Top of the Morning

Mark Melin of ValueWalk provides some details on a speech from former Federal Reserve Chairman Ben Bernanke that largely escaped media scrutiny:

Former U.S. Federal Reserve Chairman Ben Bernanke has strong opinions on inflation and thinks the Fed’s current 2 percent target is too low.  Speaking at a private event last week in Washington D.C., Bernanke surprised the sophisticated audience by suggesting the Fed should target 3 percent inflation…

Bernanke addressed a wide range of risk exposure issues from Japan, popping asset bubbles, Fed tightening, as well as expressing doubt regarding the potential success of QE in the Eurozone and adjusted inflation expectations, where he “addressed the benefits of slow and late tightening, and letting inflation initially overshoot.”

On the Homefront

The TSX posted a triple-digit gain on Monday amid a widespread rally buoyed by particularly strong performance from the gold miners and a select number of story stocks, namely Valeant Pharmaceuticals (VRX) and BlackBerry (BBRY). “A sorting out process on the part of investors seeking oversold assets that we expected to develop after the market seemingly sold risk indiscriminately over the past several weeks was on display on Monday,” writes Adrian Miller, director of fixed income strategy at GMP Securities.

 

Iron horses to report earnings. Both Canadian Pacific Railway (CP) and Canadian National Railway (CNR) are scheduled to release their third quarter results today. On Monday, CP Rail announced that its merger talks with U.S. peer CSX Corp. had officially concluded, and noted that regulatory concerns were a deterrent for transactions. However, the very same press release extolled the virtues of railway consolidation, suggesting that the company will continue to search for potential targets. Expect that to be a topic of discussion during today’s conference call. In Q3, the consensus estimate calls for CP Rail to book adjusted earnings per share of $2.37 on revenues of nearly $1.7 billion. Though CP has made more headlines over the past few years during its renaissance under the leadership of Hunter Harrison, CN Rail is by far the larger iron horse, and enjoys a superior operating ratio (the key measure of efficiency in this space). In its second-quarter earnings release, CN Rail’s operating ratio dipped below 60 percent while management boosted guidance for full-year cash flow. The company has beat on earnings in five of its last six quarters. Analysts are looking for adjusted earnings per share of $1.05 on revenues of just over $3.1 billion. TSX 60 futures are trading in positive territory ahead of the open.

 

The Canadian dollar is up marginally this morning to hover around 0.889 against the greenback.

 

Housing agency president isn’t worried about foreign home ownership. In an interview with the Financial Post’s Garry Marr, Canada Mortgage and Housing Corporation CEO Evan Siddall suggested that the level of foreign ownership in Canadian markets was not excessive, and also pushed back against the notion that having foreign investment was, in his words, some sort of “bogeyman.” However, Siddall also admitted that there is a “data gap” in this regard – the crown corporation can’t really pin down the extent of foreign ownership of Canadian real estate.

 

B.C. to release LNG tax details. According to Reuters, British Columbia’s provincial government will outline its LNG tax regime today, which will have massive implications for the proposed 17 terminals that aim to bring natural gas from the West Coast to Asian markets. LNG companies have pushed for the government to classify their projects as manufacturing operations, a move which would be advantageous to them from a tax standpoint. “The final tax legislation will be introduced this week and is expected to pass before the end of November,” writes Julie Gordon. “British Columbia will also be introducing new rules on greenhouse gas emissions for the LNG industry.”

Daily Dispatches

Fears of an imminent hard landing in China are once again on the backburner after the world’s second-largest economy indicated that its economy grew by 7.3 percent in the third quarter relative to Q3 2013, a tick higher than the consensus estimate. “Chinese data carried a greater degree of downside risks, given the key macro concerns of low inflation, low growth in specific regions, Ebola and a stronger USD,” writes IG chief market strategist Chris Weston. “With some economists calling for Q3 GDP as low as 6.9 percent, a six-handle would have had huge psychological ramifications on global markets. Growth of 7.3 percent is not going to create a huge upswing in sentiment.” The rest of the data was rather mixed; industrial production rose by considerably more than economists expected in September, while retail sales and fixed asset investment came in below the consensus estimate.

 

The CEO of oil giant Total SA has passed away. Christophe de Margerie, who became the head of the French-based energy company in 2007, died at an airport in Moscow after a snowplow, whose driver was allegedly intoxicated, crashed into his corporate jet.

 

A spot check on the health of the U.S. housing market is coming this morning, with existing home sales for September due out at 10:00am (EDT). Economists expect sales to come in at a seasonally adjusted and annualized rate of 5.09 million, a step up from levels seen in September. Real estate has been somewhat of a soft spot in the American recovery story, though reports that Freddie Mac and Fannie Mae may begin to guarantee mortgages with tiny downpayments would, if realized, give this segment a lift going forward.