Author: Consultant

• Russia has yet to decide if it will extend the terms of the Black Sea Grain Initiative, which is set to expire on Monday.
• Under the deal, more than 1,000 ships carrying nearly 33 million metric tons of agricultural products have departed from Ukrainian ports.

WASHINGTON — A landmark agricultural deal brokered between Ukraine and Russia is set to expire on Monday, a revelation that is expected to further exacerbate the global fallout of the Kremlin’s ongoing war if Moscow refuses to renew the agreement.

Last week, Secretary-General Antonio Guterres sent a letter to Russian President Vladimir Putin outlining proposals to salvage the deal. On Friday, U.N. spokesman Stephane Dujarric told reporters that conversations with the Kremlin via Signal and WhatsApp would continue over the weekend.

Moscow maintains that the current agreement only supports Ukrainian agricultural products and not Russian fertilizer exports which are also included in the deal but have yet to depart for global destinations.

On Thursday, Putin reiterated Moscow’s position and threatened for the fourth time since the inception of the agreement to not renew it.

A Ukrainian serviceman stands in front of silos of grain from Odesa Black Sea port, before the shipment of grain as the government of Ukraine awaits signal from UN and Turkey to start grain shipments, amid Russia’s invasion of Ukraine, in Odesa, Ukraine July 29, 2022. REUTERS/Nacho Doce

Nacho Doce | Reuters

Before Russian troops poured over Ukraine’s borders in late February 2022, Kyiv and Moscow accounted for almost a quarter of global grain exports. Those agricultural shipments came to a halt for nearly six months until representatives from Ukraine, Russia, the U.N. and Turkey agreed to establish a humanitarian sea corridor under the Black Sea Grain Initiative.

The deal, which was brokered last July, eased Russia’s naval blockade with the reopening of three key Ukrainian ports.

Under the deal, more than 1,000 ships carrying nearly 33 million metric tons of agricultural products have departed from Ukraine’s war-weary ports of Odesa, Chornomorsk and Yuzhny-Pivdennyi.

The agreement has also overseen the transport of 725,167 tons of wheat to sail on World Food Program ships to some of the world’s most food-insecure countries, such as Afghanistan, Ethiopia, Somalia, Sudan and Yemen.

The U.N.-backed organization responsible for tracking exports under the deal said in an update on Saturday that for nearly three months, no ships have sailed from Ukraine’s port of Yuzhny-Pivdennyi. What’s more, no new vessels have been approved to depart Ukraine for the past two weeks.

‘Not the deal we agreed to’

Russian President Vladimir Putin and Moscow’s top diplomat Sergei Lavrov both blamed the West for creating global insecurity and instability.

Sean Gallup

In April, Russian Foreign Minister Sergey Lavrov warned that if the Black Sea Grain Initiative did not soon incorporate fertilizer products, Moscow would not renew the agreement.

“It was not called the grain deal it was called the Black Sea Initiative and in the text itself the agreement stated that this applies to the expansion of opportunities to export grain and fertilizer,” Lavrov told reporters during an April 26 press conference at the U.N.

“That’s not the deal we agreed to on July 22,” he said, adding that there are dozens of Russian ships loaded with approximately 200,000 tons of fertilizer waiting for export. In addition to the inclusion of fertilizer exports, the Kremlin has also requested the resumption of a pipeline that weaves through Russia and ends at a Ukrainian port.

One of Moscow’s top demands though is for the Russian Agricultural Bank, or Rosselkhozbank, to return to the SWIFT banking system. 

Moscow’s exclusion from SWIFT, which stands for the Society for Worldwide Interbank Financial Telecommunication, severed the country from much of the world’s financial networks in the days following Russia’s full-scale invasion.

WATCH NOW

VIDEO02:43

Wheat prices to ‘spike again’ if Black Sea grain deal is not renewed: Strategist

Monday July 17

China second quarter GDP and June industrial production and retail sales data.

Italy releases consumer price index for June.

G20 finance ministers and central bank governors meeting in India (July 15-18)

(830 am ET) Canada wholesale trade data for May.

(830 am ET) Canada international securities transactions for May

(830 am ET) Canada new motor vehicle sales for May. It’s expected to be up 13.5% year over year

(830 am ET) U.S. Empire State Manufacturing Survey for July.

Earnings include: PrairieSky Royalty, Platinum Group Metals

Tuesday July 18

(815 am ET) Canada housing starts for June. They are expected to rise 5% to an annualized rate of 212,600 after contracting 22.5% the month before

(830 am ET) Canada consumer price index for June. Consensus is for a monthly rise of 0.3%, or 3% year over year. Those would be lower than May’s readings of 0.4% and 3.4%, respectively.

(830 am ET) Canada industrial product price index for June.

(830 am ET) U.S. retail sales for June. Consensus is for a rise of 0.5%, or 0.3% when autos are excluded.

(915 am ET) U.S. industrial production for June. Consensus is for a rise of 0.1%.

(10 am ET) U.S. NAHB housing market index

(10 am ET) U.S. business inventories

Earnings include: Bank of America, Morgan Stanley, Lockheed Martin, Charles Schwab, Mueller Industries, Goodfood Market

Wednesday July 19

Euro area CPI for June. It’s expected to be up 5.5% from a year earlier, easing from the previous month’s 6.1% rate. UK CPI is also due out, with expectations for inflation to slow to a 8.2% year over year rate from 8.7% a month earlier.

(830 am ET) Canada construction investment for May.

(830 am ET) U.S. housing starts. Consensus is for a 9.7% drop to 1.47 million annualized. Building permits also to be released.

Earnings include: Tesla, Netflix,, IBM, Goldman Sachs, Las Vegas Sands, Baker Hughes, Kinder Morgan, Haliburton, Equifax, Nasdaq, Steel Dynamics, United Airlines Holdings, Alcoa, Johnson Matthey, A&W Revenue Royalties Income Fund

Thursday July 20

Japan trade deficit and machine tool orders

Euro area consumer confidence. Germany producer price index, and France business confidence.

(830 am ET) Canada household credit.

(830 am ET) U.S. initial jobless claims for previous week. They are expected to rise by 7,000 to 244,000.

(830 am ET) Philadelphia Fed Index.

(10 am ET) U.S. existing home sales for June. Consensus is for a 2% decline to a 4.22 million annualized rate.

(10 am ET) U.S. leading indicator.

Earnings include: Johnson & Johnson, Abbott Labs, Philip Morris, Intuitive Surgical, Blackstone Group, CSX, Freeport-McMoran, Newmont Goldcorp, Capital One Financial, Travelers, American Airlines, West Fraser Timber, Alaska Air, Kimberly-Clark, Choice Properties REIT, Mullen Group, Enterprise

Friday July 21

Japan CPI for June

France retail sales for June, plus UK consumer confidence and retail sales

(830 am ET) Canada retail sales for May. Consensus is for a rise of 0.5%, or 0.2% excluding autos.

(830 am ET) Canada new housing price index for June. It’s expected to be down 0.6% year over year.

Earnings include: American Express, Schlumberger

• The bad news just keeps coming for China’s ailing economy.
• Exports tanked 12% in June, according to data released Thursday.
• Slumping growth and deflationary risks are also sparking concern.

China’s plan for a swift post-pandemic revival looks likely to be scuppered by a growing number of red flags, including deflation and sputtering growth.

Beijing finally curtailed three years of harsh zero-COVID lockdowns late last year, but its economy has subsequently run into significant turbulence that’s sparking alarm across the world.

Taken alone, headline figures still suggest robust growth, with the country’s Gross Domestic Product likely to rise 7.3% in the second quarter, according to a Reuters poll.

See More

There are other signs that China’s economic reboot is faltering, too:

• Factory activity is shrinking, according to the manufacturing Purchasing Managers’ Index, which has shown output contracting three months in a row.
• Data released Thursday also showed exports falling 12.4% from a year ago, badly underperforming economists’ expectations. Making goods and then sending them abroad is a huge engine for Chinese growth.
• Earlier this week, China also announced that its inflation rate was 0% – meaning it’s now teetering on the edge of deflation. That could mean people start to spend less, holding off on buying things with the expectation that they’ll soon become cheaper.
• Foreign direct investment in China has also dried up, with spending from outside China dropping by $20 billion, or a sixth, year-on-year, per data from the Wall Street Journal.

It’s a growing list of concerns that makes grim reading for Beijing, whose dreams of a smooth revival have quickly turned nightmarish.

The producer price index for June had a smaller than expected increase, the Labor Department reported Thursday, in the latest sign that inflation is calming in the United States.

The PPI for final demand rose 0.1%. Economists surveyed by Dow Jones were expecting a rise of 0.2%. PPI rose 0.1% when excluding food, energy and trade services, which was in line with expectations.

The producer report comes a day after the consumer price index showed a smaller-than-expected increase. The CPI rose just 3% year over year, its lowest since March 2021, bolstering hopes for investors that the Federal Reserve is near the end of its rate-hiking cycle.

The wholesale producer numbers have declined faster than the consumer inflation data. In May, the headline PPI number actually declined 0.4%, and was unchanged when excluding food, energy and trade services.

• Dollar value of China’s exports plunged 12.4% in June from a year ago, a far bigger drop than expectations for a 9.5% decline in a Reuters poll and the 7.5% annual decline in May.
• Imports declined 6.8%, in June from a year ago, also worse than expectations for a 4% decline and the 4.5% annual decline in May.

China’s exports record biggest decline in more than 3 years (cnbc.com)

The Bank of Canada has increased its benchmark interest rate to 5 per cent and pushed out the timeline for getting consumer prices under control, warning that the downward momentum of inflation could stall over the next year as the economy proves surprisingly resilient to higher borrowing costs.

The quarter-point increase, which was widely expected by analysts, brings the policy rate to a level last seen in April, 2001. This will further squeeze Canadians’ finances and push up costs for mortgage holders.

In an updated forecast, the central bank said it expects the annual rate of inflation to remain around 3 per cent for the next year, declining to the bank’s 2-per-cent target by the middle of 2025.

“This is a slower return to target than was forecast in the January and April projections,” the bank said in its rate announcement. “Governing council remains concerned that progress towards the 2-per-cent target could stall, jeopardizing the return to price stability.”

The bank gave no hints about future rate decisions but left the door open to further hikes.

“We are trying to balance the risks of over- and under-tightening,” Bank of Canada governor Tiff Macklem said in a news conference after the decision. “If new information suggests we need to do more, we are prepared to increase our policy rate further. But we don’t want to do more than we have to.”

Canadian bond yields fell after the announcement, suggesting that markets were expecting a more explicit signal about further rate hikes.

Mr. Macklem and his team are grappling with the surprising strength of the Canadian economy. Many analysts expected the economy to be in a recession by now, squeezed by the most aggressive interest rate increases in a generation. However, consumer spending, job creation and the housing market have turned out to be less responsive to rate hikes than anticipated.

Mortgage calculator: Here’s how rising interest rates affect the cost of your mortgage

The bank raised its economic growth forecast for 2023 to 1.8 per cent from a previous forecast of 1.4 per cent. It expects GDP growth to slow to around 1 per cent in the second half of this year and first half of next year, but predicts the economy will avoid an outright contraction or recession.

The resilience of the economy has been good for many workers and businesses. But it’s become a headache for central bankers, who are intentionally trying to slow spending and investment to reduce upward pressure on prices and stabilize the purchasing power of the Canadian dollar.

“Today’s move can be characterized as a moderately hawkish hike, in that the BoC is certainly not closing the door on the possibility of further moves,” Bank of Montreal chief economist Doug Porter wrote in a note to clients.

“While we are not looking for further hikes this year, we are tweaking our rate call in light of the Bank’s view on growth and inflation – we now see rate cuts beginning only in the second quarter of 2024, one quarter later than our prior view,” he wrote.

The bank paused its monetary policy tightening campaign in January, betting that it had raised interest rates enough to bring inflation down over time. Interest rate increases work with a lag, and Canada’s highly indebted economy was thought to be more sensitive to rising debt-servicing costs than many other economies.

By June, this “conditional pause” seemed untenable. Consumer spending grew a massive 5.8 per cent in the first quarter and house prices began to rebound through the spring. Meanwhile, Canadian employers added almost 300,000 jobs through the first half of the year, keeping the unemployment rate near a record low.

“We have been surprised by the persistence of excess demand and underlying inflation in Canada and globally. We know that higher rates are having an impact, but how big their impact will be is uncertain,” Mr. Macklem told reporters.

Consumer price index inflation has come down significantly, reaching 3.4 per cent in May from a four-decade high of 8.1 per cent last summer. But most of this decline has come from year-over-year comparisons in the price of oil, which spiked after Russia’s invasion of Ukraine last year and has moderated since then.

Core measures of inflation, which strip out more volatile energy and food prices, have been stickier, with three-month rates averaging around 3.5 to 4 per cent. That suggests the next leg down in inflation could take longer than previously expected.

“With the downward momentum in inflation waning and our forecast suggesting inflation will be around 3 per cent for the next year, we are concerned that the progress to price stability could stall, and inflation could even rise again if there are upside surprises,” Mr. Macklem said.

The bank pointed to several factors behind the surprisingly strong demand in the economy, including high population growth, a tight labour market, accumulated savings and spending by federal and provincial governments.

The Bank of Canada raised interest rates to five per cent, hitting the economy with higher borrowing costs as new projections suggest it will take longer for inflation to fall back to two per cent. Bank of Canada governor Tiff Macklem said the bank’s assessment was that the cost of delaying action was larger than the benefit of waiting. (July 12, 2023)

Another rate increase means more financial pain for Canadian households, who face higher costs to service their debt.

So far, signs of acute financial strain remain relatively limited, the bank said in a special section of its quarterly Monetary Policy Report, published Wednesday. Delinquency rates are rising but remain below pre-pandemic levels, even for variable-rate mortgage holders who have been squeezed the most by rising interest rates.

But there are some pockets of concern, the bank said.

“Credit card data show that borrowers are using their credit cards more extensively than they have in the past,” it said.

“In addition, although overall delinquency rates on loans remain relatively low, the share of borrowers moving from 60 to 90+ days late on any credit product has risen and is now close to a historical high.”

Many homeowners have been cushioned against rising rates because their lenders have let them extend the amortization periods of their mortgages rather increasing their monthly payments. The bank noted that only one-third of mortgage holders have been affected by higher rates so far.

“As this share increases over the coming quarters, more households will face higher debt-service costs. Mortgage holders with variable-rate fixed payments could be particularly exposed,” the bank said.

The bank’s next interest rate decision is scheduled for Sept. 6.

Prices for sour crude oil have climbed globally this month after top exporter Saudi Arabia hiked prices and expanded production cuts of higher-sulfur oil in the first sign its efforts to prop up global prices is having an impact.

The de facto leader of the Organization of the Petroleum Exporting Countries (OPEC) this month deepened its production cuts to 1 million barrels per day in response to benchmark prices that fell to below $72 a barrel this summer.

“The kingdom’s curbs have had an outsized impact on the supply of medium-and heavy-sour barrels,” Mark Rossano, a partner at energy data provider Primary Vision Network, said.

The increases – seen among North Sea, U.S. and Canadian sour crude grades – have jumped as oil refiners in China, Europe and the U.S. bid up dwindling supplies from sanctions on Russia and Saudi Arabia’s cutbacks, according to traders and brokers.

Also pushing up sour crudes are U.S. government purchases to restock its emergency reserves, production outages from Canadian wildfires, and worries about potential for Atlantic hurricane season to cut production of U.S. sour crude.

Most of Saudi Arabia’s crude oils, such as Arab Light, Medium and Heavy, are sour grades, a type that requires more complex refining and typically trades at a discount to sweet crude, which has lower sulfur content.

But sour prices are no longer cheap. Norway’s medium sour Johan Sverdrup crude climbed on Friday to a record $3.50 per barrel premium to dated Brent, according to traders, compared with a more than $6 discount in December.

U.S. Mars sour crude prices on Thursday of last week also traded at a $2 per barrel premium to U.S. crude futures at Cushing hub, its highest in three years. It traded at a premium to light, sweet WTI Midland at East Houston terminal, something rarely seen before.

Mars also traded at a $3.70 premium to Middle East crude benchmark Dubai, significantly higher than spot Middle Eastern crude.

Western Canadian Select heavy crude, another widely discounted sour grade, traded at the U.S. Gulf Coast on Monday at a $2.30 per barrel discount, compared with a more than $8 per barrel discount as recently as March, according to brokerage CalRock.

Saudi Arabia’s price hike to Asia, the second month in a row, has pushed some Chinese refiners to seek cheaper sour crude alternatives from the spot market, traders and brokers said. This has lifted prices for other sour crudes.

U.S. Gulf Coast refiners, which are mostly configured to run sour crude, likely will purchase more Latin American barrels, said Rohit Rathod, an analyst at energy data provider Vortexa.

“OPEC+ players are pulling back supplies and we are already in a tight market at least for sour crudes.”

Oil benchmark Brent futures breached $80 a barrel for the first time since May on Wednesday after U.S. inflation data suggested the interest rate hike cycle in the world’s biggest economy is set to finally cool.

Data released on Wednesday showed U.S. consumer prices rose modestly in June and registered their smallest annual increase in more than two years as inflation continued to subside.

Markets expect one more interest rate rise, but that the U.S. rate-hiking cycle has likely peaked. Higher rates can slow economic growth and reduce oil demand.

“This is the lowest number since the pandemic … but it is important to keep in mind that this is still a transitory situation. But overall, traders are cheering this event,” said Naeem Aslam, chief investment officer at Zaye Capital Markets, describing the inflation figures.

Brent futures were last up 47 cents at $79.87 a barrel, having risen as high as $80.05 earlier. U.S. West Texas Intermediate (WTI) crude was up 56 cents at $75.39 a barrel.

A weaker dollar, optimism surrounding Chinese stimulus and U.S. stockpile data were also supporting the positive sentiment, said Fiona Cincotta, senior financial markets analyst at City Index.

Meanwhile, forecasts from the U.S. Energy Information Administration (EIA) and the International Energy Agency (IEA) point to the market tightening into 2024.

The IEA expects the oil market to stay tight in the second half of 2023, citing strong demand from China and developing countries combined with supply cuts from leading producers. New forecasts from the IEA are expected this week.

“The oil balance gets tighter either when supply is downgraded, or demand is revised up. If both happens at the same time the change can be seismic,” said PVM analyst Tamas Varga referring to the EIA’s outlook.

“Clearly, it is not worried about inflation-induced recession that could potentially dent global oil consumption.”

Top producer Saudi Arabia pledged last week to extend a production cut of 1 million bpd in August, while Russia will cut exports by 500,000 bpd.

Gold rallied Wednesday after new data showed inflation in the United States was cooling, suggesting the Federal Reserve may only hike interest rates one more time this year.

Spot gold last gained 0.79% to $1,947.39 per ounce, while U.S. gold futures added 0.81% to $1,952.70.

The consumer price index rose just 0.2% in June, compared with forecasts for a gain of 0.3%. On an annual basis, U.S. CPI advanced 4.8%, lower than market expectations for a 5% increase.

Friday’s slower than expected jobs report wasn’t a game changer, but helped shift the mindset of investors, with many now expecting July to mark the end of the current hiking cycle, Evangelista added.

The end to Fed’s current monetary policy tightening cycle is getting close, several U.S. central bank officials also said on Monday. That helps bullion as it does not yield any interest.

Harshal Barot, senior consultant at Metals Focus, said that while a July rate hike is largely priced in, “if we see core inflation still being higher than expected, then I think the expectations of another rate hike coming September will start gaining traction.”