Author: Consultant

  • UK’s Rishi Sunak inherits in-tray of anarchy as he takes over as PM of country in crisis

    UK’s Rishi Sunak inherits in-tray of anarchy as he takes over as PM of country in crisis

    • Britain’s new Prime Minister Rishi Sunak is set to take office Tuesday, assuming with it one of the most daunting political in-trays in modern British history.
    • The former finance minister will be tasked with remedying multiple crises, including soaring inflation, higher energy costs, industrial unrest and a battered economy.
    • Sunak has warned that the U.K. faces a “profound economic challenge,” and pledged to instill “stability and unity.”

    https://www.cnbc.com/2022/10/25/rishi-sunak-inherits-challenging-in-tray-as-pm-of-country-in-crisis.html

  • Rishi Sunak closes in on Downing Street after Boris Johnson pulls out of leadership race

    Rishi Sunak closes in on Downing Street after Boris Johnson pulls out of leadership race

    • Former Finance Minister Rishi Sunak looks set to become the next prime minister of the U.K., with votes to be counted Monday afternoon. 
    • Former Defense Minister Penny Mordaunt is his only rival after former Prime Minister Boris Johnson pulled out of the race Sunday.

    https://www.cnbc.com/2022/10/24/rishi-sunak-closes-in-on-downing-street-after-boris-johnson-pulls-out.html

  • Hong Kong’s Hang Seng down around 6% in mixed Asia trade; Japan’s yen weakens despite reports of intervention

    Hong Kong’s Hang Seng down around 6% in mixed Asia trade; Japan’s yen weakens despite reports of intervention

    Hong Kong stocks and mainland China markets fell sharply Monday while other major Asia-Pacific markets rose.

    Hong Kong’s Hang Seng index spiraled down about 6% to its lowest levels since April 2009, with the Hang Seng Tech index down more than 9%.

    Tai Hui, JPMorgan Asset Management’s APAC chief market strategist, said a combination of factors has been driving the Hong Kong market recently, including higher U.S. Treasury yields.

    Investors may also have expected policy measures to be announced during the Communist Party of China’s 20th National Congress, which closed over the weekend with President Xi Jinping loyalists tapped to form a core leadership group.

    “Since the meeting is mostly about personnel changes, the economic recovery might not come as soon as we have hoped,” Tai told CNBC in an email.

    Mainland China markets briefly entered positive territory on better-than-expected economic data before falling again. The Shanghai Composite in mainland China was 2.02% lower at 2,977.56, and the Shenzhen Component lost 2.055% to 10,694.61.

    In Australia, the S&P/ASX 200 was 1.54% higher at 6,779.40. The Kospi in South Korea gained 1.04% to 2,236.16, and the Kosdaq added 2.08% to 688.50.

    Japan’s Nikkei 225 climbed 0.31% to 26,974.90 and the Topix was up 0.28% to 1,887.19. MSCI’s broadest index of Asia-Pacific shares outside Japan was 1.61% lower.

    Authorities in Japan reportedly intervened in the forex market on Friday, causing the yen to strengthen sharply. But the currency continued to seesaw. On Monday in Asia, the currency briefly strengthened to 145-levels but was last at 149.09 per dollar.

    Japanese yen’s wild ride

    U.S. stocks soared on Friday following a Wall Street Journal report that some Fed officials are concerned about tightening policy too much. On Friday in the U.S., the Dow Jones Industrial Average jumped 748.97 points, or 2.47%, to close at 31,082.56. The S&P 500 added 2.37% to 3,752.75. The Nasdaq Composite climbed 2.31% to 10,859.72.

    Singapore, Malaysia and India’s markets are closed for a holiday Monday. Later this week, the Bank of Japan will meet, while Singapore and Australia are expected to release inflation data.

    TICKER COMPANY NAME PRICE CHANGE %CHANGE 
    .N225Nikkei 225 Index*NIKKEI26974.984.320.31
    .HSIHang Seng Index*HSI15199.39-1011.73-6.24
    .AXJOS&P/ASX 200*ASX 2006779.4102.61.54
    .SSECShanghai*SHANGHAI2977.56-61.37-2.02
    .KS11KOSPI Index*KOSPI2236.1623.041.04
    .FTFCNBCACNBC 100 ASIA IDX*CNBC 1006647.37-79.53-1.18

    55 MIN AGO

    Currency check: Japan’s yen back above 149 per dollar

    The U.S. dollar strengthened around 1% against the Japanese yen to 149.20 in Asia’s afternoon after a wild ride for the currency pair.

    Authorities in Japan reportedly intervened in the market on Friday, causing the yen to sharply strengthen before weakening again. On Monday morning in Asia, the yen briefly popped to 145-levels.

    “The sharp and sudden drop prompted market speculation the Ministry of Finance (MoF) intervened again on Monday following Friday’s intervention,” according to a Commonwealth Bank of Australia note.

    The yen then weakened throughout the session before crossing the 149 mark again in the afternoon.

    “In line with the usual pattern, we expect the intervention‑induced losses in USD/JPY to be unwound within a few weeks,” the CBA note said.

  • China Q3 GDP growth rebounds at faster pace but risks loom

    China Q3 GDP growth rebounds at faster pace but risks loom

    China’s economy rebounded at a faster-than-expected pace in the third quarter, but strict COVID curbs, a deepening property crisis and global recession risks are challenging Beijing’s efforts to foster a robust revival over the next year.

    Gross domestic product (GDP) in the world’s second-biggest economy rose 3.9% in the July-September quarter year-on-year, official data showed on Monday, above the 3.4% pace forecast in a Reuters poll of analysts, and quickening from the 0.4% pace in the second quarter.

    The data was originally scheduled for release on Oct. 18 but was delayed amid a key Communist Party Congress last week, which ended with Xi Jinping securing a precedent-breaking third term as its leader.

    “The Chinese economy has great resilience, potential and latitude,” Xi told reporters on Sunday as he unveiled the top leadership team of the Communist Party for the next five years.

    “Its strong fundamentals will not change, and it will remain on a positive trajectory over the long run.”

    The economy was buoyed by the manufacturing sector, with separate data showing industrial output in September rose 6.3% from a year earlier, beating expectations for a 4.5% gain and 4.2% in August.

    Chinese stocks tumbled on Monday and the yuan weakened as investors focused on the country’s new governing body membership, which was stacked with loyalist to Xi, heightening fears he will double down on ideology-driven policies at the cost of economic growth.

    Despite the rebound, the economy faces challenges on multiple fronts at home and abroad. China’s zero-COVID strategy and strife in its key property sector have exacerbated the external pressure from the Ukraine crisis and a global slowdown due to interest rate hikes to curb red-hot inflation.

    A Reuters poll forecast China’s growth to slow to 3.2% in 2022, far below the official target of around 5.5%, marking one of the worst performances in almost half a century.

    TRADE PAIN

    In signs of continued strain, exports grew 5.7% from a year earlier in September, beating expectations but coming in at the slowest pace since April. Imports rose a feeble 0.3%, undershooting estimates for 1.0% growth.

    Retail sales grew 2.5%, missing forecasts for a 3.3% increase and easing from August’s 5.4% pace, underlining still fragile domestic demand.

    The surveyed urban jobless rate nudged up to 5.5% in September, the highest since June, with the unemployment rate for job seekers between the ages of 16 and 24 at 17.9%.

    More crucially, month-on-month new homes prices fell for the second straight month in September, reflecting the continued homebuyer aversion in the economically vital sector as indebted developers raced to pool resources and deliver projects on time.

    Policymakers had rolled out over 50 economic support measures since late May, seeking to bolster the economy to ease job pressures, even through they have played down the importance of hitting the growth target, which was set in March.

    New bank lending in China nearly doubled in September from the previous month and far exceeded expectations, thanks to central bank efforts to revive the economy.

    “On the policy front, the overall policy will remain supportive,” said Hao Zhou, chief economist at Guotai Junan International.

    “In our view, further policy impetus is required to buoy economic recovery, but additional interest rate cuts are unlikely during a period of aggressive global central bank rate hikes.”

  • Bank of Canada expected to deliver another large rate hike as it continues inflation fight

    Bank of Canada expected to deliver another large rate hike as it continues inflation fight

    he Bank of Canada is expected to deliver another large interest rate increase this week, as central bank officials remain more concerned about doing too little to combat inflation than doing too much and causing a recession.

    Governor Tiff Macklem has been unambiguous in recent weeks that interest rates need to keep rising to get prices under control. Markets are pricing in a high probability that he will announce another 75-basis-point rate increase on Wednesday, although some forecasters argue that a smaller 50-basis-point move is more likely. (There are 100 basis points in a percentage point.)

    Eight months into one of the fastest rate-hike cycles on record, the central bank is in a precarious spot. The economy is slowing down, but inflation remains stubbornly high. Analysts think the bank is nearing the end of its monetary policy-tightening campaign, but Mr. Macklem and his team risk roiling markets and boosting inflation expectations if they change course on rate hikes too abruptly.

    ‘Disappointing’: How the Street is reacting to a hot inflation report that has altered bets on the next move by the BoC

    Stubborn inflation paves way for large Bank of Canada rate hike

    “Dovish signals may be self-defeating for the moment,” National Bank economists Warren Lovely and Taylor Schleich said in a note to clients.

    “But by pushing rates into decisively restrictive territory more quickly, it’s less obvious (to us) that rates will need to move up much further,” they said, referring to a level of interest rates that intentionally slow down economic activity.

    The central bank has raised interest rates five times since March, bringing its benchmark borrowing rate to 3.25 per cent from 0.25 per cent. How big it goes this week will come down to its assessment of competing risks.

    Canada’s economic outlook has darkened since the last rate decision in September. Higher mortgage rates are hammering the housing market, and a pair of Bank of Canada surveys published last week show a significant deterioration in consumer and business sentiment. A growing number of private-sector economists – including Mr. Macklem’s predecessors Stephen Poloz and Mark Carney – are now predicting the Canadian economy will enter a recession next year.

    At the same time, the rate of inflation remains more than three times the Bank of Canada’s 2-per-cent target, eroding the value of wages and adding to widespread affordability challenges.

    Consumer Price Index (CPI) inflation has slowed in recent months, falling to an annual rate of 6.9 per cent in September, from a high of 8.1 per cent in June, thanks in large part to lower gasoline prices. But the latest CPI data, published last week, showed that inflation is broadening, with most goods and services experiencing oversized price increases.

    “We have yet to see a clear turning point in underlying inflation,” Mr. Macklem told reporters two weeks ago in his last public remarks before the rate decision. “Against that background, we are more worried about upside risks to inflation, than downside risks [to the wider economy].”

    A weakening Canadian dollar adds a further complication. Canada’s currency has fallen nearly 10 per cent against the U.S. dollar over the past year, with a particularly sharp drop in recent months as the U.S. Federal Reserve has become hawkish about further rate hikes and investors have flocked to U.S. assets as a haven amid turmoil in global financial markets.

    A weaker exchange rate makes imported American products more expensive, adding to inflation. The Bank of Canada does not officially target the exchange rate, but Mr. Macklem said this month that a weaker dollar means the bank may need to raise interest rates more than would otherwise be needed.

    The Federal Reserve is widely expected to announce another 75-basis-point rate hike in early November. Derek Holt, Bank of Nova Scotia’s head of capital markets economics, said the Bank of Canada may be inclined to match this expected move by the Fed. A smaller rate hike “could mean further [Canadian dollar] weakness, especially in relation to what is priced, which would go against their messaging and look highly inconsistent,” he said in a note to clients.

    Crucially, from the Bank of Canada’s perspective, the sources of inflation are changing. While much of the run-up in prices in 2021 and the first half of 2022 was the result of global forces – including supply chain bottlenecks and the commodity price shock following Russia’s invasion of Ukraine – inflation is increasingly being driven by domestic factors. This can be seen in rising service prices and faster wage growth.

    Mr. Macklem and his colleagues say the Canadian economy is experiencing “excess demand.” That means people want more goods and services than the economy can supply, and companies want more workers than are available, leading to high job vacancies and rising wages as businesses compete for scarce labour.

    “We actually need to see some cooling in the labour market,” Mr. Macklem said this month. “Right now, it’s overheated. That’s generating domestic price pressures. That’s not sustainable.”

    A weaker labour market will mean job losses and higher unemployment. Some economists, particularly those aligned with unions, are urging the bank to stop raising rates to avoid unduly hurting Canadian workers.

    A paper published by the Canadian Labour Congress last week said the bank’s cure for inflation could be worse than the disease. It argued the bank should stop to assess the impact of its previous five rate hikes before barrelling ahead with more.

    There is little evidence Mr. Macklem and his team will heed this advice. After being criticized for acting too slowly in the face of rising inflation, central bankers are scrambling to restore their credibility.

    Their big fear is losing control of the inflation narrative, and having Canadians expect permanently high inflation, as happened in the 1970s and early 1980s. What people think about future prices feeds into wage negotiations and business price-setting decisions, such that beliefs about high inflation can become self-reinforcing.

    “Inflation expectations have remained reasonably well anchored on our target. But we’re not inclined to test Canadians’ patience,” Mr. Macklem said.

  • Economic Calendar: Oct 24 – Oct 28

    Economic Calendar: Oct 24 – Oct 28

    Monday October 24

    China GDP, industrial production, retail sales, fixed asset investment and trade surplus

    Japan and Euro zone PMI

    (8:30 a.m. ET) Canada’s manufacturing sales for September.

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

    Earnings include: Capstone Mining Corp.; Celestica Inc.; PrairieSky Royalty Ltd.

    Tuesday October 25

    Japan department store sales and machine tool orders

    Germany business climate

    (9 a.m. ET) U.S. CoreLogic Case-Shiller Home Price Index (20 city) for August. The Street is forecasting a decline of 0.8 per cent from July and up 14.4 per cent year-over-year.

    (9 a.m. ET) U.S. FHFA House Price Index for August. The consensus estimate is a drop of 0.6 per cent month-over-month but up 12.4 per cent year-over-year.

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

    Earnings include: Alphabet Inc.; Canadian National Railway Co.; Coca-Cola Co.; First National Financial Corp.; First Quantum Minerals Ltd.; General Electric Co.; General Motors Co.; Lockheed Martin Corp.; Lundin Mining Corp.; NextEra Energy Inc.; United Parcel Service Inc.; Texas Instruments Inc.; Twitter Inc.; Visa Inc.

    Wednesday October 26

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

    (8:30 a.m. ET) U.S. wholesale and retail inventories for September.

    (10 a.m. ET) Bank of Canada policy announcement and Monetary Policy Report (with press conference to follow at 11 a.m.)

    (10 a.m. ET) U.S. new home sales for September. Consensus is a decline of 15.3 per cent on an annualized rate basis.

    Earnings include: Agnico Eagle Mines Ltd.; Alamos Gold Inc.; Allied Properties REIT; Bristol-Myers Squibb Co.; Boeing Co.; Canadian Pacific Railway Ltd.; Champion Iron Ltd.; Crescent Point Energy Corp.; FirstService Corp.; Ford Motor Co.; Meta Platforms Inc.; Methanex Corp.; Microsoft Corp.; Thermo Fisher Scientific Inc.; TMX Group Ltd.; West Fraser Timber Co. Ltd.; Yamana Gold Inc.

    Thursday October 27

    Bank of Japan monetary policy meeting and outlook report (through Friday)

    Germany consumer confidence

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

    (8:30 a.m. ET) U.S. initial jobless claims for week of Oct. 22. Estimate is 225,000, up 11,000 from the previous week.

    (8:30 a.m. ET) U.S. real GDP for Q3. Consensus is an annualized rate rise of 2.3 per cent.

    (8:30 a.m. ET) U.S. durable goods and core orders for September. The Street is expecting month-over-month increases of 0.6 per cent and 0.5 per cent, respectively.

    Earnings include: Advantage Oil & Gas Ltd.; Amazon.com Inc.; Apple Inc.; Cameco Corp.; Canadian Utilities Ltd.; Canfor Corp.; Caterpillar Inc.; Constellation Software Inc.; Gilead Sciences Inc.; Intel Corp.; Mastercard Inc.; McDonald’s Corp.; Merck & Co. Inc.; Newmont Goldcorp Corp.; Shaw Communications Inc.; Shopify Inc.; Tamarack Valley Energy Ltd.; Teck Resources Ltd.; TFI International Inc.; Whitecap Resources Inc.; Winpak Ltd.

    Friday October 28

    Japan jobless rate

    Euro zone economic and consumer confidence

    Germany GDP and CPI

    (8:30 a.m. ET) Canada’s monthly GDP for August. The Street expecting an increase of 0.1 per cent from July.

    (8:30 a.m. ET) U.S. personal spending and income for September. Consensus is month-over-month increases of 0.4 per cent and 0.3 per cent, respectively.

    (8:30 a.m. ET) U.S. core PCE price index for September. Consensus is a rise of 0.5 per cent from August and up 5.2 per cent year-over-year.

    (8:30 a.m. ET) U.S. employment cost index for Q3. The Street is expecting a rise of 1.2 per cent from Q2 and up 5.0 per cent year-over-year.

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

    (10 a.m. ET) U.S. pending home sales for September.

    Also: Ottawa’s budget balance for August.

    Earnings include: AbbVie Inc.; Air Canada; Allkem Ltd.; AtlaGas Ltd.; Chevron Corp.; Exxon Mobil Corp.; Fortis Inc.; Imperial Oil Ltd.

  • Nat-Gas Prices Plunge On Increased Supply And Slack Demand

    Nat-Gas Prices Plunge On Increased Supply And Slack Demand

    Nov Nymex natural gas (NGX22) on Friday closed down by -0.399 (-7.45%).

    Nov nat-gas Friday sank to a 7-month nearest-futures low and closed sharply lower.  An easing of U.S. nat-gas supply concerns is weighing on prices as U.S. nat-gas stockpiles have been accumulating at a faster-than-expected pace in recent weeks, aided by mild weather that has curbed heating demand.  Forecaster Maxar Technologies said the U.S. weather forecast has shifted to higher U.S. temperatures, eroding the outlook for heating demand.  Maxar expects the Eastern half of the U.S. to see above-normal temperatures at least through Nov 4.  

    Lower-48 state total gas production on Friday was 99.3 bcf, up +5% y/y.  BNEF data showed lower-48 state U.S. nat-gas production on Oct 3 climbed to a record high of 103.6 bcf.  Lower-48 state total gas demand Friday was 68.3 bcf/day, up +5.6% y/y.  LNG net flow to U.S. LNG export terminals Friday was 11.5 bcf/day, up +2.5% w/w.

    A decline in U.S. electricity output is bearish for nat-gas demand from utility providers.  The Edison Electric Institute reported Wednesday that total U.S. electricity output in the week ended Oct 15 fell -3.8% y/y to 70,244 GWh (gigawatt hours).  However, cumulative U.S. electricity output in the 52-week period ending Oct 8 rose +2.0% y/y to 4,113,318 GWh.

    Nat-gas prices have support as EU countries agreed to cut nat-gas demand from Russia by 15% over the next eight months.  Also, Russia recently slashed nat-gas exports to Europe to 20% of capacity, putting upward pressure on European nat-gas prices.  Russia has already halted nat-gas shipments to Demark, Finland, Bulgaria, Netherlands, Poland, and Latvia and reduced supplies to Germany for not acceding to its demand for gas payments in Russian rubles.

    In an underlying bullish factor, last month’s sabotage of the Nord Stream 1 undersea nat-gas pipeline and the massive leak under the Baltic Sea means there will be no near-term chance that Russia might reopen the pipeline to begin delivering gas to Europe again.  Prior to the explosions, Russia’s state-owned gas company Gazprom had cut off the delivery of gas through that pipeline to Europe under the pretext of technical issues.

    Nat-gas prices have seen downward pressure from the prolonged outage at the Freeport LNG export terminal, which curbed U.S nat-gas exports and put upward pressure on domestic supplies.   The Freeport terminal accounted for about 20% of all U.S. nat-gas exports before the explosion on Jun 8 knocked it offline.  The Freeport LNG terminal receives about 2 bcf, or 2.5%, of the output from the lower 48 U.S. states.  The Freeport terminal said Aug 23 that it won’t reopen until early to mid-November, later than a previous announcement of a restart in October.

    Thursday’s weekly EIA report was bearish for nat-gas prices as it showed U.S. nat gas inventories rose +111 bcf to 3,3421 bcf in the week ended Oct 14, above expectations of a +106 bcf increase and well above the 5-year average of +73 bcf.  However, inventories remain tight and are down -3.4% y/y and -5.2% below their 5-year seasonal average.

    Baker Hughes reported Friday that the number of active U.S. nat-gas drilling rigs in the week ended Oct 21 was unchanged at 157 rigs, falling back slightly from a 3-year high of 166 rigs the week ended Sep 9.  Active rigs have more than doubled from the record low of 68 rigs posted in July 2020 (data since 1987).

  • U.S. consumer is soldiering on despite soaring inflation and recession risk, credit card giants say

    U.S. consumer is soldiering on despite soaring inflation and recession risk, credit card giants say

    U.S. consumers have demonstrated a willingness to continue to pay higher prices in the face of a sluggish economy that could be tipped into a recession, according to credit card giants American Express and Bank of America.

    American Express on Friday reported stronger-than-expected third-quarter earnings and revenue, while raising its full-year forecast. The company said overall customer spending jumped 21% year over year, driven by growth in goods and services as well as travel and entertainment.

    The demand for travel is particularly resilient as Americans make up for postponed trips due to the pandemic. Consumers are also splashing out on food and entertainment after pandemic lockdowns eased.

    American Express said its travel and entertainment segment saw spending climb 57% from a year ago with volumes in its international markets surpassing pre-pandemic levels for the first time in the third quarter.

    “Card member spending remained at near-record levels in the quarter,” American Express CEO Stephen Squeri said Friday on an earnings call. “We expected the recovery in travel spending to be a tailwind for us, but the strength of the rebound has exceeded our expectations throughout the year.”

    Bank of America isn’t experiencing any slower growth in spending either despite inflation having reached historic highs. CEO Brian Moynihan said earlier this week that the bank’s customers continue to spend freely, using their credit cards and other payment methods for 10% more transaction volume in September and the first half of October than a year earlier.

    “Analysts might wonder whether the talk of inflation, recession and other factors could [result] in a slower spending growth,” Moynihan said Monday during a conference call. “We just don’t see [that] here at Bank of America.”

    Recent economic data, though, have shown signs of stagnation in consumer spending. Retail and food services sales were little changed for September after rising 0.4% in August, according to the advance estimate from the Commerce Department.

    Consumers might have started to grow guarded about splurging as prices moved sharply higher and the Federal Reserve raised interest rates to slow the economy.

    — CNBC’s Hugh Son and Jeff Cox contributed reporting.

  • Oil steadies as rate hike talk offsets Chinese demand hopes

    Oil steadies as rate hike talk offsets Chinese demand hopes

    Oil steadied on Friday as investors weighed the impact of sharp interest rate rises on energy consumption, offsetting hopes of higher Chinese demand and output cuts by OPEC and its allies.

    To fight inflation, the U.S. Federal Reserve is trying to slow the economy and will keep raising its short-term rate target, Federal Reserve Bank of Philadelphia President Patrick Harker said on Thursday.

    Brent crude was down 2 cents at $92.36 a barrel by 1218 GMT. U.S. West Texas Intermediate crude was up by 35 cents, or 0.4 per cent, to $84.86.

    “With several key Fed members taking turns at the hawk’s pulpit this week arguing for even higher interest rates, it blunted optimism from China’s reduced quarantine hopes,” Stephen Innes, managing director at SPI Asset Management, said in a note.

    “Everyone is pining for a China-reopening-driven commodity boost, but we are not there yet.”

    Brent, which came close to its all-time high of $147 a barrel in March, is on track for a weekly gain of almost 1 per cent, while U.S. crude was set to fall less than 1 per cent. Both benchmarks dropped in the previous week.

    Oil gained a lift on Thursday after Bloomberg News reported that Beijing was considering cutting the quarantine period for visitors to seven days from 10 days. There has been no official confirmation from Beijing.

    “The knee-jerk price action provided a useful glimpse of what to expect once more punitive restrictions are lifted,” said Stephen Brennock of oil broker PVM, of the market’s rally after the report.

    China, the world’s largest crude importer, has stuck to strict COVID-19 curbs this year, weighing heavily on business and economic activity and lowering demand for fuel.

    Oil gained support from a looming European Union ban on Russian oil, as well as the output cut agreed earlier this month by the Organization of the Petroleum Exporting Countries and allies including Russia, known as OPEC+.