The Week Ahead (BMO, CM, RY, COST and CRM Earnings; Canada Q1 GDP and US PCE Data)
Earnings Preview
Several of Canada's largest banks report earnings over the rest of the month, including $Bank of Montreal(BMO.CA$ , $Bank of Nova Scotia(BNS.CA$ , $Canadian Imperial Bank of Commerce(CM.CA$ , and $Royal Bank of Canada(RY.CA$.
Bank of America Securities analysts maintained "buy" ratings on the stocks of Bank of Montreal and Royal Bank of Canada (RBC), with "neutral" ratings on TD, Bank of Nova Scotia, and Canadian Imperial Bank of Commerce in a note.
The analysts wrote that macroeconomic conditions are leading many investors to remain cautious toward bank stocks, given an uncertain inflationary and interest rate environment in the U.S. and elsewhere.
In the US, investors will turn their attention to earnings reports from two notable companies,$Costco(COST.US)$and $Salesforce(CRM.US)$, as they announce their quarterly financial performance amid market fluctuations.
$Costco(COST.US)$ is expected to unveil its third-quarter earnings on Thursday, May 30th, after market close. Despite the stock's underperformance relative to the broader market this year, with a 7% rise compared to the market's 12%, Wall Street is optimistic. Analysts project an 11% year-over-year increase in revenue to $57.89 billion, with net income anticipated to soar by 25% to $1.63 billion. Membership numbers are also expected to climb from 69.1 million to 73.55 million. Amid the end of the U.S. retail sector's earnings season, Costco's results are significant, reflecting consumer spending trends that drive roughly 70% of the U.S. economy. With a price increase looming, investors will be eager for details on Costco's membership pricing strategy.
$Salesforce(CRM.US)$, on the other hand, will report its performance on Wednesday, May 29th. So far, the stock has seen a 7% hike this year, trailing behind the general market's 12% gain. Analysts are forecasting a revenue growth of 11% to $9.15 billion and a substantial 40.8% increase in EPS to $2.83. Salesforce's CRPO is also expected to rise by 11% to $26.76 billion. As a leading provider of cloud-based customer relationship management services, Salesforce has demonstrated consistent revenue growth through both organic means and acquisitions. Its recent growth has been focused on monetizing artificial intelligence through its Einstein platform, with new AI-assisted features introduced just last week. While macroeconomic headwinds could limit immediate revenue growth due to cautious tech spending by businesses, strong earnings could help the stock recover from its fall from March's high of $318 to the support level at $270. Investors will watch to see if the stock can overcome the $270 hurdle and challenge the 100 SMA at $286.
Investors Eye U.S. Personal Consumption Expenditures (PCE) Inflation Data
Last week, the U.S. dollar has shown signs of stabilization. Comments from Federal Reserve officials could be a contributing factor to the dollar's halt in decline, as they maintain a rhetoric of "higher for longer" despite a slowdown in CPI inflation.
These developments have led investors to scale back their bets on rate cuts to less than two 25-basis-point decreases. Specifically, expectations are now set for only a 36-basis-point cut by the end of the year, with the likelihood of a rate cut in September hovering around 60%.
In light of all this, traders in the coming week may shift their focus to the core PCE price index for April, which is the inflation gauge most prioritized by the Fed and is released alongside data on personal income and spending for the month.
After a steady year-over-year core personal consumption expenditures rate of 2.8% in March, a potential decline might be on the horizon, helped by the drop in the core CPI rate. Additionally, a slowdown in average hourly earnings and stagnation in retail sales suggest that income growth and spending might also have decelerated.
Other data for the week includes revised first-quarter GDP on Thursday.Economists expect growth may slow from the government's initial estimate.On Wednesday, the Federal Reserve will release a Beige Book summary of economic conditions across the country.
Canadian GDP per capita likely shrunk for seventh consecutive quarter in Q1
The Canadian economy likely grew more quickly in Q1 2024 based on headline figures, but it was not fast enough yet again to keep up with surging population growth. That means gross domestic product on a per-person basis contracted for a seventh consecutive quarter.
Analyst look for an annualized 2.3% increase in Q1 GDP from the previous quarter, up from 1% in Q4 2023. But, with the population still growing rapidly, output per-capita will be down ~1% (annualized QoQ rate). Consumer spending is tracking an annualized 1.1% increase in Q1 from the previous quarter and business investment looks to have edged higher with a rise in machinery purchases offsetting slower non-residential construction activity. But higher spending came in part from higher imports rather than domestic Canadian production with net trade on track to subtract slightly from Q1 GDP growth.
Source: Trading Economics, RBC Economics
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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