Amber Kanwar

Anchor, Reporter

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Good morning. Here are five things you need to know:

Everything is awesome: Markets are on their own ascent this morning. Futures have got some pep in their step even as we get some troubling economic news abroad. The official read on China’s manufacturing sector shows it is still contracting, but not as much as before (July PMI of 49.3 vs 49 in June – four months in a row below 50). Meanwhile, China’s non-manufacturing sector is expanding but at a slower pace than the previous month (PMI of 51.5 down from 53.2 in June). European inflation showed that while headline inflation was the slowest since January 2022, core inflation remained stuck for a second month in a row. It’s a busy week for economic data, which culminates on jobs reports on both sides of the border. Today watch for the Fed’s Senior Loan Officer Survey (affectionately known as the SLOOs). It’s the new favourite indicator of where the economy is heading and will give us a sense of whether we are going to nail this soft landing that has underpinned the equity rally.

About earnings: It’s a blockbuster week for earnings. We get just four companies reporting on the TSX today, but 80 in total this week. In the U.S. we get 12 companies on the S&P 500 reporting today, but 169 in total this week including the likes of Apple and Amazon. At the mid-point of earnings season, John Butters at Factset points out that 80 per cent of companies have beat earning expectations, which is above 10-year average of 73 per cent. But the magnitude of beats at 5.9 per cent is below the 5-year average of 8.4 per cent and 10-year average of 6.4 per cent. And earnings are still on track for largest earnings decline since Q2 2020.  Beating sales expectations has been tougher. Revenue beats are 64 per cent below 5-year average and the magnitude of the beats is also smaller than 5-year average. Taken together, much of the rally is being built on the back of multiple expansion versus earnings expansion.

Job action whack-a-mole: B.C. port workers and employers have reached a tentative deal that would avert yet another strike. The breakthrough came as the federal government intervened and tasked the Industrial Relations Board to end the dispute. The deal still needs to be ratified by both parties. Meanwhile, grocer Metro is dealing with its own job action. A strike by about 3,700 employees forced the closure of 27 stores in the Greater Toronto Area over the weekend. Of course these people were on the front lines during the COVID pandemic and with grocery store profits rising as a result, they are out demanding their fair share.

Salesforce pressure point: Shares of Salesforce are trading lower after Morgan Stanley downgraded the Dow component. While the analyst believes it is still a good long-term investment, the analyst believes most of the catalysts are in the rear-view for now. We’ve seen margin expansion, activist pressure and generative AI reflected in 70 per cent rally so far this year, according to the analyst.

Trucking along: I’ll be watching TFI International today. It’s rival, Yellow, appears to have shut down and is on the verge of bankruptcy. Shares of TFI have rallied more than 15 per cent against this backdrop as investors bet that the company will be able to pick up market share. TFI reports results today after the close and no doubt this will be the subject of many analyst inquiries on the analyst call.

NOTABLE CALLS

CN Rail and CSX  downgraded at RBC

• Walter Spracklin is downgrading CN Rail and CSX. CN Rail is getting cut because of its latest profit warning and the belief that investors will prefer Union Pacific on the back of new CEO appointment. CSXZ is also getting downgraded for the same reason plus meaningful coal headings.
• CN Rail Target: $165
• CSX Target:  $35

Curaleaf cut to sell at Stifel Canada

• The analyst is downgrading to sell on valuation mismatch. With shares up 33 per cent in the last three-months vs peers down 10 per cent since that time, the analyst says its time to call it quits on the rally. Also noting the valuation is double peers and the analysts sees risk abounds: mgmt has cut its profit forecast but still thinks it is aggressive and there is a prospect of an equity raise that could prompt dilution.
• Target: $3.50

Ford downgraded at Jefferies

• Jefferies says it is with a “heavy heart” the analyst must downgrade the shares of the automaker. This comes after a set of weaker quarterly results that displayed weaker than expected losses in electric vehicles.
• Price target: $15