TORONTO - Focus will be firmly fixed on earnings from corporate Canada this week as investors assess how badly depressed commodity prices have impacted the bottom lines of resource companies.
"It’s a huge week for Canadian earnings," observed Colin Cieszynski, senior markets analyst at CMC Markets Canada.
It has been a challenging time for Canadian resource companies as prices for metals and oil have been hammered in recent months.
For example, copper prices tumbled 13 per cent in January alone while oil prices have collapsed, falling 40 per cent since the end of November as OPEC countries refused to back off on production in order to support prices weakened by a global supply glut.
Energy companies reporting this week include Talisman Energy (TSX:TLM), Husky Energy (TSX:HSE) and oilfield support company Precision Drilling (TSX:PD).
Precision was one of the first Canadian energy-related companies to announce substantial cuts in capital spending for this year. It is expected to post lower earnings — 23 cents a share versus 24 cents a year ago — but Cieszynski thinks that the next quarter will tell the tale about how support companies have been hurt by plunging prices.
"The contracts for this winter were probably signed six months ago," he noted.
"But at some point, those contracts are going to roll off and when they do, you can be sure it’s all going to get renewed at lower rates — that’s how (oil producers) get their costs down."
The major mining company delivering earnings this week is Teck Resources (TSX:TCK.B).
"You’ve seen them get hit pretty hard," said Cieszynski.
"I think at this point, they are really trading more off commodity prices than off earnings."
Investors already have low expectations for Teck for the last quarter — they’re looking at earnings of 22 cents a share, a far cry from the 40 cents a share delivered a year ago.
It is also a major earnings week for Canadian insurers, including Manulife Financial (TSX:MFC), Sun Life Financial (TSX:SLF) and GreatWest Lifeco (TSX:GWO).
Financials have had a tough time of it with the sector already down about three per cent so far this year as traders wonder how the big banks will perform in an environment of lower economic growth, falling interest rates and a housing market that is starting to slow in areas such as Alberta.
However, relatively speaking, the insurers have had an easier time of it.
"They haven’t been hit too badly," Cieszynski said.
"And I don’t think they would get hit the same necessarily as the banks who have more direct loan exposure to the energy sector in particular."
The TSX racked up solid gains last week, rising 410 points or 2.8 per cent, paced by a 12 per cent jump in the energy sector. Oil prices have essentially stopped going straight down and have entered a period of volatility as traders try to find a bottom.
Prices seem to have found some support around US$50 a barrel, but analysts caution that recent lows will be retested before firming up. Futures contracts for the end of the year show oil prices only at around US$60 a barrel.