International
TSX Closer: The Index Falls for a Second Day After Monday's Record Close Amid Rise In Canadian Credit Stress
The Toronto Stock Exchange closed lower on Wednesday, falling for a second session following Monday's record close, on more profit taking and weak commodity prices, while one analyst said Bank of Nova Scotia's (BNS.TO) credit outlook "becomes more cautious" after it reported fiscal second-quarter earnings and a pair of economists noted credit stress is "rising, not breaking" in Canada.The resources-heavy S&P/TSX Composite Index closed down 241.82 points, or 0.7%, to 34,412.05, adding to the near 170 points lost Tuesday. Most sectors were lower, led by Energy, down 2.35% on lower oil. Base Metals eased about 0.2%, not helped by a drop in the gold price. Among gainers, both Industrials and Telecom rose by about 0.7%, respectively.The Financial sector lost near 0.3% on a day when the trio of Scotiabank, Bank of Montreal (BMO.TO) and National Bank (NA.TO) each reported their respective fiscal Q2 results. Canadian Imperial Bank of Commerce (CM.TO), Royal Bank of Canada (RY.TO) and Toronto-Dominion Bank (TD.TO) will each report theirs Thursday.On Scotiabank, National Bank noted it reported Q2 core cash EPS of $2.02 versus a National Bank estimate of $1.87 and consensus of $1.93. Among key takeaways, National Bank said although Scotiabank beat its, and consensus, expectations, it has a "mixed view" of the quarter. On the positive side, National Bank said the Canadian P&C business delivered its best quarter in a long time, an important "deliverable" vis-a-vis Scotiabank's double-digit EPS growth target for the year. But on the negative side, National Bank said Capital Markets results missed consensus expectations and the bank's guidance range. More importantly, it added, credit losses were higher than expected, which resulted in the adoption of more conservative second half credit performance guidance. National Bank has kept a sector-perform rating and C$106 target on Scotiabank's shares.Still on credit stress in Canada, the National Bank Economics and Strategy Group noted total debt in insolvency reached its highest level since the 2009 financial crisis in the first quarter, according to data from Equifax. Economists Daren King and Matthieu Arseneau said this increase may seem alarming and raises concerns about the financial health of Canadian households. But, they asked, is the situation really as concerning as it seems?To gain a clearer picture, the National Bank duo analyzed data from the Office of the Superintendent of Bankruptcy, which tracks the total number of insolvency filings (bankruptcies and consumer proposals) across the country. They noted this data also shows that the number of insolvencies reached its highest level since the financial crisis in the first quarter. However, King and Arseneau said, two adjustments are necessary to correctly interpret the trend in insolvencies. The first concerns seasonality, since the first half of the year is historically associated with a higher volume of insolvencies. The second involves accounting for the strong population growth observed since 2009, as the Canadian population has increased by approximately 25% over this period.According to the pair, once the data is seasonally adjusted and expressed on a per capita basis, the insolvency rate remains well below the peak reached in the wake of the financial crisis and is even below its pre-pandemic level of 2019. They said the upward trend observed since 2022 therefore reflects a normalization from an exceptionally low pandemic trough rather than a widespread breakdown in household credit. This does not mean, however, that the situation should be downplayed, they added."The rise in the insolvency rate over the past year reflects a more fragile labour market, high interest rates, and a still-high cost of living, particularly for housing, food, and energy, which continue to put pressure on many households. However, the data does not support the narrative of systemic credit risk suggested by some media headlines. The most accurate interpretation remains more nuanced: financial strains are increasing, but their magnitude remains moderate by historical standards for now," King and Arseneau said.Of commodities, West Texas Intermediate crude oil plunged 5.6% on expectations the United States and Iran are nearing a deal to reopen the Strait of Hormuz and end the largest-ever energy supply shock. WTI crude oil for July delivery closed down US$5.21 to settle at US$88.68 per barrel, the lowest since April 20, while July Brent oil was down US$5.30 to US$94.28.Also, gold fell to a two-month low, even as the dollar dipped and oil prices weakened ahead of an expected peace deal to end the war on Iran, easing inflation worries. Gold for July delivery was down US$52.60 to US$4,482.40 per ounce, the lowest since March 26.
S&P/TSX CompositeS&P/TSX Composite$BMO.TO$BNS.TO$CM.TO$NA.TO$RY.TO$TD.TO