The domestic economy slipped into negative growth territory in December, with output falling 0.1 per cent month-over-month. It’s the goods side of things that proved the bigger weakness – down 0.6 per cent, against a flat reading from services. Things are similarly bleak on an annualized basis – flat in the fourth quarter, against an estimate of 1.6 per cent – but there are a couple bright spots. If you strip out business inventories and a drag from international trade, final domestic demand was actually up 1.0 per cent, a rebound from the 0.6 per cent decline in Q3. As Desjardins’ Royce Mendes points out, that's a better indication of domestic economic momentum, so it’s not all grim out there.

CANADA RECOVERY BENEFIT STINGS SCOTIA

Well, it’s shaping up as something of a noisy quarter out of the Canadian banks, which was on full display over at Scotiabank. Adjusted earnings per share badly missed estimates at $1.85 vs an estimate of $2.02, revenue of $7.98 billion against an estimate of $8.26 billion – but it’s the devil in the details, as always. The company clearly has its nose bent out of shape of the Canada Recovery Dividend – that one-time tax surcharge on profits of over a billion dollars levied on the banks and lifecos – which it cites a solid four times in its earnings release. That surcharge cost the bank $579 million in the quarter, firmly denting results. If we’re looking for one common theme so far, it’s higher provisions for credit losses – that cash set aside for potentially sour loans – as Scotia set aside $638 million in the quarter, which follows CIBC’s higher PCLs late last week.

BANK OF THE WEST DEAL HITS BMO

So, back to the noise in a moment, but we’ll get the headline figures out of the way – BMO beat adjusted EPS estimates in Q1 at $3.22 vs an estimated $3.16, but it gets hairy from there. The bank booked a one-time item of $1.46 billion ($2.01 billion pre-tax) on a hedging strategy to offset the impact of interest rate changes on its US$16.3 billion acquisition of Bank of the West. It gets a little weirder from there – BMO actually booked a $3.34 billion gain on the same hedge last quarter, and this is all mark-to-market, which is to say it’s on paper rather than an actual loss or gain. In any case, it’s what Scotia analyst Meny Grauman calls a “lower-quality beat,” but it’s a beat nonetheless.

BAYTEX BEEFS UP IN THE EAGLE FORD

Baytex Energy is doubling down on its investment in the Eagle Ford formation in Texas. The company is buying Ranger Oil for US$2.5-billion in cash and stock, a deal the companies expect will close in the late second quarter. Now, this is well within Baytex’s wheelhouse. It’s had a presence in the Eagle Ford for the better part of a decade, after 2014’s acquisition of Aurora Oil & Gas to the tune of $2.6 billion. As for this deal, Baytex intends to boost shareholder returns to 50 per cent of free cash flow, including the introduction of a dividend an an increase in share buybacks.

OTHER NOTABLE STORIES

  • We’ve got a couple of provincial budgets on tap – B.C. and Alberta today. We’ll be looking for confirmation of the windfall the latter has reaped due to higher oil and gas prices (a slow roll – Finance Minister Travis Toews forecasted a $12.3 billion surplus late last year.)
  • A new poll from TD says about six in 10 Canadians now feel like they’re being more targeted by financial fraud. More worrying, nearly half haven’t taken any action to protect themselves from said fraudsters.
  • Magnet Forensics shareholder Nellore is coming out against the company’s planned sale to Thoma Bravo, arguing it undervalues the company. Nellore is nothing to mess with in this case – it owns about 11 per cent of Magnet’s subordinate voting shares.

NOTABLE RELEASES/EVENTS

  • Notable data: Real GDP, U.S. Advance Economic Indicators Report, S&P CoreLogic Case-Shiller Home Price Index, Chicago PMI, Conference Board Consumer Confidence Index
  • Notable earnings: Bank of Montreal, Bank of Nova Scotia, Laurentian Bank, First National Financial, Groupon, Target, J M Smucker Co., Aecon Group, HP Inc., Monster Beverage, Novavax, Urban Outfitters
  • Alberta Budget
  • British Columbia Budget