking segment in the U.S., a market where it was previously hit by its exposure to office real estate.

CIBC’s U.S. commercial banking and wealth management business reported a net income of $215-million in the quarter, up 187 per cent compared to last year.

The bank’s adjusted net income rose to $1.90-billion or $1.93 per share, in the three months ended July 31, from $1.48-billion or $1.52 per share a year earlier.

https://www.newswire.ca/news-releases/cibc-announces-third-quarter-2024-results-881083714.html

 National Bank of Canada reported a third-quarter profit of $1.03 billion, up from $830 million a year ago, helped by strength across its operations.

The Montreal-based bank says its net income amounted to $2.89 per diluted share for the quarter ended July 31, up from $2.33 per diluted share a year earlier.

Revenue for the quarter totalled $3.00 billion, up from $2.49 billion in the same quarter last year.

The bank’s provision for credit losses, the amount it sets aside to cover bad loans, totalled $149 million for the quarter, up from $111 million a year earlier.

On an adjusted basis, National Bank says it earned $2.68 per diluted share in its most recent quarter, up from an adjusted profit of $2.18 in the same quarter last year.

The average analyst estimate had been for an adjusted profit of $2.49 per share, according to LSEG Data & Analytics.

This report by The Canadian Press was first published Aug. 28, 2024.

Royal Bank of Canada RY-T +0.34%increase on Wednesday beat analysts’ quarterly profit estimates as it set aside a smaller than expected sum to protect against bad loan losses and wrapped in HSBC’s domestic operations.

The results were also powered by a 17 per cent rise in earnings at its personal and commercial banking segment to $2.49-billion, of which $198-million came from its $13.5-billion acquisition of HSBC’s domestic operations.

Canada’s biggest bank by market capitalization, RBC has moved to rejig its upper ranks and change its reporting segments while absorbing HSBC’s 780,000 clients and $71-billion loan book in the country.

“Royal reported a standout quarter … (its) earnings are gaining the lift of a full quarter’s inclusion from HSBC,” Jefferies analyst John Aiken wrote, noting the lender had rebuilt its capital level and was no longer a laggard.

At the end of July 31, RBC’s Common Equity Tier 1 ratio, a measure of a bank’s resilience that compares its capital against its assets, stood at 13 per cent, well above the Canadian banking regulator’s requirement.

A resurgence in deal making activity as expectations of a soft landing gave corporate executives the confidence to pursue acquisitions and sell stocks and bonds to raise capital drove a 23 per cent jump in net income at RBC’s capital market business to $1.17-billion.

Smaller peer National Bank of Canada NA-T -0.61%decrease also reported better-than-expected quarterly earnings, helped by a smaller loan-loss provision for the quarter and a 55 per cent rise in net income at its capital markets unit.

The Montreal-based lender is also focusing on growth at home, expanding from Canada’s east coast to west coast through its $2.5-billion acquisition of Canadian Western Bank. The deal is awaiting regulatory approval.

The results are in contrast with others from Canada’s big five banks that have reported so far, which were dragged down by credit pressures or provisions for penalties related to U.S. investigations.

RBC’s net interest income (NII) – the difference between what a bank earns on loans and pays out on deposits – rose 16.5 per cent.

Provisions for credit losses came in at $659-million, compared with analysts’ estimate of $903-million, according to LSEG data.

The bank’s adjusted net income rose 16.2 per cent to $4.73-billion. On a per share basis, the bank earned $3.26 compared with the average analyst estimate of $2.95.

National Bank’s earnings of $2.68 per share were more than the expected $2.49 per share.

Bank of Nova Scotia reported lower fiscal third-quarter profit as it set aside more money to cover future losses on loans, with customers in Canada and Latin America feeling the strain from higher interest rates.

Scotiabank reported profit of $1.91-billion, or $1.43 per share, in the three months that ended July 31. That was down from $2.19-billion, or $1.72 per share, in the same quarter last year.

After adjusting for certain items, Scotiabank said it earned $2.19-billion, or $1.63 per share. On average, analysts expected adjusted profit of $1.62 per share, according to data from the London Stock Exchange Group.

The bank earmarked $1.05-billion of provisions for credit losses – the funds banks set aside to cover loans that could default in future – compared with $819-million in the third quarter last year.

The bank’s provisions for impaired loans, which are already past due, jumped 31 per cent higher to $970-million, as more borrowers fell behind on payments. Many of those customers were in three of Scotiabank’s key markets in Latin America: Colombia, Chile and Peru. Provisions also increased for Canadian banking clients, mostly on car loans as well as credit card balances.

The ratio of provisions to the bank’s total loan book was 55 basis points, or 0.55 per cent, which is at the high end of the bank’s guidance for the year. But the low level of provisions against performing loans that are still being repaid, at $82-million, suggests the bank expects potential losses from defaults are nearing their peak.

Scotiabank kept its quarterly dividend unchanged at $1.06 per share.

Earlier this month, after its fiscal third quarter had ended, Scotiabank announced a US$2.8-billion investment to buy a minority stake in U.S. regional bank KeyCorp., as part of a plan to boost the Canadian bank’s exposure to the American banking market. The deal surprised investors and analysts were skeptical about its merits.

On Tuesday, Scotiabank explained why it sees the investment as a better alternative to buying back its own shares. The KeyCorp stake is expected to add between $300-million to $350-million to earnings in the first year after closing. By contrast, if the bank repurchased shares, it estimates it would have lost $80-million of profit, which is roughly what it would have earned by keeping the equivalent capital invested in securities. And Scotiabank calculates that the stake in KeyCorp will add more to earnings per share and return on equity.

In Scotiabank’s Canadian banking division, profit was $1.11-billion, up 6 per cent from the same quarter last year. Loan balances were roughly unchanged, with the mortgage portfolio shrinking by 2 per cent. Deposits increased by 8 per cent, which is a strategic priority for the bank.

Profit from international banking operations, which are concentrated in Latin America, was up 8 per cent to $669-million. The profit margin on loans increased, though overall loan balances declined by 2 per cent, mostly due to falling business lending.

Wealth management had a strong quarter, with profit up 11 per cent to $408-million. Capital markets profit of $418-million fell 4 per cent year over year, with weakness in fixed-income trading activity as demand from clients was lower.

The bank’s capital reserve increased, with its common equity Tier 1 capital ratio – a measure of the bank’s resilience against shocks – rising to 13.3 per cent, from 13.2 per cent, up 0.6 per cent from a year earlier.

Bank of Montreal BMO-T -5.71%decrease on Tuesday warned it would need to continue to set aside money for loans that are unlikely to be repaid, after the Canadian lender reported lower-than-expected profit for the sixth time in a row.

The lender however said it would start to see a recovery in 2025 as central banks cut interest rates and unemployment stabilizes which would ease some pressure for consumers and businesses falling behind on their loan repayments.

Third-quarter loan loss provisions were higher than analysts had forecast, in part due to impaired provisions for two customers, one in the U.S. and one recorded under its Capital Markets business.

“We’ve investigated the circumstances that led to recent impairments, and the conclusion is, for some customers, the combination of prolonged high interest rates, economic uncertainty and changing consumer preferences had an acute impact,” BMO’s CEO Darryl White told analysts.

Fifteen accounts drove about half of the year to date impaired provisions in its wholesale portfolio, White said.

Chief Risk Officer Piyush Agrawal said the increase in loss provisions in the retail sector was “systemic” and in wholesale, he said it was not “thematic to a sector.”

“I’m confident we’ve looked through our files,” he said about the bank’s loans to larger clients or companies.

Meanwhile, peer Bank of Nova Scotia BNS-T +2.13%increase, Canada’s fourth largest bank by market capitalization, reported better than expected profit powered by strong growth at its businesses at home and overseas, which spans across North America, Latin America and the Caribbean.

BMO’s shares sank 6 per cent in early trading in Toronto, while those of Scotiabank rose about 2.5 per cent.

Canadian banks have sought growth south of the border expanding through acquisitions or brick by brick as opportunities in a saturated an highly regulated market at home were limited.

BMO purchased U.S. regional lender Bank of the West for $16.3-billion last year, while Scotiabank looked further down, expanding in largely underbanked areas in South America and Latin America, focusing on the Pacific Alliance trade bloc.

Scotiabank is now betting on the $1.6-trillion North American trade, concentrating on Mexico, and U.S. Most recently, Scotiabank invested $2.8-billion in U.S. regional bank KeyCorp, its first exposure to the region.

But BMO and other Canadian banks that have a U.S. presence have faced many challenges in a competitive U.S. banking market, forcing them to spend more to retain deposits and boost loan growth.

BMO, Canada’s third-largest lender, said provision for credit losses jumped to C$906-million ($672.8-million) in the third quarter, from C$492-million a year earlier. Analysts were expecting C$734-million, according to LSEG data.

“The weakness was widespread with all segments showing some deterioration,” TD Securities analyst Mario Mendonca wrote in a note.

Adjusted net income at its U.S. personal and commercial banking segment fell 7 per cent. Overall, adjusted net income fell to C$1.98-billion, a 7.8 per cent decline from a year earlier.

BMO earned C$2.64 per share, compared with analysts’ expectations of C$2.76.

Scotiabank booked a 0.7 per cent fall in adjusted income to C$2.19-billion and earned C$1.63 per share, 1 Canadian cent more than estimates.

“The stability in earnings shown in its International operations should generate some support,” Jefferies analyst John Aiken said.

Canada’s government on Monday announced it is imposing a 100% tariff on imports of Chinese-made electric vehicles that matches U.S. tariffs and follows similar plans announced by the European Commission.

The announcement followed encouragement by U.S. national security advisor Jake Sullivan during a meeting with Canadian Prime Minister Justin Trudeau and cabinet ministers on Sunday. Sullivan is set to make his first visit to Beijing on Tuesday.

Trudeau said Canada also will impose a 25% tariff on Chinese steel and aluminum.

“Actors like China have chosen to give themselves an unfair advantage in the global marketplace,” he said.

There was no immediate response from China.

Chinese officials are likely to raise concerns about American tariffs with Sullivan as Beijing continues to repair its economy after the Covid-19 pandemic. U.S. President Joe Biden in May slapped major new tariffs on Chinese electric vehicles, advanced batteries, solar cells, steel, aluminum and medical equipment.

“The U.S. does believe that a united front, a coordinated approach on these issues benefits all of us,” Sullivan told reporters on Sunday.

Biden has said Chinese government subsidies for EVs and other consumer goods ensure that Chinese companies don’t have to turn a profit, giving them an unfair advantage in global trade.

Chinese firms can sell EVs for as little as $12,000. China’s solar cell plants and steel and aluminum mills have enough capacity to meet much of the world’s demand. Chinese officials argue their production keeps prices low and would aid a transition to the green economy.

“We’re doing it in alignment, in parallel, with other economies around the world that recognize that this is a challenge that we are all facing,” Trudeau said of the new tariffs. “Unless we all want to get to a race to the bottom, we have to stand up.”

The only Chinese-made EVs currently imported into Canada are from Tesla, made at the company’s Shanghai factory.

Canada “had to go with the U.S. position, when you think about the economic integration that we have with the U.S. More than 75% of our exports go to the U.S.,” said a former Canadian ambassador to China, Guy Saint-Jacques. “This reflects the fear that the next president of the United States might be Donald Trump, and so they know we have to be pretty much aligned in all of this.”

Saint-Jacques said Canada can expect retaliation from China in other industries, adding that barley and pork are candidates because the Chinese can get it from other countries.

“China will want to send a message,” he said.

Monday August 26

U.K. markets closed

Germany business sentiment

(8:30 a.m. ET) U.S. durable and core orders for July. The Street is projecting month-over-month increases of 4.2 per cent and 0.1 per cent, respectively.

(10:30 a.m. ET) U.S. Dallas Fed Manufacturing Activity for August.

Earnings include: BHP Group Ltd.; Heico Corp.

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Tuesday August 27

China industrial profits

Germany GDP

(8:30 a.m. ET) Canadian wholesale trade for July.

(9 a.m. ET) U.S. S&P CoreLogic Case-Shiller Home Price Index (20 city) for June. Consensus is a gain of 0.3 per cent from May and 6.2 per cent year-over-year.

(9 a.m. ET) U.S. FHFA House Price Index for June. Estimate is a month-over-month increase of 0.1 per cent and 5.2-per-cent gain from the same period a year ago.

(10 a.m. ET) U.S. Conference Board Consumer Sentiment Index for August.

Earnings include: Bank of Montreal; Bank of Nova Scotia

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Wednesday August 28

Euro zone private sector credit

Germany and France consumer confidence

Earnings include: CrowdStrike Holdings Inc.; EQB Inc.; HP Inc.; National Bank of Canada; Nvidia Corp.; Royal Bank of Canada

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Thursday August 29

Euro zone consumer and economic confidence

(8:30 a.m. ET) Canadian current account balance for Q2.

(8:30 a.m. ET) Canada’s Payroll Survey: Job Vacancy Rate for June.

(8:30 a.m. ET) U.S. initial jobless claims for week of Aug. 24. Estimate is 235,000, up 3,000 from the previous week.

(8:30 a.m. ET) U.S. real GDP and GDDL price index for Q2. The Street expects annualized rate increases of 2.8 per cent and 2.3 per cent, respectively.

(8:30 a.m. ET) U.S. goods trade deficit for July.

(8:30 a.m. ET) U.S. wholesale and retail inventories for July.

(10 a.m. ET) U.S. pending home sales for July. Consensus is a gain of 0.4 per cent from June.

Earnings include: Autodesk Inc.; BRP Inc.; Canadian Imperial Bank of Commerce; Dell Technologies Inc.; Dollar General Corp.; Lululemon Athletica Inc.; Marvell Technology Inc.

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Friday August 30

Japan jobless rate, retail sales and industrial production

Euro zone CPI and jobless rate

Germany unemployment and retail sales.

(8:30 a.m. ET) Canada’s real GDP for Q2. Consensus is an annualized rate rise of 1.9 per cent.

(8:30 a.m. ET) Canadian monthly real GDP for June. The Street expects a month-over-month increase of 0.1 per cent.

(8:30 a.m. ET) U.S. personal spending and income for June. The Street is forecasting month-over-month gains of 0.5 per cent and 0.2 per cent.

(8:30 a.m. ET) U.S. core PCE price index for July. Consensus is a rise of 0.2 per cent from June and up 2.7 per cent year-over-year.

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

(10 a.m. ET) U.S. University of Michigan Consumer Sentiment survey for August.

Earnings include: Canadian Western Bank