Air Canada's 4Q Fuel Costs Too High to Offset — Market Talk

1354 ET - Air Canada is set to face margin pressure from higher-than-expected jet fuel costs, according to National Bank of Canada analyst Cameron Doerksen. He notes in a report that jet fuel averaged C$1.55 a liter in 3Q, up from C$1.46 in 2Q. By comparison, Air Canada's internal guidance assumed fuel would average C$1.38 a liter in 3Q and C$1.29 in 4Q. While higher fuel expenses will weigh on 3Q profitability, Doerksen says "the bigger headwind concern is for 4Q as the current spot price of jet fuel is C$1.89/liter." Although Air Canada expects to recover about 60% of higher fuel costs through higher passenger yields in 3Q and roughly 100% in 4Q, Doerksen thinks the airline is unlikely to fully offset the higher fuel costs during the period. ([email protected])1258 ET - Several of the world's advanced economies are expected to see borrowing costs rise over the next five years, even as they deal with already elevated debt, a post on the IMF blog said. "Rising Sovereign Yields Raise Financial Stakes" points out that the Group of Seven's average 10-year government bond yield rose by over 1 percentage point between February and September, to touch its highest level in over two decades. The post also said the effective average interest cost of government financing is seen rising from 2.3% in 2021 to 3.7% in 2031. The U.S., for example, is expected to see interest payments rise to 5.7% in 2031, after paying 2.8% prior to the pandemic, the post said. ([email protected])1251 ET - The national entry point to luxury housing edged down to $1,199,321 in September, Realtor.com says. That's 3.6% below a year ago and the 30th consecutive month of annual price declines. Every luxury tier is cheaper than a year ago, with the threshold for the top 5% of listings down 3.5% and the top 1% down 5.3%. Even so, luxury homes are selling faster than they were last September. Listings at the 90th percentile spent a median of 76 days on the market, three days fewer than a year ago. The luxury entry point is the lowest since January 2023, and 14.1% below its May 2023 peak of roughly $1.4 million. There are no clear signs yet of a reversal, Realtor.com says. ([email protected])1224 ET - Bitcoin and gold are two sides of the same coin, according to Steve Neamtz of Yorkville America in a note. He says bitcoin as 'digital gold" simply doesn't have the benefit of time in the market to determine how it may behave in the course of financial stress, whereas gold has had thousands of years to "demonstrate its value as a reserve asset." But both will work for investors attempting to hedge against currency debasement. "None of this requires picking a side," he says. "Central banks are buying gold on infrastructure that already exists; institutions are buying bitcoin on infrastructure still being built--the same debasement logic, two different stages." Bitcoin falls 1.9%, while gold is off 1.6%. ([email protected])1201 ET - Morgan Stanley's third quarter got off to a strong start, CEO Ted Pick says on a call with analysts. Momentum carried over from the second quarter, as markets remained focused on artificial-intelligence investments and continued economic expansion. Sentiment began to turn, though, as Labor Day approached. "We observed the headwinds of renewed tensions in the Middle East and higher interest rates globally as central banks moved to keep inflation at bay," Pick says. "Market volumes were slower across asset classes, as investors and institutional actors gauged risk-reward into the fourth quarter and year end." ([email protected])1159 ET - Two stories currently playing out in the economy are approaching a critical juncture, Morgan Stanley CEO Ted Pick says on a call with analysts. If you consider the glass to be half full, enormous capital continues to be raised and deployed across the artificial-intelligence ecosystem, driving both U.S. gross domestic product and large-cap corporate earnings higher. But if you view the glass as half empty, persisting conflicts in the Middle East and Ukraine as well as higher interest rates and energy prices are reasons to be more cautious heading into the fourth quarter, Pick says. "It is clear to us now that these two known-unknowns and how they interact, and which of the third-quarter's narratives--half full or half empty--holds the upper hand, will drive investor and corporate behavior into year end and into the first half of 2027," he says. Shares are down 2.9%. ([email protected])1112 ET - Bank of America continues to invest in technology modernization, including artificial intelligence, CFO Alastair Borthwick says on a call with analysts. The investments have helped boost productivity, he continues, pointing to the bank's headcount. "Our head count was down nearly 3,500 from a year ago, as we automate processes and simplify work across the company," Borthwick says. "This means we don't need to hire quite as many people to refill roles." BofA will continue to invest where it sees the best long-term returns, while continuing work to improve productivity. ([email protected])1059 ET - Winpak has returned to positive volume growth, but question marks related to its sustainability still remain. In a CIBC report, Ariana Milin says the company needs "greater visibility into WPK's ability to achieve sustainable volume growth, given end-market demand pressures, and tariff risks." At the same time, the company could face some pricing softness "on key inputs like resins due to Middle East conflict-related supply disruptions, resin prices have moderated 20%-25% from their peaks in April/May." Still, Milin says that the company's return to positive volume growth in 2Q and management's reiteration of its expectation for a strong 2H is encouraging.([email protected])1057 ET - Consumers continue to spend, Bank of America CEO Brian Moynihan says on a call with analysts, pointing to total payments made from BofA accounts, which are up 5% year-over-year. Consumers are keeping a close eye on macroeconomic trends, as geopolitical instability continues to weigh on sentiment and affect markets. "But what our clients are actually doing is continuing to point to a resilient and growing economy in the United States," Moynihan says. "That activity has produced organic growth across our company, coupled with great credit quality." Bank of America slides 7.5% after a $1.2 billion government fine eats into earnings. ([email protected])1044 ET - One of the only good features of the current run of elevated inflation is the cost-of-living adjustment for Social Security beneficiaries, Harris Financial Group's Jamie Cox says. The Social Security Administration just said benefits are set to rise by 3.6% in 2027, the biggest upward adjustment since 2023. Gasoline and energy prices are the proximate and temporary causes of the current run-up in inflation, so Social Security recipients could end up with a real, meaningful increase in benefits when the energy supply shock finally winds down, Cox says. ([email protected])1044 ET - State Street reported higher third-quarter profit and revenue, but the results weren't enough to please Wall Street. The company's fee revenue missed analyst estimates, and while the fourth-quarter guidance implied by its new full-year forecast is above sellside expectations, "the bar has gotten very high for STT this year with the outsize run the stock has had," Truist Securities analysts say in a note. The analysts say investors likely hoped that the company's update last month was conservative, leaving further room to bump up guidance. "That doesn't seem to be the case," they say. Shares slide 7.8%, to $160.36. ([email protected])1016 ET - There were an estimated 62.6% more home sellers than buyers in the U.S. housing market in September, Redfin says. The margin is up sharply from 56.9% in August. The Sun Belt is driving the extreme buyer's market nationwide, led by huge seller surpluses in Miami, Nashville and a handful of Texas areas. When sellers outnumber buyers, buyers typically have more negotiating power because they have options. High housing costs and widespread economic uncertainty have caused many would-be buyers to back off in recent years, creating the imbalance of buyers and sellers today. There were an estimated 928,892 homebuyers in the market nationwide in September. That's down 2.4% from a month earlier, the fifth straight monthly decline. On the flip side, there were an estimated 1.5M home sellers in the market. That's up 1.2% month over month. ([email protected])