Author: Consultant

Bullish on Atco Ltd.

Atco ACO-X-T +0.80%increase (Friday’s close $44.09) had a major decline in early-2020 (A-B), followed by a recovery rally and a two-part base formation. The first part consisted of a horizontal trading range mostly between $36 and $43 (dashed lines) and after a minor rise above this range (C) it settled into a very bullish “descending triangle formation” (dotted lines). The recent breakout (D) signalled a change from a base-building pattern to the start of a rising trend. The current correction should provide a good entry level. A rise above $45 would suggest the resumption of the uptrend.

There is good support near $41-42; only a sustained decline below this level would be negative.

Point & Figure measurements provide targets of $52 and $55. Higher targets are also visible.

Cogeco Communications Q3 profit increases five per cent to $100.3-million

Cogeco Communications Inc. CCA-T says its net profit in the third quarter increased five per cent to $100.3-million on a boost in revenues.

The Montreal-based company says profit attributable to shareholders was the equivalent of $2.16 per diluted share, up from $2.01 per share or $95.7-million a year earlier.

Revenue for the three months ended May 31 was $728.1-million, up 16.6 per cent from $624.3-million in the third quarter of 2021.

American broadband services revenue increased 31.7 per cent while Canadian broadband services revenue was 2.5 per cent higher as a result of last year’s $4.6-million revenue cut from the retroactive impact of the CRTC’s decision on wholesale high-speed internet access services and organic revenue growth.

Cogeco Communications says it expects fiscal 2023 revenue will grow two to four per cent in constant dollars with net capital expenditures ranging between $750-million and $800-million, including up to $230-million to expand its footprint in Canada and the U.S.

Chief executive Philippe Jette says the results were in line with expectations despite the “increasingly challenging economic contest.”

“The financial and operational performance was in line with expectations, while the number of customer additions reflected slower activity in the industry,” he said in a news release issued after markets closed.

July 14: Before the Bell

Equities

Wall Street futures fell early Thursday as traders weigh the prospect of a more aggressive Federal Reserve and await U.S. bank earnings. Major European markets were down in morning trading. TSX futures were also weaker the day after the Bank of Canada raise rates by a full percentage point.

In the early premarket period, U.S. futures were down by roughly 1 per cent across the board. On Wednesday, the Dow, S&P and Nasdaq indexes all saw declines in the wake of a hotter-than-expected reading on inflation. The S&P/TSX Composite Index closed Wednesday’s session down 0.34 per cent.

Rate concerns continue to stalk markets after the Bank of Canada surprised by hiking its key policy rate to 2.5 per cent from 1.5 per cent. In the U.S., new figures showed the annual rate of inflation jumped to 9.1 per cent in June, raising speculation that the Fed – which raised rates by three quarters of a percentage point at its last meeting – could follow suit later this month.

“The US inflation report was ugly,” Swissquote senior analyst Ipek Ozkardeskaya said.

“A CPI figure above the 9-per-cent psychological level boosts the idea that the Federal Reserve (Fed) won’t hesitate to continue its aggressive rate increases to abate inflation,” she said. “Pricing on Fed funds futures now gives more than 80-per-cent chance for a 100 basis point hike at the next FOMC meeting, due by the end of this month.”

In this country, Bank of Canada Governor Tiff Macklem is scheduled to speak at a webinar hosted by the Canadian Federation of Independent Business later Thursday. The event is private, but a recording of the conversation will be published online this afternoon.

On the corporate side, U.S. markets get bank earnings ahead of the opening bell. JPMorgan and Morgan Stanley are scheduled to report results. Other U.S. banks, including Citigroup, will follow on Friday.

On Bay Street, Cogeco Communications Inc. reported a 5-per-cent increase in net profit to $100.3-million. The Montreal-based company says profit attributable to shareholders was the equivalent of $2.16 per diluted share, up from $2.01 per share or $95.7-million a year earlier. Revenue for the three months ended May 31 was $728.1-million, up 16.6 per cent. The results were released after the close on Wednesday.

Overseas, the pan-European STOXX 600 was down 0.95 per cent. Britain’s FTSE 100 fell 0.93 per cent. Germany’s DAX and France’s CAC 40 were off 0.86 per cent and 1.06 per cent, respectively.

In Asia, Japan’s Nikkei gained 0.62 per cent. Hong Kong’s Hang Seng slid 0.22 per cent.

Commodities

Crude prices fell in early going, weighed down by global economic concerns and a high U.S. dollar.

The day range on Brent is US$97.45 to US$100.39. The range on West Texas Intermediate is US$93.80 to US$97. Both benchmarks were down more than 2 per cent in the predawn period.

“A wrath of economic data, monthly oil reports, and President [Joe] Biden’s trip to the Mideast will weigh on oil prices, but none of this will change how tight the oil market remains right now,” OANDA senior analyst Ed Moya said.

“WTI crude might stay in the mid-US$90s for a while before it makes a return to the US$100 level.”

Crude prices were tempered Thursday by growing expectations that the Fed will hike rates even more aggressively and increased concerns about a possible recession. A higher U.S. dollar, which hit a 20-year high on Wednesday, also hit crude prices, making purchases more expensive for holders of other currencies.

In other commodities, gold prices fell 1 per cent on Thursday, as Treasury yields and the dollar rose.

Spot gold dropped 1 per cent to US$1,718.69 per ounce by early Thursday morning. U.S. gold futures also lost 1 per cent to US$1,717.70.

Currencies

The Canadian dollar reversed course after the previous session’s gains on the back of a bigger-than-expected rate increase by the Bank of Canada as its U.S. counterpart hit its highest level in two decades against a group of world currencies.

The day range on the loonie is 76.53 US cents to 77.11 US cents. The loonie was at the lower end of that spread early Thursday morning.

Canadian markets will get May manufacturing shipments early Thursday followed by remarks later in the day from Bank of Canada Governor Tiff Macklem.

On world markets, the U.S. dollar index, which weighs the greenback against a group of currencies, rose a fifth of a percent on the day to 108.500, according to figures from Reuters. The index is up 13 per cent so far this year.

The U.S. dollar advanced more than 1 per cent against the yen, pushing it above 139 yen per dollar for the first time since 1998. It was last up 1.3 per cent at 139.18 yen per U.S. dollar.

Euro fell as much as 0.5 per cent on the day and was last down 0.3 per cent at US$1.00310. On Wednesday, the euro fell below parity with the U.S. dollar for the first time in two decades.

In bonds, the yield on the benchmark 10-year note was up at 2.965 per cent in the predawn period.

Economic news

(8:30 a.m. ET) Canada’s manufacturing sales and new orders for May.

(8:30 a.m. ET) Canada’s construction investment for May.

(8:30 a.m. ET) U.S. initial jobless claims for week of July 9.

(8:30 a.m. ET) U.S. PPI Final Demand for June.

US Inflation rose 9.1% in June

• The consumer price index increased 9.1% from a year ago in June, above the 8.8% Dow Jones estimate.
• Excluding food and energy, core CPI rose 5.9%, compared with the 5.7% estimate.
• Costs surged for gasoline, groceries, rent and dental care.
• Adjusted for inflation, workers’ hourly wages fell 1% during the month and are down 3.6% from a year ago.

https://www.cnbc.com/2022/07/13/inflation-rose-9point1percent-in-june-even-more-than-expected-as-price-pressures-intensify.html

Bank of Canada hikes interest rate to 2.5% — biggest jump since 1998

The Bank of Canada has raised its benchmark interest rate by the largest amount in more than 20 years, sharply increasing the cost of borrowing in an attempt to rein in runaway inflation.

Canada’s central bank raised its benchmark interest rate Wednesday by a full percentage point to 2.5 per cent. That’s the biggest one-time increase in the bank’s rate since 1998.

The bank’s rate impacts the rate that Canadians get from their lenders on things like mortgages and lines of credit.

All things being equal, a central bank cuts the lending rate when it wants to stimulate the economy by encouraging people to borrow and invest. It raises rates when it wants to cool down an overheated economy.

After slashing its rate to record lows at the start of the pandemic, the bank has now raised its rate four times since March as part of an aggressive campaign to fight inflation, which has risen to its highest level in 40 years. 

Economists had been expecting the bank to raise its rate by three-quarters of a percentage point, but the full percentage point increase was ahead of even those high expectations. And even after this record-setting increase, more hikes are expected, because of how serious the spectre of stubbornly high inflation is.

Bank of Canada governor Tiff Macklem said the bank made the decision to front-load its rate-hiking campaign because Canadians “are getting more worried that high inflation is here to stay. We cannot let that happen.”

“We are increasing our policy interest rate quickly to prevent high inflation from becoming entrenched. If it does, it will be more painful for the economy — and for Canadians — to get inflation back down,” he said, noting that the bank doesn’t expect the official inflation rate to come down to three per cent until next year, and wont get back to its two per cent target until 2024.

Housing market will feel the pinch

The impact of higher rates will be felt most directly on the housing market, as variable rate mortgages are closely tied to the central bank’s rate.

Canada’s housing market was red hot for most of the pandemic, as record low rates fuelled demand and pushed prices up to their highest levels ever. But that direction turned in the first part of this year, as the central bank’s signal that higher rates were coming took the wind out of the sails of insatiable demand. 

Average prices have fallen since March across the country, the Canadian Real Estate Association says. Wednesday’s rate hike will do nothing to reverse that trend.

Existing owners on variable rate loans, and those looking to buy, will likely notice their mortgage rates go up almost immediately. 

More rate hikes expected

The hike is exactly what home owner Tim Capes was worried about last month when he switched his home loan from a variable rate to a fixed term.

“We felt the pain every time interest rates would go up and we’d get a letter from the bank that our mortgage would go up by a certain amount and the budget would get a tiny bit tighter,” he told CBC News in an interview.

After seeing his payment go up each time the central bank raised its rate in March, April and then June, Capes decided to bite the bullet and lock in at a fixed rate that is costing him about $700 more per payment than he was paying before, but at least comes with the certainty that it won’t change for the next five years.

• Brace yourself: Interest rates could be headed up even faster and higher than we thought

“I definitely wish I had done it earlier when the rates were even lower because definitely selecting a variable in the first place was a mistake,” the Markham, Ont., resident said. “But we ultimately decided it was a mistake we could afford to correct. So we did.”

Economists are expecting several more rate hikes to come, and so is Capes.

“As those rate hikes start happening, it’s a lot easier knowing that my mortgage isn’t going up with every single rate hike.”

Bank of Canada raises key rate by 1 percentage point, surprising markets with biggest move since 1998

The Bank of Canada increased its benchmark interest rate by one percentage point on Wednesday, the most aggressive rate hike since 1998 and a larger move than investors and private-sector economists were expecting.

The central bank’s governing council voted to raise its policy rate to 2.5 per cent from 1.5 per cent. This is the fourth consecutive interest rate increase since March, and puts the Bank of Canada ahead of its peers when it comes to tightening monetary policy in the face of the most significant inflation shock in a generation.

“With the economy clearly in excess demand, inflation high and broadening, and more businesses and consumers expecting high inflation to persist for longer, the governing council decided to front-load the path to higher interest rates,” the bank said in its rate decision statement.

The bank signaled that interest rates will need to keep rising to cool down Canada’s overheated economy and slow the pace of consumer price growth.

Ahead of Wednesday’s announcement, investors and private-sector economists were widely expecting a 0.75 percentage point increase. Governor Tiff Macklem and his team, however, opted for a super-sized move in response to broadening inflation pressures and worrying signs that inflation expectations are becoming unanchored.

“We know that higher interest rates will add to the difficulties that Canadians are already facing with high inflation. But the strain of higher interest rates in the short term will bring inflation down for the long term,” Mr. Macklem said in a news conference following the rate announcement.

The bank now expects the rate of inflation to average 7.2 per cent in 2022 and 4.6 per cent in 2023 – considerably higher than it forecast in April. It does not expect inflation to return to its 2 per cent target until the end of 2024.

Economic growth, meanwhile, is expected to slow sharply in the second half of the year and into next year, as a combination of high inflation and tighter financial conditions erodes household spending and business investment.

The bank is not forecasting a recession in Canada in the next two years, and Mr. Macklem said he believes a so-called soft landing is possible, where inflation comes down without a sharp rise in unemployment. That said, the longer inflation remains high, the bigger the risk that it becomes baked into consumer and business psychology, requiring a more forceful response from the central bank.

“The path to this soft landing has narrowed because elevated inflation is proving more persistent. And this requires stronger action now so consumers and businesses can be confident that inflation will return to it’s 2 per cent target,” Mr. Macklem said.

Wednesday’s supersized rate hike cements a remarkable pivot that has taken place in recent months at the Bank of Canada and other central banks around the world.

Mr. Macklem and his team held interest rates near zero for the first two years of the COVID-19 pandemic, and were slow to start tightening monetary policy even as inflation began to pick up last year. This changed in March. Since then, the bank has been pushing interest rates higher at the fastest pace in decades.

The annual rate of inflation hit 7.7 per cent in May, the highest since 1983. Inflation is becoming impossible to avoid, with more than half of the components of the consumer price index rising at an annual rate of more than 5 per cent in May. That’s aggravating cost-of-living concerns for many Canadians and testing central bank credibility.

Higher rates make it more expensive for businesses and households to borrow money. This won’t do much to tamp down global inflationary pressures, such as supply chain bottlenecks and higher commodity prices, which have surged in the wake of Russia’s invasion of Ukraine. But it could help cool demand in the Canadian economy.

“The Canadian economy is overheated. There are shortages of workers and of many goods and services. Demand needs to slow so supply can catch up and price pressures ease,” Mr. Macklem said.

The rapid rise in interest rates is also aimed at keeping inflation expectations anchored. One of the biggest concerns for central bankers is preventing people from losing faith in its inflation target.

The longer consumer prices keep surging, the more inflation will become entrenched in people’s psychology as happened in the 1970s. The fear is that a wage-price spiral could develop, where business and consumers expect higher prices, and so set higher prices and demand higher wages in a self-reinforcing cycle.

“Surveys indicated more consumers and businesses are expecting inflation to be higher for longer, raising the risk that elevated inflation becomes entrenched in price- and wage-setting. If that occurs, the economic cost of restoring price stability will be higher,” the bank said in its rate decision statement.

Higher interest rates are already impacting key segments of the economy, notably in the housing market. In the Toronto region, the largest real estate market in the country, the number of home resales dropped 41 per cent in June compared to last year. The typical Toronto home price is down nearly 10 per cent from the March peak to June.

July 12 -The close: TSX hits 16-month low as energy stocks tumble

Canada’s main stock index fell on Tuesday to its lowest level in 16 months as crude oil prices tumbled more than 7% and the U.S. yield curve inverted the most since March 2010, further signals that global investors are bracing for a possible recession.

Wall Street also ended in negative territory as recession jitters kept buyers out of the equities market ahead of a key U.S. inflation report. The data could help guide expectations for further aggressive interest rate hikes by the Federal Reserve.

“For several months we’ve swung back and forth between inflation fears and recession fears, almost on a daily basis,” said Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Company, in Milwaukee, Wisconsin. “We have really confused investors who have chosen to go on a buyers strike,” Schutte added. “I don’t hear many people saying ‘buy the dip.’”

While the U.S. CPI report is expected to show inflation gathered heat in June, the so-called “core” CPI, which strips away volatile food and energy prices, is seen offering further confirmation that inflation has peaked, which could potentially convince the Federal Reserve to ease on its policy tightening in autumn.

Paul Kim, chief executive officer at Simplify ETFs in New York, expects year-on-year topline CPI to “be in the high eight or potentially even nine percentage range, and with inflation that high, the Fed has only one thing in mind.”

Worries that overly aggressive moves by the Fed to reign in decades-high inflation could push the economy over the brink of recession were exacerbated by the steepest inversion of the 2 year and 10 year Treasury yields since at least March 2010.

The market expects the central bank to raise the key Fed funds target rate by 75 basis points at the conclusion of its July policy meeting, which would mark its third consecutive interest rate hike.

Canada’s central bank is expected to tighten by three-quarters of a percentage point on Wednesday, which would be its biggest hike in 24 years.

The Toronto Stock Exchange’s S&P/TSX composite index ended down 138.16 points, or 0.7%, at 18,678.64, its lowest closing level since March 2021.

The energy sector fell 3.4% as U.S. crude prices settled 7.9% lower at $95.84 a barrel, with demand-sapping COVID-19 curbs in top crude importer China adding to fears of a global economic slowdown.

Oil prices are facing extreme pressure “as a defensive posture continues with consumer sentiment still in a depressed mode along with a COVID re-surface in China,” said Dennis Kissler, senior vice president for trading at BOK Financial.

A record high dollar is triggering more selling liquidation, Kissler added. Oil is generally priced in U.S. dollars, so a stronger greenback makes the commodity more expensive to holders of other currencies.

The dollar index, which tracks the currency against a basket of six counterparts, on Tuesday climbed to 108.56, its highest level since October 2002. Investors tend to view the dollar as a safe haven during market volatility.

Investors have been dumping petroleum-related derivatives at one of the fastest rates of the pandemic era as recession fears intensify. Hedge funds and other money managers sold the equivalent of 110 million barrels in the six most important petroleum-related futures and options contracts in the week to July 5.

The Dow Jones Industrial Average fell 192.51 points, or 0.62%, to 30,981.33, the S&P 500 lost 35.63 points, or 0.92%, to 3,818.8 and the Nasdaq Composite dropped 107.87 points, or 0.95%, to 11,264.73.

All 11 major sectors in the S&P 500 fell, with energy shares suffering the largest percentage loss.

The second-quarter reporting season will hit full stride later in the week as JPMorgan Chase & Co, Morgan Stanley , Citigroup and Wells Fargo & Co post results.

As of Friday, analysts saw aggregate annual S&P earnings growth of 5.7% for the April to June period, down from the 6.8% forecast at the beginning of the quarter, according to Refinitiv.

PepsiCo got the ball rolling this week by beating its quarterly earnings estimates and announced it could increase prices amid resilient demand.

Shares of Boeing Co jumped 7.4% after the plane maker’s June aircraft deliveries hit the highest monthly level since March 2019.

That news, along with falling energy prices, helped the S&P 1500 Air Lines index rise 6.1%.

Apparel retailer Gap Inc fell 5.0% following its announcement that its CEO would step down, and that margins would stay under pressure in the second quarter due to input costs.

Software provider Service Now plunged 12.7% after its CEO’s remarks about macro headwinds and currency pressures. Other software companies, including Salesforce.com, Paycom Software, Intuit and Microsoft, were also down.

Declining issues outnumbered advancing ones on the NYSE by a 1.37-to-1 ratio; on Nasdaq, a 1.19-to-1 ratio favored decliners. The S&P 500 posted one new 52-week high and 30 new lows; the Nasdaq Composite recorded 13 new highs and 145 new lows. Volume on U.S. exchanges was 9.86 billion shares, compared with the 12.79 billion average over the last 20 trading days.

In credit markets, the Canadian government bond yields were lower across the curve, tracking the move in U.S. Treasuries. The 10-year yield eased 5.7 basis points to 3.187%.

Consumer inflation is expected to have been even hotter in June, but it could be peaking

• Consumer prices continued to shoot higher in June, with the headline consumer price index expected to reach 8.8% year over year, according to Dow Jones.
• But economists say that considering the falloff in gasoline prices, June’s headline CPI could be the peak of inflation for now.
• Core inflation, excluding gasoline and food, is expected to go from 6% in May to 5.7%, the third month in a row of slowing.

https://www.cnbc.com/2022/07/12/consumer-inflation-is-expected-to-have-been-even-hotter-in-june-but-it-could-be-peaking.html

‘Toronto housing market cooling fast’: Scotiabank

Scotiabank strategist Jean-Michel Gauthier detailed the rapid slowdown in Toronto real estate values in a Friday research report,

“June data from the Toronto Real Estate Board highlighted a rapidly decelerating housing market in Toronto. Sales were down 8.7% month-over-month on a deseasonalized basis (-59% from 2021 high) with the median house selling price down 4.2% sequentially as well (-14% from the February 2022 all-time high). Looking at measures of market tightness also reveals rapidly declining buying interest: … The average house selling price as a % of the listing price has plunged back to 100% from an all-time high of 116% hit in February. In other words, as recently as 4 months ago, buyers were engaged in generalized bidding wars that saw the average home go 16% above its listing price. For comparison, that ratio was 95% at the depth of the housing trough in 1995/1996 and 96% at the worst of the financial crisis, while the previous high stood at 111% in early 2017 ahead of the imposition of a tax on foreign buyers. The average number of days on the market has also sharply risen, albeit from a low base.”

“Scotiabank: “Toronto Housing Market Cooling Fast “” – (research excerpt) Twitter