Author: Consultant

Before the Bell: July 4

Equities

TSX futures gained early Monday while U.S. markets are closed for the July 4 holiday. Major European markets were positive in early trading.

On Friday, Wall Street’s three key indexes advanced as the new quarter got underway with the Nasdaq finishing up 0.9 per cent while the S&P 500 rose 1.06 per cent. The Dow finished the session up 1.05 per cent. Canadian markets were closed on Friday.

On Monday, Canadian investors will get the Bank of Canada’s Business Outlook Survey and Canadian Survey of Consumer Expectations.

“Key will be the extent to which measures of inflation expectations rise,” Derek Holt, vice-president and head of capital markets economics with Bank of Nova Scotia, said.

“The surveys will be somewhat stale on arrival as the consumer survey period was over the first half of May and the business survey period was over the back half of May. The BoC then goes into blackout ahead of the July 13th decision and communications.”

Later in the week, U.S. markets will get the minutes from the latest Federal Reserve meeting on Wednesday, with traders looking for hints about how hawkish the central bank will be in coming rate decisions after hiking rates by 75 basis points last month.

Both Canadian and U.S. investors will get June jobs reports on Friday.

Mr. Holt said he expects to see a gain in Canadian hiring of about 20,000 positions for the month with the unemployment rate holding at 5.1 per cent.

“Restrictions continued to rapidly ease into the June Labour Force Survey reference week that typically includes the 15th of each month,” he said. “They had tightened more than in the U.S. when Omicron first hit and are now looking easier than in the U.S. This continues to drive regional mobility readings higher.”

The U.S. report, he said, is likely to show an increase of 300,000 jobs as the pace of job gains ebbs.

Overseas, the pan-European STOXX 600 rose 0.63 per cent in morning trading. Britain’s FTSE 100 added 0.89 per cent. Germany’s DAX advanced 0.09 per cent while France’s CAC 40 was up 0.73 per cent.

In Asia, Hong Kong’s Hang Seng closed down 0.13 per cent. Japan’s Nikkei advanced 0.84 per cent.

Commodities

Crude prices remained under pressure with worries about the potential for a global recession offsetting tight supply.

The day range on Brent is US$110.40 to US$112.35. The range on West Texas Intermediate is US$107.25 to US$109.06. Both benchmarks were weaker in the early premarket period.

“JP Morgan warns that crude prices could hit US$380 per barrel, if Russia cuts output as a response to Westerns sanctions and mounting tensions,” Swissquote senior analyst Ipek Ozkardeskaya said in an early note. “Yet, the global demand could hardly keep up, if the price of a barrel got multiplied by two or, by four from the actual levels.”

“Looking at the price dynamics, it’s more likely we see the barrel of crude fall below US$100 than rise above US$200,” she said.

In other commodities, gold prices were lower early Monday, hit a stronger U.S. dollar.

Spot gold was down 0.2 per cent at US$1,807.48 per ounce in uneven trading. U.S. gold futures rose 0.4 per cent to US$1,808.80.

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Currencies

The Canadian dollar was steady while its U.S. counterpart edged higher as investors sought safer holdings amid continued fears of a global recession.

The day range on the loonie is 77.49 US cents to 77.75 US cents.

Canadian markets get the Bank of Canada’s business outlook survey and consumer expectations survey just after Monday’s open.

On world markets, the U.S. dollar index rose 0.1 per cent to 105.140, not far below last month’s two-decade high of 105.790, according to Reuters.

The euro was little changed at US$1.042, not far from May’s five-year low of US$1.0349.

The British pound hit a two-week low of US$1.1976 on Friday and last bought $1.21170, Reuters reported.

CANADIAN DOLLAR/U.S. DOLLAR

US$0.7785+0.0024 (0.3093%)

PAST DAY

PREV. CLOSE

0:00 A.M., JULY 4

US$0.7755

6:32 A.M., JULY 4

US$0.7785

SOURCE: BARCHART

Economic news

U.S. markets closed for holiday.

(930 am ET) S&P Global Manufacturing PMI for Canada for June.

(1030 am ET) Bank of Canada second quarter Business Outlook Survey of Consumer Expectations

With Reuters and The Canadian Press

Investors brace for pivotal July after dismal first half

The U.S. stock market is reeling from its worst first half of any year since 1970, with investors girding for a series of potential flashpoints in July that may set Wall Street’s course for the coming months.

Second-quarter corporate earnings, hotly anticipated U.S. inflation data and the Federal Reserve’s monetary policy meeting are among potentially pivotal events after the S&P 500 fell 20.6 per cent in the initial six months of 2022.

For now, the mood on Wall Street is grim. Bonds, which investors count on to offset stock declines, have tumbled alongside equities, with the ICE BofA Treasury Index on pace for its worst year in the index’s history. Some 90 per cent of respondents in a recent Deutsche Bank survey expected a U.S. recession by the end of 2023.

The key factor behind the turmoil in markets is the Fed, which has been rapidly tightening monetary policy to fight the highest inflation in decades following almost two years of emergency measures that helped buoy stocks and stoke growth.

“We could really use just slightly less bad news in July,” said Eric Kuby, chief investment officer at North Star Investment Management. “Hopefully, it could turn the back half of 2022 in a more favourable light.”

History, however, “does not offer very encouraging news” for those hoping the bleak first half will be followed by a bounce in the latter part the year, wrote CFRA chief investment strategist Sam Stovall.

Of the 10 worst starts to the year for the S&P 500 since the Second World War, the index has posted gains in the second six months of the year only half the time, rising an average of 2.3 per cent, Mr. Stovall said in a recent report.

On the data front, reports on employment and inflation will give investors a snapshot of the economy after 150 basis points of rate increases already delivered by the Fed.

A disappointing jobs report next Friday could exacerbate concerns of a potential recession. The following week brings data on U.S. consumer prices, after a hotter-than-expected report last month triggered a selloff in stocks and prompted the Fed to deliver a hefty 75-basis-point rate increase in June.

There has been recent evidence of waning growth. Data on Friday showed U.S. manufacturing activity falling to a two-year low in June, following a report earlier in the week that showed that June consumer confidence at its lowest in 16 months.

“The key question is, what will roll over first: Will it be inflation or growth?” said Angelo Kourkafas, an investment strategist at Edward Jones.

Second-quarter earnings start arriving in force the week of July 11, indicating whether companies can keep living up to estimates despite surging inflation and growth worries.

Analysts expect quarterly earnings to grow by 5.6 per cent from a year ago, revised down slightly from early April’s estimate for 6.8-per-cent growth, according to Refinitiv IBES.

If companies “can just match or maybe hurdle over lower expectations, I think that will be a positive tailwind for stock prices,” said Anthony Saglimbene, global market strategist at Ameriprise.

Strategists at Goldman Sachs are less sanguine, warning that consensus margin forecasts suggest earnings estimates are “likely too optimistic” and margins for the median S&P 500 company will likely decline next year “whether or not the economy falls into recession.”

“While investors are focused on the possibility of recession, the equity market does not appear to be fully reflecting the downside risks to earnings,” Goldman said in a note this week.

July’s data should factor into the Fed’s actions at its next meeting on July 26-27, when it is broadly expected to raise rates by another 75 basis points.

Some investors predict slowing growth will prompt the Fed to eventually soften its stance sooner than policy makers project. But analysts at Capital Economics disagreed, writing on Friday that such a rapid reversal would be inconsistent with the central bank’s behaviour in recent decades.

As a result, “we don’t expect US equities and Treasuries to fare well in the second half,” they said.

Recession fears flare and June jobs report looms as jittery markets head into third quarter

• With increased worries about a recession swirling everywhere, Friday’s jobs report and the minutes from the last Fed meeting on Wednesday should be highlights of the week ahead.
• Economists expect that employers created another 250,000 jobs in June, less than the 390,000 added in May, according to Dow Jones.
• “I think the market is caught between two narratives,” said one strategist. “I don’t know if it wants good news or bad news. At first, the hot economic news was bad because the Fed could go another 75 basis points and keep going, but now the market wants softer news. But is the landing going to be soft or hard? It’s like threading the needle right now.”

https://www.cnbc.com/2022/07/01/recession-fears-flare-and-jobs-report-looms-as-markets-head-to-q3-.html

Oil jumps nearly 3% as supply outages outweigh recession fears

Oil prices rose nearly 3% on Friday as supply outages in Libya and expected shutdowns in Norway outweighed expectations that an economic slowdown could dent demand.

Brent crude futures were up $2.71, or 2.5%, at $111.74 a barrel, while West Texas Intermediate crude (WTI) gained $2.81, or 2.7%, to $108.57 a barrel.

Both contracts fell around 3% on Thursday, ending the month lower for the first time since November. For the week, Brent was on track for a loss of 1.2%, while WTI was set to rise 0.9%.

Prices rose on Friday despite the release of industry data showing U.S manufacturing activity slowed more than expected last month, adding to evidence that the country’s economy was cooling as the Federal Reserve tightens monetary policy.

The Institute for Supply Management said that its index of national factory activity dropped to 53.0 last month, the lowest reading in two years.

Still, low crude and fuel supplies supported the oil market even as equities slumped and the U.S. dollar, which typically has an inverse relationship with crude, rose.

“The ability of the complex to post a strong advance today in the face of significant U.S. dollar strength and a weak equity trade suggests some refocus on tight oil supplies,” Jim Ritterbusch, president of Ritterbusch and Associates LLC, said in a note.

A planned strike among Norwegian oil and gas workers on July 5 could cut the country’s overall petroleum output by around 8%, or around 320,000 barrels of oil equivalent per day, unless a last-minute agreement is found over wage demands, a Reuters calculation showed.

Libya’s National Oil Corporation on Thursday declared force majeure at the Es Sider and Ras Lanuf ports, as well as the El Feel oilfield. Force majeure is still in effect at the ports of Brega and Zueitina, NOC said.

Production has seen a sharp decline, with daily exports ranging between 365,000 and 409,000 barrels per day, a decrease of 865,000 bpd compared with production in “normal circumstances”, NOC said.

The U.S. oil rig count, an early indicator of future output, rose by one to 595 this week, their highest since March 2020, according to energy services firm Baker Hughes Co.

Even though the U.S. oil rig count has risen for a record 22 months through June, weekly increases have mostly been in single digits as many companies focus more on returning money to investors and paying down debt rather than boosting output.

Meanwhile, Ecuador’s government and indigenous groups’ leaders on Thursday reached an agreement to end more than two weeks of protests which had led to the shut-in of more than half of the country’s pre-crisis 500,000-bpd oil output.

On Thursday, the OPEC+ group of producers, including Russia, agreed to stick to its output strategy after two days of meetings. However, the producer club avoided discussing policy from September onwards.

Previously, OPEC+ decided to increase output each month by 648,000 barrels per day (bpd) in July and August, up from a previous plan to add 432,000 bpd per month.

A Reuters survey found that OPEC pumped 28.52 million bpd in June, down 100,000 bpd from May’s revised total. [OPEC/O]

U.S. President Joe Biden will make a three-stop trip to the Middle East in mid-July that includes a visit to Saudi Arabia, pushing energy policy into the spotlight as the United States and other countries face soaring fuel prices that are driving up inflation.

Biden said on Thursday he would not directly press Saudi Arabia to increase oil output to curb soaring prices when he sees the Saudi king and crown prince during a visit this month.

https://www.baystreet.ca/articles/econ_calendar.aspx

Major crypto broker Voyager Digital suspends all trading, deposits and withdrawals

• Digital asset brokerage Voyager Digital is pausing all customer temporarily suspending customer trading, deposits, and withdrawals, according to a statement released Friday afternoon.
• “This was a tremendously difficult decision, but we believe it is the right one given current market conditions,” said Stephen Ehrlich, CEO of lending company Voyager.

https://www.cnbc.com/2022/07/01/voyager-digital-suspends-all-trading-deposits-and-withdrawals-.html

Oil prices dipped in volatile trading on Thursday as concerns over global supply appeared to outweigh a build in U.S. fuel product inventories as OPEC+ decided stick to its measured output strategy.

Brent crude futures for September, the more actively traded contract, were down 96 cents, or 0.9%, at $111.49 a barrel. The August contract, which expires on Thursday, was down 78 cents, or 0.7%, at $115.48.

U.S. West Texas Intermediate (WTI) crude futures fell $1.25, or 1.1%, to $108.53.

The OPEC+ group of producers including Russia, on Thursday agreed to stick to its output strategy after two days of meetings, sources told Reuters.

Sanctions on Russian oil since Russia’s invasion of Ukraine have helped to send energy prices soaring, stoking inflation and recession fears.

Crude inventories fell by 2.8 million barrels in the week to June 24, U.S. Energy Information Administration data showed, far exceeding the 569,000 barrel drop forecast in a Reuters poll of analysts.

However, fuel stocks rose as refiners ramped up activity, operating at nearly full capacity, the highest at this time of year in four years.

“The net drop in crude oil inventories was flattered by SPR (Strategic Petroleum Reserve) releases, while the gasoline stock jump is because U.S. refineries are running at over 95% capacity,” said Jeffrey Halley, OANDA’s senior market analyst for Asia Pacific.

But further disruptions to supply could limit price declines amid a suspension of Libyan shipments from two eastern ports while Ecuador output fell because of ongoing protests.

Exports of Ecuador’s Oriente crude remain suspended under a force majeure declaration as the spread of anti-government protests hurt oil output, state-run Petroecuador said on Wednesday.

Supreme Court says EPA does not have authority to set climate standards for power plants

The Supreme Court on Thursday ruled the EPA does not have authority to set standards on climate-changing greenhouse gas emissions for existing power plants.

The court’s ruling on the case, West Virginia v. the Environmental Protection Agency, affects the federal government’s authority to set standards for planet-warming pollutants like carbon dioxide from existing power plants under the landmark Clean Air Act.

The decision could have a major impact on the Biden administration’s agenda to combat climate change, specifically the goal to zero out carbon emissions from power plants by 2035 and halve the country’s emissions by the end of the decade.

Fossil fuel-fired power plants are the second-largest source of pollution in the U.S. behind transportation, according to the EPA. The U.S. is also the second-largest producer of greenhouse gases behind China, making it a key player in global efforts to combat climate change.

The court’s six-justice conservative majority has been skeptical of the federal agency’s authority to set national standards.

The legal fighting over the EPA’s authority began several years ago when the Obama administration set strict carbon limits for each state in an effort to reduce emissions from power plants, and urged states to meet limits by shifting to cleaner energy alternatives like wind and solar.

The Obama administration’s Clean Power Plan was temporarily blocked in 2016 by the Supreme Court and then repealed in 2019 by the Trump administration, which argued that the plan exceeded the EPA’s authority under the Clean Air Act. It argued that the act only allowed the agency to set standards on the physical premises of a power plant — or “inside the fenceline.” 

The Trump administration proposed more lenient standards to regulate emissions only from existing coal-fired steam plants, a policy called the Affordable Clean Energy Rule. The revision was challenged by states and environmental groups and ultimately struck down by the U.S. Court of Appeals for the District of Columbia Circuit.

Since then, there hasn’t been an EPA standard with respect to carbon pollution from existing power plants.

Republican attorneys general led by West Virginia, a major coal producer, along with coal companies and industry groups, pursued the case, arguing that the EPA doesn’t have the authority to transition the country to cleaner energy sources and that such authority belongs to Congress.

Lawyers representing the EPA and U.S. utility industry lobby groups pushed back on arguments restricting the agency’s authority, arguing that doing so would prompt lawsuits against power providers.

Under the Biden administration, the EPA has indicated that it will not attempt to resurrect the Clean Power Plan, but rather create its own rules to regulate power plant emissions.

This is breaking news. Check back for updates.

China’s Shenzhen stocks rise as data shows factory activity grew in June; Asia stocks slip

• Chinese markets rose on Thursday as government data showed factory activity grew in June, but most other Asia-Pacific indexes fell.
• Japan’s industrial production plunged 7.2% in May, according to government data.
• In corporate news, Toyota Motor missed its monthly production target in May for the third month in a row, Reuters reported.

https://www.cnbc.com/2022/06/30/asia-markets-china-pmi-data-stocks-currencies-oil.html