Author: Consultant

Monday June 19

U.S. markets closed (Juneteenth)

(8:30 a.m. ET) Canadian industrial product and raw materials price indexes for May. Estimate are month-over-month declines of 0.5 per cent and 1.0 per cent, respectively.

(8:30 a.m. ET) Canadian household and mortgage credit for April.

(10 a.m. ET) U.S. NAHB Housing Market Index for June.

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Tuesday June 20

Japan industrial production and machine tool orders

Germany producer prices

(8:30 a.m. ET) Canadian CPI basket weights updated.

(8:30 a.m. ET) U.S. housing starts for May. The Street is forecasting an annualized rate dip of 0.1 per cent.

(8:30 a.m. ET) U.S. building permits for May. Consensus is an annualized rate rise of 0.6 per cent.

Earnings include: FedEx Corp.

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Wednesday June 21

U.K. CPI

(8:30 a.m. ET) Canadian retail sales for April. Estimate is an increase of 0.5 per cent from March (or 0.3 per cent excluding automobiles).

(8:30 a.m. ET) Canada’s new housing price index for May. Estimate is flat month-over-month and down 0.7 per cent year-over-year.

(10 a.m. ET) U.S. Fed Chair Jerome Powell testifies on Monetary Policy Report to the House Financial Services Committee.

(1:30 a.m. ET) Bank of Canada Summary of Deliberations for the June 7 decision is released.

Earnings include: AGF Management Ltd.; Asante Gold Corp.; Evertz Technologies Ltd.

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Thursday June 22

Euro zone consumer confidence

Bank of England monetary policy announcement

(8:30 a.m. ET) U.S. initial jobless claims for week of June 17. Estimate is 260,000, up 2,000 from the previous week.

(8:30 a.m. ET) U.S. current account deficit for Q1.

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

(10 a.m. ET) U.S. existing home sales for May. The Street is projecting an annualized rate decline of 0.7 per cent.

(10 a.m. ET) U.S. leading indicator for May.

(10 a.m. ET) U.S. Fed Chair Jerome Powell testifies on Monetary Policy Report to Senate Banking Committee

Earnings include: Accenture PLC; Carnival Corp.; Empire Company Ltd.

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Friday June 23

Japan CPI, PMI and department store sales.

Euro zone PMI

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

Earnings include: CarMax Inc.

Potash prices are in the dumps, but the battered shares of companies that produce the crop nutrient have been nudging higher, suggesting the worst days for the sector may be behind it.

The hope now: A prolonged comeback is in the works for stocks such as Germany’s K+S AG and Canada’s Nutrien Ltd., whose share prices are down 56 per cent and 44 per cent, respectively, from highs just 14 months ago.

“We think the bottom of the potash market has effectively arrived,” said Ben Isaacson, an analyst at Bank of Nova Scotia, in a note this week.

Potash doesn’t usually attract the level of attention of more economically important commodities such as copper or crude oil.

But that changed earlier this month when Canpotex, a joint venture that markets Canadian potash exports from Nutrien and U.S.-based Mosaic Co., reached a deal with China to sell the commodity through the end of this year at just US$307 per tonne.

To put that in perspective, the price is 48 per cent below that of the previous contract with China, according to numbers from Raymond James. And it is 27 per cent below the price of a contract with India that was settled just two months ago.

If that sounds like bad news, it is.

Commodity prices naturally underpin the financial performance of fertilizer producers. In its latest quarterly report, Nutrien said sales during the first three months of 2023 fell 20 per cent year-over-year. Net earnings fell 58 per cent.

Weaker potash prices, reflected in the latest Canpotex contract, could weigh on profits for the rest of the year.

This week, K+S responded by slashing guidance on its 2023 EBITDA – or earnings before interest, taxes depreciation and amortization – at a time when fertilizer prices are also lower in Brazil and buyers are taking a “wait-and-see” attitude toward crop inputs.

Yet, there is a case for buying these stocks when the outlook is particularly grim. Already, some brave investors appear to be nibbling at the lows.

K+S shares (ticker: SDF on Germany’s Xetra exchange) have stirred from recent lows earlier this month, rising almost 4 per cent since the Canpotex deal was announced June 6.

Nutrien’s share price (NTR-T +0.34%increase in Toronto and New York), though still the worst performer within the S&P/TSX 60 Index this year, has risen almost 11 per cent in Toronto from an intraday low on June 6.

Mr. Isaacson raised his recommendation this week on K+S to the equivalent of “hold” from “sell,” arguing that he is “slowly becoming a contrarian potash bull.”

He believes the Canpotex deal likely marked the low point for potash prices because key reasons for recent weak shipments of fertilizer, including limited availability and high prices, have now cleared. As for K+S specifically, he believes the company’s slashed financial guidance this week was already priced into the stock.

There is even an argument that the Canpotex deal could be good news for potash producers in the longer term.

Steve Hansen, an analyst at Raymond James, said this week that the deal’s low price marks a global floor for potash and should reinvigorate demand for crop nutrients in the second half of this year and into the first half of 2024.

“Against this backdrop, we also highlight that rapidly deteriorating U.S. crop conditions have put a solid bid under corn in recent weeks – historically a key leading indicator for fertilizer equities,” Mr. Hansen said in a note.

Corn futures on the Chicago Board of Trade have risen more than 7 per cent over the past month.

In the wake of the Canpotex announcement, Mr. Hansen trimmed his price target on Nutrien – his estimate of the share price within 12 months – to US$80 from US$85. Still, the lower target implies a gain of more than 30 per cent from the current price, underscoring the analyst’s enthusiasm for the stock.

If a rebound takes longer, investors should keep in mind that Nutrien and K+S are providing attractive incentives for investors to stay put.

Nutrien returned US$1.1-billion to shareholders through dividends and share repurchases in the first quarter alone, and the dividend yield on the stock is now above 3.6 per cent. K+S is also buying back its own shares and offers a dividend yield of 6.4 per cent.

These aren’t great days for potash prices – and investors may want to seize the opportunity.

Statistics Canada says wholesale sales excluding petroleum, petroleum products, and other hydrocarbons as well as oilseeds and grains fell 1.4 per cent to $80.9-billion in April.

The agency says the drop was mainly led by the miscellaneous and the food, beverage and tobacco product subsectors as sales fell in four of the seven categories it tracks.

Sales in the miscellaneous subsector fell 8.8 per cent to $10.4-billion in April, while the food, beverage and tobacco product subsector moved down 2.0 per cent to $14.8-billion.

The motor vehicle, parts and accessories subsector rose 3.2 per cent to $12.7-billion.

Constant dollar sales, excluding petroleum, petroleum products, and other hydrocarbons as well as oilseeds and grains, fell 1.4 per cent in April.

Statistics Canada began including the oilseed and grain industry group as well as the petroleum and petroleum products subsector in the wholesale trade universe earlier this year, but is excluding the data from its monthly analysis until historical data are available for proper monthly and annual analysis.

Canada is freezing ties with the China-led Asian Infrastructure Investment Bank while it probes allegations it is dominated by the Chinese Communist Party, Finance Minister Chrystia Freeland said on Wednesday.

Freeland said she did not rule out any outcome of the investigation, a clear hint that Ottawa could pull out of a bank it officially joined in March 2018.

The bank’s global communications director, a Canadian, said on Wednesday he had resigned and criticized the bank as “dominated by the Communist Party,” allegations which the AIIB said were baseless and disappointing.

“The Government of Canada will immediately halt all government led activity at the bank. And I have instructed the Department of Finance to lead an immediate review of the allegations raised and of Canada’s involvement in the AIIB,” Freeland told reporters.

She said as the world’s democracies worked to limit their strategic vulnerabilities to authoritarian regimes, they must be clear about the ways such governments exercised their influence.

“The review I am announcing today is to be undertaken expeditiously. And I am not ruling out any outcome following its completion,” she said.

Canada freezes ties with China-led AIIB, probes Communist allegations (cnbc.com)

• The People’s Bank of China lowered the rate on 237 billion Chinese yuan ($33 billion) of one-year medium-term lending facility (MLF) loans to some financial institutions by 10 basis points.
• The Shanghai Composite was 0.3% higher while the Shenzhen Component was flat. Hong Kong’s Hang Seng index rose 1.3% and the Hang Seng Tech index jumped by more than 2%.

China cuts a key policy rate for first time in 10 months as economic rebound cools (cnbc.com)

BEIJING — China’s youth unemployment rose to a record in May, while major data missed expectations, according to data released Thursday by the National Bureau of Statistics.

The unemployment rate for young people ages 16 to 24 rose to 20.8% in May, a record and above the high set in April. The jobless rate for people of all ages in cities was 5.2% in May.

Economic stimulus in China would be a win for 3 stocks tied to Chinese consumers

Retail sales for May rose by 12.7% in May from a year ago, below expectations for 13.6% growth forecast by a Reuters poll.

Industrial production rose by 3.5% in May from a year ago, slower than the 3.6% expected by the Reuters poll.

Analysts forecast a 4.4% increase in fixed asset investment for the first five months of the year from a year ago.

Fixed asset investment for the first five months of the year rose by 4% from a year ago, slower than the 4.4% predicted by Reuters.

“The national economy sustained the recovery momentum,” the statistics bureau said in a release in English.

However, the bureau warned of persistent challenges from the international environment and “mounting pressure” on the “domestic structural adjustment,” without elaborating much.

China’s youth unemployment hits a fresh record high in May, major data disappoint (cnbc.com)

The Federal Reserve kept its key interest rate unchanged Wednesday after having raised it 10 straight times to combat high inflation. But in a surprise move, the Fed signalled that it may raise rates twice more this year, beginning as soon as next month.

The Fed’s move to leave its benchmark rate at about 5.1 per cent, its highest level in 16 years, suggests that it believes the much higher borrowing rates it’s engineered have made some progress in taming inflation. But top Fed officials want to take time to more fully assess how their rate hikes have affected inflation and the economy.

The central bank’s 18 policy makers envision raising their key rate by an additional half-point this year, to about 5.6 per cent, according to economic forecasts they issued Wednesday.

The economic projections revealed a more hawkish Fed than many analysts had expected. Twelve of the 18 policy makers forecast at least two more quarter-point rate increases. Four supported a quarter-point increase. Only two envisioned keeping rates unchanged. The policy makers also predicted that their benchmark rate will stay higher for longer than they did three months ago.

“We understand the hardship that high inflation is causing, and we remain strongly committed to bring inflation back down to our 2-per-cent goal,” Fed chair Jerome Powell said at a news conference. “The process of getting inflation down is going to be a gradual one – it’s going to take some time.”

Still, Mr. Powell stopped short of saying the Fed’s policy makers have committed to resuming their rate hikes when they next meet in late July.

One reason why the officials may be predicting additional rate hikes is that they foresee a modestly healthier economy and more persistent inflation that might require higher rates to cool. Their updated forecasts show them predicting economic growth of 1 per cent for 2023, an upgrade from a meagre 0.4 per cent forecast in March. And they expect “core” inflation, which excludes volatile food and energy prices, of 3.9 per cent by year’s end, higher than they expected three months ago.

At his news conference, Mr. Powell made clear that the Fed still regards the still-robust job market and the wage growth that has accompanied it as contributing to high inflation. At the same time, he expressed optimism that lower apartment rental costs, among other items, may help slow inflation in the coming months. He stressed that the Fed wants to see an inflation slowdown actually materialize before holding off on further rate hikes.

“We want to see inflation coming down decisively,” he said.

Immediately after the Fed’s announcement, which followed its latest policy meeting, stocks sank and Treasury yields surged. The yield on the two-year Treasury note, which tends to track market expectations for future Fed actions, jumped from 4.62 per cent to 4.77 per cent.

The Fed’s aggressive streak of rate hikes, which have made mortgages, auto loans, credit cards and business borrowing costlier, have been intended to slow spending and defeat the worst bout of inflation in four decades. Average credit-card rates have surpassed 20 per cent to a record high.

The central bank’s rate hikes have coincided with a steady drop in consumer inflation, from a peak of 9.1 per cent last June to 4 per cent as of May. But core inflation remains chronically high. Core inflation clocked in at 5.3 per cent in May compared with 12 months earlier, well above the Fed’s 2-per-cent target.

Mr. Powell and other top policy makers have also indicated that they want to assess how much a pullback in bank lending might be weakening the economy. Banks have been slowing their lending – and demand for loans has fallen – as interest rates have risen. Some analysts have expressed concern that the collapse of three large banks last spring could cause nervous lenders to sharply tighten their loan qualifications.

The Fed has raised its benchmark rate by a substantial 5 percentage points since March of last year – the fastest pace of increases in 40 years. “Skipping” a rate hike now might have been the most effective way for Mr. Powell to unite a fractious policy-making committee.

The 18 members of the committee have appeared divided between those who favour one or two more rate hikes and those who would like to leave the Fed’s key rate where it is for at least a few months and see whether inflation further moderates. This group is concerned that hiking too aggressively would heighten the risk of causing a deep recession.

In an encouraging sign, inflation data that the government issued this week showed that most of the rise in core prices reflected high rents and used car prices. Those costs are expected to ease later this year.

Wholesale used car prices, for example, fell in May, raising the prospect that retail prices will follow suit. And rents are expected to ease in the coming months as new leases are signed with milder price increases. Those lower prices, though, will take time to feed into the government’s measure.

The economy has so far fared better than the central bank and most economists had expected at the beginning of the year. Companies are still hiring at a robust pace, which has helped encourage many people to keep spending, particularly on travel, dining out and entertainment.

BCE Inc. BCE-T -2.31%decrease is eliminating roughly 1,300 positions as part of a significant reorganization, citing declining legacy phone revenues as well as losses in its news and radio operations.

The roles that are being cut are primarily in management, which will be reduced by about 6 per cent, BCE chief executive Mirko Bibic said in an open letter Wednesday. The company will have 20 per cent fewer executive roles than it did in 2020, he added.

Bell Media, a division of BCE, is closing six AM radio stations and selling three others, subject to approval by the Canadian Radio-television and Telecommunications Commission.

Canadian telecoms have seen their stock prices under pressure recently amid the threat of a looming recession and heightened price competition after Rogers Communications Inc.’s RCI-B-T +1.35%increasetakeover of Shaw Communications Inc.

Mr. Bibic said BCE’s job cuts are “consistent with but smaller than similar reductions announced by other leading technology and media companies across North America in recent months.”

Tech companies worldwide have cut more than 360,000 jobs over the past 18 months or so, and media companies thousands more, as they seek to reduce costs amid revenue squeezes and an emphasis on bottom-line results rather than profitless growth.

Tech giants such as Amazon.com Inc., Alphabet Inc. and Microsoft Corp. have slashed jobs by the thousands as they focus on their most profitable lines of business. In Canada, big companies such as Shopify Inc. have made major cuts, while a slew of smaller players have also culled staff to boost results.

Last month, BCE reported a 15.6-per-cent drop in its profit for the first quarter ended March 31 compared with the same period a year earlier, while its revenue rose by 3.5 per cent to $6.05-billion.

Operating revenue in its media division declined by 5.5 per cent to $780-million, as advertisers pulled back amid unfavourable economic conditions.

Mr. Bibic said on Wednesday that while BCE will continue to invest in key growth areas, the company needs to align its cost structures to the revenue potential of each of its business segments.

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BCE’s Bell Canada subsidiary expects to lose more than $250-million each year in legacy phone revenues, Mr. Bibic said. Meanwhile, Bell Media’s news operations are incurring annual operating losses of $40-million and the profitability of its radio business has been slashed in half since the start of the COVID-19 pandemic, he added.

“These are three examples, but they show that to succeed in today’s challenging economic, regulatory and competitive environment and be ready for what comes next, we need to accelerate our shift away from how telecom and media companies have operated in the past,” Mr. Bibic said.

As part of its reorganization, BCE will move to a “single newsroom approach across all brands” in order to make its newsgathering operations more efficient and cost effective, Richard Gray, vice-president of news, said in a memo to his team.

“We and our industry continue to be greatly impacted by a number of challenges including operating losses across all news divisions, the current economic downturn, inflation, a prolonged advertising slump with no signs of immediate recovery and a more challenging regulatory environment that has not adapted to new realities facing media,” Mr. Gray said.

In a separate memo, Bell Media president Wade Oosterman blamed the cuts on “major disruption” to the industry due to a combination of customer cord cutting and the shift of advertising revenue to foreign digital platforms.

“Creating and obtaining the content audiences want has never been more important, but it also has never been more expensive,” Mr. Oosterman said.

Bell Media will also be shuttering its foreign bureaus in London and Los Angeles and scaling back its Washington bureau. At the same time, the company says it will be expanding its Canadian coverage, adding new videographers in St. John’s, Charlottetown, Fredericton and Regina.

Bell Media owns CTV, TSN, CP24 and a number of specialty TV news and radio channels.

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Jill Macyshon, CTV’s Manitoba bureau chief, lamented the news on Twitter, writing that “amazingly talented friends and colleagues are losing their jobs today … We were all waiting for the next shoe to drop. It slammed down.”

The six AM radio stations that the company is shutting down are:

• Funny 1290 in Winnipeg
• Funny 1060 in Calgary
• TSN 1260 Radio in Edmonton
• BNN Bloomberg Radio 1410 in Vancouver
• Funny 1040 in Vancouver
• NewsTalk 1290 in London, Ont.

BCE is also planning to sell AM Radio 1150 and AM 820, both in Hamilton, and AM 580 in Windsor, Ont., to a third party.

The inflation rate cooled in May to its lowest annual rate in about two years, the Labor Department reported Tuesday.

The consumer price index, which measures changes in a multitude of goods and services, increased just 0.1% for the month, bringing the annual level down to 4%. That 12-month increase was the smallest since March 2021, when inflation was just beginning to rise to what would become the highest in 41 years.

Excluding volatile food and energy prices, the picture wasn’t as optimistic.

So-called core inflation rose 0.4% on the month and was still up 5.3% from a year ago, indicating that while price pressures have eased somewhat, consumers are still under fire.

All of those numbers were exactly in line with the Dow Jones consensus estimates.

This is breaking news. Please check back here for updates.