Author: Consultant

Tropical Storm Lee is expected to rapidly intensify into an “extremely dangerous” hurricane in the Atlantic Ocean by this weekend, the National Hurricane Center said Tuesday as the season approaches its typical early September peak.

Lee could become a hurricane Wednesday then a major category 3 storm or stronger by Friday, with the Leeward Islands of the Caribbean feeling its impacts over the weekend, forecasters said.

Its winds could reach 150 mph on Sunday evening, according to the hurricane center.

The tropical storm is now churning maximum sustained winds of 50 mph and moving about 1,230 miles east of the Leeward Islands, which include the Virgin Islands, Saint Martin, and Antigua and Barbuda, according to the National Hurricane Center’s 11 p.m. ET Tuesday update.

Though its exact path is still uncertain, Lee will track generally west-northwest across the tropical Atlantic through the end of the week and make a close pass at the Leeward Islands over the weekend as a hurricane.

But any shifts along its track as it nears the islands could bring more of an impact there and beyond. Anyone in the eastern Caribbean – including the Leeward Islands, Puerto Rico and Hispaniola – as well as the Bahamas will need to keep a close eye on the forecast.

It’s too soon to know whether this system will directly impact the US mainland, but even if the hurricane stays out at sea, dangerous surf and rip currents could once again threaten the East Coast. One person was killed in a rip current in New Jersey over the Labor Day weekend.

Lee became a tropical storm Tuesday after forming earlier in the morning in the central tropical Atlantic and moving through extremely warm waters, according to the National Hurricane Center, which predicts the storm will strengthen rapidly.

Rapid intensification is when a storm’s winds strengthen quickly over a short amount of time. Scientists have defined it as a wind speed increase of at least 35 mph in 24 hours or less – a phenomenon aided by warm ocean waters.

As Lee moves steadily west-northwest this week, it will enter conditions increasingly favorable for strengthening: Plenty of moisture, low wind shear and abnormally warm water stretch nearly the entire length of the potential cyclone’s projected path.

Possible Hurricane Lee: The Atlantic’s next major hurricane is expected by this weekend | CNN

• India’s imports of Russian crude is a win-win situation for the world’s oil markets, said Oil and Natural Gas Corporation Ltd (ONGC), India’s No. 1 oil company.
• By importing from Russia, ONGC said that India has helped the global economy by freeing up some oil on the Gulf for other countries to import.

India importing Russian oil is win-win for global economy, says ONGC (cnbc.com)

Oil prices ticked up in Asian morning trade on Monday, as market sentiment was buoyed by positive China and U.S. economic data, as well as expectations of ongoing crude supply cuts from major producers.

Brent crude was up 17 cents, or 0.2%, at $88.72 a barrel at 0015 GMT. U.S. West Texas Intermediate crude rose 25 cents, roughly 0.3%, to $85.80.

The sustained upward price movement comes after both contracts settled at their highest levels in more than half a year last week, breaking a two-week losing streak.

On the demand side, China’s manufacturing activity unexpectedly expanded in August, data from Caixin’s manufacturing PMI survey indicated, leading to renewed optimism about the economic health of the world’s largest oil importer.

A series of economic support measures announced by Beijing last week, such as deposit rate cuts at some of the country’s largest state-owned banks and an easing of borrowing rules for home buyers, have also supported prices.

However, investors continue to await more substantial moves to prop up the country’s embattled property sector, which has been one of main drags on the Chinese economy since its emergence from the pandemic.

In the U.S., employment data was higher than expected on Friday, with nonfarm payrolls increasing by 187,000 jobs last month.

A broader cooling of the U.S. labor market, as seen in slowing job growth, reduced the chances of further rate hikes by the Federal Reserve in the immediate future, analysts said.

Expectations of tightening oil supplies have grown after Russian Deputy Prime Minister Alexander Novak’s remarks on Thursday that Russia had agreed with partners in the Organization of the Petroleum Exporting Countries on the parameters for continued export cuts. An official announcement with details of the planned cuts is expected this week.

Russia has already said it will cut exports by 300,000 barrels per day, or bpd in September, following a 500,000 bpd cut in August. Saudi Arabia is also expected to roll over a voluntary 1 million bpd cut into October.

 Enbridge Inc. has signed a US$14 billion cash-and-debt deal that represents a major vote of confidence by the Canadian company in the future of natural gas.

The Calgary-based energy infrastructure giant said Tuesday it will purchase three U.S.-based utility companies— The East Ohio Gas Company, Questar Gas Company and its related Wexpro companies, and the Public Service Company of North Carolina — all of which are owned by Virginia-based Dominion Energy Inc.

Enbridge, which plans to finance the deal through a combination of US$9.4 billion of cash consideration and US$4.6 billion of assumed debt, said the deal will double the scale of its gas utility business and will serve to balance its asset mix evenly between natural gas and renewables, and liquids.

In a presentation for investors Tuesday afternoon, Enbridge CEO Greg Ebel said the company’s earnings mix is currently about 60 per cent weighted towards crude oil and liquids, and 40 per cent weighted towards natural gas and renewable energy. (Enbridge is currently the only major pipeline company in North America that owns a regulated utility. Enbridge Gas Inc. currently serves about 75 per cent of Ontario residents.)

Following the Dominion deal, which remains subject to regulatory approval and is expected to close in 2024, that balance will be closer to 50-50, Ebel said. The deal will give Enbridge gas utility operations in Ohio, North Carolina, Utah, Idaho and Wyoming, representing a significant presence in the U.S. utility sector.

The acquisition is expected to double the scale of Enbridge’s gas utility business to approximately 22 per cent of Enbridge’s total adjusted earnings before interest, taxes, depreciation, and amortization.

While the purchase is larger than the more modest “tuck-in” acquisitions Enbridge has been pursuing in recent years, the scale and price of the Dominion assets made them a “once in a generation” opportunity that couldn’t be passed up, Ebel said. 

The purchase also fits with the company’s previously stated bullish outlook on natural gas — even as the world aims to reduce emissions from fossil fuels to tackle climate change.

“We remain firmly of the view that all forms of energy will be required for a safe and reliable energy transition,” Ebel said in Tuesday’s investor presentation. 

“This transaction helps us to achieve greater balance and gives us more exposure to natural gas, which is and will continue to be a critical fuel to help us realize our lower-carbon emissions.”

Enbridge said following the transaction, its gas utility business will be the largest by volume in North America with a combined rate base of over C$27 billion and about 7,000 employees delivering over nine billion cubic feet per day of gas to approximately seven million customers.

Ebel said the purchase will be accretive to Enbridge’s earnings within the first year, and the utilities will offer long-term, low-risk, predictable cash flow growth. 

This report by The Canadian Press was first published Sept. 5, 2023.

The Bank of Canada is expected to pause its monetary policy tightening campaign this week, weighing stubborn inflation data against growing evidence that the Canadian economy has begun to stall.

Analysts expect the central bank will keep its benchmark interest rate at 5 per cent Wednesday, after hikes in June and July.

There’s a widespread belief on Bay Street that Canadian interest rates have peaked, according to polls and swap market data, with no more hikes needed to wrestle inflation back under control. But economists don’t expect the central bank to signal a formal end to its tightening campaign this week, given the risk that inflation could push higher.

Bank of Canada Governor Tiff Macklem “will need to see more disinflationary momentum for that, and it could be some months before we’ll have enough labour market slack for the bank to be comfortable in stating that rates are high enough to do the job,” Canadian Imperial Bank of Commerce chief economist Avery Shenfeld wrote in a note to clients.

Canadian dollar posts biggest loss in a month as economy shrinks

“But if they skip a hike in September, we expect that the balance of risk calculation will ultimately clarify that rates have in fact peaked for this cycle.”

The Bank of Canada first paused its tightening campaign in January, offering a brief respite to homeowners and other borrowers who had been hammered by eight consecutive rate hikes over the previous year.

This “conditional pause” did not last long. In June, Mr. Macklem and his team raised interest rates again in response to strong consumer spending and employment data, as well as an unwelcome surge in real estate prices through the spring. The central bankers hiked rates again in July and warned that inflation could take longer than previously expected to fall back to the bank’s 2-per-cent target.

Over the past month, however, key economic indicators have begun moving in the direction the bank wants to see as it attempts to slow down the economy to curb inflation.

Canada shed 6,400 jobs in July, and the unemployment rate rose to 5.5 per cent, up half a percentage point over three months. Meanwhile, sluggish retail sales data for late spring and early summer suggest Canadian shoppers are beginning to tap out.

The strongest evidence of a slowdown came Friday, with the publication of weaker-than-expected GDP data. Economic activity contracted at an annualized rate of 0.2 per cent in the second quarter, Statistics Canada said, led by a drop in new construction and a slowdown in consumer spending, alongside a hit to resource industries affected by wildfires. The Bank of Canada had been expecting 1.5-per-cent annualized growth in the quarter.

“Between the half-point rise in the unemployment rate in the past three months – a clear and present warning sign – and the big slowdown in GDP, it’s quite apparent that past rate hikes are now weighing heavily on households, and that it’s a matter of time until that translates into cooler underlying inflation trends,” Bank of Montreal chief economist Doug Porter wrote in a note to clients.

But one key metric isn’t moving in the right direction: inflation itself. Annual Consumer Price Index inflation rose to 3.3 per cent in July from 2.8 per cent in June, moving back out of the central bank’s 1-per-cent to 3-per-cent target band. Some measures of core inflation, which filter out volatile price movements, ticked lower. But most of these measures continue to run in the 3.5-per-cent to 4-per-cent range.

Inflation is a long way down from the 8.1 per cent reached in June, 2022. But much of this disinflation has come from favourable year-over-year oil-price comparisons that are no longer weighing on the CPI. Mr. Macklem warned in July that inflation could get stuck around 3 per cent if the central bank is not careful.

Interest-rate hikes work with a considerable lag, and the Bank of Canada sets monetary policy based on where it thinks inflation is heading, not where it is today. That means central bankers need to balance the risk of doing too little to control runaway prices against the risk of doing too much and causing a painful recession.

This calculus is particularly tough at the moment, given that rate hikes don’t appear to be as potent as in the past. That has left central bankers wondering if they need to raise rates more or simply give hikes more time to work their way through the economy.

One thing seems certain: Interest-rate cuts aren’t on the near horizon, even with signs that the economy may be entering a mild recession, which is often defined as two quarters of negative growth.

“The Bank of Canada has one mandate – and that’s to maintain inflation at their target rate,” Nathan Janzen, Royal Bank of Canada’s assistant chief economist, said in an interview.

“So we think that they’ll be more cautious about pulling back on the monetary policy brakes or pulling back on interest-rate hikes than they might have been in the normal economic cycle. And they won’t rush to cut rates when they see the economy starting to soften.”

Wednesday’s rate announcement will be a one-page affair, with no accompanying economic forecast. Mr. Macklem will deliver a speech the following day in Calgary, his first public comments since the July rate announcement.

Extending the rally seen over the past several sessions, the price of crude oil showed another significant move to the upside during trading on Friday.

Crude for October delivery surged $1.92 or 2.3 percent to $85.55 a barrel, closing higher for the seventh straight session. The price of crude oil soared 7.2 percent for the week.

The extended spike in oil prices came amid ongoing concerns about tight supplies, with OPEC+ expected to extend their output cuts.

Russia indicated it may continue its voluntary cut on crude exports until next month, while traders expect a similar announcement from Saudi Arabia.

A report released earlier this week showing a continued slump in U.S. crude oil inventories also continued to support oil prices.

Oil may also have benefitted from a Labor Department report showing stronger than expected job growth in August but an unexpected increase in the unemployment rate.

While the job growth points to continued strength in the economy, the increase in the unemployment rate has added to optimism the Federal Reserve will leave interest rates unchanged later this month.

Oil prices rose on Friday to their highest in over half a year and snapped a two-week losing streak, buoyed by expectations of tightening supplies.

Saudi Arabia is widely expected to extend a voluntary 1 million barrel per day oil production cut into October, prolonging supply curbs engineered by the Organization of the Petroleum Exporting Countries (OPEC) and allies, known collectively as OPEC+, to support prices.

Russia, the world’s second-largest oil exporter, has already agreed with OPEC+ partners to cut oil exports next month, Deputy Prime Minister Alexander Novak said on Thursday.

Brent crude settled up $1.66, or 1.9 per cent, at $88.49 a barrel. Earlier it gained to a session high of $88.75 a barrel, the highest since Jan. 27.

U.S. West Texas Intermediate crude (WTI) had risen $1.39, roughly 1.7 per cent, to $85.02. It rose earlier to $85.81, the highest since Nov. 16.

Brent rose about 4.8 per cent this week, the most it has increased in a week since late July. WTI advanced by 7.2 per cent in the week, its biggest weekly gain since March.

“There is a realization the economy is not falling off the map, and signs that demand is near record highs,” said Price Futures Group analyst Phil Flynn. “People have to face the cold, hard reality that supplies are below average.”

The appetite for oil in the United States has been robust, with commercial crude inventories declining in five of the most recent six weeks, according to surveys conducted by the U.S. Energy Information Administration.

A keenly watched U.S. report on Friday also showed a rise in the unemployment rate and moderation in wage growth, bolstering expectations of a pause in interest rate hikes.

Meanwhile, expectations for demand recovery elsewhere are growing.

A downturn in euro zone manufacturing eased last month, suggesting the worst may be over for the bloc’s beleaguered factories, while an unexpected rebound in China offered some hope for export-reliant economies, private surveys showed.

Both OPEC and the International Energy Agency are depending on the world’s biggest oil importer, China, to shore up oil demand over the rest of 2023, but the sluggish recovery of the country’s economy has investors concerned.

The remainder of this year promises to bring supply shortage, partly owing to reasonably healthy global consumption and partly because of the Saudi determination to provide a high price floor, said Tamas Varga of oil broker PVM.

“Unless the Chinese economy stages a confident revival next year, the mood will sour markedly,” he said.

In an indication of future supply, U.S. oil rigs were unchanged at 512 this week, the measure holding at its lowest level since February 2022, energy services firm Baker Hughes said on Friday.

Published: 9/1/2023 5:39 AM ET

Gold inched higher on Friday and was on track for a weekly gain, as the dollar weakened and bond yields dipped on growing expectations that the Federal Reserve is done with raising rates.

Spot gold edged up 0.2 percent to $1,944.30 per ounce, while U.S. gold futures were up 0.3 percent at $1,970.75.

Recent data from the U.S. has been on the soft side, prompting traders to dial back rate-hike bets for the Fed’s September, November and December meetings.

The monthly jobs report along with a report on manufacturing activity may attract some attention in the New York session.

Economists expect U.S. employment to increase by 170,000 jobs in August after an increase of 187,000 jobs in July. The unemployment rate is expected to remain at 3.5 percent.

On Thursday, Fed Bank of Atlanta President Raphael Bostic said that U.S. monetary policy is already tight enough to bring inflation back down to 2 percent over a “reasonable” period.

OPINION

Weaker-than-expected second-quarter gross domestic product data this morning has money markets pricing in stronger odds that the Bank of Canada is done hiking rates for this economic cycle.

Canada’s economy unexpectedly contracted in the second quarter at an annualized rate of 0.2%, while real GDP was most likely unchanged in July after a 0.2% fall in June, Statistics Canada said Friday.

The second-quarter reading was far lower than the Bank of Canada’s forecast for a 1.5% annualized GDP growth as well as the 1.2% gain expected by analysts.

The quarterly slowdown was largely due to declines in housing investment, smaller inventory accumulation, as well as slower international exports and household spending, Statistics Canada said.

The month-over-month decline in June was in line with forecasts. Statscan also downwardly revised May GDP growth to a 0.2% increase from an initial report of 0.3% growth. First-quarter annualized growth rate was also downwardly revised to 2.6% from 3.1%.

Friday’s GDP report is the last major piece of domestic data before the Bank of Canada makes its next policy decision next week.

Credit markets have quickly reassessed the odds that the bank will further hike interest rates at next week’s meeting and they are now signalling very strong odds – about 91% – that the BoC will hold rates steady, according to Refinitiv Eikon data that’s based on implied probabilities in the swaps market. That’s up from about 79% odds of no change prior to the 0830 am ET GDP release.

Here’s a detailed look at how money markets are pricing in further moves in the Bank of Canada overnight rate, as of 0840 am ET. The current Bank of Canada overnight rate is 5%. While the bank moves in quarter point increments, credit market implied rates fluctuate more fluidly and are constantly changing. Columns to the right are percentage probabilities of future rate moves.

Beyond the September meeting, money markets are also now pricing in much stronger odds that the bank won’t hike rates any further through the course of this year and next. By next June, money markets are now pricing in nearly 50% odds that the bank would have implemented a rate cut.