Traders to focus on insurance company earnings, latest Canadian jobs data

TORONTO – The focus on earnings moves to the financial sector this week as traders wait for reports from insurance giants Manulife Financial Corp. (TSX:MFC) and Sun Life Financial Inc. (TSX:SLF).

The Toronto market ended the week with a modest loss of 45 points or 0.35 per cent following the release of a slew of earnings from corporate Canada, particularly from the resource sector. The materials sector was the biggest drag after fertilizer producers PotashCorp of Saskatchewan (TSX:POT) and Agrium (TSX:AGU) racked up huge losses after Russian producer Uralkali opted to break up a powerful cartel. The move raised concerns that potash prices could fall by around 25 per cent.

The reports, Sun Life on Wednesday and Manulife on Thursday, come at a time when both stocks are trading close to their 52-week highs. Sun Life has risen 62 per cent from its 52-week low to $33.95 while Manulife has surged 81 per cent from its low for the year to $18.74.

“(You) couldn’t give them away last year,” said Chris King, portfolio manager at Morgan, Meighen and Associates.

“We’ve gone from a significant price to book value discount to trading at an appropriate multiple probably for a company of this complexity and style. But it reflects optimism in the sector obviously.”

These insurers and others have been hit with a double-whammy that has affected earnings and stock ever since the financial collapse of 2008 — anaemic stock market returns and interest rates close to zero.

But 2013 has proved to be the turnaround year as three waves of stimulus by the U.S. Federal Reserve have sparked a stock market rally that has seen the Dow industrials up about 20 per cent year to date.

And long-term rates are headed higher with the benchmark 10-year U.S. Treasury sitting at around 2.6 per cent, a full point higher than where it was at the beginning of May.

It was later that month when Fed chairman Ben Bernanke first raised the possibility that the central bank will ease up on a key element of stimulus, its monthly US$85 billion of bond purchases.

King pointed out that insurers have benefited from a generally improving global economy and a recovering U.S. housing market.

“A better economy ergo produces more people hiring, more premiums, people adding life insurance,” he said.

“And as you write more mortgages, you put more life insurance on them.”

At the same time, King said he is concerned that market expectations may have slightly exceeded what they will deliver in the earnings for the second quarter.

At Sun Life Financial, analysts are looking for 67 cents per share of adjusted earnings, compared with 64 cents a year earlier.

Manulife Financial is expected to post 34 cents per share of adjusted earnings, compared with 31 cents a year earlier.

In addition to these earnings, a number of Canadian corporate heavyweights will also be reporting this week including movie theatre operator Cineplex (TSX:CGS), coffee chain Tim Hortons, Telecom giants BCE Inc. (TSX:BCE) and Telus (TSX:T), along with fertilizer company Agrium (TSX:AGU).

Meanwhile, there is little in the way of U.S. economic news this week, but traders will look to the latest Canadian job creation figures at the end of the week.

Economists expect Statistics Canada to report on Friday that about 10,000 jobs were created during July after a near-flat reading in June.

“While July benefitted from a bounce-back in activity with the end of the Quebec construction strike and post-Alberta flood cleanup, it’s not clear those factors had a meaningful impact on hiring figures,” said CIBC World Markets economist Emanuella Enenajor, who is looking for a higher job creation figure than the consensus.

“But recent resilient activity in construction and retailing may have contributed to a 15,000 increase in employment.”

Traders will also look to June merchandise trade figures and housing starts data.

In the U.S., the Institute for Supply Management hands in its July survey on the non-manufacturing sector on Monday.