Syria top of mind for traders

Rising oil and gold prices have topped the news headlines over the past few weeks thanks to political instability in the Middle East.

The situation in Syria has pushed oil prices higher of late, not because Syria is a large oil producer but because of the possibility that influential producers, such as Iran, could be dragged into the conflict if the United States launches a punitive strike.

Prior to the recent turmoil in Syria, events in Egypt supported crude as some investors speculated that unrest in the country could disrupt oil shipments through the Suez Canal. It’s estimated approximately 3% to 5% of global crude supplies flow through the Suez Canal on a daily basis; but disruptions have been avoided thus far.

When traders return to work on Tuesday they’ll likely be digesting developments in Syria over the long weekend as United Nations inspectors will have reported back to New York by that time and the United States will be contemplating its next step.

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Russia is holding a G-20 meeting next week, so it will be interesting to see if any of the western powers decide to take military action before attending a meeting hosted by one of Syria’s closest allies. Needless to say, these geopolitical developments will continue to leave equity markets uneasy and will likely provide some level of support for commodities such as energy and gold.

Attention will also focus on monetary policy as we have a swath of interest rate announcements starting with the Bank of Canada on Wednesday followed by the Bank of Japan, the Bank of England and the European Central Bank on Thursday. The next FOMC meeting will be held two weeks later, on September 18.

QUESTION OF THE WEEK

Canadian banks reported earnings this week. How were the results?

Reporting season for the Canadian banks only lasted three days this quarter as bank CEOs likely wanted earnings out of the way so they could enjoy the long weekend. Fiscal Q3 earnings were very good as the top 6 banks met or beat expectations.

Canadian retail banking divisions saw very solid results. Loan and deposit volumes were strong, which led to a higher revenue line. While the net interest margin for the banks was down year-over-year, we did see either some stability or strength in that margin sequentially from Q2. Not only were Canadian retail results solid, but TD had a strong quarter at its increasingly influential U.S. retail division.

BMO records net income of $1.13 billion in Q3

National Bank reports Q3 net earnings of $419M

RBC reports Q3 net income of $2.3 billion

A second theme is the results coming out of wealth management, which were also strong as most banks benefited from higher assets under management, assets under administration and of course higher fees.

Moving away from the revenue line, we can highlight the relative stability seen from credit losses as loan loss provisions for most of the banks were either lower or similar to what they reported last quarter.

A combination of higher revenues and lower costs certainly help explain how these massive institutions managed to beat earnings expectations.

A fourth theme is the commitment of the banks to return capital to shareholders. Bank of Nova Scotia, TD Bank and Royal Bank were all expected to raise their dividends, which they did, as they have been increasing them every six months for the past few years.

CIBC also committed to buyback more common shares going forward. Admittedly, some investors did expect a dividend increase from Bank of Montreal (BMO); however, the amount BMO pays out relative to what it earns remains high compared to its peers, so the bank decided to hold off for now. Regardless, the Canadian banks remain cash-generating machines and are sharing that wealth with their shareholder base.

CIBC reports record Q3 earnings of $890M

TD reports 13% drop in Q3 profit

Scotiabank sees decline in Q3 net earnings

Gareth Watson is the Vice President, Investment Management & Research at Richardson GMP in Toronto. This team of research experts is responsible for monitoring and interpreting economic, geo-political situations, current market environments and trends. @Gareth_RGMP