Author: Consultant

Wealthsimple cuts 13% of workforce as tech job woes deepen

Online bank challenger Wealthsimple Technologies Inc. has laid off 13 per cent of its employees as market conditions rock the technology sector, prompting a flood of job cuts in recent weeks.

During a company-wide meeting on Wednesday, Wealthsimple chief executive officer Michael Katchen announced that 159 employees, out of 1,262 who work for the company, would be laid off by the end of the day.

Wealthsimple was one of the most conspicuous beneficiaries of soaring valuations and venture capital interest during the pandemic. It became one of Canada’s most valuable private technology companies when it raised $750-million last year at a $5-billion valuation.

In 2020, Wealthsimple nearly doubled its assets under management to $9.7-billion over the previous year. But Mr. Katchen says clients are now “living through a period of market uncertainty they’ve never experienced before.”

As a result of the market conditions, Mr. Katchen said in a memo to employees after the meeting, the company must be “laser focused” on its core businesses, such as investing and banking. He also stressed the importance of Wealthsimple’s cryptocurrency offerings, even though crypto markets have plummeted and the price of bitcoin has dropped by 65 per cent since November.

At the same time, Mr. Katchen said, the company will reduce investments in areas such as peer-to-peer payments, and tax and merchant services, and will restructure teams in recruiting, marketing, client success and research.

Wealthsimple put a hold on hiring last week, and just over a month ago, its largest shareholder, IGM Financial, revealed it had written down the value of its stake in the company by 20 per cent as the sell-off of publicly traded technology stocks spread to private markets.

The layoffs are part of a sector-wide trend globally in which a number of unprofitable tech companies – particularly in the United States – slash operating expenses in an attempt to prolong the amount of time they can fund operations with existing capital. Additionally, a shortage of workers in the tech industry led to sharp increases in compensation.

According to website Layoffs.fyi, which tracks tech-sector layoffs globally, the second quarter has already been the biggest three-month period for staff reductions since early in the pandemic, with 169 rounds of cuts, resulting in 28,774 job losses as of Wednesday. Many U.S. tech companies have frozen hiring, including Facebook parent Meta Platforms Inc., Salesforce Inc. and Intel Corp.

In Canada, Toronto-based Swyft Technologies Inc., an e-commerce delivery startup backed by Shopify Inc., laid off about 30 per cent of its staff this week, adding to a wave of Canadian startups that stopped hiring or laid off workers this month.

Wealthsimple is the first major tech company in Canada to announce layoffs that surpass 150 employees. Unlike some of its peers, however, Wealthsimple is backed by one of the country’s largest financial institutions – IGM Financial, a subsidiary of Power Corp. of Canada, which holds a 23-per-cent stake in the company. This could help ease the pain for many of the laid-off workers.

Power Corp. was one of Wealthsimple’s first public investors in 2015. Over the years, Power Corp – through IGM and another subsidiary, Canada Life – has supported Wealthsimple’s growth in additional rounds of funding. (Power Corp. did sell a $500-million stake back to Wealthsimple in the latest round last year, reducing its overall equity interest.)

Now, IGM and Canada Life are stepping in to assist those impacted by the layoffs, guaranteeing job interviews to those interested in working for them.

In its staff memo, Wealthsimple also said employees would be offered “generous” severance, extended health and dental coverage, and accelerated vesting of equity for those who have not reached required timelines. They will also be allowed to keep their company laptops and home office equipment.

Canadian home sales, prices fall for second consecutive month in May as ‘new interest-rate reality’ sinks in

Canadian home prices and sales dropped in May in a second straight month, as a sharp jump in borrowing costs rattled the market and made it harder for homebuyers to get a mortgage.

The national home price index, which adjusts for pricing volatility, fell 0.8 per cent to $822,900 on a seasonally adjusted basis, according to the Canadian Real Estate Association (CREA), with bigger declines in what had been some of the country’s hottest markets – Southern Ontario and Chilliwack, B.C.

The number of home resales dropped 8.6 per cent from April to May on a seasonally adjusted basis, bringing the level of activity back in line with prepandemic times, CREA said. Sales were down in three-quarters of the country, with double-digit declines in places such as the Vancouver region, Victoria, Calgary and Ottawa.

CREA said it had predicted that the housing market would eventually slow when interest rates started to rise, but it did not expect rates and mortgage costs to climb so quickly.

“What is surprising is how fast we got here,” said Shaun Cathcart, the association’s senior economist, in a news release. “That cooling off of sales and prices seems to have mostly played out over the last two months.”

The interest rate on a five-year fixed mortgage reached 4.41 per cent last week, according to data from the Bank of Canada. That compares with 2.99 per cent in early March and 2.21 per cent a year ago. Borrowing costs will continue to rise as the central bank continues to hike interest rates to combat runaway inflation.

Samantha Brookes, the chief executive of brokerage firm Mortgages of Canada, said borrowers are shocked when they see fixed-rate mortgages above 4 per cent and are asking about their options. “They’re like, ‘Well, I have a 1.75 per cent right now.’ I’m like, ‘Well, you’re going to have a 4.19 per cent soon,’ ” she said.

Robert Kavcic, senior economist with Bank of Montreal, said this new interest-rate reality is starting to fully sink in with borrowers. “A correction in Canadian housing is well under way across a number of markets, and a long, cold summer likely lies ahead,” he said in a research note.

That correction is taking place in Ontario’s suburbs and less populated cities, which saw some of the biggest gains over the first two years of the pandemic. Cambridge’s home price index was down 4.6 per cent from April to May. Guelph and London, Ont., were down more than 3 per cent. Brantford and Kitchener-Waterloo dropped more than 2 per cent.

Over the past three months, Cambridge’s home price index has fallen 13.5 per cent, while London and the Toronto suburb of Oakville-Milton are down just over 9 per cent.

Ms. Brookes said some homeowners who bought during the peak this January and February are contemplating selling. “They can’t afford it. So they’re thinking that they need to sell, but they may take a loss,” she said.

New listings climbed 4.5 per cent from April to May as more homeowners either put their homes up for sale or had to relist their properties.

Compared with a year ago, the home price index was up 20 per cent; in January and February, the year-over-year increase neared 30 per cent.

Heat, humidity kill at least 2,000 Kansas cattle, state says

• Extreme heat and humidity killed thousands of cattle in Kansas in recent days.
• The deaths add pain to the U.S. cattle industry as producers have reduced herds due to drought and grappled with feed costs that climbed as Russia’s invasion of Ukraine tightened global grain supplies.
• Kansas is the third largest U.S. cattle state behind Texas and Nebraska, with more than 2.4 million cattle in feedlots.

https://www.cnbc.com/2022/06/15/heat-humidity-kill-at-least-2000-kansas-cattle-state-says.html

Bank of England set for fifth straight rate hike as growth and the pound wobble

• At its May meeting, the Bank raised its base rate by 25 basis points to 1%, its highest level for 13 years, but warned that the British economy risks falling into recession.
• U.K. inflation soared to a 40-year high of 9% annually in April as food and energy prices spiraled, and the country faces a major cost of living crisis.

https://www.cnbc.com/2022/06/15/bank-of-england-set-for-fifth-straight-rate-hike-as-growth-and-the-pound-wobble.html

Fed raises interest rate by 75-basis points in historic move to fight inflation

The Federal Reserve on Wednesday raised its benchmark interest rate by 75-basis points for the first time in nearly three decades as policymakers intensify their fight to cool red-hot inflation, a move that threatens to slow U.S. economic growth and exacerbate financial pressure on Americans.  

https://www.foxbusiness.com/economy/fed-raises-interest-rates-75-basis-points-ramps-up-inflation-battle

Bitcoin plunges below $23,000 as the crypto meltdown continues

Bitcoin and other cryptocurrencies continued to slide Tuesday as investors bailed out of risky assets in anticipation of sharp rises in interest rates to tackle inflation.

Nerves remain raw after two of the world’s biggest cryptocurrency platforms restricted activity on Monday as the wider market meltdown continued apace.

The Celsius Network, which has 1.7 million customers, said that “extreme market conditions” had forced it to temporarily halt all withdrawals, crypto swaps and transfers between accounts.

“We are taking this necessary action for the benefit of our entire community in order to stabilize liquidity and operations while we take steps to preserve and protect assets,” the company said in a blog post.

The UK-registered company has about $3.7 billion in assets, according to its website. It pays interest on cryptocurrency deposits, and loans them out to make a return.

“Celsius suspending withdrawals yesterday gave extra downside momentum,” noted Jeffrey Halley, senior market analyst, Asia Pacific, at Oanda. “I can only assume the next big level for bitcoin psychologically will be $20,000.”

The cryptocurrency market has taken a hammering in recent months after its pandemic boom turned to bust. As the world’s major central banks have hiked interest rates to tame spiraling inflation, traders have rushed to ditch riskier investments, including their volatile crypto assets.

Bitcoin, the world’s most valuable cryptocurrency, fell about 8% Tuesday, dropping below $23,000. It has lost about 25% of its value since Friday — putting it about 67% below its all-time high in November last year, when it traded around $69,000, according to data from Coinbase.

Ether, the second-most-valuable digital coin, dropped 4%, taking its losses since Friday to about 32%. It has now lost about 75% of its value since November.

Binance, the world’s biggest cryptocurrency exchange, suspended withdrawals on its bitcoin network for a few hours on Monday. The company said some transactions had gotten “stuck” and were causing a backlog.

“Binance team is working on a long-term solution to accelerate pending transactions on the bitcoin (BTC) network and prevent similar situations in the future,” it said in a statement.

So-called “stablecoins” — cryptocurrencies that are tied to the value of more traditional assets — have also taken a hit. Tether, a popular stablecoin, broke its peg to the US dollar in May, puncturing the view that it could serve as a hedge against volatility.

TerraUSD, a riskier algorithmic stablecoin that used complex code to peg its value to the the US dollar, collapsed the same month, wiping out the savings of thousands of investors. The coin was valued at a little over $18 billion in early May before it crashed, according to data from CoinMarketCap.

Celsius Network did not say when it would allow customers to withdraw their deposits again, only that it would “take time.”

Meanwhile, governments are watching the fallout of the crypto crash closely and could move to protect investors.

“There are many risks associated with cryptocurrencies,” United States Treasury Secretary Janet Yellen told the Senate last month. She said her department was due to release a report on the matter.

At the open: TSX rebounds after dropping into correction territory in Monday’s rout (June 14, 2022)

U.S. Treasury yields held near multi-year highs on Tuesday, while stock markets reeled from the previous session’s rout on signs that central banks’ action to curb inflation would tip the world economy into recession.

Canada’s main stock index opened higher, a day after tumbling back into correction territory, helped by gains in energy shares on the back of higher crude prices.

At 9:31 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 92.96 points, or 0.47%, at 19,835.52.

On Monday, the index tumbled back into correction territory, ending down 2.6% at 19,742.56, leaving it 10.6% below the record closing high it notched up in March.

A correction is confirmed when an index closes 10% below its record closing high. The TSX did that on May 11 and May 12 but then rallied.

Money markets see about a 75% chance that the Bank of Canada would raise interest rates by three-quarters of a percentage point next month, which would be the biggest hike since August 1998, and expect rates to peak at about 3.9% next year.

Just two weeks ago, investors expected a so-called terminal rate of 3%.

Wall Street’s main indexes also opened higher on Tuesday, a day after the S&P 500 confirmed it was in a bear market, as investors took relief from a smaller-than-expected rise in core producer prices.

The Dow Jones Industrial Average rose 75.60 points, or 0.25%, at the open to 30,592.34.

The S&P 500 opened higher by 13.89 points, or 0.37%, at 3,763.52, while the Nasdaq Composite gained 88.20 points, or 0.82%, to 10,897.43 at the opening bell.

The benchmark S&P 500 on Monday closed 20% below its all-time closing high hit on Jan. 3, while a key part of the Treasury yield curve inverted for the first time since April on mounting fears that the Federal Reserve’s attempts to control soaring inflation will dent the economy.

The selling pressure appeared to ease in early trading. Market heavyweights such as Apple Inc, Amazon, Microsoft Corp and Tesla rose between 0.7% and 0.9%.

Oracle Corp was another gainer after posting upbeat quarterly results on demand for its cloud products. Its shares jumped 12.1%.

U.S. delivery firm FedEx Corp on Tuesday raised its quarterly dividend by more than 50% to $1.15 per share, sending its shares 10.9% higher in early trading.

“There may be opportunity for a bit of a breather from the aggressive expectations baked in, and you can see that in terms of how the markets are wandering today,” said Edward Park, chief investment officer at Brooks Macdonald Asset Management in London.

“Markets are undoubtedly going to be choppy.”

Expectations are growing that central banks, especially the U.S. Federal Reserve, may have to up the pace of policy-tightening to stamp on inflation, potentially sparking economic recession. Markets now see the Fed’s rate hike cycle peaking around 4%, rather than the 3% seen last month.

Those expectations lifted U.S. 10-year borrowing costs, the benchmark interest rate for the global economy, as high as 3.44% on Monday, a 2011 peak.

While yields slipped on Tuesday to around 3.3% they remain some 180 basis points (bps) above end-2021 levels.

With the Fed due to start a two-day meeting later on Tuesday, markets waited to see if it could raise rates by a bigger-than-expected 75 bps, a possibility flagged by several investment banks, including Goldman Sachs.

That move, which would be the biggest increase since 1994, is also almost fully priced for Wednesday.

That repricing has pummelled assets that benefited from rock-bottom interest rates – stocks, crypto, junk-rated bonds and emerging markets.

“Quite simply, when we see monetary tightening the order of what we are seeing globally, something is going to break,” said Timothy Graf, head of EMEA macro strategy at State Street.

“Stock markets are reflecting the reality of the first-order effect of tighter financial conditions,” Graf said, predicting that with U.S. stock valuations still above COVID-time lows, there was more pain to come.

“I think there are other shoes to drop,” he added.

MSCI’s index of global shares slipped 0.3%, extending Monday’s 3.7% fall, while a pan-European equity index slumped 1% to March 2020 lows.

Asian shares too fell 1%, catching up with Monday’s bleak Wall Street session, when the S&P 500 and the Nasdaq indexes lost 4% and 4.7% respectively.

There was little let-up for crypto markets, where bitcoin and ether plumbed new 18-month lows, reacting to interest rate expectations and crypto lender Celsius Network’s decision to freeze withdrawals.

Bitcoin which fell as low as $20,816, is down more than 50% this year.

World markets latest lurch lower was triggered on Friday by U.S. data showing annual inflation to May shot up by 8.6%.

The ensuing bond sell-off lifted two-year U.S. yields more than 50 basis points over two sessions, pushing them above 10-year borrowing costs on Monday in the so-called curve inversion that is considered a harbinger of recession.

Two-year yields eased to 3.3% on Tuesday, versus its 3.43% peak, its highest since 2007. The yield curve remains flat reflecting concern for the world economy, especially as commodity prices offer little respite.

Brent crude futures rose above $123 a barrel, supported by the tight oil supply picture.

State Street’s Graf does not see recession as inevitable but acknowledged that “monetary tightening and the squeeze on real incomes from commodity prices mean the probability has gone up”.

Markets are also having to contend with the dollar’s surge to new 20-year peaks against a basket of currencies.

It eased 0.10% on Tuesday, offering respite to other currencies, but the yen continues to languish at 24-year lows against the greenback.

With the Bank of Japan expanding bond purchases on Tuesday and unlikely to budge from ultra-low rates policy at its Friday meeting, yen respite looks unlikely.

“Given Wednesday may see the Fed go 75 bps and flag more, while the BOJ on Friday will only flag more bond-buying, the yen is not going to stay at these levels for long. It’s going to get much, much worse,” Rabobank strategist Michael Every said.

Reuters

Wholesale inflation climbs 10.8% in May, hovering near 40-year high

https://www.foxbusiness.com/economy/wholesale-inflation-climbs-in-may-remaining-near-40-year-high

Stocks sink, S&P enters bear market inflation, Fed meeting this week: LIVE UPDATES (June 13)

https://www.foxbusiness.com/live-news/stocks-today-6-13-2022