Author: Consultant

  • Federal Infrastructure Bank commits $970-million toward Canada’s first small modular nuclear reactor

    Federal Infrastructure Bank commits $970-million toward Canada’s first small modular nuclear reactor

    The federal government will provide nearly $1-billion in debt financing toward the construction of a commercial small modular reactor (SMR) – which will be a first in Canada and among the first built worldwide.

    The Canada Infrastructure Bank announced Tuesday it will provide a low-interest loan of $970-million for an SMR at Ontario Power Generation’s Darlington Nuclear Generation Station in Clarington, Ont., about 70 kilometres east of Toronto. Infrastructure Bank chief executive Ehren Cory declined to disclose the loan’s interest rate, but characterized it as his organization’s largest-ever investment in clean power.

    Mr. Cory added that the government’s objective was “getting this project launched as quickly as possible, and showing the role that nuclear can play as part of that overall clean solution.” OPG officials said Tuesday the reactor will begin supplying power to Ontario’s grid in 2028.

    Ontario to extend life of Pickering nuclear plant until 2026

    The loan represents by far the federal government’s largest financial commitment since it began promoting SMRs in 2018. Since then, Ottawa has provided tens of millions of dollars in grants to support Canadian-based SMR developers, but those are small sums compared with the billions required to deliver a mature reactor design. The government hopes success at Darlington will spur new SMR projects in Saskatchewan, New Brunswick and Alberta.

    “We are doing this because nuclear energy, as a non-emitting source of energy, is critical to the achievement of Canada’s and the world’s climate goals,” Natural Resources Minister Jonathan Wilkinson said at an event Tuesday at the Darlington station.

    With outputs of 300 megawatts or less, SMRs are physically smaller than reactors built during the industry’s heyday in the 1970s and 1980s. Darlington’s four reactors were built between 1982 and 1993, and theyeach provide 935 megawatts. Alsowhereastraditional reactors were constructed on-site, most SMRs are intended to be partly fabricated in factories. The industry expects these features will lead to lower construction costs.

    OPG said the Darlington SMR will be built at several facilities across Ontario, including by BWXT Canada Ltd. at its manufacturing facility in Cambridge, Ont. Buildings and containment structures will be fabricated and preassembled off-site, whereas Darlington’s concrete structures were poured on location.

    In December, 2021, OPG announced it had selected GE Hitachi Nuclear Energy as a partner to build a BWRX-300, which is in some respects an updated version of a previous design known as the ESBWR, which was certified by the U.S. Nuclear Regulatory Commission.

    The BWRX-300 is not yet licensed by the Canadian Nuclear Safety Commission. Saskatchewan’s SaskPower also selected the BWRX-300 design, but hasn’t yet decided whether to build one.

    Mr. Cory said the Canada Investment Bank views the BWRX-300 as a tested design with a track record of deployments.

    “We had technical advice from our side that said that many of the core elements of it, and the components, were well-tested,” he said. “So we view that technology as acceptable and moderate.”

    According to the World Nuclear Industry Status Report, released by Mycle Schneider Consulting earlier this month, there have been no major advances in SMR technology in recent years. Many previously announced SMRs are either years – and in some cases decades – behind schedule, or have performed poorly.

    What the report did observe was “increasing media attention and some additional public funding commitments.” In February, French president Emmanuel Macron announced US$1.1-billion in funding toward development of an SMR design. The U.S. Department of Energy has announced up to US$5.5-billion in funding for SMRs, in addition to US$1.2-billion it has already spent, although no SMRs have yet been built on American soil.

    M.V. Ramana, a professor at the University of British Columbia’s public policy school, specializes in energy and is a co-author of the World Nuclear Industry Status Report. He said OPG’s timeline is unrealistic, and delays are likely.

    “This particular design is still very preliminary,” he said. “When a design is submitted to a regulator for a safety review, typically the regulators ask questions, and the design starts getting changed … and that means there is no way to have an assessment of how much this reactor would cost.”

    OPG said the Darlington SMR will be cost-competitive with other forms of generation, but did not provide a cost estimate. “We will issue a cost ahead of construction,” said spokesperson Neal Kelly in a written response to questions. “We’re still in the site preparation phase of the project.”

    OPG said it’s taking a “gated approach” to the project, with each phase requiring board approval. Mr. Cory said if OPG decides to abandon the reactor at any stage, the loan’s terms require full repayment. Taxpayers also won’t be on the hook for cost overruns, he added.

    The Canada Investment Bank takes direction from the federal government on what sectors it can invest in, and this time last year, nuclear was not specifically designated as a target for investment.

    “In Budget 2022, the federal government made clear that within our clean power mandate, they wanted to include in that scope the potential for small modular reactors,” Mr. Cory said. “That gave us the authority to go out and source deals.

    “We continue to talk to other jurisdictions who are also pursuing nuclear, so this probably won’t be the last.”

  • General Motors posts big third-quarter earnings beat but holds full-year guidance steady amid ‘headwinds’

    General Motors posts big third-quarter earnings beat but holds full-year guidance steady amid ‘headwinds’

    • General Motors easily beat Wall Street’s earnings expectations during the third quarter, while slightly missing on revenue.
    • The company did not adjust its guidance for the year.
    • GM CEO Mary Barra on Tuesday said the company is “actively managing the headwinds we face.”

    https://www.cnbc.com/2022/10/25/general-motors-gm-earnings-q3-2022.html

  • Wave of LNG tankers is overwhelming Europe in energy crisis and hitting natural gas prices

    Wave of LNG tankers is overwhelming Europe in energy crisis and hitting natural gas prices

    • 60 liquified natural gas vessels are slow sailing or anchored around Northwest Europe, the Mediterranean, and the Iberian Peninsula, according to MarineTraffic.
    • The vessels are considered floating LNG storage since they cannot unload and the situation is impacting the price of natural gas and freight rates.
    • Natural gas is critical for European energy needs into the winter and Russia has reduced its supply of gas as a result of the war in Ukraine, but existing storage capacity is at 93%.

    https://www.cnbc.com/2022/10/24/wave-of-lng-tankers-overwhelms-europe-and-hits-natural-gas-prices.html

  • 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.