iShares S&P/TSX Capped Financials Index ETF (XFN.TO) & Crude Oil Continuous Contract (CL.F)
What started out as a slow month for the markets has seen a bounce back this week with the major U.S. indices (Nasdaq, S&P 500, and Dow) notching a four-day winning streak to eat into the August pullbacks. The busy U.S. data week is highlighted with an inflation repot on Thursday and US government’s employment report.
Yesterday’s US ADP National Employment Report showed an increase of 177,000 jobs, but below expectations of 200k jobs. The second quarter US GDP estimate showed a gain of 2.1% which was below market expectations of 2.4%. While the PCE price index for Q2 was up 2.5% versus the estimate at 2.6%. All these numbers point to the Federal Reserve holding off on raising interest rates further after pausing the main interest rate at its last meeting, and many investors (89% probability according to the CME Fedwatch Tool) expect the same at the upcoming September meeting.
Oversees, investor sentiment has improved as China continues to implement measures to stimulate its economy as its largest banks are preparing to cut interest rates on existing mortgages to support consumer spending. However, China’s manufacturing activity contracted for a fifth straight month in August raising concerns.
The landfall of Hurricane Idalia on the Florida coast could lead to a rise in gas prices across the US in the near term. The impact of the hurricane could restrict Gulf oil production and as residents flee the storm. The combination of severe weather and surge in summer travel could keep prices elevated into the autumn months.
Canadian Banks had a tough week with Bank of Montreal (BMO.TO) and Bank of Nova Scotia (BNS.TO) missing analyst estimations on Tuesday as they set aside more funds to cover for bad loans. National Bank (NA.TO) missed analyst expectations on Wednesday with an earnings shortfall and heightened loan loss provisions. TD Suffered from heightened loas loss provisions and weakness in its U.S. banking division while RBC announced future layoffs amid rising expenses.
Bank of Canada’s 10 interest rate hikes since last year have slowed the housing market, increased consumer debt, and delayed mortgage repayments forcing banks to set aside more money to protect against potential loan losses.
In this edition of Equity Leaders Weekly, we look at the Canadian Financial Sector and the price of Crude Oil.
iShares S&P/TSX Capped Financials Index ETF (XFN.TO)
After a disappointing earnings season for Canada’s major banks, we take a closer look at the iShares S&P/TSX Capped Financials Index ETF (XFN.TO). XFN is made up of the Banks, Insurance companies, and other financial service companies. All the major Canadian Banks rank in the Unfavored zone, except National Bank, in the SIA S&P/TSX Capped Financials Index Report.
Looking at a point and figure chart at 2%, XFN.TO has been trading mostly sideways throughout the year with a breakout in February failing. It is still in a Triple Top chart pattern but has retreated to the middle of its range as it is up just 3.15% YTD. To the upside, resistance is now found at $48.44 and above this at $52.44, which is the level of its all-time high.
To the downside, support can be found at the bottom of the range and June lows at $42.27. Further support can be found around $40 at $39.74 and at $36.71. With an SMAX score of 4 out of 10, XFN.TO is showing near-term weakness against other asset classes.
Crude Oil Continuous Contract (CL.F)
The price of Crude Oil (CL.F) has been in a trading range for most of 2023 between $60 and $83. Commercial crude stockpiles in the US fell by 10.6 million barrels according to the EIA to 422.9 million barrels. A military coup in Gabon, an OPEC member, has raised fears of crude oil supply disruptions. Analysts also expect Saudi Arabia to roll over a voluntary oil cut of 1 million barrels per day for a third consecutive month into October to keep prices elevated.
Looking a point and figure chart at 2%, Crude Oil has moved to the top of its trading range in 2023 up against resistance at $84.79. Should it breakthrough above this level, the Spread Double Top chart pattern could see a 10% move to the next resistance level at $93.62. To the downside, support is found below at $73.82 accounting for a larger move than a normal 3-box reversal. Further support is found at the bottom of the channel at $66.86. Crude Oil currently has an SMAX score of 8 out of 10 showing near-term strength against most asset classes.
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