Author: Consultant

• Congress is still in a stalemate on the federal budget as GOP hard-liners refuse to budge on further spending cuts.
• “I don’t know what to think,” said Senate Majority Whip Dick Durbin over the weekend.
• Time is dwindling for lawmakers to reach an agreement or else a government shutdown will take effect on Oct. 1.

Lawmakers over the weekend expressed few signs of movement on a budget resolution that would keep the U.S. government funded for the remainder of the fiscal year, and the clock is ticking.

Current spending laws are due to expire on Sept. 30. That means if Congress does not reach an agreement before 12:01 a.m. on Oct. 1, the government will shut down. House Republicans on Thursday sent the chamber into recess, delaying further developments in the negotiations.

“I don’t know what to think,” said Senate Majority Whip Dick Durbin Sunday on CNN’s “State of the Union.”  

House Speaker Kevin McCarthy, a Republican representative from California, is responsible for piecing together the splintered GOP caucus that is struggling to come to an agreement.

Durbin, D-IL, noted that the Senate had been “moving forward” in negotiating a deal before it was interrupted by disagreement from Republican Congress members and the “inability of the Speaker to get a majority for anything.”

A primary obstacle ahead of McCarthy is a group of Republican hard-liners in the House who refuse to budge on further spending cuts.

“All of a sudden we’re the bad guys because we want to balance our budget,” Tennessee GOP Rep. Tim Burchett said Sunday on CNN’s “State of the Union.”

Burchett is among the House Republicans who are, as he puts it, “sticking to our guns.” He said he would not endorse a short-term bill called a continuing resolution, or CR, which would provide a temporary budget until the government can negotiate a more permanent deal for the new fiscal year.

“I’ve not voted for a CR, a continuing resolution. I didn’t vote for one under President Trump, and I haven’t voted for any in the past,” said Burchett. “You have folks that come to Washington and say, ‘Oh, I’m going to be a fiscal conservative, I’m going to be this,’ and then they’re not.”

Some House representatives have come together in a bipartisan effort to avert a shutdown. Late Wednesday night, the Problem Solvers Caucus, a group of 64 House representatives, equally split between Democrats and Republicans, proposed a budgetary framework endorsed by its members.

“All we’re focused on is keeping the lights on,” New Jersey Democratic Rep. Josh Gottheimer said Sunday on CNN’s “State of the Union.” Gottheimer co-chairs the caucus alongside Republican Rep. Brian Fitzpatrick of Pennsylvania.

But that symbol of bipartisan cooperation has not been enough to rally all 435 members of the House into an agreement.

If Speaker McCarthy is unable to unite his fellow Republicans, he could look across the aisle to secure the votes he needs to pass the budget. But turning to Democratic votes would come with its own wave of political backlash.

Tennessee’s Burchett said that were McCarthy to allow a deal to pass via Democrats’ votes, he would “strongly look at” giving his support to oust the speaker.  

“Our financial ship is sinking,” Burchett said.

A government shutdown would mean paused paychecks for millions of U.S. federal employees and a hiatus of many government services. Investors have also expressed worry about what a shutdown would mean for the fourth fiscal quarter in an already fragile stock market.

“Across the country, so many impacts would be felt. This has to be avoided,” U.S. Transportation Secretary Pete Buttigieg said Sunday on CNN’s “State of the Union.”

nflation staying stuck above the Fed’s 2 per cent target remains a greater risk than tight central bank policy slowing the economy more than needed to bring the pace of price increases under control, Chicago Fed president Austan Goolsbee said on Monday.

“The risk of inflation staying higher than where we want it is the bigger risk,” Goolsbee said in comments on CNBC. “We have got to get inflation back down to target…We ought to have 100 per cent commitment.”

Goolsbee said the Fed would need to “play by ear” whether any further rate increases are needed.

But he also said the debate over the current phase of Fed policy will “stop being how much more are they going to raise, and transform into well how long do we need to hold rates” at the peak level.

The Fed last week held its benchmark federal funds rate steady in a range of from 5.25 per cent to 5.5 per cent, with most policymakers anticipating one more quarter point rate increase would be needed this year.

More notably, they cut in half the pace at which the policy rate is expected to fall next year as inflation slows, with officials projecting only half a point of rate cuts next year versus the full percentage point reduction anticipated as of June.

“It spreads the pain around to a new level,” said Sam Fiorani, vice-president of global vehicle forecasting at AutoForecast Solutions.

The addition of distribution centres increase the chance of disrupting the supply chain and affecting Canadian parts suppliers, he said.

“As the days go by, parts suppliers are more and more hampered, and it gets worse as the parts suppliers themselves are smaller. So the smaller tier two and tier three suppliers will really get hurt.”

Canadian companies operating in the U.S. have already been affected by the strike.

Aurora, Ont.-based Magna International Inc. confirmed that LM Manufacturing, a joint venture they own 49 per cent of, has temporarily laid off about 650 employees because the plant supplies seats to a Ford Bronco plant that has been shut down.

Ford however was spared from the expanded strike on Friday as UAW president Shawn Fain says the union has had progress in negotiations with the company.

In Canada, Ford averted a strike by reaching a tentative deal with Unifor on Tuesday that members will vote on this weekend with results expected on Sunday.

Unifor national president Lana Payne said the agreement, expected to set a blueprint for contract negotiations with GM and Stellantis, addresses key issues such as wages, pensions and the electric vehicle transition.

Monday September 25

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

(10:30 a.m. ET) U.S. Dallas Fed Manufacturing Activity for September.

Earnings include: Thor Industries Inc.

—

Tuesday September 26

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

(9 a.m. ET) U.S. S&P CoreLogic Case-Shiller Home Price Index for July. The Street is projecting an increase of 0.6 per cent from June and down 0.2 per cent year-over-year.

(9 a.m. ET) U.S. FHFA House Price Index for July. Consensus is a month-over-month rise of 0.5 per cent and a year-over-year increase of 3.9 per cent.

(10 a.m. ET) U.S. new home sales for August. Consensus is an annualized rate slide of 2.0 per cent.

(10 a.m. ET) U.S. Conference Board Consumer Confidence Index for September.

Earnings include: Aurora Cannabis Inc.; Cintas Corp.; Costco Wholesale Corp.; Ferguson PLC

—

Wednesday September 27

China industrial profits and current account balance

Japan machine tool order and minutes from Bank of Japan’s July 27-28 meeting

Germany consumer confidence

(8:30 a.m. ET) U.S. durable goods orders for August. The Street expects a decline of 0.4 per cent from July with core orders rising from 0.1 per cent.

Earnings include: AGF Management Ltd.; Micron Technology Inc.; Paychex Inc.

—

Thursday September 28

Euro zone economic and consumer confidence

Germany consumer prices

ECB Economic Bulletin is released

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

(8:30 a.m. ET) U.S. initial jobless claims for week of Sept. 23. Estimate is 218,000, up 17,000 from the previous week.

(8:30 a.m. ET) U.S. real GDP for Q2. Consensus is an annualized rate increase of 2.4 per cent.

(8:30 a.m. ET) U.S. corporate profits for Q2. Estimate is a year-over-year decline of 6.5 per cent.

(10 a.m. ET) U.S. pending home sales for August. Consensus is a rise of 0.3 per cent from July.

(4 p.m. ET) U.S. Fed Chair Jerome Powell hosts a town hall with educators in Washington.

Earnings include: Accenture PLC; Blackberry Ltd.; Carnival Corp.; Nike Inc.; SolGold PLC.

—

Friday September 29

China markets closed

Japan jobless rate, retail sales and industrial production

Euro zone CPI

Germany retail sales and unemployment

(8:30 a.m. ET) Canada’s monthly real GDP for July. The Street expects a month-over-month increase of 0.1 per cent.

(8:30 a.m. ET) U.S. personal spending and income for August. Consensus is month-over-month rises of 0.4 per cent and 0.5 per cent, respectively.

(8:30 a.m. ET) U.S. core PCE Price Index for August. Consensus is a rise of 0.2 per cent from July and up 3.9 per cent year-over-year.

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

(9:45 a.m. ET) U.S. Chicago PMI for September.

(10 a.m. ET) U.S. University of Michigan consumer sentiment index for September.

 Published: 9/22/2023 3:24 PM ET

Oil prices briefly fell into the red a little past noon on Friday, but recovered swiftly to end the day’s session on a firm note.

Russia’s decision to impose a temporary ban on diesel and gasoline exports supported oil prices, reversing a recent downside movement in crude markets following hawkish comments on interest rates from the Federal Reserve and other central banks.

West Texas Intermediate Crude oil futures for November settled with a loss of $0.40 or about 0.5% at $90.03 a barrel.

WTI crude futures shed 0.6% in the week, the first weekly loss in four weeks.

Brent crude futures settled at $93.27 a barrel.

“There is no escaping how tight the oil market is. Everything you need to know about oil starts with the supply side. The latest bullish driver was Russia’s fuel export ban and that is still overshadowing another set of weak European PMIs. The crude demand outlook is going to start to look a lot weaker in the US, but the physical tightness is so extreme that we should still see $100 oil in the next month or two,” says Edward Moya, Senior Market Analyst at OANDA.

Data released by Baker Hughes said the oil and gas rig count fell by 11 to 630 in the week to September 22. The total rig count has dropped by 134 rigs of 18% from the level seen this time last year.

The oil rig count fell by eight to 507 this week, the lowest since February 2022, while gas rigs dropped by three to 118.

Canada’s main stock index fell for a fifth straight day on Friday as investors worried that borrowing costs would stay elevated for an extended period and waited for a more seasonally friendly month to step back into the market. Wall Street see-sawed to a lower close as well, capping a tumultuous week during which benchmark Treasury yields hit 16-year highs and investors digested the Federal Reserve’s hawkish outlook revisions.

The Toronto Stock Exchange’s S&P/TSX composite index ended down 11.65 points, or 0.1%, at 19,779.97, its lowest closing level since Aug. 24. For the week, it lost 4.1%, its biggest weekly decline since September 2022.

All three major U.S. stock indexes oscillated for much of the session but ended red. All three posted weekly losses, with the S&P 500 and the Nasdaq registering their largest Friday-to-Friday percentage drops since March.

On Thursday, the S&P 500 dipped below its 100-day moving average – a key support level – for the first time since March. Its failure to break above that level suggests the index is still under downward pressure.

“This week is about some Fed messaging colliding with overly optimistic equity investors,” said Zachary Hill, head of portfolio management at Horizon Investments in Charlotte, North Carolina.

Hill added that investors have “wanted to trade peak interest rates for almost a year now.” But he said it was clear in remarks this week by Fed Chair Jerome Powell “and in the dot plot that the Fed doesn’t think we’re there yet.”

“This week’s stock action has been about digesting that reality.”

Benchmark U.S. Treasury yields retreated from 16-year highs as investors turned their focus from hawkish Fed guidance to key economic data waiting in the wings.

Investors were still digesting the Fed’s decision to let its key interest rate stand, but update its quarterly Summary Economic Projections to suggest restrictive monetary policy will remain in place longer than previously anticipated.

On Friday, remarks from Fed Governor Michelle Bowman supported the FOMC hawks, suggesting the Fed funds target rate should be raised further and held “at a restrictive level for some time” to bring inflation down to the central bank’s 2% target.

“There are a lot of factors working against a soft landing and that’s something the Fed needs to be reminded of, because pushing rates higher could push us into recession,” said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut.

The Bank of Canada is also expected to leave interest rates at elevated levels for longer than previously thought after domestic data on Tuesday showed that inflation was hotter than expected in August.

The Toronto market’s materials sector, which includes precious and base metals miners and fertilizer companies, declined 0.5% on Friday. Heavily-weighted financials were also a drag, falling 0.3%.

September has historically been the worst month for stocks.

“I see the seasonally weaker parts as a time to increase your cash weighting somewhat and then deploy it when you get deeper into the month of September,” said Stan Wong, a portfolio manager at Scotia Wealth Management.

The Dow Jones Industrial Average fell 106.58 points, or 0.31%, to 33,963.84, the S&P 500 lost 9.94 points, or 0.23%, to 4,320.06 and the Nasdaq Composite dropped 12.18 points, or 0.09%, to 13,211.81.

Among the 11 major sectors of the S&P 500, consumer discretionary suffered the steepest percentage loss, while tech and energy were the only gainers.

Ford Motor Co gained 1.9% after the striking United Auto Workers union reported progress in talks with the automaker.

Activision Blizzard added 1.7% in the wake Britain’s antitrust regulator’s statement that Microsoft Corp’s restructured $69 billion acquisition of the company by “opens the door” to the biggest-ever gaming deal being cleared.

U.S.-listed shares of Chinese firms including PDD Holdings, JD.com, Li Auto and Baidu rose between 2% and 4% on signs of an economic a rebound, while Alibaba jumped 5.0% after Bloomberg reported that report the company’s logistics arm Cainiao was planning to file for a Hong Kong IPO as soon as next week.

Declining issues outnumbered advancing ones on the NYSE by a 1.12-to-1 ratio; on Nasdaq, a 1.29-to-1 ratio favored decliners. The S&P 500 posted one new 52-week high and 35 new lows; the Nasdaq Composite recorded 33 new highs and 321 new lows. Volume on U.S. exchanges was 9.47 billion shares, compared with the 10.09 billion average for the full session over the last 20 trading days.

Reuters, Globe staff

 Published: 9/22/2023 2:56 PM ET

Gold futures settled modestly higher on Friday even as the dollar stayed firm amid bets the Federal Reserve will keep rates higher for longer to combat inflation.

Gold attracted safe-haven buying amid concerns higher borrowing costs might result in global economic slowdown.

The dollar index, which climbed to 105.78 in the European session, briefly fell below the flat line around late morning, but recovered subsequently to 105.58, gaining more than 0.5%.

Gold futures for December ended higher by $6.00 at $1,945.60 an ounce.

Silver futures for December ended up $0.157 at $23.844 an ounce, while Copper futures for December settled flat at $3.6960 per pound.

The Fed kept interest rates unchanged earlier this week, but forecast another rate hike before the end of the year as well as keeping rates at elevated levels for longer than previously anticipated.

Other global central banks are also expected to keep interest rates higher for longer to cool price growth.

“Higher-for-longer remains kryptonite for gold but weakening global growth prospects is starting to attract some safe-haven flows towards bullion,” says Edward Moya, Senior Market Analyst at OANDA.

“Gold has shown that the $1900 level was a major line in the sand and now it appears to be poised to consolidate around the $1950 level. For gold to move back above the $2000 level, investors will need to see major dollar weakness which will be driven by evidence that the labor market is breaking,” Moya adds.

A Magna International Inc. joint venture in Michigan has laid off 650 employees as the automotive industry braces for widening strikes by the United Auto Workers union in the United States.

LM Manufacturing LLC, 49 per cent owned by Magna, supplies seats to Ford Motor Co.’s F-N -1.29%decrease Bronco factory near Detroit, where workers went on strike last week. UAW members are also on strike at two other U.S. factories, owned by Stellantis NV STLA-N -1.73%decrease and General Motors Co. GM-N -1.48%decrease, as the union pushes for new collective agreements.

The UAW is seeking 40-per-cent raises, a four-day workweek and the end to two-tier wage scales for new hires. The auto companies are resisting the demands as too rich, even as they post robust profits and spend heavily to produce electric vehicles.

On Sept. 15, workers walked out of Stellantis’ Jeep factory in Toledo, Ohio, and GM’s Chevrolet Colorado assembly line in Wentzville, Mo. About 12,700 of the 146,000 UAW members who work at the Big Three automakers are on strike. The UAW says it will shut down more plants by noon ET on Friday if no progress is made at the bargaining tables.

As the strikes disrupt the supply lines, GM on Wednesday closed a plant in Kansas and laid off 2,000 workers because of a lack of parts from its Wentzville factory. Stellantis laid off 370 workers at three parts factories in Indiana and Ohio that supply the Jeep assembly line in Toledo.

Dave Niemiec, a spokesman for Aurora, Ont.-based Magna, said the layoffs at LM in Detroit are temporary, and said it is too soon to say if other Magna operations are affected. “We have focused considerable attention on contingency planning to pro-actively address any temporary business disruptions to our operations,” he said. “If that time comes, we are prepared in terms of temporarily scaling back production on affected programs as efficiently as possible, while being equally prepared to ramp up quickly when ready.”

Flavio Volpe, head of the Automotive Parts Manufacturers’ Association, said the U.S. strike is affecting some suppliers he represents in Ontario. There are about 12 companies in Ontario that directly supply the three plants on strike, he said, and this number could grow if the strikes spread.

“Next week’s production schedules for affected companies are going to be hairy,” Mr. Volpe said, declining to name the companies in Ontario. Linamar Corp. and Martinrea International Inc., Ontario-based parts makers with large U.S. operations, did not respond to requests for comment.

In Ontario, the plants operated by the Big Three are not yet affected by the U.S. strike.

Ford and the Unifor union that represents 5,680 of its workers in Canada reached a tentative agreement on Tuesday. The deal averted a strike at Ford’s factories in Oakville and Windsor, and parts warehouses. The agreement, expected to be put to a ratification vote this weekend, will set the template for Unifor’s negotiations with Stellantis and GM in Canada.

UAW workers are expected to rally at one of Ford’s two Louisville, Ky., assembly plants on Thursday evening in support of workers striking at other plants.

The city is home to a Ford assembly plant and its Kentucky truck plant. Ford chief executive officer Jim Farley has previously said the Kentucky truck plant, which assembles F-Series pickup trucks, is the company’s most profitable plant globally. Ford’s plant in Windsor makes engines for F-Series trucks.

Analysts expect plants that build high-margin pickups, such as Ford’s F-150, GM’s Chevy Silverado and Stellantis’ Ram, to be the next targets if the UAW walkout continues. Morgan Stanley analyst Adam Jonas estimated in a Thursday research note that a full month of lost production would cost the three automakers US$7-billion to US$8-billion in lost profits.

With files from Reuters

Published: 9/21/2023 7:25 PM ET

The Canadian stock market suffered one of its worst setback in recent months on Thursday as worries about, inflation, interest rates and outlook for economic growth weighed on sentiment, rendering the mood extremely bearish.

The benchmark S&P/TSX Composite Index ended with a loss of 423.07 points or 2.09% at 19,791.62, the lowest close in about four weeks.

As selling was widespread, all the sectoral indices fell. The Consumer Staples Capped Index, which dropped 0.92%, suffered the least damage. The Information Technology Capped Index, which was the worst hit, declined 3.39%.

Real Estate, Materials, Consumer Discretionary, Utilities and Industrials indices lost 2 to 2.4%, while Financials, Communication Services and Energy indices shed 1.84%, 1.79% and 1.48%, respectively. The Healthcare Index ended 1.07% down.

Rising concerns about Canadian inflation and the impact of higher interest rates on economic growth continued to hurt sentiment.

The Federal Reserve held its interest rate steady on Wednesday but said at least one more hike is likely by the end of this year. The Bank of England and the Swiss National Bank also left their rates unchanged, while Norway’s Norges Bank and Sweden’s Riksbank, both raised their rates by 25 basis points.

On the economic front, data from Statistics Canada showed new home prices in Canada edged up by 0.1% mom in August 2023, following a 0.1% decline in July. Year-on-year, the cost of new homes fell by 0.9% in August.