The Daily Chase: Inflation at 31-year high; Netflix punished by investors
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We’re bracing for what’s expected to be the biggest inflation surge since the middle of 1991.
Inflation in Canada is outpacing even the loftiest of expectations. Statistics Canada’s consumer price index surged 6.7 per cent year-over-year in March; that was the most since the start of 1991 and outstripped all of the estimates tracked by Bloomberg. All of a sudden, the IPSOS/MNP survey that we reported on earlier this week, and has given rise to a fascinating online discussion, is looking even more relevant.
NETFLIX GETS A RUDE AWAKENING
Nevermind slowing growth, Netflix's user base is shrinking. Two hundred thousand net paid subscribers were lost in the first quarter (have to point out the wind-down in Russia wiped out 700,000 accounts), and the company said it expects to shed another two million subscribers in the current quarter. In short, Netflix admits it misread the landscape because of the pandemic: "The big COVID boost to streaming obscured the picture until recently," it said. Now the company says it will focus on maintaining an operating margin around 20 per cent while it fights to pump up revenue growth. The big strategic question is whether, as Dan Morgan from Synovus Trust told us late yesterday, growth comes from "harvesting their existing customer base" by raising prices and monetizing shared accounts, or throwing money at content. Maybe the answer is a little of column a, and a little of column b.
MARKET WATCH
The 10-year U.S. treasury yield rose as high as 2.977 per cent overnight before levelling off. But how about we look inward for a moment: check out the moves in Government of Canada yields. The 10-year hit 2.821 yesterday — that’s almost a double since the start of this year. And the GoC five-year (which is key for fixed-rate mortgages) yield isn’t far behind at 2.714 per cent. In a brief note to clients late yesterday, BMO Chief Economist Doug Porter pointed out that none of the GoC yields have touched three per cent since 2014.
As for equities: the S&P/TSX Composite Index closed 69 points shy of a record yesterday, and has closed higher in each of the last four sessions (though each day’s gains were puny). And I’ll point out here there was a bunch of analyst action on major gold miners overnight. National Bank downgraded Newmont to sector perform based on recent outperformance (the analyst also raised his price target to $119 from $107). And RBC Capital Markets downgraded Kinross and Iamgold to sector perform and underperform, respectively, based on changes to gold price assumptions.
