Aug 3, 2022
The Daily Chase: OPEC+ opens the taps (barely); Rate hikes hammer home sales
By Noah Zivitz
First Look With Surveillance: Pelosi, Bond Selloff
Managing Editor, BNN Bloomberg
As of the writing of this newsletter, oil prices had swung into positive territory after OPEC+ agreed to a historically small output increase of just 100,000 barrels per day for next month. Let’s keep in mind that the cartel and its allies added 648,000 barrels per day in July and August after moving up the adjustments that would have taken place in September. Let’s also keep in mind that today’s meeting was the first since U.S. President Joe Biden sat down with Saudi Crown Prince Mohammad Bin Salman to make the case for more oil supply. So there’s plenty at stake here for geopolitics, and for investors if we consider that since the recent peak on June 8, the price of West Texas Intermediate crude has tumbled almost 24 per cent — which helps explain why the TSX energy subgroup has become a laggard over that span as it fell 13.4 per cent through the close of trading yesterday.
DEEP FREEZE HITS HOUSING MARKETS
We’re in the middle of the monthly data dump from the country’s largest housing markets. Yesterday, it was Calgary, where July home sales sank almost 21 per cent sequentially. Today, it’s Vancouver, where the local real estate board this morning said sales sank 22.8 per cent last month. Tomorrow, it’s Toronto, where preliminary numbers from broker John Pasalis show sales at a 20-year low. The bite from higher interest is becoming more clear by the day.
ANOTHER CEO MEA CULPA AS WORKERS PAY THE PRICE
Robinhood Markets is slashing its workforce 23 per cent, and its CEO is sounding a lot like Tobi Lütke did last week when he announced a 10 per cent cut to Shopify's workforce. "Last year, we staffed many of our operations functions under the assumption that the heightened retail engagement we had been seeing with the stock and crypto markets in the COVID era would persist into 2022. In this new environment, we are operating with more staffing than appropriate. As CEO, I approved and took responsibility for our ambitious staffing trajectory – this is on me," Vlad Tanev wrote in a blog post. He cited the crypto crash, high inflation levels, and slower trading activity as triggers for the job cuts. Robinhood also released financials a day earlier than scheduled, showing a six per cent sequential rise in revenue, despite a 19 per cent plunge in proceeds from equities trading.
OTHER NOTABLE STORIES
- Can’t help but wonder what’s in the works at Canadian National Railway after it announced it’s raising US$1.5 billion in a debt sale, with proceeds earmarked for acquisitions, among other general corporate purposes.
- Definity Financial reported a seven per cent drop in second-quarter underwriting income due to catastrophe losses in the period. However, analyst John Aiken at Barclays Capital told clients in a note to look past losses related to those extreme events and instead focus on core profit that sailed past the average estimate and the rise in premiums written during the quarter.
- Finning International beat profit and revenue expectations in the second quarter despite facing supply challenges in Canada’s construction sector and political uncertainty in Chile. CEO Scott Thomson joins us at 11:45 a.m.
- Semtech and Sierra Wireless put the speculation to rest after markets closed yesterday, announcing they’ve reached a takeover agreement at the previously-disclosed price of US$31 per Sierra share.
- Airbnb had record bookings in the second quarter, it swung to a profit, and its revenue surged 73 per cent from Q2 2019 levels. It also said it's in the midst of its strongest summer travel season ever. It's also going to repurchase up to US$2 billion of its shares. And yet, its stock is falling in pre-market trading.
- Starbucks' business was clobbered in China in the second quarter; same-store sales in that country sank 44 per cent amid COVID lockdowns. On another sour note: the company's operating margin deteriorated to 15.9 per cent from 19.9 per cent, largely because of inflationary pressures. However, U.S. same-store sales narrowly edged past the average estimate thanks to higher prices, revenue hit a quarterly record of US$9.2 billion and adjusted profit beat expectations.
- PayPal shares have been up about 10 per cent in pre-market trading after the payment service announced that Elliott Investment Management has taken a US$2-billion stake and that it has a formal information sharing pact with the renowned U.S. activist investor. Paypal also released quarterly results and said it’s planning to repurchase up to US$15 billion of its shares.
- Another Dye & Durham takeover could be on the ropes. The Toronto-based consolidator of cloud-based software for professionals said it will “carefully consider its options” after the U.K. competition watchdog sounded an alarm over Dye’s proposed acquisition of TM Group (UK) Ltd. That’s a $156-million deal that closed in July 2021. This comes hot on the heels of Dye & Durham having finally renegotiated its takeover of Link Administration Holdings after that deal ran into regulatory hurdles in Australia.
- Notable data: Real Estate Board of Greater Vancouver monthly sales, ISM U.S. services index, U.S. factory orders
- Notable earnings: Nutrien, Sun Life Financial, Great-West Lifeco, Brookfield Infrastructure Partners, Boralex, Innergex Renewable Energy, Iamgold, B2Gold, Algoma Steel Group, NFI Group, Ovintiv, Yum! Brands, eBay, Robinhood Markets, Under Armour
- 1000: Ontario Premier Doug Ford makes announcement in Stratford alongside Labour Minister Monte McNaughton
- 1100: German Foreign Minister Annalena Baerbock and Foreign Affairs Minister Mélanie Joly hold joint media avail in Montreal prior to 1130 fireside chat hosted by Montreal Chamber of Commerce event
- 1300: Deputy Prime Minister and Finance Minister Chrystia Freeland holds media available after meeting with workers at Port Saint John