FedEx, which will report earnings this week, is down 17 per cent so far this year.David Zalubowski/The Associated Press
FedEx is reporting later this week, and I might want to take a peek at how they map their routes. This year we’ve got three kids at three different schools. Every morning my husband and I swap “route optimization” texts only to be outsmarted by the city’s ever-charming gridlock.
Here are five things to know this week:
Rate cuts are coming: For the third time this year, the Bank of Canada and the Federal Reserve will be making interest rate decisions on the same day. On Wednesday, the Bank of Canada is expected to cut rates by 25 basis points after pausing for the last three meetings.
If it ends up cutting, the overnight lending rate will be 2.5 per cent, the lowest in three years. The recent loss of 65,000 jobs is thought to give the central bank cover to cut rates. Especially as the unemployment rate spiked to 7.1 per cent, the highest in four years.
Opinion: As recession and stagnation loom, Canada’s financial regulator finally gets it
However, the day before the central banks release their decisions, we get inflation data. Headline inflation is expected to pick up to 2 per cent, while core inflation is expected to remain sticky at 3.1 per cent.
“With August CPI coming the day before the policy announcement, a rate cut isn’t a certainty, but it would take a hot print for the BoC to forego easing,” wrote BMO’s Canadian rates and macro strategist Benjamin Reitzes.
Inflation may not be enough to stop a cut in September, but it could be a gating factor in future rate cuts, particularly when you consider that core inflation hasn’t been at 2 per cent since early 2021.
Unpause: The Federal Reserve is expected to cut rates for the first time in six meetings, a few hours after the Bank of Canada’s rate decision. Even though this cut is widely expected, and welcome especially from the tenant in 1600 Pennsylvania Ave., it’s coming at a time when inflation is actually creeping back up and the markets are at record highs.
Fed chair Jerome Powell has been hesitant to cut rates because he was worried about how tariffs would affect inflation. Except he has two mandates: inflation and maximum employment. Quite suddenly in the last month, all the job growth we thought was happening in the U.S. disappeared and what emerged from the revisions is a picture of struggling growth.
The fact that the Fed is believed to be stepping in created room for a strong equity rally. “It’s not just the Fed,” wrote Citi’s U.S. equity strategist Scott Chronert. “Earnings expectations continue to be strong while rate volatility and levels fall. Combined, this is a powerful narrative for risk assets.”
Did somebody say rate cuts? Homebuilders are loving the chatter on rate cuts and this week Lennar LEN-N will kick off earnings for the group. The U.S. homebuilder is up more than 30 per cent from the April low but still off about 25 per cent from the 2024 high.
Lennar has been struggling in a sluggish U.S. housing market environment and profit on a per share basis this quarter is expected to be cut in half. It’s managed to hit its sales targets mainly because they are resorting to incentives, which has cut into their profitability.
Carney allots $13-billion to build affordable housing under Build Canada Homes
Investors will be keen to hear about the company’s outlook as mortgage rates in the U.S. have fallen ahead of the rate cut. It may be the additional push the sector needs after a rally from mid-August when it looked like a rate cut was first on the table.
“If you’re of the belief that both short and longer-term interest rates will continue to move lower … builders should continue to outperform under this scenario,” wrote Bespoke Investment Group.
Soggy cereal: General Mills GIS-N reports this week and expectations are low with the stock bouncing off the lowest level since March, 2020. Remember what was happening then? The maker of Cheerios and Lucky Charms has found itself caught between weak consumer demand and lower pricing power to drive demand.
A value investor might salivate at the opportunity to buy the defensive staple at 14x earnings with a near 5-per-cent dividend yield. However, UBS analyst Peter Grom remains a sell on the stock, and in a preview note, said he is skeptical it can start showing organic growth by next year like it has been promising.
Track a package: FedEx FDX-N is down 17 per cent so far this year and is set to report results Thursday afternoon. It hasn’t been an easy road to be a shipper and the recent end of the de minimis tax exemption in the U.S. adds another headwind ahead of the key shipping season (102 days until Christmas)!
Bank of America cited these issues last week and cut FedEx to “neutral” and UPS to “underperform.” They estimate that 1.5 billion packages per year were moving under de minimis tax exemptions. The removal of the exemption is expected to result in “muted” air freight shipping, said Bank of America senior research analyst Ken Hoexter. Especially when compared to the last two years, which benefitted from air demand from Chinese e-commerce players using the de minimis loophole.
In the Money with Amber Kanwar brings you insights from top portfolio managers and business leaders. Listen at www.inthemoneypod.com