Wither the Canadian banks? That’s the question this morning after shares in the Big Five led the S&P/TSX Composite Index lower, with investor sentiment rattled by recession fears stemming from bank earnings south of the border. To wit: the TSX Financials fell 3.19 per cent on the day – the biggest drop since June 11, 2020 – led lower by Royal Bank of Canada’s 5.63 per cent decline (itself the biggest drop since the dark days of March 2020.) Worth noting, yesterday’s move puts all five of Canada’s top bank stocks in bear market territory from their 2022 peaks, with CIBC’s 28.8 per cent decline leading the group lower. We’ll be keeping a close eye on the financials and whether results out of the likes of Wells Fargo and Citi add fuel to the fire in terms of the negative sentiment.
 
ANOTHER U.S. BANK EARNINGS MISS...

Speaking of the big U.S. banks, Wells Fargo came out of the gate with results that broadly echoed those of JPMorgan and Morgan Stanley, missing analyst estimates on the top and bottom lines. Investment banking revenue plunged 45 per cent year-over-year, and the bank set aside US$580 million to cover loans that could potentially go sour. And Wells Fargo CEO Charlie Scharf is warning that there could be something of a rocky road ahead, telling investors “we do expect credit losses to increase from these incredibly low levels, but we have yet to see any meaningful deterioration in either our consumer or commercial portfolios.” Shares slumped as much as 3.5 per cent in premarket trading. 

…FOLLOWED BY A BEAT

Citigroup bucked the trend thus far among the big U.S. banks, topping second quarter profit and revenue expectations. The lender, which is more exposed to international markets than its peers, got a boost from some better-than-expected results from its trading division, helping to offset a 46 per cent drop in investment banking revenue in the quarter. Shares rose 3.2 per cent in premarket trading.

CHINA GROWTH SLOWS SHARPLY

There are more signs that China’s COVID Zero policy took a heavy toll on the world’s second-largest economy, with growth slowing to just 0.4 per cent in the second quarter, marking the slowest pace since the country was first hit by COVID two years ago. That 0.4 per cent figure is the second-weakest on record in the wake of Beijing’s decision to essentially freeze activity in dozens of cities, including Shanghai. The slowdown prompted Goldman Sachs to cut its full-year Chinese growth forecast to 3.3 per cent, well short of Beijing’s official 5.5 per cent target.

OTHER NOTABLE STORIES

  • Oil prices are stabilizing after yesterday’s wild ride – where prices swung a full US$6 per barrel in either direction – as Bloomberg News reported U.S. President Joe Biden will leave the Middle East without an announcement to increase oil output
  • Shares of Pinterest are soaring in the premarket, up 15 per cent after the Wall Street Journal reported activist Elliott Management has acquired a more than nine per cent stake in the company. To bring it back home to Canada, worth remembering Elliott is the activist agitating for change at Suncor
  • Copper prices are falling to a 20-month low amid fears a global recession will damage demand
  • Methanex will be a stock to watch after the company hiked its quarterly dividend 20 per cent to US$0.175 per share

NOTABLE RELEASES/EVENTS

  • Notable data: Canadian international securities transactions and wholesale trade; U.S. retail sales and University of Michigan consumer sentiment index; China GDP, industrial production, retail sales, and fixed assets investment
  • Notable earnings: Wells Fargo, Citigroup, BlackRock
  • Deadline for Rogers Communications, Shaw Communications, and Quebecor to reach a definitive agreement for sale of Freedom Mobile
  • G20 finance ministers and central bank governors begin two-day meeting in Bali