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Banks (Finance)

Rate Cuts Loom as Lennar, General Mills, and FedEx Report Earnings Amid Expectations of Policy Shifts

Strategic Insights

— 2 min read

Rate cuts are expected to impact the global economy, with the Bank of Canada and the Federal Reserve making interest rate decisions on the same day this week. The decision will be influenced by the recent data on inflation, which is expected to remain sticky at 3.1 per cent, despite a slight increase in headline inflation to 2 per cent. Meanwhile, FedEx, General Mills, and Lennar are reporting earnings this week, with investors eagerly awaiting their outlook and performance in the current market environment.

Key Takeaways:

  • The Bank of Canada is expected to cut interest rates by 25 basis points, bringing the overnight lending rate to 2.5 per cent, the lowest in three years, if the decision is made to cut rates.
  • The recent data on inflation, with headline inflation expected to pick up to 2 per cent and core inflation remaining sticky at 3.1 per cent, is seen as a factor in the central bank's decision-making process.
  • The Federal Reserve is expected to cut rates for the first time in six meetings, despite inflation creeping back up and struggling growth in the US economy.
  • Homebuilders, like Lennar, are benefiting from the chatter on rate cuts, with the company's stock up more than 30 per cent from the April low, despite struggling in a sluggish US housing market.
  • General Mills, the maker of Cheerios and Lucky Charms, is expected to report low earnings expectations, with the stock bouncing off the lowest level since March 2020, and investors looking for a turnaround in the coming year.
  • FedEx, down 17 per cent so far this year, is set to report results Thursday afternoon, with investors waiting to see how the company will navigate the headwinds ahead of the key shipping season.

Statistics:

  • 25 basis points: expected interest rate cut by the Bank of Canada
  • 2.5 per cent: potential overnight lending rate after a rate cut
  • 7.1 per cent: recent unemployment rate in Canada, the highest in four years
  • 2 per cent: expected headline inflation
  • 3.1 per cent: expected core inflation
  • 30 per cent: increase in Lennar's stock from the April low
  • 25 per cent: decrease in Lennar's stock from the 2024 high
  • 14x earnings: current valuation of General Mills stock
  • 5-per-cent dividend yield: current dividend yield of General Mills stock
  • 1.5 billion: estimated number of packages per year moving under de minimis tax exemptions
  • 102 days: remaining until Christmas, a key shipping season

Sources:

  • BMO's Canadian rates and macro strategist Benjamin Reitzes
  • Citi's U.S. equity strategist Scott Chronert
  • Bespoke Investment Group
  • UBS analyst Peter Grom
  • Bank of America senior research analyst Ken Hoexter
  • Globe and Mail article "In the Money with Amber Kanwar"

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