The Daily Chase: GDP contraction and earnings from RBC, CIBC, TD

Here are five things you need to know this morning.

The ‘R’ word: No, not recession. Today’s ‘R’ word is revision. Canada’s economy contracted in the third quarter according to data from Statistics Canada this morning. Q3 GDP fell 1.1 per cent annualized, which was worse than expected. However, a flash estimate for October shows that the economy expanded 0.2 per cent after a 0.1 per cent gain in September. As of now, Canada has avoided a technical recession because the Q2 growth rate was revised to expansion of 1.4 per cent from an initial reported decline of 0.2 per cent. Tomorrow, we will get a sense of how all of this filters into the job market. The unemployment rate is expected to have ticked up to 5.8 per cent. Economists will likely focus on the strength in October when trying to assess how the Bank of Canada will factor that into their rate decision next week. The Bank of Canada is expected to remain on hold, but we will watch for how they signal the path of rates going forward.

Bank beats: Royal Bank and CIBC reported better-than-expected quarterly results. For RBC, there was plenty of good. The bank topped profit expectations, saw a surge in capital markets earnings, raised its dividend and saw its capital ratio increase. It wasn’t a perfect quarter, however. Provisions for credit losses were higher than expected, expenses increased 13 per cent and some analysts note that a lower tax bill helped to power the earnings beat. Nevertheless, KBW’s Mike Rizvanovic expects RBC’s shares “will outperform peers today on the headline beat.” I’ll watch the reaction to CIBC’s earnings beat, especially since the stock recently hit a three-year low and sports a dividend yield north of 6.5 per cent. Profit grew more than expected and the bank also boosted its dividend. The knock in the quarter was stubborn expense growth of 12 per cent and impairments coming from commercial real estate exposure. However, CIBC’s provisions for credit losses weren’t as much as expected.

Swing and a miss: TD also reported this morning on a very messy quarter. Profit missed expectations, expenses grew 20 per cent, and the bank announced more than $360 million in restructuring charges that it says will be repeated in the next quarter. TD plans to reduce headcount by three per cent and is looking for $600 million in savings from the restructuring moves. The bank said it is still dealing with a U.S. Department of Justice investigation that could result in monetary penalties, as disclosed earlier this year. The U.S. business, which is the part that investors love, underperformed. National Bank’s Gabriel Dechaine notes that U.S. banking profit fell due to the wholesale business and another soft quarter from their acquisition of Cowen. The bank also warned that it will be challenged when it comes to meeting its earnings growth targets of seven to eight per cent in 2024. On the plus side, even with all this, it still boosted its dividend. The conference call is this afternoon at 1:30 p.m. ET.