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OPEC secretary-general says oil slide driven by fear, upbeat on 2023 outlook

A recent oil-price slide reflects fears of economic slowdown and masks physical market fundamentals, OPEC’s new secretary general told Reuters, as he took a relatively optimistic view on the outlook for 2023 as the world tackles rising inflation.

Haitham al-Ghais, who took office on Aug. 1, said oil demand was robust in the physical market, concern of Chinese economic slowdown was exaggerated and demand was likely to find support from jet fuel use as people travel more.

The price of Brent crude came close to an all-time high of $147 a barrel in March after Russia’s invasion of Ukraine exacerbated supply concerns. Prices have since declined and hit a six-month low below $92 this week.

“There is a lot of fear,” Al Ghais said in an online interview. “There is a lot of speculation and anxiety, and that’s what’s predominantly driving the drop in prices.”

“Whereas in the physical market we see things much differently. Demand is still robust. We still feel very bullish on demand and very optimistic on demand for the rest of this year.”

“The fears about China are really taken out of proportion in my view,” said Al Ghais, who worked in China for four years earlier in his career. “China is a phenomenal place of economic growth still.”

The Organization of the Petroleum Exporting Countries, Russia and other allies, known as OPEC+, has unwound record oil-output cuts made in 2020 at the height of the pandemic and in September is raising oil output by 100,000 barrels per day.

Ahead of the next meeting of OPEC+ holds on Sept. 5, Al Ghais said it was premature to say what OPEC+ will decide, although he was positive about the outlook for next year.

“I want to be very clear about it – we could cut production if necessary, we could add production if necessary.”

“It all depends on how things unfold. But we are still optimistic, as I said. We do see a slowdown in 2023 in demand growth, but it should not be worse than what we’ve had historically.”

“Yes, I am relatively optimistic,” he added of the 2023 outlook. “I think the world is dealing with the economic pressures of inflation in a very good way.”

Keyera and Canadian National Railway to evaluate Alberta terminal project

Keyera Corp. KEY-T -1.02%decrease and Canadian National Railway Co. CNR-T +0.15%increase have signed a deal to evaluate building a rail terminal in Alberta to ship energy products.

The companies say they have signed a memorandum of understanding to look at the construction of a project in Alberta’s industrial heartland.

They say the new infrastructure would aggregate conventional and clean energy from multiple sources.

Keyera CEO Dean Setoguchi says the agreement builds on the strengths of each partner.

The plan calls for a facility built on adjoining lands belonging to Keyera and CN.

It envisions a facility capable of handling six inbound and outbound high-capacity trains daily, once complete.

Quebec pension fund manager Caisse loses $33.6-billion in first half of 2022

Roiling world markets have taken their toll on Caisse de dépôt et placement du Québec, as the pension giant lost $33.6-billion in the first six months of 2022 – including a controversial US$150-million wipeout in a major cryptocurrency investment.

The Caisse’s 7.9-per-cent loss was better than the 10.5-per-cent loss in its benchmark – a portfolio of similar assets it uses to measure its performance. The performance, however, caused the Caisse to fall from nearly $419.8-billion in assets at Dec. 31, 2021, closing its books June 30 with $392-billion in its portfolio. (The investment losses were offset by $5.4 billion in contributions and new funds from the Caisse’s investment clients.)

Charles Emond, chief executive officer of the Caisse, said Wednesday the pension fund would completely write off its US$150-million investment in Celsius Network Ltd., which filed for bankruptcy protection in July. The New Jersey-based company, with almost two million customers, had long touted itself as the “world’s leading crypto earning and lending platform,” offering interest rates as high as 17 per cent to depositors. It was one of a number of cryptocurrency companies that imploded in a sector-wide reversal.

The Caisse bought in as part of a US$400-million funding round that valued the company at about US$3-billion late last year. Mr. Emond said Wednesday the Caisse’s investment in crypto has now proved to be premature.

“In this case, we came in too early … I’d say maybe there was too much focus on the company’s potential than on the real state of affairs,” he said Wednesday in French. “We knew there were challenges in terms of the company’s organization, the necessary regulation. But maybe we underestimated the time and efforts required given the company’s very significant growth.

“We had good intentions” with this investment, Mr. Emond said, and the Caisse isn’t the only institutional investor in the world to have to invested in the sector, he noted. “What interested us was to seize the potential of blockchain technology and contribute to regulating the sector. Clearly that didn’t happen as anticipated.”

The Caisse is weighing its legal options, he said, but did not provide further detail. He said the Caisse has assembled its staff involved in the investment to do a postmortem. “We take away an enormous amount of lessons from something like this … Due diligence can be the best there is, but it’s not always a guarantee of success. Otherwise all investments would work out well.”

The Celsius flameout represents about 0.5 per cent of the Caisse’s year-to-date loss, but it was the topic of many of the questions Mr. Emond faced Wednesday as he spoke with reporters to discuss the first-half results.

Mr. Emond said the first half of 2022 was the worst six-month period of the past 50 years for stock and bond markets, with bond markets turning in their worst performance since the 1920s. Royal Bank of Canada’s RBC I&TS All Plan Universe saw defined benefit pension plan assets – as measured by a typical mix of publicly held stocks and bonds – shrink 14.7 per cent over that period.

“We saw a rare and simultaneous correction of equity and bond markets that fell between 10 and 30 per cent,” he said. “Also hikes in interest rates that were among the most aggressive in recent history by central banks to contain the biggest inflation push in 40 years. All of this happened amid worries of an economic slowdown in an extremely volatile geopolitical context.”

“We’re never pleased with a negative return, but the execution has allowed us to do better than the markets,” Mr. Emond said. He said the Caisse has outperformed its benchmark by shifting strategies, and then executing on them, during the past two years.

Over five and 10 years, annualized returns were 6.1 per cent and 8.3 per cent respectively, also outpacing benchmark portfolio returns of 5.3 per cent and 7.3 per cent, respectively.

The Caisse is the second of three major Canadian pension plans with Dec. 31 fiscal years expected to report half-year returns in 2022. On Monday, Ontario Teachers’ Pension Plan reported a 1.2-per-cent return for the six months ended June 30.

Teachers has a little less than half of its assets in equities and fixed income, with roughly 20 per cent of its portfolio in what it calls “inflation sensitive” assets, designed to perform better in inflationary environments. By contrast, the Caisse had 75 per cent of its assets in equities and fixed income at June 30.

Over six months, the Caisse posted a 13.1-per-cent loss in fixed income, compared to a 15.1-per-cent loss for the segment in its benchmark portfolio.

Real assets, a class that includes the real estate and infrastructure portfolios, generated a 7.9-per-cent six-month return, significantly higher than the return of 2.4 per cent for real assets in the benchmark portfolio.

The real estate portfolio recorded a 10.2-per-cent return in the first six months compared with 11.4 per cent in the benchmark portfolio. The Caisse has been repositioning real estate after a heavy weighting in shopping centres drove it to losses in that segment in 2019 and 2020. The weighting of real estate is now the smallest sector in its portfolio, at 12 per cent, versus 22 per cent, the largest sector in the portfolio in January, 2020.

The infrastructure portfolio generated a 5.8-per-cent return over six months, beating the benchmark portfolio’s 5.5-per-cent loss.

The equities asset class, which includes the equity markets and private equity portfolios, generated a six-month loss of 10.6 per cent, which was above the benchmark portfolio’s 11.9-per-cent loss.

The equity markets portfolio recorded a six-month loss of 16.0 per cent, better than the benchmark portfolio’s 17.2-per-cent loss.

The private equity portfolio’s loss was 2.4 per cent, above the 4.1 per cent loss in the benchmark portfolio.

The Ontario Municipal Employees Retirement System (OMERS) is expected to release its results this week. Alberta Investment Management Corp. now releases quarterly results, one of just two members of the “Maple Eight” group of large pension managers to do so – Canada Pension Plan Investment Board being the other.

Trudeau celebrates Canadian windfall from Biden signing Inflation Reduction Act

Canadian Prime Minister Justin Trudeau took to social media to celebrate President Biden signing the Inflation Reduction Act, boasting that the American legislation will be a win for Canadians.

“It’s official: @POTUS signed legislation that will include Canada in a new tax incentive for electric vehicles purchased in the US,” Trudeau said Tuesday on Twitter. “This is good news for Canadians, for our green economy, and for our growing EV manufacturing sector.”

Biden signed the Inflation Reduction Act on Tuesday, touting it as a big win for Americans.

“With this law, the American people won, and the special interests lost,” Biden said. “This administration began amid a dark time in America… a once-in-a-century pandemic, devastating joblessness, clear and present threats to democracy and the rule of law, doubts about America’s future itself — and yet we’ve not wavered, we’ve not flinched, and we’ve not given in.”

BIDEN SIGNS $739 BILLION INFLATION REDUCTION ACT INTO LAW, SLAMS GOP FOR VOTING AGAINST THE TAX, CLIMATE DEAL

Canadian Prime Minister Justin Trudeau (David Kawai/Bloomberg)

Canadian officials celebrated the new law as a windfall for Canada and its green energy manufacturing sector, which will benefit from Americans receiving tax credits for purchasing electric vehicles made in North America, a fact not lost on critics of the legislation.

“Using your taxes to boost the Canadian automobile manufacturing sector is not going to reduce inflation in the United States, but it is quite a gift to Canada, the same country that sued the U.S. in the WTO to get us to remove country of origin labels from our beef and pork,” Rep. Thomas Massie, R-Ky., said Wednesday in response to Trudeau.

Biden signed the legislation after it passed both chambers of Congress on party lines, and Vice President Kamala Harris had to cast the tie-breaking vote in 51-50 Senate vote.

President Biden speaks during a bill signing ceremony for the Inflation Reduction Act at the White House on Tuesday, Aug. 16, 2022. (Reuters/Leah Millis)

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Biden took aim at Republicans for their opposition to the legislation Tuesday, arguing that they took the side of special interests.

“Democrats sided with the American people, and every single Republican in the Congress sided with the special interests in this — every single one,” Biden said.

U.S. retail sales were flat in July as inflation takes a toll

The pace of sales at U.S. retailers was unchanged last month as persistently high inflation and rising interest rates forced many households to spend more cautiously.

Retail purchases were flat in July after having risen 0.8% in June, the Commerce Department reported Wednesday.

America’s consumers, whose spending accounts for nearly 70% of economic activity, have remained mostly resilient even with inflation near a four-decade high, economic uncertainties rising and mortgage and other borrowing rates surging. Still, their overall spending has weakened, and it has shifted increasingly toward necessities like groceries and away from discretionary items like home goods, casual clothes and electronics.

The government’s monthly report on retail sales covers about a third of all consumer purchases and doesn’t include spending on most services ranging from plane fares and apartment rents to movie tickets and doctor visits.

Though overall inflation remains painfully high, consumer prices were unchanged from June to July – the smallest such figure in more than two years.

Still, inflation is posing a serious threat to families. Gasoline prices have fallen from their heights, but food, rent, used cars and other necessities have become far more expensive, beyond whatever wage increases most workers have received.

Despite a still-robust job market, the U.S. economy shrank in the first half of 2022, raising fears of a potential recession. Growth has been weakening largely as a consequence of the Federal Reserve’s aggressive interest rate hikes, which are intended to cool the economy and tame high inflation.

The impact of the Fed’s hikes has been felt especially in the housing market. Sales of previously occupied homes have slowed for five straight months as higher mortgage rates and high sales prices have kept many would-be buyers on the sidelines.

But the most important pillar of the economy – the job market – has proved durable. America’s employers added a hefty 528,000 jobs in July, and the unemployment rate reached 3.5%, matching a near-half-century low reached just before the pandemic erupted in the spring of 2020.

Target’s earnings take a huge hit as retailer sells off unwanted inventory

https://www.cnbc.com/2022/08/17/target-tgt-q2-2022-earnings.html

• Target’s profit plunged as it slashed prices to clear out a glut of unwanted inventory.
• The retailer maintained its outlook for the year, however.
• “If we hadn’t dealt with our excess inventory head on, we could have avoided some short-term pain on the profit line, but that would have hampered our longer-term potential,” Target’s CFO said.

Canada’s inflation rate slows to 7.6% in July, but more Bank of Canada rate hikes expected

Canadian inflation slowed in July as consumers paid much less for gasoline, marking what could be the start of a long journey back to low and stable rates of price growth.

The Consumer Price Index rose 7.6 per cent in July from a year earlier, Statistics Canada said Tuesday. That was down from 8.1 per cent in June, the highest inflation rate in nearly 40 years. On a monthly basis, the change in CPI was the smallest since December, 2021.

Gas prices, while still much higher than last year, fell 9.2 per cent in July from June, making the biggest contribution to lower headline inflation. August is bringing more relief at the pump, too: The national average price for regular unleaded gas was $1.73 a litre on Monday, down 9 per cent from the average retail price in July, according to data from Kalibrate Technologies.

Still, other details in Tuesday’s report were less encouraging. Groceries rose at an annual rate of 9.9 per cent in July, accelerating from 9.4 per cent in June. Rents increased 4.9 per cent, the most since 1989. And natural gas prices jumped by a whopping 43 per cent, which Statscan attributed in part to the Ontario Energy Board’s approval of rate increases.

Moreover, the average of the Bank of Canada’s core measures of annual inflation – which strip out volatile price changes – rose to 5.3 per cent from 5.2 per cent. Financial analysts said those details underscored why the central bank is certain to keep hiking interest rates.

“It’s great that headline inflation is moving in the right direction as energy prices ease,” said Leslie Preston, managing director at TD Economics. “But there was very little cooling in core inflation. And I think it’s a reminder that the Bank of Canada needs to continue to raise rates to rein in inflationary pressures.”

Similar to Canada, the U.S. reported an easing of inflation last week, with the annual rate falling to 8.5 per cent in July from 9.1 per cent in June. In addition to gas, several key commodities – including wheat and lumber – have tumbled this summer, as have shipping rates, offering some modicum of relief to companies and households.

At the same time, inflation remains uncomfortably high and could take years before returning to desired levels. The Bank of Canada projected in July that inflation won’t return sustainability to its 2-per-cent target until late 2024. Financial analysts expect the bank to make another hefty rate hike in September, perhaps by half or three-quarters of a percentage point. The bank’s policy rate is now at 2.5 per cent, the highest since 2008.

Central bankers are trying to engineer a “soft landing,” in which they hike interest rates to slow demand and tame inflation, but without sending the economy into a recession. “The path to this soft landing has narrowed,” Bank of Canada Governor Tiff Macklem said in July, citing persistently high inflation that “requires stronger action now” via large rate hikes.

Canada’s economic growth has slowed considerably in recent months, while the country’s sizzling housing market has turned cold. The odds of a recession are rising, economists say, although Royal Bank of Canada is the sole lender to predict that outcome by next year.

“I certainly don’t think we’re in a recession at all,” Pedro Antunes, chief economist at the Conference Board of Canada, said in a recent interview. “The reason I think we may avoid a recession is in part because labour markets are still in exceptionally good shape.”

Canada shed jobs in June and July, although the country’s unemployment rate remains at 4.9 per cent – the lowest in more than four decades – demonstrating how the lack of available workers continues to be a pressing issue for many employers.

Aug 16: At midday: TSX hits near 10-week high on boost from financials

Canada’s main stock index hit a near 10-week high on Tuesday, boosted by financial stocks after data showed elevated core price pressures, spurring bets of another big rate hike by the Bank of Canada next month.

Canadian inflation slowed to 7.6% in July, matching analysts’ forecasts and down from 8.1% in June, Statistics Canada data showed, but economists said hot core measures suggest another outsized interest rate hike was still to come.

The central bank raised its main interest rate by 100 basis points in July in a bid to tame inflation, becoming the first G7 country to make such an aggressive hike in this economic cycle.

Traders now see 70% odds of 50 basis points rate hike at the BoC’s September meeting.

The financial sector rose 0.5% on bets of rising rates, while high-growth stocks of technology and weed companies slid as yields gained ground.

“The Canadian market is very commodity and interest rate sensitive and while these things (cooling inflation) are wonderful for the world, they are not conducive to outperformance of the TSX,” said Barry Schwartz, portfolio manager at Baskin Financial Services.

At 10:59 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 23.34 points, or 0.12 percent, at 20,203.94.

Brent crude futures and U.S. West Texas Intermediate crude extended losses from the previous session when China’s central bank cut lending rates to revive a surprise slowdown in the economy.

Canada’s energy index slipped, adding to 1.6% decline a day earlier.

Stocks edged lower in morning trading on Wall Street Tuesday as investors cautiously reviewed mostly encouraging financial results from major retailers.

The S&P 500 fell 0.2%. The Dow Jones Industrial Average rose 79 points, or 0.2%, to 33,991 and the Nasdaq fell 0.9%.

Walmart jumped 5.7% and after the nation’s largest retailer reported strong results that easily topped analysts’ forecasts. Home Depot rose 3.2% after also reporting better-than-expected results. The gains from both companies did much of the heavy lifting for the Dow.

Retailers and consumer product makers made solid gains, but those were in kept in check by broad losses in technology stocks. Chipmaker Nvidia fell 1.7%.

Bond yields gained ground. The yield on the 10-year Treasury rose to 2.86% from 2.79% late Monday.

European markets were slightly higher and Asian markets closed mixed overnight.

Consumers are facing hottest inflation in 40 years and the latest results from retailers show that spending remains solid. Wall Street has been concerned that higher prices on everything from food to clothing could eventually stunt the economy’s main engine of growth, consumer spending. Investors will get more updates on the retail sector this week, when Target reports its results on Wednesday.

The Commerce Department releases its July retail sales report on Wednesday. Economists surveyed by FactSet expect modest 0.2% growth from June, when sales rose 1%.

The retail reports are capping off the latest round of corporate earnings, which have been closely watched by investors trying to determine inflation’s impact on businesses and consumers, while trying to gauge how Federal Reserve will react. The central bank is raising interest rates in an effort to slow down economic growth and rein in inflation, though it risks hitting the brakes too hard and veering the economy into a recession.

Investors are looking for any signs that inflation is peaking or cooling in the hopes that the Fed could ease its aggressive rate hike policy.

Stocks had their best month in a year-and-a-half in July and the winning streak has been continuing into August partially on hopes that inflation is easing. The latest government report on consumer prices showed that inflation essentially stalled from June to July.

Still, trading has been choppy, with major indexes swaying between gains and losses throughout each day.

Reuters and The Associated Press

Walmart is a top US inflation gauge

As the nation’s biggest retailer and employer, Walmart is considered one of the best inflation gauges out there — and investors will be paying close attention when the company’s second-quarter earnings for its 2023 fiscal year are released Tuesday morning.

https://www.foxbusiness.com/markets/walmart-is-a-top-us-inflation-gauge