Author: Consultant

https://www.cnn.com/2022/09/21/weather/hermine-forecast-gulf-of-mexico/index.html

Oil rises nearly 3% after Putin’s speech; Asia markets lower ahead of the Fed’s rate hike

Shares in the Asia-Pacific traded lower Wednesday, following Wall Street’s negative lead ahead of the Federal Reserve’s expected rate hike.

Oil prices rallied in Asia’s afternoon after Russian president, Vladimir Putin, announced a partial military mobilization.

The Nikkei 225 in Japan dropped 1.36% to 27,313.13, while the Topix index also fell 1.36% to 1,920.80. In Australia, the S&P/ASX 200 slipped 1.56% to 6,700.20.

Hong Kong’s Hang Seng index fell 1.6% in the final hour of trade, and the Hang Seng Tech index dropped 2.7%. In mainland China, the Shanghai Composite lost 0.17% to 3,117.18 and the Shenzhen Component was 0.668% lower at 11,208.51.

South Korea’s Kospi declined 0.87% to 2,347.21. MCSI’s broadest index of Asia-Pacific shares outside Japan shed 1.4%.

https://www.cnbc.com/2022/09/21/asia-markets-fed-interest-rates-wall-street-currencies-yields.html

Before the Bell: Sept 21

Equities

Wall Street futures were steady early Wednesday as traders await this afternoon’s rate decision from the Federal Reserve. Major European markets were mixed. TSX futures were little changed with crude prices higher.

In the early premarket period, futures tied to the key U.S. indexes all hovered near breakeven. On Tuesday, all three saw losses with the S&P 500 falling 1.13 per cent while the Dow slid 1.01 per cent. The Nasdaq finished down 0.95 per cent. The S&P/TSX Composite Index closed the session off 0.99 per cent.

For traders, the day’s key event will be the Fed’s rate decision, due at 2 p.m. Markets have priced in another 75-basis-point hike but investors will also be watching closely for hints about how aggressive the central bank expects to be in the months ahead as it battles inflation.

“Activity on Fed funds futures still assesses less than 20-per-cent probability for a 100-basis-point hike from the Fed today,” Swissquote senior analyst Ipek Ozkardeskaya said. “And more importantly, the FOMC doesn’t have a modern history of making abrupt moves, except for dovish moves which have a sudden positive impact on the markets, like the ones we saw during the pandemic.”

“So, the expectation is that the Fed will deliver a 75-basis-point hike today,” she said. “We could see a relief rally in equity and bond markets, if, of course, the dot plot doesn’t show projections going above market expectations.”

Wednesday’s small-cap stocks to watch

Earlier, world markets were rattled by new comments from Russian President Vladimir Putin. The Globe’s Mark MacKinnon reports Mr. Putin has doubled down on his war against Ukraine, ordering a partial mobilization of reservists and warning that his country was willing to use its nuclear arsenal if Russian territory was attacked.

In this country, Aurora Cannabis Inc. says its net loss widened to $618.8-million in its most recent quarter from $134-million last year as it recorded $505.1-million in impairment charges. Aurora reported net revenue for the quarter ended June 30 of $50.2-million, down 8 per cent from $54.8-million the year before. The results were released after Tuesday’s closing bell.

Overseas, the pan-European STOXX 600 edged up 0.32 per cent. Germany’s DAX and France’s CAC 40 slid 0.19 per cent and 0.13 per cent, respectively. Britain’s FTSE 100 rose 0.53 per cent.

In Asia, Japan’s Nikkei closed down 1.36 per cent. Hong Kong’s Hang Seng lost 1.79 per cent.

Commodities

Crude prices jumped after Russian president Vladimir Putin’s announcement of a partial mobilization of reservists heightened concerns over global oil and gas supply.

The day range on Brent was US$90.16 to US$93.50 early Wednesday morning. The range on West Texas Intermediate was US$83.48 to US$86.68.

Putin said he had signed a decree on partial mobilization beginning on Wednesday.

“The move could possibly lead to calls for more aggressive action against Russia in terms of sanctions from the west,” Warren Patterson, head of commodities research at ING, said.

Elsewhere, the American Petroleum Institute reported that U.S. crude inventories rose by about 1 million barrels last week. A Reuters poll of analysts had forecast an increase of more than 2 million barrels. More official U.S. government figures are due later Wednesday morning.

Gold prices, meanwhile, were higher as tensions in Europe sparked renewed interest in safe-haven holdings.

Spot gold was up 0.5 per cent at US$1,670.57 per ounce. U.S. gold futures rose 0.6 per cent to US$1,680.40.

Currencies

The Canadian dollar was modestly lower, trading under 75 US cents, while its U.S. counterpart hit a two-decade high against a group of world currencies ahead of the Fed’s policy decision.

The day range on the loonie is 74.66 US cents to 74.86 US cents.

On world markets, the U.S. dollar index, which measures the greenback against other major currencies, more than 0.5 per cent higher to 110.87 after Vladimir Putin’s announcement of a partial military mobilization of reservists triggered safe-haven buying. That was its highest level since 2002, according to Reuters.

The euro, meanwhile, fell to a two-week low of US$0.9885, near two-decade lows hit earlier this month. It was last down 0.6 per cent at US$0.9912, according to figures from Reuters.

Britain’s pound fell to a fresh 37-year low of US$1.1304.

In bonds, the yield on the U.S. 10-year note was down slightly at 3.54 per cent.

Oil prices surge more than 2% as Putin mobilizes more troops

Oil jumped more than 2% on Wednesday after Russian President Vladimir Putin announced a partial military mobilization, escalating the war in Ukraine and raising concerns of tighter oil and gas supply.

Brent crude futures rose $2.17, or 2.4%, to $92.79 a barrel after falling $1.38 the previous day. U.S. West Texas Intermediate crude was at $86.05 a barrel, up $2.10, or 2.5%.

Putin said he had signed a decree on partial mobilization beginning on Wednesday, saying he was defending Russian territories and that the West wanted to destroy the country.

The escalation will lead to increased uncertainty over Russian energy supplies, said Warren Patterson, head of commodities research at ING.

“The move could possibly lead to calls for more aggressive action against Russia in terms of sanctions from the west,” he said.

Oil soared and touched a multi-year high in March after the Ukraine war broke out.

European Union sanctions banning seaborne imports of Russian crude will come into force on Dec. 5.

“It seems like a knee-jerk reaction to a sliver of news and would be liable to further recalibration in the coming hours,” said Vandana Hari, founder of Vanda Insights in Singapore.

Meanwhile, the United States said that it did not expect a breakthrough on reviving the 2015 Iran nuclear deal at this week’s U.N. General Assembly, reducing the prospects of a return of Iranian barrels to the international market.

The OPEC+ producer grouping – the Organization of the Petroleum Exporting Countries and associates including Russia – is now falling a record 3.58 million barrels per day short of its production targets, or about 3.5% of global demand. The shortfall highlights the underlying tightness of supply in the market.

Investors this week have been bracing for another aggressive interest rate hike from the U.S. Federal Reserve that they fear could lead to recession and plunging fuel demand.

The Fed is widely expected to hike rates by 75 basis points for the third time in a row later on Wednesday in its drive to rein in inflation.

Meanwhile, U.S. crude and fuel stocks rose by about 1 million barrels for the week ended Sept. 16, according to market sources citing American Petroleum Institute figures on Tuesday.

U.S. crude oil inventories were estimated to have risen last week by around 2.2 million barrels in the week to Sept. 16, according to an extended Reuters poll.

The head of Saudi state oil giant Aramco warned on Tuesday that the world’s spare oil production capacity may be quickly used up when the global economy recovers.

Canada’s inflation rate eases to 7% in August as gas prices fall but food costs continue to climb

Canada’s annual inflation rate fell for a second consecutive month in August as gasoline and other products dropped, offering some hope that the Bank of Canada’s campaign to restrain price growth through much tighter lending conditions is having its intended effect.

The Consumer Price Index (CPI) rose 7 per cent in August from a year earlier, Statistics Canada said Tuesday. That was lower than financial analysts’ estimate of 7.3 per cent. Inflation has slowed from 7.6 per cent in July and 8.1 per cent in June, a near four-decade high.

On a monthly basis, the CPI fell 0.3 per cent in August, which again was weaker than what analysts expected. Gasoline prices, which fell 9.6 per cent in August from July, were a key driver of lower inflation. But it was not only the pumps where consumers found some relief.

Shelter costs dropped for the first time since January, 2021, helped by a modest decline in rents. Clothing and footwear prices also fell. The average of the Bank of Canada’s core measures of annual inflation – which strip out volatile aspects of CPI and give a better sense of underlying inflation trends – fell to 5.2 per cent in August from 5.4 per cent in July.

There were, however, some discouraging signs. Grocery prices rose 10.8 per cent on an annual basis, the quickest pace in more than 40 years.

“Is this too good to be true? We’ve seen head fakes in the numbers before, with recent data on U.S. inflation a prime example,” Royce Mendes, head of macro strategy at Desjardins Securities, wrote to clients. “However, it could be true that easing supply chain pressures, falling commodity prices and a highly interest-rate sensitive economy are all conspiring to see price growth cool in Canada ahead of other jurisdictions.”

Indeed, the U.S. reported last week that its annual inflation rate ebbed to 8.3 per cent. However, core inflation – excluding food and energy – accelerated on a monthly basis, leading to a market selloff on fears that consumer price growth is proving sticky. The Federal Reserve will announce its next interest-rate decision on Wednesday. Analysts expect the Fed to hike its target for the federal funds rate by 75 basis points, to a range of 3 per cent to 3.25 per cent.

The Bank of Canada is likewise raising interest rates in aggressive fashion, aimed at tamping down inflation. The bank’s policy rate was recently hiked to 3.25 per cent. Despite a slower pace of inflation, analysts expect the central bank to hike again at its meeting in late October, given that consumer price growth is still far above the bank’s 2-per-cent target.

“Inflation likely hasn’t slowed far enough, or for long enough, to convince the Bank of Canada that further interest rate hikes aren’t necessary,” Andrew Grantham, senior economist at CIBC Capital Markets, said in an investor note.

“However, today’s inflation readings, as well as other data highlighting a slowing Canadian economy, support the view that interest rates here should peak below what the Federal Reserve will need to do in the U.S. in order to get inflation back to a 2% target.”

The annual inflation rate is likely to get another assist from gasoline in September. As of Monday, the national average of regular unleaded gas was 155.4 cents a litre, down 9.5 per cent from the daily average in August, according to data from Kalibrate Technologies.

What hasn’t improved is grocery prices. On a 12-month basis, meat has risen 6.5 per cent, bakery products by 15.4 per cent, fresh fruit by 13.2 per cent and pasta products by 20.7 per cent. “The supply of food continued to be impacted by multiple factors, including extreme weather, higher input costs, Russia’s invasion of Ukraine, and supply chain disruptions,” Statscan said in Tuesday’s report.

Price growth is slowing for durable goods, which had been a big area of consumer demand during the pandemic, as people directed their spending away from services. Household appliances rose 9 per cent on an annual basis, down from 11.5 per cent in July. Citing “reduced consumer demand,” Statscan said price growth was also cooling for refrigerators, laundry machines, dishwashers and cooking appliances.

Oil falls on demand fears, strong dollar

Oil fell Monday, pressured by expectations of weaker global demand and by U.S. dollar strength ahead of a possible large interest rate increase, though supply worries limited the decline.

Central banks around the world are certain to increase borrowing costs this week, and there is some risk of a blowout 1 percentage point rise by the U.S. Federal Reserve.

“The upcoming Fed meeting and the strong dollar are keeping a lid on prices,” said Tamas Varga of oil broker PVM.

Brent crude for November delivery fell $1.76, or 1.9%, to $89.59. U.S. West Texas Intermediate (WTI) for October dropped $1.83, or 2.2%, to $83.28.

A British public holiday for the funeral of Queen Elizabeth was expected to limit activity.

Oil has soared in 2022, with Brent coming close to its all-time high of $147 in March after Russia’s invasion of Ukraine exacerbated supply concerns. Worries about weaker economic growth and demand have since pushed prices lower.

The U.S. dollar stayed near a two-decade high ahead of this week’s decisions by the Fed and other central banks. A stronger dollar makes dollar-denominated commodities more expensive for holders of other currencies and tends to weigh on oil and other risk assets.

Oil has also come under pressure from forecasts of weaker demand, such as last week’s prediction from the International Energy Agency that the fourth quarter would see zero demand growth.

Despite those worries, supply concerns kept the decline in check.

“The market still has the start of European sanctions on Russian oil hanging over it. As supply is disrupted in early December, the market is unlikely to see any quick response from U.S. producers,” ANZ analysts said.

Easing COVID-19 restrictions in China, which had dampened the outlook for demand in the world’s second biggest energy consumer, could also provide some optimism, the analysts said.

Hong Kong tech leads losses in Asia; China cuts rates ahead of Fed, Bank of Japan meetings this week

Shares in the Asia-Pacific fell on Monday ahead of major central bank meetings this week.

The Hang Seng index in Hong Kong was 0.89% lower in the final hour of trade, with the Hang Seng Tech index down 1.93%. South Korea’s Kospi shed 1.14% to 2,355.66 and the Kosdaq was 2.35% lower at 751.91.

In mainland China, the Shanghai Composite dipped 0.35% to 3,115.60 and the Shenzhen Component also declined 0.48% to 11,207.04. The People’s Bank of China cut its 14-day reverse repo rates.

The S&P/ASX 200 in Australia was 0.28% lower at 6,719.90. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.59%.

Japan’s market was closed for a holiday Monday.

https://www.cnbc.com/2022/09/19/asia-markets-central-banks-economic-data-stocks-currencies.html

Biden says U.S. forces would defend Taiwan in the event of a Chinese invasion

• U.S. President Joe Biden said in an interview broadcast on Sunday that U.S. forces would defend Taiwan in the event of a Chinese invasion, his most explicit statement so far on the issue.
• Asked in a CBS “60 Minutes” interview whether U.S. forces would defend the self-ruled island claimed by China, he replied: “Yes, if in fact, there was an unprecedented attack.”
• Asked to comment, a White House spokesperson said U.S. policy towards Taiwan had not changed.

https://www.cnbc.com/2022/09/19/biden-says-us-forces-would-defend-taiwan-in-the-event-of-a-chinese-invasion.html

Cool housing market puts a freeze on flipping

Real estate flippers have made out like bandits in Canada’s red hot real estate market over the past two years. But with today’s slower sales and house prices dropping rapidly, it’s time for a reckoning.

Clark Cai counts many such real estate flippers – investors who buy real estate to resell for a quick profit – among his clients. He’s a sales representative at Chestnut Park Real Estate Ltd. Brokerage in Toronto, as well as co-founder of Winchester Design and Build Ltd., a company specializing in real estate and land development.

Along with his realtor partner Will Zang, they coach flippers, who typically sell the properties after undertaking major renovations, on the interior design process, including advising exactly what changes will make a house more attractive in a certain market. As realtors, they can also help clients find the right kinds of houses and neighbourhoods that are good prospects for flipping.

“Investors don’t know the market as well as we do, because we work with the resale side,” Mr. Cai says. “So, we bridge that gap between the designers, architects, engineers and the market. I can tell them that in this neighbourhood, it’s good to add another bedroom on the second floor, or that according to the last 10 sales, projects with a waterfall staircase worked out really well. That translates into getting the maximum resale value.”

When Toronto house prices continued to soar last year, Mr. Cai began advising his investor clients not to buy anything with the intention of flipping and just watch to see what’s marketable. Currently, given the sinking home prices – down 19 per cent in Toronto compared to February 2022, according to the Toronto Housing Market Report – combined with high construction costs and the competition for increasingly expensive tradespeople, Mr. Cai says he personally wouldn’t bank on doing a resale flip for the next year or two.

“The math doesn’t make sense right now for flipping,” Mr. Cai says. “We’re finishing up everything on the properties we bought a year or more ago. Some investors may decide to rent their property out short term or just hold it. We’re still deciding about one that’s just completed, whether to bring it out in September [to sell] or wait until next spring.”

Mr. Cai says he expects to see some deals emerge in the next six to 12 months because some homeowners won’t be able to refinance and will be forced to sell. However, anyone wanting to buy right now should look for something that produces an income like a rental property.

“Rents are high right now and the demand to rent is high,” Mr. Cai says.

“If market comes back in the next two years, you can always start renovating and flip it then. The housing supply in Toronto and the GTA is extremely low so I can’t really see how this how the price drop is going to be endless.”

Matt Francis, a realtor and managing partner of StreetCity Realty Inc. Brokerage in Stratford, Ont., believes there are still opportunities out there for investors, regardless of whether it’s a severe seller’s market, as was the case for the last two years, or if it’s turning into a buyer’s market. But the declining market has created problems for investors without deep pockets.

“Just as some people bought not knowing that they were going to finish their flip in a really, really profitable seller’s market, others bought at high prices at the tail end of this surge and the market flattened on them,” Mr. Francis says. “If they entered that flip with the mentality of putting all their eggs in one basket and having to sell it for a high price, then they’re in trouble. But, if they have enough money in the bank that they can say, ‘that’s fine, I’ll just rent this house,’ they’ll be okay. The rental market is huge.”

However, “some of them might need the equity to do the next property, which might put them on hold for a while, depending on their specific financial situation,” Mr. Francis says. “But if they can put a renter in there for a couple of years until the market starts picking up again, they can sell then and get their profit.”

While Mr. Francis says he’s not overly harsh on renovation for profit, he is harsh on flippers who hide or ignore the important repairs.

“Buyers are always going to be attracted to those freshly renovated properties with ‘of the moment’ style, like white kitchens and grey flooring,” Mr. Francis says. “But buyer beware on those renovated-for-sale, flipped houses to make sure that the ugly money – for furnaces, waterproofing, insulation, and roofs – has been spent. You’ll have to pay that ugly money eventually, or it’s going to drag down your sale price when you do sell – and that applies to flippers, too.

“I am much more of a proponent of wealth creation for my clients over making a quick buck. Purchase, renovate, refinance, rent and retain. We need people to renovate old houses. That makes our housing stock better and is good for our economy.”

From a flipping standpoint, contractors and tradespeople definitely have an advantage over the investor flipper who has to hire people to do the renovations.

“The successful flippers are the contractors or tradesmen who have stuck it out through this turbulent market and who do this as a secondary means of income,” Mr. Francis says. “The guy who has to hire the contractor can’t flip as fast as the contractor or tradesmen who can do the work themselves and have better access to materials. Because they know they’re going to do another flip, they can buy wholesale and store materials until they’re ready to do their next house.”

Aside from shortages and the rising cost of construction materials, labour costs are up due to high demand, which makes renovations more expensive. That also means contractors and tradespeople can “be more selective,” he says.

“If I have my pick of five jobs, I’m going to accept the person who’s willing to accept my quote. That in no way suggests that contractors and tradespeople are profiteering on the lack of availability. It’s fair business.”

So, is it financially smart to buy a house that’s already renovated if you want to flip it?

“No, because you’re banking on market rise there,” Mr. Francis says. “I’d rather be cautious and wrong, than overestimate [the market] and hurt your financial bottom line.”