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At midday: TSX falls amid global risk-off sentiment

Canada’s main stock index fell on Friday as worries about an aggressive policy stance by major central banks hurt risk appetite even as data showed domestic retail sales rose unexpectedly in June.

At 10:23 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 123.67 points, or 0.61%, at 20,141.7.

Global stocks slipped and the dollar gained ground as investors digested comments from U.S. Federal Reserve policymakers that signaled further interest rates were on the horizon, while European data pointed to elevated inflationary pressures.

The Canadian energy sector dropped 0.3% even as oil prices recouped from losses earlier in the session.

“A strong U.S. dollar is not good for multinationals, because of the oil exposure in our country. Besides, globally there are a lot of cross currents revolving around oil,” said Allan Small, senior investment advisor at HollisWealth Inc.

Data earlier showed Canadian retail sales rose 1.1% in June, easily beating forecasts, on pricier gasoline and higher sales at car dealerships, but sales were seen falling in July.

All eyes are now on the Fed’s annual Jackson Hole symposium next week.

“The central banks have a very complex balancing act. They want to slow down the economy too much. They don’t want it too hot or too cold, they want it just right,” Small added.

Canadian banks, which will begin reporting results next week, are on average expected to post profit declines in the third quarter as a murky economic outlook drives up provisions for credit losses (PCL), analysts and investors said.

The financials sector slipped 0.7%. The industrials sector fell 0.2%.

The materials sector, which includes precious and base metals miners and fertilizer companies, lost 1.1% as gold futures fell 0.3%.

Wall Street fell on Friday with megacap growth and technology stocks leading a broader market selloff as rate hike worries sapped risk appetite.

Stocks have wavered this week after minutes from the U.S. Federal Reserve’s July meeting were released on Wednesday, as investors tried to get an accurate reading of the central bank’s monetary policy tightening path.

The blue-chip Dow was on track to post slim weekly gains, while the Nasdaq and the S&P 500 were headed for their first weekly loss after four straight weeks of gains.

“Lot of individual not so great news here today and it’s just manifesting in an overall market selloff,” said Dennis Dick, retail trader at Triple D Trading, pointing to weak results from Deere & Co, inflation numbers in Germany and a selloff in meme stocks and cryptocurrencies.

“You’re getting a little bit of profit taking (after) a pretty good run for the last six weeks.”

Deere fell 2.8% after it missed earnings estimates as the world’s largest heavy equipment maker continues to grapple with parts shortages stemming from supply chain snarls.

The S&P 500 industrials sector fell 1%.

High-growth and technology stocks such as Amazon.com Inc and Alphabet Inc declined nearly 2% as U.S. Treasury bond yields climbed, mimicking European bonds after Germany reported record-high increases in monthly producer prices.

Banks also fell 1.3% and were on track to end the week lower, potentially snapping their six-week winning streak.

Meanwhile, Richmond Federal Reserve President Thomas Barkin said on Friday the U.S. central bank’s efforts to control inflation could lead to a recession, but it needn’t be “calamitous.”

St. Louis Fed President James Bullard said on Thursday he was leaning toward supporting a third straight 75-basis-point rate hike in September, while San Francisco Fed colleague Mary Daly said hiking rates by 50 or 75 basis points next month would be “reasonable.”

The Dow Jones Industrial Average was down 192.74 points, or 0.57%, at 33,806.30, the S&P 500 was down 38.75 points, or 0.90%, at 4,244.99, and the Nasdaq Composite was down 187.97 points, or 1.45%, at 12,777.37.

The Fed has raised its benchmark overnight interest rate by 225 bps since March to fight four decade-high inflation.

Focus next week will be on Fed Chair Jerome Powell’s speech on economic outlook at the annual global central bankers’ conference in Jackson Hole, Wyoming.

Cryptocurrency and blockchain-related stocks dropped following a sudden selloff in bitcoin, with crypto exchange Coinbase Global and miner Marathon Digital down 8.5% and 11.5%, respectively.

Bed Bath & Beyond Inc plunged 41.1% as billionaire investor Ryan Cohen exited the struggling home goods retailer by selling his stake.

General Motors Co rose 1.8% after it said it would reinstate quarterly dividend payouts.

Reuters

Enbridge to assume operation of Gray Oak oil pipeline in Texas

Enbridge Inc. says it has completed a deal that will see the Calgary-based pipeline giant become operator of the Gray Oak oil pipeline in Texas.

Enbridge says its joint venture merger deal with Houston-based energy company Phillips 66 will result in a single joint venture holding both companies’ indirect ownership interests in Gray Oak, as well as DCP Midstream LP, a Denver-based natural gas company.

Under the terms of the deal, Enbridge will increase its indirect economic interest in Gray Oak to 58.5 per cent from 22.8 per cent. Enbridge will also reduce its indirect economic interest in DCP Midstream to 13.2 per cent from 28.3 per cent.

Enbridge says the merger will result in an approximately US$400-million cash payment to Enbridge from the merged entity.

The Gray Oak pipeline is a 1,367-kilometre pipeline capable of shipping 900,000 barrels per day of oil from the Permian Basin to the U.S. Gulf Coast.

Enbridge has been aiming to expand its presence in the U.S. Gulf Coast, and in 2021, the company acquired the Ingleside Energy Center — the largest crude export terminal in North America — located near Corpus Christi, Texas.

This report by The Canadian Press was first published Aug. 17, 2022.

U.S. weekly jobless claims dip as labour market remains resilient

The number of Americans filing new claims for unemployment benefits fell last week and data for the prior period was revised sharply down, suggesting labour market conditions remain tight, though higher interest rates are slowing momentum.

The weekly unemployment claims report from the Labor Department on Thursday added to strong industrial production in July and underlying retail sales growth in allaying fears that the economy was in recession. The claims report, the most timely data on the economy’s health, could give the Federal Reserve ammunition to deliver another hefty rate hike next month.

“Fears of broad-based layoffs have yet to materialize,” said Mahir Rasheed, a U.S. economist at Oxford Economics in New York. “Still, we doubt claims will accelerate sharply as labour demand remains well ahead of labour supply, while the outlook for the economy remains relatively positive despite elevated uncertainty regarding inflation and growth.”

Initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 250,000 for the week ended Aug. 13. Data for the prior week was revised to show 10,000 fewer claims filed than previously reported. Economists polled by Reuters had forecast 265,000 applications for the latest week.

The hefty revision and last week’s modest decline pulled claims well below the 270,000-300,000 range that economists say would signal a material slowdown in the labour market.

Unadjusted claims fell 4,536 to 191,834 last week. A surge in applications in Massachusetts was offset by notable declines in California, Ohio, Texas and Georgia.

Companies in the interest rate-sensitive housing and technology industries have been laying off workers in response to slowing demand caused by the Fed’s aggressive monetary policy tightening campaign to tame inflation. But elsewhere, businesses are hungry for workers. There were 10.7 million job openings at the end of June, with 1.8 openings for every unemployed worker.

The U.S. central bank is expected to raise its policy rate by between 50 and 75 basis points next month. The Fed has raised this rate by 225 basis points since March.

Minutes of the July 26-27 policy meeting published on Wednesday showed that though Fed officials “observed that the labour market remained strong,” many also noted “there were some tentative signs of a softening outlook for the labour market.”

“The coast is clear for Fed officials to keep on pushing on interest rates to slow the economy because the earliest indicators showing distress in the labour market are not definitive on whether a recession is weeks away or months away or even coming at all,” said Christopher Rupkey, chief economist at FWDBONDS in New York.

Last week’s claims data covered the period during which the government surveyed businesses for the nonfarm payrolls portion of August’s employment report. Claims fell between the July and August survey periods. The economy created 528,000 jobs in July.

Data next week on the number of people receiving benefits after an initial week of aid will shed more light on job growth prospects for August.

The so-called continuing claims, a proxy for hiring, increased 7,000 to 1.437 million in the week ending Aug. 6.

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.