The rebound in Canadian corporate profits will face a big test through the busiest stretch of earnings season this week, while an eventful economic calendar could make for a noisy one in equity markets.
The wave of financial results will include first-quarter reports from one-third of the companies on the S&P/TSX composite index, giving clarity to what Bay Street is forecasting to be a big jump in profits over last year. U.S. reporting will also see another active week in an earnings season on track to beat estimates.
The macro agenda this week includes Canadian employment and trade figures, the chance for Bank of Canada Governor Stephen Poloz to address the North American free-trade agreement in a speech in Mexico City and a rate announcement from the U.S. Federal Reserve, not to mention whatever surprise pronouncements might emerge from the White House.
"A material amount of macro risk will unfold in Canadian markets toward the end of the week while earnings will pose equity market risk throughout the week," said Bank of Nova Scotia economist Derek Holt said in a note.
As it stands, the North American earnings backdrop is increasingly a source of strength for equity prices.
Canadian first-quarter earnings are tracking toward an increase of 29 per cent over last year, with almost 70 per cent of those already reported having come out ahead of expectations, according to a Thomson Reuters report.
The Canadian profit rebound is being led by runaway growth in resource sectors.
But even after excluding energy, the S&P/TSX composite index is on course for a 15-per-cent bump in first-quarter profits, the Thomson Reuters report indicates.
Some big-name energy results this week should give additional clues on the direction of oil patch earnings, with Encana Corp., Canadian Natural Resources Ltd., Husky Energy Inc., and TransCanada Corp. all due to release financial results.
Resource-sector earnings helped put a positive cap on what was a tumultuous week, which saw new doubts raised over both Canada's trade regime and its residential-housing market.
Shares in gold miner Agnico Eagle Mines Ltd. spiked on Friday after beating profit and revenue estimates and hiking its production forecast. Suncor Energy Inc. also saw a Friday bump from a modest rise in crude-oil prices, after the company beat the Street after market on Wednesday, while also announcing a new share-buyback program.
Earlier in the week, Canadian stocks hit a two-month high on a mix of relief over France's election results and strong U.S. earnings, while rallying lumber stocks also chipped in.
When the U.S. government resurrected the softwood-lumber dispute with a 20-per-cent tariff, it actually sparked a relief rally in Canadian forestry by investors who had feared a more severe penalty. Canfor Corp. and West Fraser Timber Co. Ltd. were the top performing stocks on the main Canadian index on Wednesday, with shares in the latter still buoyant from an earnings beat two days prior.
The Trump administration also jostled Canadian markets with a threat to pull out of NAFTA, followed by a swift reversal.
Relief on the trade front was short lived, however, when the country's largest alternative-mortgage lender, Home Capital Group Inc., announced it needed a financial lifeline as its depositors continue to pull their money. Home Capital's crisis rippled through the Canadian financial sector on Thursday, from comparable lenders right up to the biggest banks.
Incidentally, Home Capital is on the docket to report quarterly earnings this Wednesday, though that could easily change.
Other big names on the earnings agenda this week include Canada's two largest life insurers: Great-West Lifeco Inc., and Manulife Financial Corp.; both Air Canada and WestJet Airlines Ltd.; Hydro One Ltd. and Fortis Inc., the two largest utilities stocks; and large-cap consumer stocks Loblaw Cos. Ltd. and Cineplex Inc.
In the U.S., tech earnings will continue to draw much of the market's attention, with both Apple Inc. and Facebook Inc. due to report.
The tech sector was the standout of last week's market performance, with industry giants Microsoft Corp., Alphabet Inc., Amazon.com Inc., Comcast Corp., and Intel Corp. all posting results ahead of consensus estimates. Those beats propelled the Nasdaq Composite index to a 2.3-per-cent gain to end the week at a new record high.