Author: Consultant

Oil prices slipped on Monday as investors continued to focus on the situation in the Middle East, where diplomatic efforts are intensifying in an attempt to contain the conflict between Israel and Hamas.

Brent crude futures fell 63 cents, or 0.7%, to $91.53 a barrel, as of 9:41 a.m. ET. U.S. West Texas Intermediate crude futures were down 76 cents, or 0.8%, at $87.31 a barrel.

Both benchmarks traded over $1 a barrel lower than their previous settlement price at their nadir in Monday’s session.

The intensification of diplomatic efforts to prevent the Israel-Hamas conflict from further escalation could have calmed oil prices on Monday.

“Recent diplomatic developments helped ease tensions, bringing some hope of a de-escalation in the war,” said ActivTrades analyst Ricardo Evangelista.

European Union leaders will call for a “humanitarian pause” in the conflict this week so that aid can reach Palestinians in Gaza, with the leaders of France and the Netherlands set to visit Israel this week.

Aid convoys started to arrive in the Gaza Strip from Egypt over the weekend.

U.S. President Joe Biden, who visited Israel last week, had calls on Sunday with the leaders of Canada, France, Britain, Germany and Italy.

“There is some relief in the oil market that Israel is holding off on a planned ground incursion of northern Gaza to negotiate a release of hostages, which opens up a window for diplomacy,” added Vandana Hari of Vanda Insights.

But Israel continued its bombardment of Gaza on Monday after launching air strikes over southern Lebanon overnight.

Both oil benchmarks notched 1% week-on-week gains for the last two weeks, on fears of potential supply disruption in the Middle East — the world’s biggest oil-supplying region — if the conflict were to spread.

“Escalating wrath in the region will strengthen economic headwinds, potentially rising oil prices will push global inflation higher, monetary tightening could resume, and global oil demand growth will be dented,” said PVM analyst Tamas Varga.

Elsewhere, Norway’s crude production fell to 1.64 million barrels per day (bpd) in September according to Norwegian Petroleum Directorate (NPD) data released on Monday, down from 1.79 million bpd in August and below forecasts of 1.73 million bpd.

The Bank of Canada is widely expected to hold the line on interest rates this week after inflation fell unexpectedly in September while economic growth continues to flounder.

Until a week ago, the jury was out on whether Governor Tiff Macklem and his team would increase borrowing costs again on Oct. 25. Inflation had been ticking higher over the summer, and Canada’s top central bankers were sending hawkish signals that more tightening might be needed to get rising prices under control.

A string of data releases published last week appear to have settled the case in favour of keeping the policy rate at five per cent on Wednesday, according to analysts and bond traders.

Soft retail-sales data from August showed that Canadians are feeling the pinch of higher interest rates and cutting back on spending. Meanwhile, the central bank’s quarterly business survey found that companies are gloomy about future sales, and plan to curb hiring and investment. These are positives from the Bank of Canada’s perspective, as it tries to slow the economy to reduce upward pressure on prices.

Most importantly, the inflation rate fell to 3.8 per cent in September from four per cent in August, Statistics Canada said last week. That’s still nearly twice the central bank’s two-per-cent Consumer Price Index inflation target. But it came in below Bay Street forecasts and marked a reversal after two months of accelerating price growth.

“Inflation has surprised on the upside relative to the central bank’s last forecasts in July. But most of that was driven by rising energy inflation more recently as global oil prices edged higher,” Royal Bank of Canada economists Nathan Janzen and Claire Fan wrote in a note to clients.

“The latest CPI data for September also looked decidedly better, with slower growth in the BoC’s preferred ‘core’ measures breaking a string of upside surprises.”

Interest-rate swaps, which capture market expectations about monetary policy, are pricing in a roughly 15-per-cent chance that the Bank of Canada raises interest rates this week, according to Refinitiv data. That’s down from around 40 per cent before the CPI report. Of 32 economists polled by Reuters, 29 expect the central bank to stand pat this week.

A sharp rise in global bond yields in recent months has already pushed up borrowing costs for households, businesses and governments.

Mr. Macklem told reporters two weeks ago that higher bond yields don’t necessarily preclude further rate hikes by the Bank of Canada. But other central bankers, including top officials at the U.S. Federal Reserve, have argued in recent weeks that higher long-term rates may be a proxy for more central bank moves.

“Make no mistake, the recent rise in bond yields is indeed a substitute for a rate hike,” Royce Mendes, head of macro strategy at Desjardins, wrote in a note to clients. “So while data on businesses and households has been mixed, there’s little question that financial conditions have tightened enough to offset any unanticipated strength in the economy.”

The Bank of Canada has raised interest rates 10 times since March, 2022, in the most aggressive campaign of monetary-policy tightening in decades. After two rate hikes over the summer, it held its policy rate steady in September but left the door open to additional rate hikes if inflation remains high and the economy doesn’t slow as much as expected.

Economists have been surprised by how resilient the Canadian economy has been to the interest-rate shocks over the past year and a half. However, the evidence is increasingly clear that higher borrowing and debt-service costs are taking a toll.

Gross domestic product contracted slightly in the second quarter and appears to have flatlined through the summer. The housing market has entered another slump, and the unemployment rate has moved up since the spring – albeit from a low starting point – while job vacancies have fallen.

“In contrast to the clouds of uncertainty hanging over the inflation outlook, we see considerably less ambiguity around the near-term path for GDP growth,” a group of Toronto-Dominion Bank rate strategists, led by Robert Both and Andrew Kelvin, wrote in a note to clients.

“The growth outlook has weakened substantially since the [central] bank published its July Monetary Policy Report, and while our base case remains a soft(ish) landing, there is very little to cushion against further growth shocks,” they said.

The Bank of Canada will publish a new economic forecast alongside its rate decision on Wednesday. Mr. Macklem said two weeks ago that the bank was “not going to be forecasting a serious recession.”

The bank’s most recent forecast from July shows economic growth stalling through the remainder of 2023 and the first half of next year. It projects inflation won’t return to two per cent until the middle of 2025.

While the economy appears to be shifting into a lower gear, analysts expect Mr. Macklem to maintain a hawkish tone on Wednesday, keeping the possibility of further rate hikes on the table. That’s because several key indicators the central bank is watching to determine future inflation aren’t co-operating.

Average hourly wages are growing at around five per cent annually, a pace that Mr. Macklem says is “not consistent” with price stability. Meanwhile, Canadian businesses continue to increase prices more frequently and by larger amounts than is normal. And both consumers and companies expect inflation will remain well above the bank’s two-per-cent target for some time – a belief that can feed into inflation itself.

Canada’s main stock index moved lower on Monday, hurt by a sell-off in energy and materials stocks as prices of most commodities fell, while rising government bond yields kept adding pressure on equities.

At 9:31 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 124.57 points, or 0.65%, at 18,991.07.

All eyes will be on the Bank of Canada’s interest rate decision, due Wednesday. The central bank is expected to hold rates at a 22-year high of 5.00%, according to a majority of economists polled by Reuters.

It follows last week’s data that showed Canada’s retail sales fell by 0.1% in August from July and look set to stay flat in September, cementing hopes of a pause in interest rates.

View from the Street: Monday’s analyst upgrades and downgrades

Wall Street’s main indexes also fell at the open on Monday as the yield on the benchmark U.S. 10-year Treasury note hit the crucial 5% mark, while investors awaited earnings from the world’s largest technology companies and key economic data.

The Dow Jones Industrial Average fell 134.26 points, or 0.41%, at the open to 32,993.02.

The S&P 500 opened lower by 13.76 points, or 0.33%, at 4,210.40, while the Nasdaq Composite dropped 52.96 points, or 0.41%, to 12,930.85 at the opening bell.

The yield on the 10-year note touched the July 2007 milestone that it briefly attempted to scale last week. It was last at 4.9844%. Yields on the 2-year and 30-year notes also rose.

“This continued (economic) strength has cast doubt over whether interest rates really have peaked, even if the Fed does still look very likely to leave rates unchanged,” said Rupert Thompson, chief economist at Kingswood Group.

“Upward pressure on yields has also comes from increased concern over the large amount of government debt needing to be absorbed by the market.”

Focus will remain on the largely positive earnings season. Four of the ‘Magnificent Seven’, which have helped power the S&P 500 higher in 2023 while the other indexes lagged, report later this week.

Of the 86 companies in the S&P 500 that have reported earnings so far in the third quarter, 78% have been above analysts’ estimates, according to the LSEG data.

Chipmaker Intel, oil major Exxon Mobil, General Motors are among other major companies set to report results this week.

Meanwhile, Israel bombarded Gaza and also struck southern Lebanon overnight, in signs that the conflict was spreading.

The rising tensions, along with surging bond yields on expectations of higher rates, pulled Wall Street lower last week. The S&P 500 fell 1.26% while the Cboe Volatility index closed at its highest since March 24.

U.S. GDP print, expected on Thursday, will be closely monitored amid expectations that the economy expanded at a robust 4.2% in the third quarter, which might warrant tighter monetary policy.

Federal Reserve Chair Jerome Powell will give brief introductory remarks at an event on Wednesday. He will refrain from speaking on monetary policy since the blackout period for the Oct. 31-Nov. 1 Federal Open Market Committee meeting kicked in over the weekend.

Investors will also track the personal consumption expenditure (PCE) price index – the Fed’s preferred inflation gauge – for September at the end of this week.

Calendar: What investors need to know for the week ahead

Salesforce dipped 1.9% in early trading as Piper Sandler downgraded to “neutral” from “overweight,” while pharmacy chain operator Walgreens Boots Alliance added 1.4% after J.P. Morgan upgraded it to “overweight.”

Chevron fell 2.3% after the energy major said it would buy smaller rival Hess Corp in a $53 billion all-stock deal. Hess was nearly flat.

Shares of Coinbase, Riot Platforms, Marathon Digital and Bitfarms were up between 2.4% and 2.9% as Bitcoin hit over a three-month high.

Oil prices slipped on Monday as investors continued to focus on the situation in the Middle East, where diplomatic efforts are intensifying in an attempt to contain the conflict between Israel and Hamas.

Brent crude futures fell 41 cents, or 0.44%, to $91.75 a barrel. U.S. West Texas Intermediate crude futures were down 55 cents, or 0.62%, at $87.53 a barrel.

Both benchmarks traded over $1 a barrel lower than their previous settlement price at their nadir in Monday’s session.

The intensification of diplomatic efforts to prevent the Israel-Hamas conflict from further escalation could have calmed oil prices on Monday.

“Recent diplomatic developments helped ease tensions, bringing some hope of a de-escalation in the war,” said ActivTrades analyst Ricardo Evangelista.

European Union leaders will call for a “humanitarian pause” in the conflict this week so that aid can reach Palestinians in Gaza, with the leaders of France and the Netherlands set to visit Israel this week.

Reuters

Canada’s main banking regulator has directed lenders to hold more capital against mortgages that have seen their repayment terms extend beyond the original terms due to the record pace of interest rate hikes, to contain risks building in the system.

The country’s nearly $2-trillion mortgage market has been shaken up by the central bank’s interest rate hikes, with many homeowners only able to make interest payments, resulting in their mortgage repayment terms getting longer. This rare phenomenon, called the negative amortization, has had the regulator worried about the financial health of the banks.

The Office of the Superintendent of Financial Institutions (OSFI) announced revised capital guidelines, which kicks in next year, “will require institutions to hold more capital for mortgages where payments don’t cover the interest portion of the loan (i.e., negatively amortizing mortgages),” the regulator said in a statement on Friday.

“We believe these incremental changes add additional resilience to Canada’s financial system,” Superintendent Peter Routledge said.

To deal with the rising risks in mortgage loans, the top six banks have jointly set aside about $3.5-billion towards bad debt provisions in their latest quarterly earnings, denting their profits.

During the first nine months of the fiscal year, the banks have set aside $9.45-billion, more than four-times the amount set aside in the prior year.

Among the top six banks, Bank of Montreal, Canadian Imperial Bank of Commerce, Royal Bank of Canada and Toronto Dominion offer fixed-payment variable rate mortgage options. Bank of Nova Scotia and National Bank of Canada’s variable-rate offerings have payments that adjust upward with rates.

The Bank of Canada’s has raised interest rate to a 22-year high of 5 per cent which has pushed up variable-rate mortgages. In cases where the repayments are fixed, they largely go toward the interest portion of the loan and sometimes do not ever cover the interest owed.

The rise in global bond yields have made it more uncertain for homeowners as they brace for a shock interest rate jump in their mortgages when it is time for renewal.

OSFI has made changes to including its Capital Adequacy Requirements, Life Insurance Capital Adequacy Test, Minimum Capital Test, and Mortgage Insurer Capital Adequacy Test.

Fitch in a recent note said that the change can be “comfortably absorbed,” impacting common equity tier 1 ratios by less than 2 per cent of the average third quarter average of 13.5 per cent for the four banks with exposure.

The changes will not lead to an increase in monthly payments for consumers who currently have a mortgage, OSFI said.

For banks with a fiscal year end of Oct. 31, the revised CAR guideline is effective Nov. 1, 2023.

Shares of the big six banks have lost between roughly 3 per cent and 12 per cent of their value so far this year.

Monday October 23

Euro zone consumer confidence

(8:30 a.m. ET) U.S. Chicago Fed National Activity Index for September.

(2 p.m. ET) U.S. budget balance for September.

Earnings include: PrairieSky Royalty Ltd.; TFI International Inc.

—

Tuesday October 24

Japan and euro zone PMI

(8:30 a.m. ET) Canada’s new housing price index for September. Analyst estimate is flat month-over-month and down 0.8 per cent year-over-year.

(9:45 a.m. ET) U.S. S&P Global PMIs for October.

Earnings include: Alphabet Inc.; Canadian National Railway Co.; Coca-Cola Co,; Danaher Corp.; General Electric Co.; General Motors Co.; Halliburton Co.; Microsoft Corp.; Morguard North American Residential; Neighbourly Pharmacy Inc.; Nucor Corp.; Teck Resources Ltd.; Texas Instruments Inc.; Verizon Communications Inc.; Visa Inc.; 3M Inc.

—

Wednesday October 25

(10 a.m. ET) Bank of Canada policy announcement and Monetary Policy Report release with Governor Tiff Macklem’s press conference to follow.

(10 a.m. ET) U.S. new home sales for September. The Street is projecting an annualized rate increase of 1.2 per cent.

(4:35 p.m. ET) U.S. Fed Chair Jerome Powell delivers the opening remarks at the Moynihan Lecture in Social Science and Public Policy in Washington.

Earnings include: Agnico Eagle Mines Ltd.; Alamos Gold Inc.; Allied Properties REIT; Boeing Co.; Canfor Corp.; Celestica Inc.; Champion Iron Ltd.; IBM; Meta Platforms Inc.; Methanex Corp.; New Gold Inc.; Tamarack Valley Energy Ltd.; Thermo Fisher Scientific Inc.; T-Mobile US Inc.; Waste Connections Inc.; West Fraser Timber Co Ltd.; Whitecap Resources Inc.

—

Thursday October 26

ECB policy announcement with President Christine Lagarde’s press conference to follow

(8:30 a.m. ET) Canada’s Survey of Employment, Payrolls and Hours for August.

(8:30 a.m. ET) Canadian manufacturing sales for September.

(8:30 a.m. ET) U.S. initial jobless claims for week of Oct. 21. Estimate is 209,000, up 11,000 from the previous week.

(8:30 a.m. ET) U.S. real GDP and GDP deflator for Q3. Consensus forecasts are annualized rate rises of 4.4 per cent and 2.5 per cent, respectively.

(8:30 a.m. ET) U.S. goods trade deficit for September.

(8:30 a.m. ET) U.S. wholesale and retail inventories for September.

(8:30 a.m. ET) U.S. durable and core orders for September. The Street expects rises of 1.4 per cent and 0.1 percent from August, respectively.

(10 a.m. ET) U.S. pending home sales for September. Consensus is a month-over-month decline of 1.0 per cent.

(11 a.m. ET) U.S. Kansas City Manufacturing Activity Survey for October.

Earnings include: Advantage Oil & Gas Ltd.; Amazon.com Inc.; Atco Ltd.; Bristol-Myers Squibb Co.; Canadian Utilities Ltd.; Caterpillar Inc.; Eldorado Gold Corp.; FirstService Corp.; Ford Motor Co.; Honeywell International Inc.; Intel Corp.; Mastercard Inc.; Merck & Co. Inc.; Newmont Goldcorp Corp.; Shopify Inc.; United Parcel Services Inc.; Winpak Ltd.

—

Friday October 27

China industrial profits

Japan CPI

(8:30 a.m. ET) Canadian wholesale trade for September.

(8:30 a.m. ET) U.S. personal spending and income for September. The consensus projections are month-over-month increases of 0.5 per cent and 0.4 per cent, respectively.

(8:30 a.m. ET) U.S. core PCE price index for September. The Street expects a rise of 0.3 per cent from August and 3.7 per cent year-over-year.

(10 a.m. ET) U.S. University of Michigan Consumer Sentiment Survey for October.

Also: Ottawa’s budget balance for August.

Earnings include: AbbVie Inc.; Allkem Ltd.; Chevron Corp.; Exxon Mobil Corp.; Fortis Inc.; Imperial Oil Ltd.

Stocks retreated Friday as a surge in the 10-year Treasury yield prompted broader concerns about the state of the economy.

The S&P 500 shed 1.26% to 4,224.16 and registered its first losing week in three. The Nasdaq Composite dropped 1.53% to 12,983.81. The Dow Jones Industrial Average lost 286.89 points, or 0.86%, to end at 33,127.28, dragged down in the session by American Express following a mixed earnings report.

The yield on the benchmark 10-year Treasury crossed 5% for the first time in 16 years on Thursday, a level that could ripple through the economy by raising rates on mortgages, credit cards, auto loans and more. Not to mention, it offers investors an attractive alternative to stocks.

https://www.cnbc.com/2023/10/19/stock-market-today-live-updates.html

https://www.foxnews.com/live-news/october-20-israel-hamas-war

 Published: 10/20/2023 4:24 PM ET

Extending the pullback seen over the two previous sessions, Canadian stocks showed a significant move to the downside during trading on Friday.

After coming under pressure early in the session, the benchmark the benchmark S&P/TSX Composite Index saw further downside in late-day trading before closing down 233.17 points or 1.2 percent at 19,115.64.

Concerns about the recent surge in treasury yields continued to weigh on Canadian stocks, with the yield on the U.S.’ benchmark ten-year note climbed above 5 percent for the first time since July 2007.

The recent advance by yields reflects ongoing worries about the outlook for interest rates, with the Federal Reserve signaling rates will remain higher for longer than previously anticipated.

Fears the Israel-Hamas war may escalate into a broader regional crisis also contributed to the negative sentiment on Bay Street.

Israeli Defense Minister Yoav Gallant told troops gathered at the Gaza border on Thursday that they would soon see the Palestinian enclave “from inside.”

Additionally, reports emerged that U.S. troops are being targeted at several military bases across Iraq and Syria, while a U.S. Navy warship destroyed cruise missiles and drones fired toward Israel by Houthi rebels in Yemen.

Telecom stocks turned in some of the market’s worst performances on the day, with the S&P/TSX Capped Communications Index plunging by 2.1 percent.

Financial, utilities and real estate stocks also saw considerable weakness, while energy stocks came under pressure amid a downturn by the price of crude oil.

In Canadian economic news, a report from Statistics Canada said Canadian retail sales edged down 0.1 percent to C$66.1 billion in August.

Statistics Canada said sales were down in six of nine subsectors and were led by decreases at motor vehicle and parts dealers.

Core retail sales, which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers, fell by 0.3 percent during the month.