Author: Consultant

Published: 11/1/2023 3:19 PM ET

Oil futures failed to hold early gains and settled lower on Wednesday, weighed down by concerns that higher borrowing costs will likely hurt growth and the outlook for fuel demand.

The Federal Reserve today decided to leave interest rates unchanged at 5.25 to 5.5%, in an effort to support its dual goals of maximum employment and inflation at a rate of 2% over the longer run.

West Texas Intermediate Crude oil futures for December ended down $$0.58 or about 0.7% at $80.44 a barrel.

Brent crude futures were down $0.19 or about 0.22% at $84.83 a barrel a little while ago.

Data from U.S. Energy Information Administration (EIA) showed crude inventory in the U.S. rose by 0.774 million barrels in the week ended October 27, less than an expected increase of 1.3 million barrels.

Gasoline stockpiles increased by 0.1 million barrels last week, as against forecasts for a drop of about 0.8 million barrels, while distillate stockpiles fell by 0.8 million barrels in the week, against expectations for a 1.5 million-barrel drop, the EIA data showed.

The Fed’s accompanying statement was little changed from September, although the Fed did upgrade its assessment of U.S. economic activity.

The Fed said recent indicators suggest economic activity expanded at a “strong pace” in the third quarter after previously saying activity has been expanding at a “solid pace.”

The latest statement also said, “Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation.”

With regard to the outlook for rates, the statement suggests the Fed is still considering additional rate hikes in an effort to return inflation to its 2% objective.

The central bank said it will consider the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments in determining whether further increases may be appropriate.

Published: 11/1/2023 4:34 PM ET

The Canadian market ended on a firm note on Wednesday, rising for a third straight session, as some strong earnings updates helped underpin sentiment.

In addition to tracking earnings updates, investors also digested the Federal Reserve’s monetary policy announcement.

The benchmark S&P/TSX Composite Index, which climbed to 19,089.73 intraday, ended with a gain of 205.53 points or 1.09% at 19,079.00.

Utilities, real estate, communications, consumer staples, technology and healthcare stocks moved higher. Several stocks from energy, financials and industrials sectors too posted impressive gains. Materials shares were somewhat subdued.

The Utilities Capped Index climbed 3.69%. Brookfield Infra Partners (BIP.UN.TO) soared nearly 11%. Algonquin Power (AQN.TO), Innergex Renewable Energy (INE.TO) and Boralex Inc (BLX.TO) gained 4 to 5%.

The Real Estate Capped Index surged 2.43%. Allied Properties Real Estate Inv. Trust (AP.UN.TO), the biggest gainer in the index, rallied 5.3%. Northwest Healthcare Prop (NWH.UN.TO) and Choice Properties (CHP.UN.TO) both gained about 4.7%. Crombie Real Estate (CRR.UN.TO) and CT Real Estate (CRT.UN.TO) also posted sharp gains.

Rogers Communications (RCI.B.TO), BCE Inc (BCE.TO) and Telus Corp (T.TO) were among the prominent gainers in the communications sector.

Among consumer staples stocks, Empire Company (EMP.A.TO) and Weston George (WN.TO) gained 2.25% and 2.2%, respectively. Loblaw (L.TO) and Metro Inc (MRU.TO) also rallied sharply.

Technology stocks Dye & Durham (DND.TO) and Coveo Solutions (CVO.TO) climbed 7.8% and 5.3%, respectively. Computer Modeling Group (CMG.TO), Celestica Inc (CLS.TO), Shopify Inc (SHOP.TO), Enghouse Systems (ENGH.TO) and Constellation Software (CSU.TO) gained 1.7 to 3.4%.

Healthcare stock Bausch Health Companies (BHC.TO), energy stocks Topaz Energy (TPZ.TO), Secure Energy (SES.TO), Advantage Oil & Gas (AAV.TO), Athabasca Oil Corp (ATH.TO), Canadian Natural Resources (CNQ.TO) and Imperial Oil (IMO.TO), and financials shares Manulife Financial (MFC.TO), Onex Corp (ONEX.TO), Goeasy (GSY.TO) and Great-West Lifeco Inc (GWO.TO) also posted impressive gains.

On the economic front, a report from Markit Economics said the S&P Global Canada Manufacturing PMI edged higher to 48.6 in October of 2023 from 47.5 in the previous month, pointing to the sixth consecutive slowdown in Canadian manufacturing activity.

The Federal Reserve today decided to leave interest rates unchanged at 5.25 to 5.5%, in an effort to support its dual goals of maximum employment and inflation at a rate of 2% over the longer run.

The Fed said in its statement that recent indicators suggest economic activity expanded at a “strong pace” in the third quarter after previously saying activity has been expanding at a “solid pace.”

With regard to the outlook for rates, the statement suggests the Fed is still considering additional rate hikes in an effort to return inflation to its 2% objective.

The Federal Reserve on Wednesday held interest rates steady for the third time this year even as central bankers confront a surprisingly resilient economy and still too-high inflation.

The widely expected decision left interest rates unchanged at a range of 5.25% to 5.5%, the highest level in 22 years. But policymakers also left the door open to an additional increase before the end of the year amid concerns that inflation “remains elevated.” 

“In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” the Fed said in its post-meeting statement.

Policymakers have raised interest rates sharply over the past year, approving 11 rate increases in the hopes of crushing inflation and cooling the economy. In the span of just 16 months, interest rates surged from near zero to above 5%, the fastest pace of tightening since the 1980s.

Hiking interest rates tends to create higher rates on consumer and business loans, which then slows the economy by forcing employers to cut back on spending. Higher rates have helped push the average rate on 30-year mortgages above 8% for the first time in decades. Borrowing costs for everything from home equity lines of credit, auto loans and credit cards have also spiked.

Yet the rapid rise in rates has not stopped consumers from spending or businesses from hiring. 

“Inflation has been coming down, but it’s still running well above our 2% target. The labor market has been re-balancing, but it’s still very tight by many measures. GDP growth has been strong, although many forecasters are forecasting that it will slow,” Powell told reporters at a post-meeting press conference in Washington, D.C. “As for the committee, we are committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2% over time. We are not confident we have achieved that.”

Inflation has cooled from a peak of 9.1%, but it remains well above both the Fed’s 2% goal and the pre-pandemic average. 

“The process of getting inflation sustainably down to 2% has a long way to go,” Powell added.

On top of that, economic growth unexpectedly accelerated last week, with gross domestic product — the broadest measure of goods and services produced in the country — rising at a 4.9% annualized rate from July through September. It marked the best gain since 2021.

nd against all odds, the labor market has remained very tight. Demand for workers continues to outstrip the number of jobs available, layoffs remain limited and the economy is still adding jobs at a solid clip. 

Fed officials acknowledged that economy activity was “strong” in the third quarter — an upgrade from the September meeting, when policymakers described a “solid” pace of growth. They also noted that job growth has “moderated,” in comparison to earlier statements that said it had “slowed.” In fact, Powell indicated that there is a greater risk of inflation re-accelerating than there is of an economic recession.

But policymakers also cautioned that tighter credit and financial conditions could weigh on the economy in coming months. Several officials, including Powell, have indicated that a recent run-up in long-term Treasury yields, which influence financing costs for households and businesses, could mean the Fed is done tightening. Powell said Wednesday the central bank remains “attentive” to the increase in longer-term yields.

“In light of the uncertainties and risks and how far we have come, the committee is proceeding carefully,” Powell said. “We will continue to make our decisions meeting by meeting.”

The Fed is set to meet one more time this year, in December.

Based on expectations of higher demand, U.S. natural gas prices have been on an upward trend since March when they bottomed out at US$1.99 per million British thermal units, or MMBtus, an industry standard.

Natural gas futures prices (December contract) are in the US$3.32 range. In Canada, prices on the Natural Gas Exchange in Alberta are at $2.55, also up from the summer months. (Alberta’s gas prices are based on NYMEX contract prices and have been discounted to reflect transportation costs, the province’s supply basin, foreign-exchange rates, and the conversion from MMBtu to gigajoules.)

Natural gas production – a quick background

The United States is the largest producer of natural gas globally, followed by Russia. Canada ranks fifth behind Iran and China, based on 2022 data. More than 95 per cent of the natural gas produced in Canada comes from Alberta and British Columbia. The combined production from the U.S. and Russia is more than the next 12 countries combined, and the U.S. produces almost twice as much natural gas as Russia. Russian gas production was down by 12 per cent in 2022. Current monthly production levels in both Canada and the U.S. are near historic highs.

Enbridge bets big on natural gas with $9.4-billion acquisition of three U.S. utilities

Natural gas consumption – a quick background

Data from the International Energy Agency, or IEA, show natural gas consumption in the U.S. is broken down as follows: electric utilities 38 per cent, industrial 32 per cent, residential 15 per cent, commercial 11 per cent, transport 4 per cent. In Canada, Statista.com breaks consumption down into 72 per cent industrial and power generation, 14 per cent residential, and 14 per cent commercial.

Recent natural gas price moves

Natural gas prices are very much driven by supply and demand. Supply discipline, industry consolidation and resistance to growing production to maximize free cash flow, coupled with the hot summer, have been reasons for the steady rise in natural gas prices this year, according to Eric Nuttall from Ninepoint Partners, in a recent BNN Bloomberg interview.

The accompanying chart shows how U.S. natural gas inventories build during the summer months (referred to as the refill season) and are drawn down through winter into spring. Canadian inventory levels follow the same pattern.

According to IEA estimates, working gas in storage was 3,700 billion cubic feet as of Oct. 20. Over the previous week, year and against the five-year average, stocks are up 74 Bcf, 313 Bcf and 183 Bcf, respectively. At 3,700 Bcf, the IEA states total working gas is within the five-year historical range.

The coming winter will have an impact on how quickly we draw down natural gas inventory and ultimately its impact on price.

The National Oceanic and Atmospheric Administration has a winter forecast of wetter in the south and warmer in the north, driven by a strengthening El Nino. In Canada, temperatures are expected to be at or above normal throughout most of the country this winter, according to Environment Canada and supported by the NOAA data. In the shorter term – one to two weeks – we can expect normal to above average temperatures in the western half of the continent and normal to below average temperatures for the eastern half.

Liquefied natural gas

Historically, natural gas was sold locally or distributed by pipeline to neighbouring markets. Liquefaction of natural gas into LNG allows the gas to be transported from producing regions to distant countries. (By cooling natural gas to minus 161 C, all hydrocarbons in it liquefy.) Over the next five years, the IEA sees North American LNG export capacity doubling to roughly 24 Bcf a day from the current 12 Bcf level.

New capacity is projected to come online in Mexico, Canada and the United States. As of the first half of 2023, the U.S. has exported 7.7 Bcf a day to Britain and the rest of Europe, representing 67 per cent of their exports. Canada does not currently have an LNG export facility, with the LNG Canada project being constructed in Kitimat, B.C., expected to deliver its first cargo to Asian markets in 2025.

Summary

Based on forecasts of higher demand, U.S. natural gas prices have increased 67 per cent this year off their lows in March, and Canadian prices are up 40 per cent from summer lows. Current inventory levels are at or above historic averages, production levels remain near historic highs, and the coming winter looks like it will have normal to above average temperatures, so we should expect natural gas prices to be near mid-term highs barring any extreme winter conditions.

Canada Goose Holdings Inc. GOOS-T -9.85%decrease cut its financial guidance for its full year as it warned an “uncertain” and “increasingly challenging” global landscape along with an unseasonably warm September could hamper sales.

“The first cold snap prompts business,” chief financial officer Jonathan Sinclair said on a Wednesday call with analysts.

“It sort of reminds the consumer that this is the time that they should go and buy cold weather gear, so the longer you wait for that, the later (the sales period) starts, and I think that is what we’ve experienced this year.”

Sinclair’s comments allude to just one of the headwinds facing the Toronto-based luxury apparel company best known for its parkas.

Inflation has remained high, pushing many consumers to rethink their spending and perhaps, put off or nix any plans to purchase pricey coats. At the same time, geopolitical tensions are flaring between Canada and China, a market the company has long targeted for expansion.

Canada Goose has 21 stores in the region and celebrated the fifth anniversary of its Chinese presence recently with a big bash, which coincided with rising sales there as COVID-19 restrictions lifted and led to a rebound in domestic spending.

Despite the increased spending, the company still warned its woes in the Chinese market have not completely cleared.

“When it comes to China, we’re seeing an environment which is still somewhat challenged,” Sinclair said.

As a result, Canada Goose now expects total revenue for its 2024 financial year between $1.2-billion and $1.4-billion, compared with its earlier guidance for between $1.4-billion and $1.5-billion.

The company also said it expects adjusted net income per diluted share between 60 cents and $1.40 for its full year, compared with its earlier guidance for between $1.20 and $1.48.

Canada Goose arrived at that guidance because it saw momentum around its business slow noticeably in September.

“While we began to see some improvement in late October, visibility remains reduced to reflect the increased uncertainty in the macro environment,” Sinclair said.

Canada Goose’s reduced financial guidance comes after the company’s stock fell to a record low last month as analysts downgraded the business over concerns that warm weather and high inflation would weigh on sales.

The stock price fell $1.59 or roughly 13 per cent to $13.79 by mid-morning Wednesday.

To counter some of the headwinds, chief executive officer Dani Reiss said the company would focus on three goals: driving consumer-focused growth, building out its direct-to-consumer network and expanding product categories.

In recent months, it noticed rainwear was among its fastest-growing category, though knit jackets were its most popular pieces of apparel, and sneakers – a rather new category for Canada Goose – were performing well.

Those successes helped the company report a second-quarter profit attributable to shareholders of $3.9-million, up from $3.3-million a year earlier.

Canada Goose earned four cents per share for the quarter ended Oct. 1 compared with three cents per share in the same quarter last year.

Revenue for the quarter totalled $281.1-million, up from $277.2-million a year earlier.

On an adjusted basis, the company said it earned 16 cents per share in its latest quarter compared with an adjusted profit of 19 cents per share for the same quarter last year.

Thomson Reuters Corp. reported a third-quarter profit of US$367 million, up from US$228 million in the same quarter last year.

The company, which keeps its books in U.S. dollars, says the profit amounted to 80 cents per diluted share for the quarter ended Sept. 30.

The result compared with a profit of 47 cents per diluted share a year earlier.

Revenue totalled US$1.59 billion compared with US$1.57 billion in the same quarter last year.

The company says the increase was helped by growth in recurring revenues, offset in part by net divestitures.

On an adjusted basis, Thomson Reuters says it earned 82 cents per share, up from an adjusted profit of 58 cents per share a year earlier.

This report by The Canadian Press was first published Nov. 1, 2023.

SASKATOON — Shares in Cameco Corp. rose nearly 10 per cent after it raised its revenue outlook for 2023 and reported a profit of $148 million in its latest quarter compared with a loss a year ago.

The uranium miner says the profit amounted to 34 cents per diluted share for the quarter ended Sept. 30 compared with a loss of $20 million or five cents per diluted share a year earlier.

Revenue for the quarter totalled $575 million, up from $389 million in the same quarter last year.

On an adjusted basis, Cameco says it earned 32 cents per diluted share, up from an adjusted profit of three cents per diluted share a year earlier.

In its updated outlook, Cameco says it now expects consolidated revenue between $2.43 billion and $2.58 billion for 2023, up from its earlier expectations for between $2.38 billion and $2.53 billion, primarily driven by higher expected average realized prices under its contract portfolio.

Cameco shares were up $4.85 at $57.21 in early Tuesday trading on the Toronto Stock Exchange.

This report by The Canadian Press was first published Oct. 31, 2023.

The Canadian economy has flatlined in recent months as higher interest rates weigh on growth, bringing the country to the brink of a mild recession.

Real gross domestic product was essentially unchanged in September, according to a preliminary estimate that Statistics Canada published on Tuesday. While the numbers will be revised on Nov. 30, GDP is on track to fall by 0.1 per cent annualized in the third quarter, following a 0.2-per-cent drop in the second quarter.

If those figures hold, Canada would post two consecutive quarters of declining GDP – what some economists refer to as a “technical recession.” Output would also be considerably weaker than the Bank of Canada’s most recent projection, published last week, which expected 0.8-per-cent growth in the third quarter.

The numbers provide further evidence that Canada’s economy is slowing quickly as higher interest rates curb spending and investment. The Bank of Canada has rapidly raised interest rates – its policy rate stands at 5 per cent, up from 0.25 per cent in early 2022 – to subdue the biggest inflationary surge in four decades.

But as economic activity wanes, analysts are Bay Street are increasingly convinced that the central bank is finished with its rate-hike campaign.

“This is yet one more crystal clear sign that the Bank of Canada should be done hiking,” Benjamin Reitzes, a Bank of Montreal strategist, wrote in a client note. “The potential for a second consecutive negative quarterly GDP reading will cause recession chatter to ramp up quickly. The soft economic backdrop, which still has downside, will drive inflation down over time … it’s just a question of how quickly.”

In August, eight of 20 industrial sectors posted increases in real GDP. (The Statscan report offered detailed figures for August, but just an overall estimate for September.) Services-producing industries edged up 0.1 per cent, while the goods-producing industries fell 0.2 per cent.

Mining, oil and gas extraction jumped by 1.2 per cent in August, although this was partially a recovery from the disruption of forest fires earlier in the year. Manufacturing fell for a third consecutive month, while the hospitality sector slid by 1.8 per cent, with particular weakness at restaurants and bars.

In its latest projections, the Bank of Canada downgraded its outlook for economic growth, though officials are not predicting a recession.

“We’re expecting growth below 1 per cent for the next three, four quarters,” Bank of Canada Governor Tiff Macklem explained at a press conference last week. “Is that a recession? No, it’s not a recession. It’s low positive growth.”

Mr. Macklem said you can’t rule out “some small negative numbers” in the near future – although this wouldn’t necessarily qualify as a recession.

“When people say the word ‘recession,’ I think what they have in mind is a steep contraction in output and a large rise in unemployment. That’s not what we’re forecasting.”

Canada’s labour market has softened in recent months, as seen with declining job postings and a slower pace of hiring. Still, the unemployment rate (5.5 per cent) is low by historical standards. Statscan will publish the next results from its Labour Force Survey on Friday.

The annual inflation rate has fallen to 3.8 per cent from a peak of 8.1 per cent last summer. Despite that progress, the Bank of Canada has warned of various risks to the outlook, including volatile oil prices and sharp increases in housing costs, owing to a supply shortage.

Mr. Macklem told the parliamentary finance committee on Monday that the BoC could begin cutting interest rates before inflation returns to its 2-per-cent target. The central bank projects a return to target by mid-2025. Many analysts expect rate cuts to start sometime next year.

If GDP declines slightly for two consecutive quarters, it could lead to a hearty debate about whether Canada is in recession – particularly if the labour market continues to exhibit strength.

In 2015, for instance, Canada posted two consecutive quarters of GDP decline, owing to a plummet in oil prices that hammered Alberta’s economy. Many analysts referred to the situation as a “technical recession.”

The C.D. Howe Institute did not agree. In 2018, the think tank’s business cycle council took a final vote on the 2015 downturn and narrowly decided it wasn’t a recession. The council said the breadth of the GDP contraction was narrow and that employment rose during the period in question.

HIGHLIGHTS:

Consolidated Results

• Revenue increased $87.5 million or 8% in the third quarter compared to the similar period last year, with higher revenues in both groups. Equipment Group was up 7% in the quarter on higher equipment sales (up 7%), product support revenues (up 7%) and rental activity (up 11%). CIMCO revenue increased 15%, with progress on package sales (up 2%) and strong product support growth (up 29%).
• Revenue increased $408.5 million (14%) to $3.4 billion for the year-to-date period. Revenue increased in both groups, with the Equipment Group up 13% and CIMCO up 17% year-to-date, on similar trends as noted for the quarter.
• Operating income⁽¹⁾ increased 17% in the quarter reflecting the higher revenue and gross margins, along with the lower relative expense ratio. Operating income as a percentage of sales increased to 16.4% from 15.3% in the prior year.
• Operating income increased 22% in the year-to-date period, and was 14.7% of revenue compared to 13.7% in the similar period last year, reflecting similar trends as noted for the quarter.
• Net earnings from continuing operations increased $25.1 million or 21% in the quarter versus a year ago to $145.6 million or $1.77 EPS (basic) and $1.76 EPS (fully diluted).
• For the year-to-date period, net earnings from continuing operations increased $83.2 million or 29% to $375.1 million, or $4.56 EPS (basic) and $4.52 EPS (fully diluted).
• Bookings⁽¹⁾ for the third quarter decreased 5% compared to last year and increased 5% on a year‑to‑date basis. The Equipment Group reported lower bookings during the quarter (down 10%), after a strong start to the year and given the uncertain economic conditions. CIMCO reported increased bookings (up 18%) on good demand for our products and services. Year-to-date both groups reported increased bookings, with the Equipment Group up 4% and CIMCO up 17%.
• Backlog⁽¹⁾ was $1.2 billion as at September 30, 2023, compared to $1.4 billion as at September 30, 2022, reflecting good order intake, progress on construction and delivery schedules as well as some improvement in equipment flow through the supply chain.

https://www.newswire.ca/news-releases/toromont-announces-results-for-the-third-quarter-of-2023-and-quarterly-dividend-850755229.html