Traders set for second round of bank earns after RBC/TD breeze past expectations

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TORONTO – The Toronto stock market could benefit from further lift in the financial sector this week as traders anticipate another positive run of earnings from the big banks.

The TSX ran ahead 1.33 per cent last week after two losing weeks, lifted by a gain of about 1.2 per cent in the financial sector after Royal Bank (TSX:RY) and TD Bank (TSX:TD) posted earnings reports that blew past analyst expectations. The other big gainer was the base metals group, up about 1.5 per cent for the week, in part due to data showing a strengthening Chinese manufacturing sector.

This week, investors will take in earnings from National Bank (TSX:NA) and Scotiabank (TSX:BNS) on Tuesday, Bank of Montreal (TSX:BMO) on Wednesday and CIBC (TSX:CM) on Thursday.

Investors were impressed as RBC and TD seemed to be firing on all cylinders in the latest quarter with strong contributions from major divisions and lower loan-loss provisions.

“The expectation is (the other banks) should be issuing good results as well,” said Sadiq Adatia, chief investment officer of Sun Life Globel Investment.

“If they don’t do that, then you will see some big falls in those names but indications look like they should have pretty decent results as well. You’re not going to see a disastrous environment by any means in those banks.”

At the same time, traders will be looking for the latest growth data to see if the American economy actually contracted in the first quarter.

The first revision to U.S. gross domestic product data will be released on Thursday. The initial report showed growth coming in at a paltry 0.1 per cent as severe winter weather impacted the economy. But markets are braced for a worse reading that would show the U.S. economy actually shrank in the first quarter.

“I think that’s our expectation as well,” said Peter Buchanan, senior economist at CIBC World Markets.

“We’re calling for a minus 0.3 per cent print.”

At the same time, Buchanan stressed that a contraction during the quarter would represent a temporary blip, with growth bounching back in the next quarter.

“We are looking for quite healthy growth in the second quarter, better than in Canada,” he added.

Meanwhile, Statistics Canada releases the latest gross domestic reading for March and the first quarter on Friday.

Buchanan said his bank is calling for a 1.8 per cent annualized rise for the first quarter.

“We did have disappointing wholesale, retail sales numbers (while) manufacturing was a bit stronger than expected,” he said.

“That points to sort of a flattish print for GDP in March but even with that, given the 0.5 per cent that we had in January, 0.2 per cent in February, we still probably will see about 1.8 per cent for the quarter.”

Buchanan expects Canadian second-quarter economic growth will pick up to at least two per cent.

Traders will also take in the latest reading on the health of Canadian trade when Statistics Canada releases the current account data for the first quarter.

In the U.S., it’s a shortened week with markets closed Monday for the Memorial Day holiday.

On Tuesday, investors will consider the April reading on U.S. durable goods orders for April along with the latest data on consumer confidence and house prices.

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