Stock futures are pointing up this morning as investors await key data releases later in the week – the closely watched PCE price index and personal income data will be out Thursday while GDP tomorrow is expected to provide further insights into the health of the U.S. economy. This morning’s moves follow a down day for the markets, except for crypto markets which saw Bitcoin surging to its highest level in over two years, exceeding $57,000 yesterday. The cryptocurrency rallied after trading in a narrow range for over a week, supported by strong ETF inflows and optimism surrounding its future trajectory.
It’s earnings week for the Canadian banks, with BMO and Scotia kicking things off today. Amongst the concerns is the deteriorating quality of some real estate loans in the U.S., particularly in the commercial-property market. Commercial-property lending comprises about 10% of the loan books of Canada’s largest banks, with elevated interest rates and declining valuations putting pressure on the sector. Analysts anticipate volatility in earnings due to higher provisions for potential credit losses, which have increased for several quarters. While Canadian banks aren’t facing solvency issues over commercial-loan losses, profitability remains a question mark, with provisions potentially having an outsized impact on earnings. Investor focus will also be on net interest margins in addition to higher loan loss provisions. More in company news below.
The tech sector has seen significant growth, with the Nasdaq up close to 7% YTD, driven by the ongoing artificial intelligence boom. Despite the positive outlook for the sector, there has been a notable increase in layoffs among tech workers. According to a new report, about 42,324 tech employees have been laid off in 2024, averaging more than 780 layoffs per day, surpassing the numbers from 2023. This trend is attributed to various factors, including the need for companies to reallocate funds towards AI infrastructure, such as chips and servers, and the evolving preferences of investors prioritizing growth over profitability. Despite the layoffs, companies implementing these measures have been met with positive responses from investors, with rising stock prices.
Canada’s decision to extend the ban on foreigners purchasing property for another two years is viewed as a move that will have minimal impact on addressing the country’s acute housing shortages. Despite the ban extension, foreign ownership has significantly declined in recent years with some arguing that it was never a primary driver of property demand. The timing of the announcement, amid growing concerns over housing affordability and ahead of next year’s election, has led some to criticize it as a political maneuver rather than a meaningful solution to the housing crisis. While the government has implemented various measures to boost housing supply, there isn’t much hope for immediate relief. Canada has experienced a surge in population driven by immigration, yet housing construction has not kept pace, leading to a widening gap between supply and demand. With that, critics argue that there should be a focus on increasing the pace of home construction to meet the needs of a rapidly growing population.
In response to central banks keeping interest rates at levels not seen in decades, companies are reevaluating their financing strategies. Blue-chip firms in the U.S. are now finding it cheaper to sell shares than to issue debt, the first time we’ve seen this in over two decades. This shift has prompted companies across various sectors to increasingly turn to equity markets to raise capital, marking a departure from the long-standing trend of decreasing equity issuance, known as “de-equitization”. While debt will continue to play a vital role in corporate financing, the increasing cost of borrowing may drive more companies to explore equity financing as a viable option, potentially leading to a resurgence in equity issuance and providing investors with greater access to diverse investment opportunities.
The “Online Harms Act” bill was introduced by the Federal government yesterday with the objective of improving online safety by targeting what the Justice Minister described as “the worst of what we see”. The bill will propose new requirements for platforms to regulate and remove harmful content and will establish a new oversight committee to enforce the new rules. Like European countries, the federal government would like to propose a specific “duty to protect children” and introduce age-appropriate features on platforms such as content warning labels, safe search settings, and minimize targeted ads. Firms such as Alphabet (YouTube), Meta, and TikTok are expected to be affected as the bill targets social media and live streaming platforms. If you’re a parent of a tween or teen, these rules will be a welcome assist to your ongoing efforts to manage content on devices.
Forget what you learned in Economics 101 about complementary goods. A new report found that the resurgence in vinyl sales hasn’t necessarily led to a corresponding increase in turntable ownership, with about half of vinyl LP buyers surveyed in the U.S. don’t own a record player. The report suggests that this discrepancy may be attributed to “superfans,” avid music enthusiasts who wish to support their favourite artists, even if they don’t have a means to play them. Notably, top-selling vinyl albums in recent years have been from artists like Taylor Swift, Harry Styles, and Olivia Rodrigo, known for their dedicated fan bases. Despite the vinyl trend, most music revenue still comes from streaming services and live performances (that may be obvious if you bought a ticket recently).
Diversion: Making lawn work a little more extreme.