Author: Consultant

By RTTNews Staff Writer   ✉  | Published: 6/23/2023 6:11 PM ET

Canadian stocks drifted lower on Friday, extending losses to a sixth straight session, amid rising concerns interest rate hikes will hurt growth and weigh on corporate earnings as well.

Healthcare, utilities, financials and energy stocks fell. Several stocks from industrials sector too posted sharp losses.

The benchmark S&P/TSX Composite Index ended with a loss of 162.67 points or 0.83% at 19,418.23, a three-month low.

In the healthcare sector, Canopy Growth Corp (WEED.TO) plunged 11.7% despite reporting a surge in quarterly revenue. The company reported fourth-quarter net revenue of $87.5 million, up 14% compared to the net revenue the company recorded in the year-ago quarter.

Tilray Inc (TLRY.TO) ended more than 6% down, while Bausch Health Companies (BHC.TO) lost about 2.1%.

Among utilities stocks, Algonquin Power and Utilities Corp (AQN.TO), Transalta Renewables (RNW.TO), Transalta Corp (TA.TO), Altagas (ALA.TO) and Capital Power Corp (CPX.TO) lost 2 to 3.45%.

Among financials shares IA Financial Corp (IAG.TO) ended more than 4% down. Goeasy (GSY.TO), EQB Inc (EQB.TO), National Bank of Canada (NA.TO), Power Corp of Canada (POW.TO), Bank of Montreal (BMO.TO) and Manulife Financial (MFC.TO) lost 1 to 2.6%.

Vermilion Energy (VET.TO), Baytex Energy (BTE.TO), Crescent Point Energy (CPG.TO), Parex Resources (PXT.TO), Imperial Oil (IMO.TO) and MEG Energy Corp (MEG.TO) were among the major losers in the energy sector.

Thomson Reuters (TRI.TO), FirstService Corporation (FSV.TO), Kinaxis Inc (KXS.TO), Docebo Inc (DCBO.TO) and Endeavour Mining Inc (EDV.TO) gained 1 to 2.5%.

One of the country’s largest grocers is seeing signs that food inflation has hit its peak in Canada, as requests for cost increases from product suppliers have begun to slow down.

Sobeys parent company Empire Co. Ltd. EMP-A-T +4.08%increase says that, while supplier requests are still trending above prepandemic levels, both the number of requests and the magnitude of cost increases being discussed have abated since the beginning of May.

“While food inflation remains high, we are pleased to see that it is beginning to moderate,” said Michael Medline, Empire chief executive officer on a conference call Thursday to discuss the company’s fourth-quarter results.

Mr. Medline predicted the moderation will continue in the coming months – supported by easing of commodity prices for ingredients such as wheat and various cooking oils.

“These are still tough times. It’s not over,” he said. “And hopefully we’ll be through it soon.”

Empire on Thursday boosted its quarterly dividend paid to shareholders by 10.6 per cent to 18.25 cents per share, as the grocer reported increased profits and the completion of a six-year turnaround plan that has reshaped the business and added hundreds of millions of dollars to its bottom line.

The Stellarton, N.S.-based retailer, which also owns grocery banners such as Safeway, FreshCo, Longo’s and Farm Boy, reported net earnings growth that beat analysts’ estimates, amounting to $182.9-million or 72 cents per share in the fourth quarter ended May 6, up from $178.5-million or 68 cents per share in the comparable period the prior year. The company reported the higher profits in a comparatively shorter time frame of this year’s 13-week quarter compared with a 14-week period in 2022.

The second three-year phase of the now completed turnaround plan, called Project Horizon, involved store renovations, expansion of some store banners including the discount FreshCo chain, investments in data analytics and expansion of the company’s private-label products. Empire says it has now reached its goal of adding $500-million in annual earnings before interest, taxes, depreciation and amortization (EBITDA) through these initiatives.

Through the turnaround, the company also expanded its EBITDA margin by 60 basis points. (A basis point is one-hundredth of 1 per cent.) While Empire’s management had originally set a goal of expanding that profit margin by 100 basis points, some projects were delayed by the pandemic, inflation and a cybersecurity breach that hit the company in November.

In the fiscal year ended on May 6, Empire recorded a $34.1-million adjustment to net earnings related to that breach. The company has previously said it expects the cost of the breach to be $32-million after insurance recoveries – some of which will be recorded following the end of this fiscal year. That estimate remains unchanged.

Now that the turnaround is complete, the company plans to continue to invest in updating its stores, with plans to renovate 20 to 25 per cent of its locations over the next three years. The company also plans to continue its focus on e-commerce expansion through the Voilà brand, and to use analytics to better tailor store layouts and improve product promotions. Empire is aiming for further cost-control measures, including by focusing on product sourcing and supply chains.

Empire’s fourth-quarter sales declined by 5.5 per cent to $7.4-billion compared with the longer quarter in the prior year. Same-store sales – an important industry metric that tracks sales growth not tied to new store openings – grew by 1.6 per cent, or 2.6 per cent excluding fuel sales at the company’s gas stations.

E-commerce sales declined by 13.5 per cent in the quarter. In a news release, the company attributed the decline to a period in 2022 when the pandemic was still causing people to buy more groceries online than usual.

Canadian Imperial Bank of Commerce CM-T -1.33%decrease will pay a $3-million penalty after the financial institution watchdog for consumers said that the lender failed to transfer some credit card transactions to new cards in a timely manner, resulting in additional fees for customers.

In a May decision published Thursday, the Financial Consumer Agency of Canada (FCAC) said that over the course of 18 years, CIBC violated a rule that requires banks to provide customers with accurate information on credit card statements. The announcement comes days after the Globe and Mail reported that CIBC is under remediation orders from Canada’s banking regulator after an audit of its mortgage portfolio revealed breaches of rules that limit levels of debt for borrowers.

The FCAC alleges that from May 2003 to June 2021 CIBC failed to properly transfer transactions after a credit card was deactivated because it was lost, stolen or defrauded. Due to the delay, the new account statements did not reflect all outstanding transactions. As a result, the account balances, amount due, available credit limit and the payment date were incorrect – and some customers were charged interest, over-limit fees and other costs.

On Thursday, the FCAC also revealed that National Bank of Canada had paid a penalty of $600,000 in April related to violations that occurred between 2001 and 2018. The lender failed to properly process interest payments, which affected more than 920,000 personal loans, representing a financial impact of more than $772,000.

CIBC found that more than 125,000 accounts were affected by its errors, and that $1.5-million in improper fees, interest and premiums were charged to those accounts. The bank’s standard processing period is five days, but $51.7-million in credit transactions were not transferred within that time frame. Some customers experienced delays as long as three years.

“This violation deprived customers of accurate reporting on their credit card statements and persisted for many years, causing harm,” the FCAC said in its decision.

CIBC self-identified and reported the issue to the FCAC in September 2020, and brought on a third-party company to help identify affected customers. It attributed the issue with lost or stolen cards to employee error and an ineffective quality assurance program. For the defrauded cards, the bank said that the error was caused after a specialized fraud claims team was eliminated in April 2018 and replaced by an automated process that failed to transfer credit transactions.

“This matter affected a very small percentage of credit card clients whom we have already refunded with interest after self-identifying and self-correcting the issue,” CIBC spokesperson Tom Wallis said in an e-mail statement. “Our team is focused on doing what’s right for our clients and when we identify an issue, we work to advise our clients and take steps to correct it right away, as we did in this case.”

To fix the issue, CIBC implemented new procedures in July 2020 that corrected the process for defrauded cards. It also reintroduced a dedicated team to monitor the processing of credit transactions and established a quality assurance program for defrauded accounts.

In June 2021, the bank introduced new processes for lost or stolen cards with a quality assurance program to ensure that employees follow procedures.

By September 2021, CIBC had transferred all outstanding transactions and refunded the charges, along with 3 per cent interest. The average amount of the charges was $122.31 for defrauded cards and $96.85 for lost or stolen cards. It also made a charitable donation for customers who could not be located or whose refund was less than $5.

The FCAC said that it did not find any evidence to suggest that CIBC intentionally breached its regulatory obligations, but that its “controls were inadequate and ineffective,” demonstrating “significant negligence.”

According to the FCAC’s decision document, CIBC said that the organization overemphasized the 18-year duration of the issue, stating that the lengthy period indicates that there were infrequent errors, representing less than 1 per cent of all lost or stolen cards.

On the issue of the defrauded cards, CIBC said that the shorter duration of the breach – which spanned two years – should result in a lower assessment of negligence.

The FCAC initially proposed a penalty of $3.25-million. CIBC admitted to the violation, but disputed the watchdog’s assessment of the level of harm involved, prompting the FCAC to lower the penalty.

Gold hovered near a three month low on Friday and was set for its biggest weekly drop since February, as the dollar strengthened after U.S. Federal Reserve Chief Jerome Powell hinted about more interest rate hikes.

Spot gold ticked up 0.2% to $1,917.63 per ounce but stayed close to a three-month low hit earlier in the session. Prices are down 2% for the week. U.S. gold futures rose 0.2% to $1,927.90.

The dollar index drew support from risk aversion globally, making bullion less attractive for overseas investors.

“Gold has extended lower out of the range that it was occupying for a few weeks, suggesting there is more weakness ahead. The decline matches up with the rise in yields, reflecting hawkish comments from Powell and Fed officials more generally,” said Ilya Spivak, head of global macro at Tastylive.

Powell in his second day of testimony said the U.S. central bank would move interest rates at a “careful pace” from here as policymakers edge towards a stopping point for their historic round of monetary policy tightening.

While gold is struggling to find any impetus amid the higher interest rate outlook, it has shown an ability to stage a recovery after recent price dips, said Tim Waterer, chief market analyst at KCM Trade.

U.S. jobless claims, meanwhile, held steady at a 20-month high last week, potentially signaling a softening labor market in the face of the Fed’s aggressive rate hikes.

Oil dropped for a second day on Friday and was heading for a weekly decline, as a UK interest rate hike added to concern over economic growth that outweighed lower U.S. crude stocks and other signs of tighter supplies.

Both crude benchmarks had dropped about $3 on Thursday after the Bank of England raised interest rates by a bigger-than-expected half a percentage point. Central banks in Norway and Switzerland also hiked rates.

Brent crude slipped 59 cents, or 0.8%, to $73.55 a barrel at 0810 GMT, while U.S. West Texas Intermediate (WTI) crude was down 70 cents, or 1%, at $68.81.

“After yesterday’s central banks’ action, anxiety has palpably grown,” said Tamas Varga of oil broker PVM. “Due to strengthening economic headwinds caused by recession fears, only conspicuous stock depletion will herald a protracted change in the currently ominous outlook.”

Higher interest rates increase borrowing costs for businesses and consumers, which could slow economic growth and cloud the oil demand outlook for the rest of the year.

The prospect of more U.S. interest rate hikes added to those headwinds. U.S. Federal Reserve Chair Jerome Powell said this week two more rate hikes of 25 basis points each by the end of the year was “a pretty good guess.”

An increase in the dollar, drawing support from hawkish comments from global central banks, also weighed. A strong dollar makes oil more expensive for other currency holders and can hit demand and indicate higher risk aversion among investors.

The recession and demand concerns outweighed signs of supply-side tightness. This week’s U.S. inventory report showed crude stocks posted a surprise decline of 3.8 million barrels.

Also set to tighten the market is Saudi Arabia’s production cut of 1 million barrels per day in July announced as part of an OPEC+ deal to limit supplies into 2024.

First-time claims for U.S. unemployment benefits were unchanged in the week ended June 17th, according to a report released by the Labor Department on Thursday.

The report said initial jobless claims came in at 264,000, unchanged from the previous week’s revised level. Economists had expected jobless claims to edge down to 260,000 from the 262,000 originally reported for the previous week.

Reflecting the upward revision to the previous week, jobless claims held at their highest level since hitting 269,000 in the week ended October 23, 2021.

“Initial jobless claims came in a touch higher than expected in the week ended June 17, providing further evidence that labor market conditions are loosening, if only modestly,” said Nancy Vanden Houten, Lead U.S. Economist at Oxford Economics. “That is welcome by the Fed but may not be enough to dissuade them from raising rates again in July.”

The Labor Department also said the less volatile four-week moving average rose to 255,750, an increase of 8,500 from the previous week’s revised average of 247,250.

The increase lifted the four-week moving average to its highest level since reaching 260,000 in the week ended November 13, 2021.

By RTTNews Staff Writer   ✉  | Published: 6/22/2023 9:29 AM ET

First-time claims for U.S. unemployment benefits were unchanged in the week ended June 17th, according to a report released by the Labor Department on Thursday.

The report said initial jobless claims came in at 264,000, unchanged from the previous week’s revised level. Economists had expected jobless claims to edge down to 260,000 from the 262,000 originally reported for the previous week.

Reflecting the upward revision to the previous week, jobless claims held at their highest level since hitting 269,000 in the week ended October 23, 2021.

“Initial jobless claims came in a touch higher than expected in the week ended June 17, providing further evidence that labor market conditions are loosening, if only modestly,” said Nancy Vanden Houten, Lead U.S. Economist at Oxford Economics. “That is welcome by the Fed but may not be enough to dissuade them from raising rates again in July.”

The Labor Department also said the less volatile four-week moving average rose to 255,750, an increase of 8,500 from the previous week’s revised average of 247,250.

The increase lifted the four-week moving average to its highest level since reaching 260,000 in the week ended November 13, 2021.

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Meanwhile, the report said continuing claims, a reading on the number of people receiving ongoing unemployment assistance, fell by 13,000 to 1.759 million in the week ended June 10th.

The four-week moving average of continuing claims also dipped to 1,770,000, a decrease of 7,500 from the previous week’s revised average of 1,777,500.

“After drifting higher for several months, continued claims have trended lower more recently, signaling that labor markets are still tight and that workers who are laid off still have plenty of job opportunities,” said Vanden Houten.

“We expect that jobless claims will rise later in the year as the economy weakens and falls into a mild recession,” she added. “Given the difficulties employers have faced hiring workers following the pandemic, we expect job losses in this recession will be relatively small compared to prior recessions.”

• Thursday’s 50 basis point hike surprised markets, which had priced in a smaller rise.
• Policymakers are walking a tightrope as they attempt to tighten monetary policy sufficiently to quell inflationary pressures without triggering a full-scale mortgage crisis and recession.
• Core inflation — which excludes volatile energy, food, alcohol and tobacco prices — was 7.1% year on year in May, up from 6.8% in April and the highest rate since March 1992.

Bank of England June decision: 50-basis-point rate hike to tackle persistent inflation (cnbc.com)

• The European Central Bank on Thursday increased interest rates, after the Federal Reserve opted to pause.
• Just days before that, China’s central bank lowered its key medium-term lending rates, and in Japan the central bank left its ultra-loose policy unchanged.
• “Given the different stages the jurisdictions are in the cycle, there will be more nuanced decisions to be made,” Konstantin Veit, portfolio manager at PIMCO, told CNBC’s Street Signs Europe Friday.

Fed, ECB, BoJ, PBOC: Central banks monetary policy decision are diverging (cnbc.com)

Oil prices fell on Monday as questions over China’s economy outweighed OPEC+ output cuts and the seventh straight drop in the number of oil and gas rigs operating in the United States.

Brent crude fell 17 cents, or 0.2 per cent, to $76.44 a barrel by 0944 GMT while U.S. West Texas Intermediate (WTI) crude lost 31 cents, or 0.4 per cent, to $71.47.

Both contracts ended last week with gains of more than 2 per cent.

“(China’s) economy is navigating through powerful headwinds,” said PVM oil analyst Tamas Varga. “The property market has not healed from last year’s slump, and in May both retail sales and industrial output came in below expectation.”

A number of large banks have cut their forecasts on China’s 2023 growth in gross domestic product after May data last week showed the post-COVID recovery in the world’s second-largest economy was faltering.

China is widely expected to cut its benchmark loan rates on Tuesday after a similar reduction in medium-term policy loans last week to shore up a shaky economic recovery.

Sources have told Reuters that China will roll out more stimulus for its slowing economy this year, but concern over debt and capital flight will keep the measures targeted on the consumer and private sectors.

However, China’s refinery throughput rose in May to its second-highest total on record, helping to boost last week’s gains, and U.S. energy firms cut the number of working oil and natural gas rigs for a seventh week in a row for the first time since July 2020.

The oil and gas rig count, an early indicator of future output, fell by eight to 687 in the week to June 16 for the lowest total since April 2022.

Rising Iranian oil exports also weighed on prices. Iran’s crude exports and oil output have hit record highs in 2023 despite U.S. sanctions, according to consultants, shipping data and a source close to the matter, adding to global supply when other producers are limiting output.