|Bid||92.15 x 0|
|Ask||92.16 x 0|
|Day's range||86.96 - 92.81|
|52-week range||72.00 - 109.68|
|Beta (5Y monthly)||0.72|
|PE ratio (TTM)||10.25|
|Earnings date||26 Aug 2020|
|Forward dividend & yield||4.32 (4.91%)|
|Ex-dividend date||22 Apr 2020|
|1y target est||99.43|
Speaking today will be Dave McKay, President and Chief Executive Officer; Rod Bolger, Chief Financial Officer; and Graeme Hepworth, Chief Risk Officer. As noted on slide 1, our comments may contain forward-looking statements, which involve assumptions and have inherent risks and uncertainties.
(Bloomberg) -- Royal Bank of Canada and Bank of Montreal joined their Canadian peers in setting aside record provisions for loan losses as they brace for the economic fallout from the coronavirus pandemic.Royal Bank, Canada’s largest lender by assets, earmarked C$2.83 billion ($2.06 billion) in the fiscal second quarter for souring debt, the highest among the Canadian banks that have reported so far, while Bank of Montreal put aside C$1.12 billion. Both Toronto-based firms reported earnings Wednesday that missed analysts’ estimates.The two lenders follow Bank of Nova Scotia and National Bank of Canada in posting higher provisions for credit losses to brace for the aftershocks from plunging oil prices and a pandemic that has caused a near economic standstill, with the set-asides cutting into earnings across the banks in the three months through April 30.Royal Bank’s provisions contributed to a 54% decline in net income and hurt earnings throughout its key operations. Canadian personal and commercial banking, the lender’s largest division and biggest profit generator, saw earnings plunge 56% as set-asides more than tripled to C$1.51 billion. Earnings in the company’s capital-markets division, the largest among Canada’s big banks, plunged 86% after the firm earmarked more than C$1 billion for bad loans.Royal Bank “appears to be the most conservative in its reserving for Covid-19 related credit losses and the market will need to decide if it is willing to reward this relative caution or focus solely on the near-term earnings impact,” Barclays Plc analyst John Aiken said in a note to clients Wednesday.Bank SharesShares of Royal Bank rose 2.9% at 9:48 a.m. in Toronto, while Bank of Montreal was up 2.3%. Royal Bank has dropped 12% this year, compared with a 29% decline for Bank of Montreal and a 17% slump for Canada’s eight-company S&P/TSX Commercial Banks Index.“A conservatism, a strength, a diversification and an earnings capability position us well to withstand the uncertainty and turn around and exit this a stronger bank and a bank that can take advantage of the opportunity that will present itself in the future,” Royal Bank Chief Executive Officer Dave McKay told analysts Wednesday.At Bank of Montreal, Canada’s fourth-largest lender, higher provisions also contributed to 54% decline in net income, with the set-asides weighing on results across its operations. Canadian banking, the largest division, saw a 41% earnings decline as provisions more than tripled to C$497 million.Set-asides of C$199 million in the lender’s U.S. banking division, which includes Chicago-based BMO Harris Bank, contributed to an earnings decline, while BMO Capital Markets’ provisions jumped to C$408 million, leading to a net loss in the division.‘Performing Well’“The strength and resilience of our overall diversified business model has been tested, and we are performing well through these challenges,” CEO Darryl White said Wednesday on a conference call with analysts. “As a result, I’m confident that our bank has never been positioned better to face the environment ahead.”Other takeaways from the earnings reports:Royal Bank’s second-quarter net income fell to C$1.48 billion, with adjusted earnings of C$1.03 a share missing the C$1.65 estimate of 13 analysts in a Bloomberg survey.At Bank of Montreal, quarterly earnings slumped to C$689 million, with adjusted per-share earnings of C$1.04 lower than the C$1.27 average estimate of 12 analysts.(Updates with shares, CEO comment starting in sixth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Royal Bank of Canada and Bank of Montreal on Wednesday offered subdued outlooks after missing quarterly earnings expectations as they increased provisions more than six-fold to cover future loan losses due to the COVID-19 outbreak. While much of the spikes in provisions were for performing loans, they nevertheless point to banks' expectations for a surge in loan losses due to the pandemic. On Tuesday, Bank of Nova Scotia and National Bank of Canada also reported steep declines in profits.
Royal Bank (RY) delivered earnings and revenue surprises of -31.86% and -5.42%, respectively, for the quarter ended April 2020. Do the numbers hold clues to what lies ahead for the stock?
(Bloomberg) -- Elevator queues, mandatory masks and staggered start times may await Toronto’s office workers when they start venturing back to North America’s second-largest financial center.These are among the measures Cadillac Fairview Corp. Ltd. is pursuing as the commercial property firm prepares for a “measured” return of workers to downtown buildings. The company is landlord to some of Canada’s largest banks as the owner of office towers such as TD Centre and RBC Centre.“It’s going to be a gradual but steady climb back to normalcy,” Sal Iacono, Cadillac Fairview’s executive vice-president of operations, said in an interview.Ontario has been easing restrictions on business as the Covid-19 pandemic, which has killed nearly 2,000 people in the province, finally eases.Office workers should brace for dramatic changes, with numerous precautions to protect them and the public. Cadillac Fairview, which is owned by the Ontario Teachers’ Pension Plan and oversees 70 properties in Canada including the Toronto Eaton Centre shopping mall, is just one of the city’s large landlords adopting new measures to make returning to work safe.Elevators will have limits of four people and Cadillac Fairview plans to add thin anti-microbial film over the buttons. It’s looking to introduce digital apps so people can schedule their elevator rides instead of waiting in line, Iacono said, “so that you know with certainty that you’re not going to have to wait a long time in order to be able to access your floors.”Shift WorkThe company is also working with tenants on ways to stagger start and end times for employees to avoid crowding in lobbies and common areas.“In order to be able to allow the maximum number of people to come into those office buildings, we’re going to have to change our behaviors for a period of time,” Iacono said.Building occupants at Cadillac Fairview office properties will be required to wear non-medical face masks or coverings in elevators and they’ll be “strongly encouraged” to wear them in common areas, including the underground PATH network that links downtown office buildings in Canada’s largest city.Commercial landlords including Brookfield Properties and Oxford Properties Group have already put down social distance markings and signage throughout downtown. But the many bankers, investment managers, accountants and lawyers who typically populate Toronto’s cluster of skyscrapers likely haven’t seen them yet due to weeks of working from home.In the depths of the pandemic shutdown the number of people in office buildings were no more than 5% to 10% of normal levels, Iacono estimated. He got a first-hand look at how the city’s core has become a ghost town a couple weeks ago during a visit to his office by the shuttered Eaton Centre to sign some paperwork.“The mall under normal circumstances has 53 million people a year going through it, so to see Toronto Eaton Centre as empty as it was on the day that I was there was a little dystopian,” he said. “I took the elevator up to my office and we had two people on our floor.”Even with restrictions easing, Iacono doesn’t anticipate a rush back to the office. Ontario has kept schools and daycares closed, which means a slow return for many workers.In markets that have reopened, Iacono is seeing between 15% and 30% of office workers returning at first, with that percentage increasing over time.“I try to dispel the notion that on the first day that the government lifts restrictions in the market that everybody shows up back at the office all at the same time like any normal day pre-Covid,” he said. “That’s not going to be the case.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Royal Bank (RY) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.
Let's see if Royal Bank of Canada (RY) stock is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks.
(Bloomberg Opinion) -- Like people, whole countries can have pre-existing conditions. A particularly insidious one is oil dependency, which can leave a state destitute at the very moment it requires all its strength. In recent years, crises in Venezuela and Libya have sent shockwaves through the global oil market. The country to watch in this year of Covid-19 is Nigeria.Late last month, the International Monetary Fund approved $3.4 billion of emergency funding for Nigeria. Official figures suggest the spread of Covid-19 there has been low. But as analysts at the Council on Foreign Relations point out, only about 12,000 Nigerians out of a population of more than 200 million had been tested as of two weeks ago. Last month, the disease claimed Abba Kyari, the powerful chief of staff to President Muhammadu Buhari, a political bombshell. Meanwhile, there is no denying the pandemic’s impact on oil, which accounts for roughly 10% of Nigeria’s economy (more on that figure below).While Nigeria has supplied more secretary generals of OPEC than any other country — including the current one — it is also among the group’s weakest members. Nigeria has ranked lowest within OPEC in terms of oil export revenue per capita virtually every year this century.(1)As Nigeria’s population swelled, oil production dwindled. Helima Croft, a former CIA analyst who now heads global commodity strategy at RBC Capital Markets, recalls the years just after the 9/11 attacks. Nigeria, having recently transitioned out of military rule, was regarded as a potential “fulcrum of U.S. energy policy,” supplying more barrels from outside the Middle East. Back then, it produced more than two million barrels a day, of which about 40% was shipped to the U.S., and Croft remembers projections at the time for production to double.Things didn’t work out that way.“Nigeria’s challenge, that pre-dates Covid by at least a decade, is lack of investment in the oil sector in Nigeria,” says Matthew Page, an associate fellow at Chatham House, a London-based think tank, and former U.S. intelligence expert on Nigeria. Unrest in the Niger Delta since the 1990s intensified after 2003 with attacks directed increasingly at oil infrastructure. This, combined with persistent corruption, deterred foreign oil companies(2). By the mid-2010s, with shale oil starting to transform the Atlantic oil market, there was even less reason to invest in Nigerian barrels. President George W. Bush was the last U.S. president to visit a country whose oil supply is no longer viewed in Washington as critical; President Donald Trump slapped immigration restrictions on Nigeria in February. The Covid-19 crisis, coming amid mounting expectations of peak oil demand anyway, means even less incentive for foreign oil companies to deploy scarce dollars there.Oil sits at the nexus of Nigeria’s politics, economy and security. Even though it accounts for only about one-tenth of GDP, it generates more than half of government revenue. And government revenue can also be thought of as a form of oil, greasing the complex machine that is Nigeria: more than 200 million people split among more than 300 ethnic groups(3), encompassing Islam and Christianity and spread across 36 states. While the economy is relatively diversified, many Nigerians rely on subsistence farming or work for the civil service. Nigeria is estimated to account for one in seven of the world’s very poorest people.(4) Outside of Lagos, large parts of the country rely heavily on oil-funded allocations from central government. Peace deals with militant groups are sealed with cash. And the government funds security forces fighting Boko Haram’s jihadists in the northeast of the country.“Where this becomes problematic, in terms of socio-political dynamics, is that oil money is one way in which Nigeria smooths over its poor governance and its lack of services,” says Judd Devermont, who directs the Africa Program at the Center for Strategic and International Studies, a Washington-based think tank. “Nigeria’s always been very effective at managing one or two crises at a time,” he adds — before listing the current slate of issues: the oil crash, Covid-19, Boko Haram, clashes between farmers and herders in Nigeria’s middle belt, an uptick in unrest in the northwest. Despite its fault lines and weaknesses, Nigeria has endured multiple crises in the past. What’s different this time is the sheer multiplicity of problems against a backdrop of weak oil prices — and at a time when the medium and long-term health of the oil market is already in question. In a forthcoming essay for Chatham House, Page lays out a grim set of cascading effects whereby the government, with all of $72 million in its rainy-day fund, can’t cut checks to state governments, which in turn can’t pay the obligations they’ve built up on the back of oil money. And it’s all too easy to imagine a vicious circle developing whereby the government struggles to pay off militants in the Delta region, who then resort to the old tactic of disrupting oil supply, thereby exacerbating the lack of funds.The risk of economic and political disruption in Africa’s biggest oil exporter is rising. Today’s market, choking on its own supply, may not particularly care right now.But Nigeria’s situation, although it reflects the country’s unique characteristics, also shares something in common with other petro-states. It’s an inherently fragile system — beset by corruption, regular bouts of violence, economic mismanagement and weak institutions — that has been held together with oil rents. At the other end of the scale, Saudi Arabia has a far healthier oil industry; a more cohesive state; a smaller, wealthier population; and a giant rainy-day fund. Yet it also faces potentially existential challenges to its oil-funded model.The crisis for Nigeria isn’t so much that oil prices are low; rather that it is hardwired for much higher prices. The oil market’s slow-burning crisis is that so much of its supply depends on such countries.(1) Ecuador ranked lower in 2014 with net oil export earnings per head of just $367 (2018 dollars). Source: Energy Information Administration.(2) Nigeria ranked 146 out of 180 in Transparency International's "Corruption Perceptions Index 2019."(3) The three largest - the Hausa/Fulani, Yoruba and Igbo - account for about half the population. (Source: "Nigeria: What Everyone Needs To Know" (Oxford University Press, 2018).(4) Source: World Poverty Clock.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Given the volatility in financial markets caused by Covid, it is becoming difficult to assess whether previous dividend forecasts are still useful. Dividend pa8230;
(Bloomberg) -- Shopify Inc. surged on Wednesday to become Canada’s most valuable company -- but can the e-commerce giant survive being No. 1?Ottawa-based Shopify edged past Royal Bank of Canada to become the largest publicly listed company in Canada. The achievement comes with a dubious distinction, however: those that leapfrogged the value of Canada’s largest bank in the past have faltered.Royal Bank, incorporated in 1869, has been Canada’s most valuable company for years, but has been been eclipsed on a few occasions. Shopify closed with a market value of C$121.3 billion ($85.6 billion), surpassing Royal Bank’s C$120.5 billion.The last company to surpass Royal Bank’s market capitalization was drugmaker Valeant Pharmaceuticals International Inc. in July 2015. Months later, the value of the Quebec-based company plunged amid controversies over business practices, accounting and drug pricing. Valeant has since been renamed Bausch Health Companies Inc. and has new management and a different ticker symbol.Before that, BlackBerry Ltd. --- the inventor of the smartphone and then known as Research in Motion Ltd. -- crossed Royal Bank briefly in 2007. It held the top spot for about five months in 2008, before Apple Inc.’s iPhone and other handset makers rose up to steal its market away.Further back, Nortel Networks Corp. became the biggest Canadian company in 2000, swelling to a market value of C$366 billion and accounting for as much as 35% of Canada’s benchmark index, before crashing in the tech wreck. The telecommunications-equipment maker ultimately filed for bankruptcy in 2009 and was liquidated.The dramatic collapse of two Canadian tech giants in a country more known for being hewers of wood and drawers of water has hung over the country’s corporate psyche for years. So Shopify’s rise has been cheered on by many.“I think it’s obvious in hindsight the leadership of both those companies got disconnected from their underlying markets,” said Eric Jackson, founder of a Toronto-based tech-focused hedge fund EMJ Capital Ltd., referring to BlackBerry and Nortel.Jackson believes Shopify “should be held up as a poster child for what Canada should be trying to encourage in it’s tech sector because it’s been remarkable what they’ve done,” he said. Jackson had owned the company’s stock but doesn’t currently have a position. Its U.S.-listed shares have risen by 43 times since the initial public offering at $17 in 2015.Too Fast?This year’s rally, which has seen the stock double, has drawn its doubters.“On just about any valuation metric, this is one of the most expensive stocks in Techland,” Mark Mahaney, an analyst at RBC Capital Markets in San Francisco told clients in a note Wednesday. Shopify also holds the highest sales multiple, though has the largest sales growth outlook, RBC added. The bank rates Shopify with the equivalent of a buy.The rally has made founder and chief executive officer Tobi Lutke, Canada’s fourth-richest person, according to the Bloomberg Billionaires Index. The 39-year-old has added $2.8 billion to his wealth this year, and is now worth $6.3 billion. The billionaire has about 7% of Shopify, according to its 2019 proxy circular.Lutke, a German immigrant with vivid blue eyes and a penchant for tweed caps, began building software to launch an online snowboard store in 2004. It became obvious that the software was more valuable than the snowboards, according to his website profile, and he went on to launch the Shopify platform in 2006. RBC was incorporated in 1869.Shopify sells tools to help companies set up an online, a business model seen flourishing during the coronavirus pandemic that has shuttered bricks and mortar stores. In April, the company’s chief technology officer tweeted Shopify was handling “Black Friday-level traffic every day” to bring thousands of businesses online.Amazon ComparisonAt Bloomberg’s Sooner Than You Think conference in New York last year, Lutke said Shopify isn’t competing with Amazon.com Inc. but helping other people do so.“They’ve obviously become the anti-Amazon, they’re all about empowering everybody else except Amazon on the online e-commerce world to be successful and they’ve expanded and expanded their suite of services,” Jackson said.He believes Shopify has the opportunity to keep rising and have a market value of several hundred billion dollars in the years ahead.“They are still just getting going. People who complain they are ‘too expensive’ don’t understand how much revenue and profits they’ll drive in the years ahead,” Jackson said.(Updates with new information on value of Lutke’s stake, gain since IPO.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Shopify Inc. has become Canada’s largest public company, soaring past the nation’s largest bank amid growing conviction the future of retailing lies online.The e-commerce company’s shares jumped 6.8% to a record, pushing its market value to C$121.6 billion ($86.1 billion). That nudged it past Royal Bank of Canada, which was up 0.1% to a market value of C$120.8 billion.Shopify’s soared Wednesday after reporting first-quarter revenue that topped analysts’ expectations as it brought more businesses online during the coronavirus pandemic.Sales grew by 47% to $470 million from the same quarter a year ago, Ottawa-based Shopify said in a statement Wednesday. Analysts had expected about $443 million, according to data compiled by Bloomberg.Shares of the company, which launched its Shopify platform in 2006, have doubled this year, making it the best-performing Canadian company on the S&P/TSX Composite Index. Shares of Royal Bank, incorporated in 1869, have dropped 17%.“We are working as fast as we can to support our merchants by re-tooling our products to help them adapt to this new reality,” Chief Executive Officer Tobi Lutke said in the quarterly release.The key metric of gross merchandise volume, which represents the value of all goods sold on the platform, increased 46% or $5.5 billion to $17.4 billion from a year earlier. Analysts were expecting a 40% increase on a year-over-year basis to $16.9 billion.Still, Shopify noted the drop in point-of-sale purchases from bricks-and-mortar stores and questioned the sustainability of some of the online switch.Shopify suspended its 2020 financial guidance in April. Today, it said it is closely monitoring the impact rising unemployment has on new shop creation on its platform and consumer spending, the rate at which consumer spending habits transition to online shopping and the ability of brick-and mortar retail merchants to shift sales online.Moving OnlineIt reported gross merchandise volume through its point-of-sale channel fell 71% between March 31 and April 24 as stores shut down through the pandemic. Companies also downgraded from its Shopify Plus plan to cheaper-priced options.Yet, the switch online appeared fairly painless for many. Shopify retailers managed to replace 94% of the volume with online sales, according to the company statement.“Retail merchants are adapting quickly to social-distance selling, as 26% of our brick-and-mortar merchants in our English-speaking geographies are now using some form of local in-store/curbside pickup and delivery solution, compared to 2% at the end of February,” Shopify said.Colin Sebastian, an analyst at Robert W. Baird, said the strong results reinforced his firm’s positive view of Shopify’s growth strategy. Its ability to adapt quickly was also a reflection of “strong product and engineering capabilities.” But sustainability of the recent sales growth and how that translated to revenues will be key, he added.In April, its Chief Technology Officer Jean-Michel Lemieux said the e-commerce company was seeing U.S. Black Friday-type of traffic as it adds “thousands” of businesses to its platform amid the coronavirus outbreak. Many brick-and-mortar businesses have used Shopify to keep their companies afloat as nationwide lockdowns force retail store closures across the world.Shopify offers tools to allow businesses to open their own digital stores across multiple channels, including social media. The company launched a redesigned point-of-sale service earlier this month that brings online and offline sales together, offers curbside pickup and local delivery options and greater flexibility to move inventory between various locations. Its rivals include tech giant Amazon.com Inc. and Square Inc.Even so, there has been a growing sense that Shopify’s stock rally may be overdone. Last week, Canaccord Genuity downgraded the stock, warning “we’re not entirely convinced” that gross merchandise volume “is as bulletproof as perceived.Read more: Shopify Too Hot to Handle for Some Analysts After Latest SurgeThe company said new stores created on it platform grew 62% between March 13 and April 24 versus the prior six weeks, driven by both first time and established sellers. But it added, “it is unclear how many in this cohort will sustainably generate sales, which is the primary determinant of merchant longevity on our platform.”Adjusted net income rose to $22.3 million, or 19 cents a share in the quarter from 6 cents a year earlier.(Updates with market values.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Alphabet Inc.’s advertising sales slowdown in March and April wasn’t as severe as some analysts had feared.A number of firms lifted their price targets on the Google parent after quarterly results that also benefited from revenue growth in the company’s YouTube business and a strong cloud division performance. The average target currently stands at $1,501, up from $1,452 over the weekend.The Covid-19 pandemic has led to more usage across the group’s assets, MKM Partners analyst Rohit Kulkarni wrote in a note. “More people are searching on Google, watching more YouTube videos, downloading Android apps right now,” Kulkarni said as he reiterated his buy rating.Shares gained as much as 9.5% in their biggest one-day gain since July 2019. While the stock has gained nearly 30% off a March low, it remains more than 10% below a February peak.Here’s a summary of what analysts had to say.RBC, Mark S.F. MahaneyOutperform, PT raised to $1,500 from $1,350Company reported results that were better than feared.YouTube and Cloud revenue were robust, but March and April have seen major advertising revenue weakness.Morgan Stanley, Brian NowakOverweight, PT raised to $1,400 from $1,3102020 and 2021 revenue estimates raised by 4% and 3%, respectively, given YouTube’s better first quarter and stronger-than-expected March search trends.While search revenue trends deteriorated, the company hinted it’s seen some very early signs of users returning to commercial behavior.2020 and 2021 share buyback forecasts increased by about $6b and $4b, or 27% and 18%, respectively.Jefferies, Brent ThillBuy, PT $1,450Advertising revenue slowed significantly in late March, but less than some had feared.There are some faint signs of recovery in the ad business, and non-ad segments like Cloud held up well.Notes first quarter share repurchase of $8.5 billion was a record, and increased more than $2 billion from 4Q.Loup Ventures, Gene MunsterInitial calculations suggest revenue was flat year-over-year in the final three weeks of the quarter, “not bad, all things considered.”While Google has a sustainable ad business that’s “a fabric of our lives,” top-performing companies post-pandemic will be focused more on working from home: healthcare, wearables, augmented reality, and mobility.(Updates trading to market open)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- With interest rates near zero, Federal Reserve policy makers are likely to turn attention to other steps they could take to ensure a strong U.S. economic rebound once the coronavirus lock-down ends.The Federal Open Market Committee is all but certain to keep its benchmark overnight rate in a target range of 0-.25%, where it was lowered at an unscheduled FOMC on March 15 to help soften the pandemic’s blow. The committee will release a statement at 2 p.m. with Chairman Jerome Powell holding a press conference 30 minutes later. Forecasts are not scheduled to be released at this meeting.“Never underestimate the Fed,” said Diane Swonk, chief economist with Grant Thornton in Chicago. “The Fed will affirm it is still willing to use all tools at its disposal.” A Bloomberg survey of economists expects the central bank to keep rates near zero for three or more years.Facing an unprecedented disruption that has put 26.5 million people out of work in the last five weeks, the Fed has slashed rates and pledged up to $2.3 trillion in loans to aid businesses and state and local governments. Government data released on Wednesday showed the U.S. economy shrank at an annualized 4.8% pace in the first quarter, the steepest decline since 2008.Powell can expect questions on whether the Fed is prepared to expand the scope of some of its lending programs, provide assistance to specific industries, and is it considering yield-curve targeting, among other topics.Here’s a preview of what to expect:Lending FacilitiesThe Fed has already announced an expansion of its lending to municipalities to include smaller cities and counties than initially planned. Another area that might need support is mortgage servicers, and Powell has previously noted the important role the housing market plays in the economy.In addition, Treasury Secretary Steven Mnuchin has raised the possibility of extending aid to oil companies struggling with the collapse in the price of oil. But that prospect may face significant hurdles because the central bank is averse to lending to specific industries to avoid picking winners and losers.Because lending facilities are authorized by the Fed’s board of governors, they could be announced in conjunction with an FOMC meeting or at another time.Forward GuidanceForward guidance for interest rates will be a key issue for the committee. At the last meeting, the FOMC said it would keep rates near zero until the economy weathers the crisis and moves toward meeting the central bank’s full employment and price stability mandates.“The current forward guidance is confusing,” said Roberto Perli, a former Fed economist and partner at Cornerstone Macro LLC in Washington. “I expect the FOMC to clarify and lean more” in the direction of meeting its mandates, which may mean zero rates for several years.Some Fed watchers advocate officials adopt specific thresholds to anchor how long they will keep rates near zero, including reprising targets the Fed used back in 2012 to assure investors that there would be no rate hike until unemployment falls to a certain level and inflation rises.But this meeting may be too soon to provide that level of guidance, which is deliberately designed to stimulate economic activity, given millions of Americans are still sheltering from the virus at home.What Bloomberg Economists Say“As consequential as Fed actions have been over the past several weeks, Bloomberg Economics expects the April FOMC meeting to be comparatively quiet with no major policy announcements.”\-- Carl Riccadonna, Yelena Shulyatyeva, Andrew Husby and Eliza WingerFOMC StatementThe committee will need to adjust its statement to reflect very weak economic data since the last meeting, including record jobless claims, rising unemployment and falling consumption. First-quarter economic growth likely declined by the most since the last recession, according to economists surveyed by Bloomberg.“I’d expect the opening paragraph to reference the grim employment and consumer spending data that have come out, as well as the unprecedented decline in energy prices and the broader disinflationary forces that are at work,” said Jonathan Wright, economics professor at Johns Hopkins University in Baltimore and a former Fed economist.Balance SheetThe FOMC is also certain to discuss its balance sheet expansion with purchases of Treasury notes and mortgage-backed securities during the crisis. It has bought hundreds of billions of dollars of bonds in recent weeks, ballooning its balance sheet to a record $6.57 trillion and declaring on March 23 that its purchases would be open-ended and “in the amounts needed to support smooth market functioning.” But it has more recently been scaling back the buying as market conditions calmed, though it continues to add to its securities holdings.While the Fed has primarily been buying assets to smooth market functioning, one option would be to explicitly shift to say it was buying securities to try to push longer term rates lower as a financial stimulus measure also known as quantitative easing. That might be an announcement for the months ahead as the economy reopens, rather than this meeting with the lock-down still in place in many parts of the U.S.Yield Curve ControlYield curve control -- a cousin of QE -- where the Fed announces it is targeting a specific yield for a specific maturity of Treasury securities, has been discussed by policy makers including Governor Lael Brainard as an option to strengthen the central bank’s forward guidance. At the moment the Fed sets the overnight rate and allows market forces to determine longer-term borrowing costs.The Bank of Japan began experimenting with yield-curve control in 2016 and currently maintains a target of 0% for the yield on 10-year government bonds, versus a target of -0.1% for its benchmark rate. Advocates say the benefit is a central bank may have to purchase fewer assets overall if it commits to pegging yields at a certain maturity.Again, it may be too soon for the Fed to announce a decision to adopt such a measure -- but Powell could certainly flag it as a possibility in the future if it comes up during the press conference.Interest on ReservesOfficials could tweak a secondary rate, known as interest on excess reserves, which helps to keep their benchmark rate in its target range. But that would be a technical move, not a change in policy.The effective rate -- the average rate paid by U.S. banks when borrowing dollars overnight from other banks -- dipped to 0.04% on April 27 after trading at 0.05% for most of April. The Fed has on multiple occasions adjusted IOER when the effective rate drifted to within 5 basis points of the range’s upper or lower bound.Press ConferencePowell, in his recent public appearances including on NBC’s “Today” show on March 26, has tried to strike a reassuring posture, noting that while the economy is declining, this is not a typical downturn and he remains hopeful for a robust recovery.“Powell is unlikely to change his tone much, while reiterating his recent optimism that there’s no reason that the economy can’t quickly recover following the end of the Covid-19 pandemic,” said Tom Garretson, senior portfolio strategist for RBC Wealth Management.(Updates with GDP report in fourth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- A furious rally in Shopify Inc. has vaulted the e-commerce retailer to the third-largest company in Canada -- underscoring the value of the virtual world in the time of the coronavirus.Shopify soared as much as 10% to a record on Friday after its Chief Technology Officer Jean-Michel Lemieux said in a tweet that the Ottawa-based company was handling “Black Friday level traffic every day!” as it brings “thousands” of businesses online.The move extended a seven-day surge to almost 50%, giving it a market value of about C$92 billion ($66 billion) and making it the best-performing stock on the S&P/TSX Composite index so far this year. That put Shopify, which provides tools for companies to sell over the internet, behind only Royal Bank of Canada and Toronto-Dominion Bank as the biggest companies in Canada’s stock market.After downgrading the stock earlier this month, Raymond James analyst Brian Peterson said he was “dead wrong” as Shopify’s stock has gone “parabolic” since then.“What we seemingly missed in this dynamic is how quickly COVID-19 may push new merchants to the Shopify Platform,” he said in a report published Friday. “Many businesses needed to establish an ecommerce presence, and SHOP was the primary beneficiary of that.” He has a market perform rating on Shopify.Investors now see more value in Shopify than Canadian companies that have been around for decades: Brookfield Asset Management Inc. with its billions of dollars worth of real estate, infrastructure and renewable power across the world, as well as pipeline giant Enbridge Inc., Canadian National Railway Co. and Bank of Nova Scotia.With more consumers shifting online, Shopify is getting a leg up while the value of retail malls and office towers are being questioned, even in a post-viral world.(Updates to include comments from Raymond James about Shopify in fourth and fifth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Count Morgan Stanley’s wealth-management clients among those who aren’t entirely convinced that the worst of the market turbulence is over.The bank was the last of the top Wall Street firms to report first-quarter earnings, and its results Thursday were largely more of the same. It posted its best trading performance in more than a decade, helping to soften the blow across other divisions. The one area that Morgan Stanley could provide further insight was a peek into the minds of wealthy individual clients. It didn’t disappoint.Jonathan Pruzan, Morgan Stanley’s chief financial officer, said in conference call with analysts that deposits increased by almost $30 billion in March alone, with people in its wealth-management system shifting out of equities and into cash. “Most of that excess cash is undeployed,” he said. “Our expectations are it will be sticky for a while.”Gerard Cassidy at RBC Capital Markets snuck in a final question, asking Pruzan to elaborate on clients’ 23% cash allocation and when he’d expect them to start investing in equities or other risk assets again. Here’s what the CFO said:“That’s a great question, in terms of how our retail clients are going to re-engage with the market.The 23% is cash or cash equivalents including money market and short-term fixed-income securities. That number is probably up 3 to 4 points in the last quarter or two and if you look at the totality of the money, the $2.4 trillion, the equity allocation has gone from 55 down to 50 and most of that has gone into this cash and short-term securities.How long people feel the need to stay in short-term and cash is going to be a function of some of the things we’ve been talking about on this call. People’s perspective on when the economy opens up again, or the work from home ceases and some of the restaurants and businesses get back into business and people feel more comfortable with the outlook.That’s why we’re also not fully deploying those deposits, because again they are generally very sticky, but they’re also based on the investment decisions of our clients.”It’s no secret, of course, that money-market funds have experienced huge inflows in recent weeks. Assets under management have grown by almost $1 trillion just since the end of February, reaching $4.47 trillion as of April 8, easily topping the prior record of $3.92 trillion in January 2009, according to Investment Company Institute data.Still, you’d be forgiven for forgetting that many people are still skittish, given that the S&P 500 bounced back as much as 30% from its intraday low on March 23. Plus, it seems like every day another investment firm is raising billions of dollars for an opportunistic credit fund. Just on Wednesday, for instance, Bloomberg News reported that Fortress Investment Group is talking to investors about amassing at least $3 billion to wager on high-yield bonds and rescue capital situations, while Oaktree Capital Group LLC is seeking $15 billion to start the largest-ever distressed-debt fund.Morgan Stanley’s vantage point suggests a chasm between individuals and institutions in when and how they choose to allocate money during the economic crisis caused by the coronavirus pandemic.As I wrote last month, distressed-debt funds have been sitting on cash for years waiting for the kind of chaos in credit markets during March. Their biggest fear is the best bargains will be gone in a few months. Indeed, Howard Marks, the co-founder of Oaktree Capital Group, wrote a letter this week blasting the Federal Reserve for buying junk-rated bonds under the guise of “moral hazard,” but reading between the lines it boils down to frustration that debt prices won’t tumble further and give his firm a chance to sift through the wreckage.Who is backing these strategies? It’s hard to know for sure, but it’s well-known that underfunded public pensions have been focusing more on riskier corners of fixed income to juice returns. At the onset of the last recession, some turned specifically to distressed-debt investments. These are huge pools of money whose managers seem to think they can’t afford to wait until there’s an all-clear on the economy to start taking risks.If Morgan Stanley is right, wealthy individuals will be more patient. That means watching these investors might just be the better indicator of when confidence in the U.S. and global economic outlook has truly taken a turn for the better. People who are well-off financially don’t need to be overly cautious. But they also don’t need to blindly swing for the fences and risk striking out, either. This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- With Netflix Inc. soaring to new highs, it may be tempting to think video-streaming platform Roku Inc. might be the next big stay-at-home play amid heightened demand for viewing options in a coronavirus world. But investors should be wary of any comparison between the two companies as they have drastically different business models. Simply, Roku is no Netflix.Late Monday, Roku updated its financial guidance for the quarter ended in March, projecting a slightly higher sales range of $307 million to $317 million, versus its prior forecast of about $305 million. The company said it saw increased viewing numbers late in the quarter due to more people sheltering at home. It also withdrew its full-year 2020 financial outlook, citing the economic uncertainties stemming from the Covid-19 pandemic. Its shares surged more than 10% in midday trading Tuesday.At first blush, this seems like a positive development. Roku beat its revenue guidance and business trends recently accelerated as the public spent more time at home. But due to the nature of the company’s businesses, it isn’t as good as it looks for its future prospects.Roku sells video-streaming hardware devices, which enable consumers to watch content over the internet, and licenses its operating system to TV makers. The company’s long-term strategy is centered around its free on-demand, ad-supported content channels. Its Roku Channel offers thousands of free movies and TV shows, which the company uses to sell targeted advertising to marketers. Last year, Roku shares were one of the best performing stocks in the market, rising 337% on the back of Wall Street enthusiasm over the company’s early success in ad-supported streaming TV market.Therein lies the problem. Unlike Netflix, which has a more stable revenue stream from its monthly subscription fees, Roku is reliant on corporations buying TV ads on its platform. To illustrate, RBC Capital Markets estimates ad-based revenue will account for about half the company’s overall sales this year. But in a difficult economy struggling with the aftereffects of Covid-19, companies in almost every consumer discretionary industry — from travel to auto and retail — are likely to slash their ad budgets this year, directly impacting Roku’s business.In fact, Roku said last night it expects some advertisers to pause or curtail spending in the near term. But perhaps a more striking tell of the company’s worries is its move to shore up its finances. Roku said it ended the first quarter with about $587 million in cash after it drew down $70 million in its credit lines.“We decided it was prudent to draw down our credit facility in light of current financial market conditions,” Roku’s chief financial office Steve Louden said in the release.In 2019, Roku lost about $60 million. It seems the company is battening down the hatches in case its losses get much worse.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Tae Kim is a Bloomberg Opinion columnist covering technology. He previously covered technology for Barron's, following an earlier career as an equity analyst.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Pinterest Inc. shares surged after the company reported user numbers that exceeded analysts’ estimates.The digital search and scrapbooking company also withdrew 2020 forecasts after the coronavirus pandemic hurt its advertising business, but investors focused on the growth of Pinterest’s online audience.Monthly active users totaled 365 million to 367 million in the first quarter, higher than Wall Street estimates of 345 million users, according to Bloomberg MODL data. The company also reported preliminary first-quarter sales of $269 million to $272 million, slightly ahead of analyst estimates.“While the company’s ad revenues began to decelerate sharply after the middle of March, engagement on Pinterest has been strong,” Mark Mahaney, an analyst at RBC Capital Markets, wrote in a research note. “In the last two weeks, Pinterest has seen record levels of engagement in terms of search, saving and board creation activity, as users look for ideas on everything from building a home office to fun activities to do with their kids (very necessary).”San Francisco-based Pinterest ended the first quarter with about $1.7 billion in cash, cash equivalents and marketable securities, no financial debt, and stressed that it has not drawn money from its $500 million revolving credit facility.Shares of the company jumped as much as 15% in extended trading. The stock closed at $15.06 earlier in New York trading, leaving it down 40% since early February.That month, the company had projected 2020 revenue of $1.52 billion and said its adjusted profit margin would be flat to up slightly from a year earlier. It scrapped that guidance on Tuesday, saying the Covid-19 pandemic “impacted Pinterest’s advertising revenue globally.”“First-quarter revenue performance was consistent with our expectations through the middle of March, when we began to see a sharp deceleration,” Chief Financial Officer Todd Morgenfeld said.Read more about digital ad budgets evaporating here.Pinterest’s disclosure “largely confirms the negative shock that internet advertising began to experience in March,” RBC’s Mahaney wrote. “With PINS shares up +15% in the after-market, we believe there’s clearly a tell here about how concerned/low market expectations have been.”Pinterest also said that Chief Operating Officer Francoise Brougher is leaving the company effective immediately. Brougher joined Pinterest in early 2018 from payments company Square Inc. Morgenfeld has been appointed to take over her duties.“As we continue to position the company for long-term growth, we believe consolidating our financial and COO organizations under one leader will accelerate our speed of execution,” CEO Ben Silbermann said in a statement.(Updates with analyst comment in fourth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.