Author: Consultant

Monday, July 31

China releases purchasing managers indexes for July. Japan releases June retail sales and industrial production data, plus July consumer confidence.

Euro area releases real GDP for second quarter, plus July consumer price indexes.

Earnings include: Avis Budget Group Inc, Loews

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Tuesday, Aug. 1

China releases the Caixin manufacturing PMI for July, and Japan releases its latest jobless data and manufacturing PMI.

Euro area releases manufacturing PMIs and jobs reports. The UK releases both nationwide house prices and its manufacturing PMI.

930 am ET: S&P Global Manufacturing PMI for July

10 am ET: U.S. construction spending for June.

10 am ET: U.S. job openings and labour turnover survey.

10 am ET: U.S. ISM Manufacturing PMI

North American auto sales

Earnings include: Merck, Toyota Motor, Pfizer, AMD, HSBC, Caterpillar, Starbucks, Uber, Marriott International, Molson Coors Brewing, Mosaic, Norwegian Cruise Line, RioCan REIT, Dream Industrial REIT, EQB, Neighbourly Pharmacy

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Wednesday, Aug. 2

815 am ET: ADP U.S. National Employment Report for July

Earnings include: Shopify, CVS Health, McKesson, Suncor Energy, Waste Connections, Nutrien, Kraft Heinz, Yum! Brands, Fortis, Tourmaline Oil, Cameco, Clorox, MGM, Fox Corp., Ceridian, Zillow, U-Haul Holding, Robinhood Markets, IGM Financial, Bausch + Lomb, Kinross Gold, Bausch + Lomb, Colliers International, B2Gold, Capital Power, Capstone Mining, Scotts Miracle-Gro, Spin Master, Tripadvisor, InterRent REIT, Ballard Power, Artis REIT, NFI Group, Slate Office REIT, Thomson Reuters, Tupperware Brands

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Thursday, Aug 3

China and Japan releases PMI services data.

Euro area releases July services PMI data, as well as its latest producer price index. Germany releases its trade surplus, Italy its retail sales and the UK its services PMI.

Bank of England policy announcement.

830 am ET: U.S. jobless claims for last week.

830 am ET: U.S. second quarter productivity and unit labour costs.

945 am ET: S&P Global Services/Composite PMI for July

10 am ET: U.S. factory orders for June. Consensus is for a rise of 1.8%, faster than May’s 0.3%.

10 am ET: U.S. ISM Services PMI

Earnings include: Apple, Amazon, ConocoPhillips, Airbnb, Booking, Canadian Natural Resources, BCE, Warner Bros. Discovery, Fairfax Financial, Kellogg, Pembina Pipeline, Brookfield Infrastructure, Open Text, DraftKings, Hyatt, Ivanhoe Mines, iA Financial, Hasbro, Canadian Apartment REIT, Gildan Activewear, SNC-Lavalin Group, Parkland Fuel, Bombardier, Hilton Grand Vacations, Bausch Health, Definity Financial, TransAlta Renewables, Lightspeed Commerce, Maple Leaf Foods, Jamieson Wellness, Interfor, Cascades, Algoma Steel, Lion Electric, Canaccord Genuity, Silvercorp Metals, Chorus Aviation, Plaza Retail REIT, Western Forest Products, True North Commercial REIT

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Friday, Aug 4

Euro area retails sales for June, plus Germany factory orders, and France and Italy industrial production.

OPEC meeting

830 am ET: Canada’s July employment report. Consensus is net job gains of 25,000, which would be down from June’s job gains of 59,900. The unemployment rate is expected to rise one notch to 5.5%. Average hourly wages are expected to be up 4.2% from a year earlier, marking no change from June’s reading.

830 am ET: U.S. nonfarm payrolls for July. Consensus is for net job gains of 200,000, down modestly from gains of 209,000 in June. The unemployment rate is expected to hold steady at 4.2%. Average hourly earnings are expected to be up 0.3% from the previous month.

10 am ET: Canada Ivey PMI

10 am ET: Global Supply Chain Pressure Index

Earnings include: Enbridge, Telus, Magna International, Brookfield Renewable, Brookfield Business, TransAlta, Dentalcorp Holdings, AMC Networks, Boston Pizza Royalties, Dorel Industries

Published: 7/28/2023 3:06 PM ET

Gold futures settled higher on Friday as the dollar turned weak after data on personal consumption expenditure indicated a slowdown in U.S. inflation.

The data has helped ease concerns about the outlook for interest rates, and raised hopes the Fed will end its tightening cycle soon.

The dollar index dropped to 101.36, and despite regaining some lost ground, remains weak at 101.60, trailing previous close by about 0.17%.

Gold futures for August ended higher by $14.70 or about 0.8% at $1,960.40 an ounce. Gold futures shed about 0.3% in the week.

Silver futures for September closed higher by $0.128 or about 0.5% at $24.495 an ounce, while Copper futures for September settled at $3.9265 per pound, gaining $0.510 or about 1.3%.

Data released by the Commerce Department showed personal income rose by 0.3% in June after climbing by an upwardly revised 0.5% in May. Economists had expected personal income to increase by 0.5% compared to the 0.4% advance originally reported for the previous month.

Meanwhile, personal spending climbed by 0.5% in June after inching up by an upwardly revised 0.2% in May. Economists had expected personal spending to rise by 0.4% compared to the 0.1% uptick originally reported for the previous month.

Core PCE prices, which exclude food and energy, went up by 0.2% month-over-month in June 2023, easing from a 0.3% increase in May. The annual rate, the Federal Reserve’s preferred gauge to measure inflation, rose by 4.1%, the lowest since September 2021.

Published: 7/28/2023 3:31 PM ET

Oil prices climbed higher on Friday, and the most active gold futures contract posted gains for the fifth straight week, amid easing U.S. recession fears, and on optimism over increased demand for oil in the U.S. and China.

Warnings of tight supply due to production cuts by OPEC and its allies contributed as well to the uptick in oil prices.

West Texas Intermediate Crude oil futures for September ended higher by $0.49 or about 0.6% at $80.58 a barrel.

WTI crude futures gained about 4.6% in the week. Overall, in five weeks, WTI has gained 16%.

Brent crude futures settled at $84.99 a barrel today, gaining $0.75 or about 0.9%. Brent crude has gained 14.6% in five weeks.

Demand worries have eased after a slew of U.S. economic data released on Thursday pointed to a resilient economy.

Data showing the U.S. economy grew more than expected in the second quarter, has helped quell fears of an imminent recession.

Also, weekly jobless claims continued to fall and new orders for key manufactured capital goods unexpectedly rose in June, helping ease fears of slowing demand.

Meanwhile, China stimulus hopes spurred expectations of oil demand regeneration from the world’s largest importer of crude oil.

Signs that inflation pressures in the United States are steadily easing emerged Friday in reports that consumer prices rose in June at their slowest pace in more than two years and that wage growth cooled last quarter.

Together, the figures provided the latest signs that the Federal Reserve’s drive to tame inflation may succeed without triggering a recession, an outcome known as a “soft landing.”

A price gauge closely monitored by the Fed rose just 3 per cent in June from a year earlier. That was down from a 3.8 per cent annual increase in May, though still above the Fed’s 2 per cent inflation target. On a monthly basis, prices rose 0.2 per cent from May to June, up slightly from 0.1 per cent the previous month.

Last month’s sharp slowdown in year-over-year inflation largely reflected falling gas prices, as well as milder increases in grocery costs. With supply chains having largely healed from post-pandemic disruptions, the costs of new and used cars, furniture and appliances also fell in June.

The cost of some services, though, continued to surge. Average prices of movie tickets rose 0.5 per cent from May to June, and are up 6.2 per cent from a year earlier. Veterinary services, up 0.5 per cent last month, are 10.5 per cent higher than a year ago. And restaurant meal prices increased 0.4 per cent in June; they’re up 7.1 per cent from 12 months earlier.

A measure of “core” prices, which excludes volatile food and energy costs, did remain elevated even though it also eased last month. Economists track core prices because they are considered a better signal of where inflation is headed. Those still-high underlying inflation pressures are a key reason why the Fed raised its short-term interest rate Wednesday to a 22-year high.

Core prices were still 4.1 per cent higher than they were a year ago, well above the Fed’s target, though down from 4.6 per cent in May. From May to June, core inflation was just 0.2 per cent, down from 0.3 per cent the previous month, an encouraging sign.

A separate report Friday from the Labor Department showed that a gauge of wages and salaries grew more slowly in the April-June quarter, suggesting that employers were feeling less pressure to boost pay as the job market cools.

Employee pay, excluding government workers, rose 1 per cent, down from 1.2 per cent in the first three months of 2023. Compared with a year earlier, wages and salaries grew 4.6 per cent, down from 5.1 per cent in the first quarter.

The Fed is closely watching the pay gauge, known as the employment cost index. Smaller wage increases should slow inflation over time, because companies are less likely to need to raise prices to cover their higher labour costs.

Taken together, Friday’s data “will provide further support to the view that the economy is in the midst of a soft landing,” said Kathy Bostjancic, chief economist at Nationwide. The softer wage data, she suggested, “will be welcomed by Fed officials.”

Americans’ average paychecks are still growing briskly, boosting their ability to spend and underscoring the economy’s resiliency. The inflation report that the Commerce Department issued Friday showed that consumer spending jumped in June, despite two years of high inflation and 11 Fed rate hikes over 17 months. From May to June, consumer spending rose 0.5 per cent, up from 0.2 per cent the previous month.

“Better push out those recession forecasts by another quarter,” Stephen Stanley, chief U.S. economist at investment bank Santander, wrote in a research note.

The inflation gauge that was issued Friday, called the personal consumption expenditures price index, is separate from the better-known consumer price index. Earlier this month, the government reported that the CPI rose 3 per cent in June from 12 months earlier.

The Fed prefers the PCE index because it accounts for changes in how people shop when inflation jumps – when, for example, consumers shift away from pricey national brands in favour of cheaper store brands. And housing costs, which are among the biggest inflation drivers but many economists think aren’t well-measured, carry about half the weight in the PCE than the CPI.

With inflation now steadily cooling, consumers are becoming more optimistic about the economy, a trend that could lead them to keep spending and driving growth.

On Friday, the University of Michigan reported that its consumer sentiment index rose in June to its highest level since October 2021, though it has still recovered only about half of the drop caused by the pandemic. And earlier this week, the Conference Board, a business research group, said its consumer confidence index rose this month to its highest point in two years.

The U.S. economy is in a hopeful but precarious place: A solid job market is bolstering hiring, lifting wages and keeping unemployment near a half-century low. Yet inflation is weakening rather than rising, as it typically does when unemployment is low. That suggests that the Fed may be able to achieve a soft landing.

The Fed’s policy-makers, though, are concerned that the steadily growing economy could help perpetuate inflation. This can occur as persistent consumer demand enables more companies to raise prices, thereby keeping inflation above the Fed’s target and potentially causing the central bank to raise rates even higher.

The latest evidence of the economy’s resilience came Thursday, when the government reported that it grew at a 2.4 per cent annual rate in the April-June quarter – faster than analysts had forecast and an acceleration from a 2 per cent growth rate in the first three months of the year.

At a news conference Wednesday, Chair Jerome Powell suggested that the Fed’s benchmark short-term rate, now at about 5.3 per cent, was high enough to restrain the overall economy and likely tame inflation over time. But Powell added that the Fed would need to see more evidence that inflation has been sustainably subdued before it would consider ending its rate hikes.

Powell declined to offer any signal of the central bank’s likely next moves. In June, Fed officials had forecast two more rate hikes this year, including Wednesday’s.

“I would say it is certainly possible that we would raise (rates) again at the September meeting, if the data warranted,” Powell said Wednesday, “and I would also say it’s possible that we would choose to hold steady at that meeting.”

Canada’s Imperial Oil IMO-T +5.26%increase reported a 72 per cent drop in second-quarter profit on Friday as maintenance activity hit its production while a slump in energy prices further dented earnings.

Global oil prices dropped in the second quarter from a year earlier, pressured by a banking crisis that saw several large lenders fail and fears of a looming recession that crimped demand.

Imperial said its average realized prices for Western Canada Select, the benchmark Canadian crude, fell 39 per cent to $58.49.

The company, majority-owned by Exxon Mobil XOM-N -1.93%decrease, said its second-quarter upstream production declined 12 per cent to 363,000 barrels of oil equivalent per day (boepd), hurt by maintenance-related stoppages.

The company’s crude utilization stood at 90 per cent in the reported quarter, lower than last year’s 96 per cent due to the impact of the planned turnaround at its Strathcona refinery.

This pushed its quarterly total downstream throughput lower by 6 per cent to 388,000 barrels per day (bpd).

“With substantial turnaround activity now behind us, we anticipate strong production in the second half of 2023,” CEO Brad Corson said.

The company reported a net income of $675-million, or $1.15 per share, for the quarter ended June 30, down from $2.4-billion or $3.63 per share, a year earlier.

Imperial added that it has completed construction work for expanding the existing seepage interception system at its Kearl oil sands mine in northern Alberta.

In May, Canada’s federal environment ministry had opened a formal investigation into a months-long leak at Kearl of tailing, a toxic mining by-product containing water, silt, residual bitumen and metals.

Imperial also said it had started construction at Strathcona renewable diesel project.

The Canadian economy grew by 0.3 per cent in May despite downward pressure from wildfire-hit oil and gas production but it looks to have slowed in June, Statistics Canada said Friday.

In its latest report on economic growth, the federal agency’s preliminary estimate suggests real gross domestic product grew at an annualized rate of one per cent in the second quarter.

The May figure came in slightly lower than was expected by Statistics Canada as mining and oil and gas companies reduced their operations in Alberta at the outset of the record-breaking wildfire season.

The energy sector was down 2.1 per cent in May, the release shows.

“This was the sector’s first decline in five months and its largest since August 2020,” the agency said.

The modest GDP increase in May was driven in part by a rebound in the public administration sector as most federal public servants on strike returned to work by the end of April. However, 35,000 Canada Revenue Agency workers remained on strike for three days in May, which dampened the rebound.

The economy remained resilient in the second quarter, but growth started to look weaker by the end of the period, with wholesale sales posting one of their largest declines in history in June, said RBC economist Claire Fan in a note.

“The resilience in consumer demand we’ve seen to date is not to be overlooked, adding to sticky inflation pressures. But momentum in services spending also appears to be waning – gross sales at food services and drinking places have been trending at levels below this January for months,” she wrote.

That modest growth is unlikely to hold, as the federal agency’s preliminary estimate for June suggests the economy contracted by 0.2 per cent.

Statistics Canada says the estimated decrease in June is mainly owing to the wholesale trade and manufacturing sectors.

Both sectors saw growth in May as supply chain issues related to semiconductor chips eased, but the downward trend in June is expected to “more than offset the increases recorded in May,” the agency said.

The slowdown comes as the Bank of Canada’s key interest rate sits at five per cent, the highest it’s been since 2001. The interest rate spike is expected to slow the economy down, though it has generally performed better than expected this year.

The real estate sector, for example, is expected to continue to grow in June despite high interest rates.

In May, home resales in most of Canada’s largest markets led to an industry increase of 7.6 per cent.

A series of transitory shocks since April, such as the wildfires, has made the data more difficult to interpret, wrote TD economist Marc Ercolao in a note.

“Looking ahead, headline GDP figures may continue to be skewed by the government’s grocery rebate and the effects of the B.C. port strike in July,” he said.

But the the pullback in June will likely help support a hold on the Bank of Canada’s key policy rate in September after announcing a hike this month, said Ercolao.

“Slowing growth appears to be in the cards for the Canadian economy, and we believe this will be enough for the (central bank) to remain on hold at its next meeting,” he said.

The Bank of Canada won’t hesitate to hike rates further if necessary, said Fan, but she added that “the worst is yet to come” for households dealing with rising debt service costs.

“We expect that will soften spending, push inflation lower and keep the (central bank) to the sideline over the second half of this year,” she said.

Shares of TC Energy TRP-T -5.12%decrease fell nearly 5 per cent on Friday after the Keystone pipeline operator said it would spin off its liquids business to focus on transporting natural gas.

The spinoff, combined with TC’s announcement on Monday that it will sell a 40 per cent stake in its Columbia Gas Transmission and Columbia Gulf Transmission pipelines, will help TC reduce its high debt levels.

But TD Securities downgraded TC to “hold” from “buy,” saying it was skeptical the spinoff would create value.

“We see execution risk introducing uncertainty and potentially distracting (TC) from its existing strategic priorities,” TD analyst Linda Ezergailis said in a note.

Shares in Toronto plunged 4.4 per cent to C$45.21, touching a seven-year low.

“There’s blood in the water, the stock has already been going down on the back of the Columbia transaction, so I think there’s some (selling) piling on,” said Ryan Bushell, president of Newhaven Asset Management, a TC shareholder.

Bushell said TC’s new focus after the spinoff on natural gas and power is attractive to him, however, given the expansion of liquefied natural gas export capacity in the United States and increasing electrification.

Once the liquids business has spun off by late 2024, subject to a shareholder vote, it will raise C$8-billion in debt to repay debt at TC.

TC CEO Francois Poirier said TC needed to sell another C$3-billion in assets during the next 18 months to reach its 4.75 times debt to EBITDA target. TC had 5.4 times debt to EBITDA last year and is aiming to reduce that to 5 times this year.

The TC share sell-off reflects a re-rating after the company made the Columbia deal at a lower price than some expected, and now plans a spinoff carrying more debt compared to EBITDA than some U.S. peers, said Brandon Thimer, equity analyst at First Avenue Investment Counsel, a TC shareholder.

Poirier said the breakup into two listed companies allows them to pursue more opportunities for growth that exceed the ability of one company to do.

“It’s been a busy week but an extremely transformative one,” Poirier said.

National Bank of Canada upgraded its rating of TC to “outperform” from “sector perform.”

TC’s Keystone pipeline in December spilled more than 14,000 barrels of oil in Kansas. The liquids business spans over 3,000 miles of infrastructure, which transports Canadian crude to U.S. refineries.

Morningstar analyst Stephen Ellis said that the 2021 cancellation of TC’s proposed Keystone expansion, following U.S. President Joe Biden revoking a key permit, may have played a role in the company deciding to spin off its oil business.

The European Central Bank raised interest rates for the ninth consecutive time on Thursday and kept the door open to further tightening as stubborn inflation and a growing risk of a recession pull policy-makers in opposing directions.

Fighting off a historic surge in prices, the ECB has now lifted borrowing costs by a combined 425 basis points since last July, worried that excessive price growth could be perpetuated via wage rises as the jobs market remains exceptionally tight.

With Thursday’s 25 basis point move, the ECB’s deposit rate stands at 3.75 per cent, its highest level since a similar level set in 2000, before euro banknotes and coins had even been put into circulation. The main refinancing rate was set at 4.25 per cent.

“Future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to the 2 per cent medium-term target,” the ECB said in a statement.

But the ECB’s statement dropped a reference to rates having to be “brought” to a level that cuts inflation quickly enough, a nuanced change that could be seen as a signal that further increases are not a given.

This will leave investors guessing whether another rate hike is coming or if July marks the end of the ECB’s fastest-ever tightening spree.

It is nevertheless increasingly clear that an end to rate increases is fast approaching, with policy-makers debating whether one more small move is needed before rates are kept steady for what some of them think will be a long time.

“The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction,” the ECB added.

The ECB’s problem is that inflation is coming down too slowly and could take until 2025 to fall back to 2 per cent, as a price surge initially driven by energy has seeped into the broader economy via large markups and is fuelling the cost of services.

While overall inflation is now just half its October peak, harder-to-break underlying price growth is hovering near historic highs and may have even accelerated this month.

The labour market is also exceptionally tight, with record-low unemployment raising the risk that wages will rise quickly in the years ahead as unions use their increased bargaining power to recoup real incomes lost to inflation.

That is why many investors and analysts are looking for the ECB to pull the trigger again in September and stop only if autumn wage data delivers relief.

But the mood is clearly changing as the economy of the 20-country euro zone slows. While markets had fully priced in another rate hike just a few weeks ago, a growing number of investors are betting that Thursday’s move will be the last.

More tightening would however be consistent with comments from a host of policy-makers, including ECB board member Isabel Schnabel, that raising rates too far would still be less costly than not lifting them high enough.

On Wednesday, the U.S. Federal Reserve raised borrowing costs and kept the door open to further tightening, though Fed Chair Jerome Powell gave few hints about September, a stance the ECB is likely to copy.

But rapidly fading economic prospects should temper any hawkishness and ECB President Christine Lagarde is likely to take a cautious tone in her 1245 GMT news conference after a string of data in recent days suggesting that higher rates are already weighing on growth.

Indicators of business, investor and consumer sentiment and bank lending surveys point to a continued deterioration after the euro zone skirted a recession last winter.

And with manufacturing in a deep recession and a previously resilient services sector showing signs of softening despite what is likely to be a superb summer holiday season, it is hard to see where any rebound would come from.

Such weakness, exacerbated by a loss of purchasing power after inflation eroded real incomes, could push down price pressures faster than some expect, leaving less work for the central bank to do.

This is a key reason why the balance of expectations has started to shift away from another rate hike, with economists increasingly focusing on how long rates will stay high.

The U.S. economy grew faster than expected in the second quarter as labour market resilience underpinned consumer spending, while businesses boosted investment in equipment, potentially keeping a much-feared recession at bay.

Gross domestic product increased at a 2.4 per cent annualized rate last quarter, the Commerce Department in its advance estimate of second-quarter GDP on Thursday. The economy grew at a 2.0 per cent pace in the January-March quarter. Economists polled by Reuters had forecast GDP rising at a 1.8 per cent rate.

Outside the housing market and manufacturing, the economy has largely weathered the 525 basis points in interest rate hikes from the Federal Reserve since March 2022 as the U.S. central bank battled inflation.

Economists have since late 2022 been forecasting a downturn, but with price pressures retreating, some now believe that the soft-landing scenario for the economy envisaged by the Fed is feasible. The central bank on Wednesday raised its policy rate by 25 basis points to a 5.25 per cent-5.50 per cent range.

The economy is being anchored by the labour market, whose continued tightness was underscored by a separate report from the Labor Department on Thursday showing initial claims for state unemployment benefits fell 7,000 to a seasonally adjusted 221,000 for the week ended July 22.

Companies are hoarding workers after struggling to find labour during the COVID-19 pandemic. Employment in the leisure and hospitality sector remains below pre-pandemic levels.

The number of people receiving benefits after an initial week of aid, a proxy for hiring, dropped 59,000 to 1.690 million during the week ending July 15. Despite high profile layoffs in technology and finance sectors in 2022 and early this year, the so-called continuing claims remain low by historical standards.

This suggests that some laid off workers are quickly finding employment. The continuing claims data covered the week that the government surveyed households for July’s unemployment rate. Continuing claims fell between the June and July survey periods.

At 3.6 per cent in June, the jobless rate was not too far from multi-decade lows.

But some economists remain convinced that a recession is on the horizon, arguing that higher borrowing costs will eventually make it harder for consumers to fund their spending with debt.

They also noted that banks were tightening credit and excess savings accumulated during the pandemic continued to be run down. Slowing job growth was seen curbing wage gains.