TSX Back To Near 20,300 Level Amid Increased Activity in Financial Sector

Last Updated: Tuesday, November 29, 2022 4:22 PM | MT Newswires

Canada's main stock market, the Toronto Stock Exchange, put Monday's blip behind it, and returned to winning ways on Tuesday in closing up near 60 points with the resources heavy index buoyed today by higher commodity prices. This takes the overall index back to near the 20,300 level, with just over a month left for it to reach the "more realistic" 21,000 target that BMO Capital Markets set recently for the TSX at year end.

The TSX closed down 163 points or 0.8% on Monday, but that in turn came after it gained a total of near 400 points over the prior four straight sessions.

Still, gains may have been capped on economic news today that showed much stronger than expected GDP growth in Canada of 2.9% in Q3. Although preliminary data showed growth was flat in October, the Bank of Canada may have less room than it might otherwise want to slow rate hikes. A 50 basis points hike, and not 25 basis points, is widely expected next week.

Also, much of the focus on this Tuesday was on the Financial sector, or more specifically Canada's biggest banks, and within that Scotiabank and Royal Bank -- and they either weighed on, or provided only a limited boost to, the overall index.

Among them, Scotiabank (BNS.TO, BNS) kicked off the banks' reporting season with a Q4 earnings beat, but its shares lost 2.5%. Gabriel Dechaine at National Bank noted Scotia reported Q4 2022 core cash EPS of $2.06 versus his bank's estimate of $2.04 and consensus of $2.00. Among Key Takeaways, Dechaine said although the EPS exceeded National's forecast, outperformance was tied primarily to a favourable tax rate. Otherwise, he added, the quarter yielded a second consecutive NIM disappointment, with BNS' margins challenged by a combination of tightening loan spreads (e.g., on mortgages) and hedge positioning in the Corporate segment. Though National expects other banks to reverse some of the positive NIM outcomes seen during Q3 2022, Dechaine said BNS' position is "pretty unique, such that we may need to see rate cuts in order to expect NIM expansion."

National Bank trimmed its one year target to $82 (from $85), and reiterated its Sector Perform rating.

Also among banks, Royal Bank as expected by many emerged as the highest bidder for HSBC Canada. But the offer price of $13.5 billion surprised some. Its stock did close up 0.4%, but its was down from a time.

For his part, Barclays' John Aiken wrote that HSBC Canada is a "natural acquisition" for RBC as, given RBC's scale, it likely was able to assume the greatest cost synergies and had excess capital available. "We believe that this is an excellent transaction for Royal and should garner strong accretions to both earnings and profitability."

The only fly in the ointment is that, as RBC is already the largest player in this country, there could be some regulatory concerns for the Competition Bureau. Aiken believes the deal will ultimately be approved, but with a risk that it may not ultimately be completed in its current form. Subject to regulatory approval, the deal is expected to close by late 2023. RBC expects its CET1 ratio to exceed 11.5% upon close. Barclays has an Overweight rating and a $140 target on the stock.

RBC is likely to remain in focus again on Wednesday when it and National Bank (NA.TO) will be looking to build on Scotiabank's performance with fourth quarter earnings beats of their own.

A mixed performance was observed across different sectors in today's session, with Base Metals leading as the biggest gainer with an increase of near 4% followed by Health Care, which was up 1.7%. Industrials, Info Tech, Telecom and Utlities all posted losses, led by Battery Metals Index, which was down 3.7%.

Of commodities today, gold prices climbed today even as the dollar and bond yields rose as exchange-traded funds (ETFs) and central banks returned to the market after the big buyers eased off purchases earlier this year amid flagging prices. Gold for February delivery closed up US$8.40 to settle at US$1,763.70 per ounce.

Also, WTI crude oil closed higher on hopes China is easing its strict zero-Covid policies after quarantines in Beijing and Shanghai and other centers resulted in rare civil unrest on the weekend, while OPEC+ decided to meet virtually for its Dec. 4 meeting to set production quotas. WTI crude for January delivery closed up US$0.96 to US$78.20 per barrel. January Brent crude, the global benchmark, was last seen up US$0.23 to US$83.42, while Western Canada Select was up US$0.43 to US$48.88 per barrel.

Share this article:

You May Also Like

Related Articles

No articles were found