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Sun Life Financial Inc.'s new Canadian fund family is not expected to have an impact on CI Financial Corp.., a sub-advisor on several Sun Life insurance and segregated fund products, Stephen Boland, an analyst at GMP Securities Inc.

On Thursday, Canada's third largest insurer said it will launch a new mutual fund family that will give Canadian retail investors access to Sun Life's U.S.-based asset manager MFS, which had over US$195-billion of assets under management as of March 31, 2010. 

Shares in CI Financial Inc., who reported solid first quarter results earlier this week, are down 5% following the news.

"We do not believe it will have a financial impact to CIX for at least several years," Mr. Boland said in a note to clients. "If their market share of SLF products declines we do not believe it will be a material decline."

In 2008 at the height of the financial crisis, Sun Life sold its 37% stake in CI to the Bank of Nova Scotia for $2.3-billion. 

Since then, Mr. Boland said CI has been able to maintain preferred access to SLF agents to sell mutual funds. He thinks that access will continue given CI's strong brand across Canada.

"We do not believe the MFS brand has the same brand recognition so it will take time for that to occur and gain traction even within the SLF channels."

SunLife management said it's new line of mutual funds would be offered in addition to CIX products. Mr. Boland estimated that Sun Life represents about 15% of CI gross sales.

David Pett

Barclays Capital analyst John Aiken thinks first quarter results from Canadian banks will hinge on meeting or exceeding credit expectations.

“As a result of the U.S. banks’ earnings season, the bar has been raised on anticipated credit improvements,” he said in a note to clients. “The U.S. experience illustrates that pressure on these portfolios is easing.”

Mr. Aiken believes Canadian banks will see another significant drop in provisions, but cautioned that sentiment will be driven by whether these declines meet rising expectations. He recently upgraded the sector to Postive from Neutral and raised his earnings estimates and target valuations on more confidence that the economic recovery is taking hold.

Canada’s Big Six banks start reporting second quarter earnings with Bank of Montreal on May 26.

U.S. equity index futures are slightly lower this morning. S&P 500 futures are down 2 points in pre-opening trade.

Index futures moved slightly lower following release of the weekly jobless claims report. Jobless claims fell 4,000 to 444,000. Consensus was a drop of 9,000.

First quarter earnings continue to exceed expectations. Companies that reported higher than expected first quarter earnings overnight included Canadian Tire, Quadra Mining, Cineplex Odeon, Kohl’s, Whole Foods and Cisco. However, responses to better than expected first quarter earnings are not always positive. Kohl’s eased 2% and Cisco slipped 2% in overnight trading. Cisco also was downgraded from Buy to Neutral by Davenport.

Eight money center U.S. banks are under pressure this morning after the New York Attorney General announced an investigation of their relationship with credit rating agencies.

Sybase gained 15% after SAP offered to purchase the company in a friendly deal worth $5.8 billion.

The exception among money center banks is Morgan Stanley. It added 2% in pre-opening trade after FBR Capital registered an upgrade from Market Perform to Outperform.

U.S. Steel gained 2% after Goldman Sachs upgraded the stock from Buy to Conviction Buy.

EBay gained 4% after Morgan Stanley upgraded the stock to Outperform.

Taseko Mines was upgraded by Raymond James from Market Perform to Outperform.

Aurizon Mines was downgraded by Raymond James from Outperform to Market Perform.

On Assignment for a stock play on weekly jobless claim day

Don Vialoux, chartered market technician, is the author of a free daily report on equity markets, sectors, commodities, equities and Exchange-Traded Funds. For more visit Don Vialoux's Web site

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State governments in the United States may be highly leveraged, but they are not facing a debt crisis, according to RBC Capital Markets.

The comparison between the debt-laden European sovereigns and U.S. states has been made many times in recent weeks. States do face some serious budget challenges due to factors such as the cyclical nature of their revenues, poorly funded pension plans and ironically, the balanced budget requirements they operate under.

“While the decline in state revenues appear to be bottoming out, budgets will remain challenged for the next few fiscal years due to the dependence of state revenues on the level of employment and earnings,” Chris Mauro, RBC’s U.S. municipal strategist, said in a report. “State finances will not really improve until these two economic indicators also show improvement.”

The expiration of federal stimulus funding at the end of the 2010 is helping to intensify the fiscal 2011 budget pressures for the states. However, Mr. Mauro argues that none of this is really new.

He compared the debt situation of California, New York, New Jersey, Massachusetts and Illinios – the five states with the highest levels of tax-supported debt, to that of Greece, Ireland, Italy, Portugal and Spain – otherwise known as the PIIGS for being the eurozone’s weakest economies. Despite the similarities many of these U.S. states and European countries share in terms of size of economy, population, and gross state or domestic product (GSP/GDP), leverage of the states are in most respects lower than those of their EU counterparts. California, despite all of the negative media attention it has received as a result of its budget shortfalls, has a comparably low debt to GSP of 3.8%.

Mr. Mauro noted that the central factor supporting state credit quality is probably the flexibility and authority states have in managing their fiscal affairs. The power to tax provides direct control over most components of revenue.

“This fiscal autonomy, like the ability to issue debt, is only constrained by powers of the legislature, powers of the electorate (through the initiative and referendum process), or requirements for voter approval,” he said.

States also have almost complete control over their spending as well as the power to create public entities that can levy taxes or fees, collect revenues and issue debt. In order to balance their budgets, states have tools such as asset sales, interfund borrowing, deferrals, and sale-leaseback arrangements.

“This fiscal flexibility allows for dynamic financial management at the state level and, therefore, is one of the key factors in the almost universally high-grade credit profile of U.S. states.”

Jonathan Ratner

Potash Corp. of Saskatchewan Inc. is poised to rebound, John Redstone, an analyst at Desjardins Securities, says.

Mr. Redstone upgraded his rating on Canada's best known fertilizer stocks to Buy from Hold based on share price depreciation.

Since December 3, 2009, shares in Potash have fallen to $103.60 from $128.73, providing upside of roughly 20% to his current price target of $127.35. 

The analyst said potash prices have bottomed.

"We would concur with several market observers that potash prices have bottomed," he said. "We forecast demand will outstrip supply in the fertilizer markets through 2011 and prices will increase."

David Pett

It has been a week of political overhaul in Europe, and one of the victims in the fallout could be the continent's nuclear renaissance.

In a note to clients, Raymond James analyst Bart Jaworski pointed out that new political leadership in key European countries could cause them to waver on their nuclear power plans. That in turn could be bad news for the uranium market.

"In Europe, the road to a nuclear revival [and increased uranium demand] may not be as smoothly paved as it was last week," he wrote.

The most visible example is in Britain. Incoming Prime Minister David Cameron appears to support predecessor Gordon Brown's plan for up to 10 new nuclear reactors in the country. But Mr. Cameron was forced to form a coalition government with Nick Clegg's Liberal Democrats, who prefer energy conservation and renewable sources (however, the Liberal Democrats have said they will abstain from voting on the issue).

"The influence of the 'Lib Dems' in any coalition could play a critical role in whether the U.K. deviates from the nuclear path," Mr. Jaworski wrote.

Mr. Jaworski also pointed to Germany, where Chancellor Angela Merkel's coalition has lost majority control of the country's upper house. She will now need opposition approval for her plan to cancel legislation that would phase out the country's fleet of nuclear reactors. And in Italy, Industry Minister Claudio Scajola was forced to resign over corruption charges. He was working to revive nuclear power in the country, which was abandoned more than 20 years ago.

Peter Koven

The first-quarter results for Sprott Inc. came in largely in line with analyst expectations Wednesday, not necessarily a good thing as expectations were not very high.

Phil Hardie, analyst with Scotia Capital, had forecast earnings per share of 5¢, just ahead of Sprott's reported 4¢ EPS. However, this is in line with consensus, he said. He also forecast end-of-quarter assets under management of $5.2-billion n growth largely due to new funds launched, which is what the company reported.

In line or not, Mr. Hardie is not impressed with the company's prospects.

"We continue to believe that Sprott looks expensive compared to other asset managers in our coverage universe and recommend investors looking to play the space buy Gluskin Sheff + Associates Inc. (rated Sector Outperform)," Mr. Hardie said in a note.

He rates Sprott a Sector Underperform with a $4 target price.

Eric Lam 

A Conservative-led coalition government in the U.K. combined with improving jobs data should bode well for stocks on the London Stock Exchange, Pierre Lapointe, a macro strategist at Brockhouse Cooper says.

He maintained his Overweight recommendation on U.K. equities, saying the key benchmark is trading at only 10.5 times 12-month forward earnings, despite profit growth expectations at 28.9%, higher than MSCI expectations of 26.9%.

"At first glance, post-election periods in the U.K. are not easy on equities," he said in a note to clients.

Since 1964, he said the exchange has fallen 1.3% in the first month following an election, and 2.8% after three months. However, on closer inspection, it is clear that  the average was pulled lower by large declines when the Labour party was elected.

In comparison, stocks performed much better after a Conservative government took power, he said. Under this scenario, the market has averaged a slight gain of 0.6% in the three month period post election.

Contributing to Mr. Lapointe's bullish stance is historical analysis related to the claimant count rate, a key unemployment figure that represents the number of  people who claim unemployment benefits, but actively seeking work, as a percentage of the total workforce. Currently 4.7%, it is at the lowest level since May 2009.

"Since 1971, there were five major downturns in the claimant count rate. Six months after the claimant count rate started to decline, the U.K. stock market was up by 12.3% on average. It should be noted that all five periods were positive for the stock market," he said.

David Pett