A slew of quarterly financial reports from Canadian companies and data showing how much the Canadian and U.S. economies are growing will give investors much to consider this week.
On top of that, the U.S. Federal Reserve will make its next announcement on interest rates — and is widely expected to stand pat even as other countries begin to mull a tightening of lending policy.
Many of the earnings reports are coming from the resource sector, including utility TransAlta (TSX:TA), miners Sherritt International (TSX:S), Agnico Eagle (TSX:AEM) and Inmet Mining (TSX:IMN) along with energy companies Nexen Inc. (TSX:NXY) and Cenovus Energy Inc. (TSX:CVE).
Hopes are high after mining sector giant Teck Resources (TSX:TCK.B) handed in earnings last week that beat analyst expectations. The results come at a time when commodity prices are surging but “the year-over-year comparisons are becoming a little bit more difficult for them,” said Blair Falconer, portfolio manager at HSBC Securities.
“I’ve been quite impressed with how well the various resource companies have been able to continue to show strong earnings growth despite the fact that the barriers are higher, the hurdle is higher. So it does seem like we’re going to continue to have good earnings through the next week. and that’s going to be positive.”
Meanwhile, investors will get the latest growth data for the American economy on Thursday.
It is expected that gross domestic product grew at an annualized rate of three per cent in the first quarter, which would represent a dip of a tenth of a percentage point from the fourth quarter of 2010.
“It’s better than where we were at last summer and it’s probably just strong enough to generate job gains and perhaps trim the unemployment rate ever so slightly,” said BMO Capital Markets deputy chief economist Doug Porter.
“But it would be a long time before we got back to five or six per cent unemployment rates if we just kept growing at three per cent.”
On the other hand, expectations for Canadian economic growth during February are minimal.
Statistics Canada is expected to report that GDP growth was likely flat following a 0.5 per cent rise in January.
“After three months of very strong numbers it looks like the economy ran into some heavy weather in February,” said Porter, noting that auto production pulled back and manufacturing was weak.
“It looks like we’re going to go through a few months of lull here after a surprisingly strong burst of growth around the turn of the year, whether it’s the lousy weather or the fallout from the Japanese quake/tsunami. And we think that will weigh on auto production in April in particular.”
Investors also looked ahead to the Fed interest rate announcement on Wednesday. The Fed is universally expected to leave interest rates near zero for some time yet, another reason why the greenback got beaten up last week, along with Standard & Poor’s downgrade of its outlook of U.S. debt.
The bank’s current program of quantitative easing, involving the printing of new money to buy bonds, ends in June “and this is really the last opportunity they have if they are even considering some kind of change to QE2,” added Porter.
“Our assumption is that there is nothing major in the works and that really the interesting aspect of the Fed meeting will be the press conference.”
The presentation could be as interesting as the message itself as the Fed embarks on a radically different way of delivering its announcement.
The Fed said in March that chairman Ben Bernanke would hold four regular press briefings a year following the announcement and April is the first such event.
The Fed will release its announcement at 12:30 p.m. EDT, rather than the normal 2:15 p.m. slot. During those four FOMC meetings, Bernanke will hold a press conference to discuss the Fed’s statement at 2:15 p.m.
“It will be interesting to see what they have to say about what’s going on in headline inflation and even underlying inflation seems to be firming up a little bit in the U.S. so it will be interesting to see what the Fed has to say on that score,” said Porter.
“In many respects, it’s almost like they have to keep pounding the drum that inflation expectations are well anchored and cross their finger behind their back that they do remain well anchored.”