Mar 27, 2023
The Daily Chase: Markets point to green open; Former BoC Governor warns of economic uncertainty
First Look With Surveillance: Bank Turmoil
There's a modicum of closure on the Silicon Valley Bank file, with First Citizens BancShares striking a deal with the U.S. Federal Deposit Insurance Corporation to acquire a substantial chunk of the failed lender. First Citizens is assuming about US$110-billion worth of SVB's assets at a US$16.5 billion discount (basically, assets minus liabilities – the whole thing consists of US$72.1-billion in loans, which count as assets, and US$56.5-billion in deposits, which are liabilities, then some US$35-billion worth of cash to make the math work.) In terms of an actual price tag, we don't have one yet. The math is always complicated and opaque in deals like this, and for the purpose of regulators, the most important part is getting a deal done swiftly and efficiently so as to bolster confidence in the machinations of the financial system. In any case, shareholders of First Citizens seem to be applauding the deal – shares are up about 20 per cent in the premarket.
BANKING OPTIMISM BLEEDS INTO BROADER MARKETS
Sticking with that theme, looks like the optimism surrounding that SVB asset sale and what it signifies when it comes to financial market stability is bleeding into the overall trading day, helping push U.S. equity market futures into the green to start the week. The U.S. regional banks are leading the way, as one might expect – First Republic is up 27 per cent, Western Alliance a little more than five per cent, and PacWest Bancorp is up nearly 10 per cent in the premarket. To branch out a little further, we'll also be keeping an eye on tech stocks this week – the Nasdaq 100 is up the better part of six per cent over the course of the month, which has that blue-chip tech index less than half a per cent from entering a new bull market, up 19.55 per cent from its December lows.
POLOZ WARNS OF RISING RISK OF A HARD LANDING
Former Bank of Canada Governor Stephen Poloz is warning the risk of a hard landing for the domestic economy is on the rise. In an interview on CTV's Question Period over the weekend, Poloz said that while efforts to curb sky-high inflation are working, there's a rising risk the Canadian economy will hit the skids to a degree as rate increases continue to work their way through the system. Poloz said that growth on the supply side – new entrants to the workforce and the like – are heartening, it will take “some luck” to achieve a soft landing, given it takes between 12 and 18 months for the full freight of rate increases to be felt, and we're just getting into the early days of seeing exactly how last year's rate increases are playing into economic output.
COUNTDOWN CLOCK TO BUDGET DAY
The countdown clock is ticking toward this year's Federal budget, with Finance Minister Chrystia Freeland set to table Ottawa's spending plans in less than 36 hours' time. Freeland has pledged to toe the line when it comes to fiscal restraint, which likely means we'll hear plenty about certain fiscal anchors, be it a declining debt-to-GDP ratio or a reiteration of a path back to balance (the latter, according to the fall economic statement, is expected in fiscal 2027-28.) It's a balancing act of sorts – Canada's looking to keep up with the United States when it comes to attracting investment, given Washington's Inflation Reduction Act is attempting to draw investment dollars to the U.S., and there's the omnipresent confidence and supply agreement with the NDP, which has been pushing for big investments in pharmacare and the like.
OTHER NOTABLE STORIES
- Brookfield Renewable Partners is teaming up with a consortium of institutional investors to buy Australian integrated power generator and energy retailer Origin Energy for US$8.91 per share, representing an enterprise value of US$18.7 billion.
- Cameco is set to receive a $300 million refund from the Canada Revenue Agency ties to its long-running tax dispute with the CRA after a reassessment of Cameco's returns from 2007 through 2013. While this doesn't fully resolve the dispute, it does give some clarity into the taxable income of Cameco's foreign subsidiary and how non-Canadian-produced uranium revenue was assessed, which was the core issue.
- Dye & Durham says it has engaged with multiple bidders from the sale of TM Group after British competition authorities found the takeover would reduce competition and lead to higher prices, prompting a sale or spin-out process.
- Notable earnings: Carnival Corp.