Call: 1-204-414-9106
Asia-Pacific stocks decline; private survey on Chinese services activity for May ahead
https://www.cnbc.com/2022/06/06/asia-markets-caixin-services-pmi-china-economy-currencies-oil.html
Economic Calendar: June 6
Monday June 6
China PMI and foreign reserves
==
Tuesday June 7
Japan household spending
Germany factory orders
(8:30 a.m. ET) Canada’s merchandise trade balance for April.
(8:30 a.m. ET) U.S. goods and services trade deficit (and revisions) for April.
(10 a.m. ET) Canadian Ivey PMI for May.
(3 p.m. ET) U.S. consumer credit for April.
==
Wednesday June 8
China aggregate yuan financing, new yuan loans, money supply and trade surplus
Japan GDP, current account surplus and bank lending
Euro zone GDP
Germany industrial production
(10 a.m. ET) U.S. wholesale inventories for April.
Earnings include: Dollarama Inc.; Transcontinental Inc.
==
Thursday June 9
Japan machine tool orders
ECB Monetary Policy Meeting
(8:30 a.m. ET) U.S. initial jobless claims for week of June 4. Estimate is 210,000, up 10,000 from the previous week.
(12 p.m. ET) U.S. flow of funds for Q1.
(10:30 a.m. ET) Bank of Canada Financial Systems Review with press conference to follow.
Earnings include: Enghouse Systems Ltd.; Nio Inc.; Saputo Inc.
===
Friday June 10
China CPI and PPI
(8:30 a.m. ET) Canadian employment for May. The Street is forecasting an increase of 0.1 per cent (or 10,000 jobs) from April with the unemployment rate remaining 5.2 per cent.
(8:30 a.m. ET) U.S. CPI for May. The consensus estimate is a rise of 0.7 per cent from April and 8.2 per cent year-over-year.
(10 a.m. ET) U.S. quarterly services survey for Q1.
(10 a.m. ET) U.S. University of Michigan Consumer Sentiment for June.
Norway oil and gas workers threaten strike, some crude output at risk
At least 647 Norwegian oil workers plan to strike from June 12 if state-brokered wage mediation fails, labour unions said on Friday, putting some crude output at risk of shutdown although gas may not be affected.
Workers are seeking above-inflation pay increases and other changes to their contracts but have not released details of their demands.
Members of the Industri Energi and Lederne unions plan strike action at 10 permanent offshore installations, including the Njord A, Valhall, Gudrun and several Oseberg platforms, as well as three mobile service units, the unions said.
Lederne would initially involve 74 mostly senior offshore workers in a strike, likely hitting oil production at the Equinor-operated Gudrun, Oseberg South and Oseberg East platforms, the union said.
Gas production should remain unaffected however, Lederne chief Audun Ingvartsen told Reuters.
“We will try to avoid affecting gas production as we are mindful about the situation with gas supplies in Europe,” he said.
“I hope we can find the best solution both for Norway and the oil companies, and at the same time give something back to the workers. I hope we can avoid a strike.”
Lederne is negotiating on behalf of some 1,300 union members.
Equinor did not immediately respond to a request for comment.
Gudrun produced 45,700 barrels of oil equivalent per day (boed) in 2021, Oseberg East 5,600 boed and Oseberg South 32,000 boed, official data shows, around two percent of Norway’s overall daily oil and gas output.
The Industri Energi union meanwhile said it would initially seek to avoid hitting production altogether, even as 573 of its members could go on strike.
“The first instance of a potential strike would only involve a limited number of members, but we can escalate if necessary,” Industri Energi’s chief negotiator Lill-Heidi Bakkerud said.
Industri Energi is Norway’s biggest oil and gas union, negotiating on behalf of some 4,300 members.
The Safe labour union, which will also take part in the June 10-11 mediation, has yet to outline its response.
US economy sees solid job growth in May as payrolls jump by 390,000
The U.S. economy continued to see healthy job growth in May, indicating the labor market is still strong despite growing fears of a recession amid sky-high inflation and an increasingly aggressive Federal Reserve.
Employers added 390,000 jobs in May, the Labor Department said in its monthly payroll report released Friday, beating the 328,000 jobs forecast by Refinitiv economists. The unemployment rate, meanwhile, held steady at 3.6%, the lowest level since February 2020.
Job gains were broad-based, with the biggest increases in the pandemic-battered leisure and hospitality industry (84,000), professional and business services (75,000) and transportation and warehousing (47,000).https://flo.uri.sh/visualisation/9820374/embed
“This does not look like a labor market about to tip into recession,” said Daniel Zhao, senior economist at jobs review website Glassdoor. “Job gains were healthier than expected and the labor force participation rate ticked up. Despite concerns about a slowdown and even a recession, the labor market’s fundamentals look healthy.”
Businesses are eager to onboard new employees and are raising wages in order to attract workers as they confront a labor shortage. There were roughly 11.4 million open jobs at the end of April – near a record high – while the number of Americans quitting their job is also well-above pre-pandemic levels.
Millions of workers are seeing the largest pay gains in years, as companies compete with one another for a limited number of employees. Earnings rose 5.2% in May from the previous year, much higher than the pre-pandemic average of 3%. There are signs that growth could be moderating though, with earnings climbing just 0.3% on a monthly basis, slower than Refinitiv expected.
https://www.foxbusiness.com/economy/us-economy-sees-healthy-job-creation-may-payrolls-grow
The close: Stocks rise, U.S. bond yields fall, as traders brace for employment data
Global equity markets rose on Thursday after lower-than-expected private payrolls data stirred hopes that the American economy was likely cooling and the Federal Reserve might be persuaded to modify its aggressive stance on interest rates and inflation. The TSX rose solidly, led by gains in the materials, industrials and technology sectors, with a weaker greenback helping to send commodity prices higher.
The ADP National Employment Report showed that private payrolls rose by 128,000 jobs in May, which was much lower than the consensus estimate of 300,000 jobs and suggested that demand for labor was starting to slow.
If the private payrolls data is reaffirmed by the Labor Department’s more comprehensive jobs report on Friday, then the Fed would be unlikely to continue its pace of rate hikes, said Sandy Villere, portfolio manager at Villere & Co in New Orleans.
“Essentially, bad news is good news and good news is bad news. That means the economy is maybe cooling a little bit and the Fed can maybe calm down on their hikes because that is essentially controlling everything right now,” Villere said.
For now, though, U.S. rate expectations remained unchanged. The rate futures market has penciled in about 195 basis points of cumulative tightening in 2022 and a fed funds rate of 2.788% after the December Fed meeting.
Fed Vice Chair Lael Brainard on Thursday further added to the view that rates will continue to rise at a fast pace.
“Right now it’s very hard to see the case for a pause,” she told CNBC. “We’ve still got a lot of work to do to get inflation down to our 2% target.”
Brainard said she backs at least a couple more half percentage point interest rate hikes, with more on tap if price pressures fail to cool.
The MSCI world equity index, which tracks shares in 50 countries, was up 1%.
On Wall Street, the S&P and the Dow reversed their earlier session losses and were trading higher, led by technology, consumer discretionary, communication services and financials.
The S&P 500 gained 1.8%, while the Nasdaq Composite gained 2.68%. The Dow Jones Industrial Average rose1.29%. Tesla, Nvidia and Meta Platforms each rose sharply, fueling gains in the S&P 500 and Nasdaq.
Nearly all of the 11 S&P 500 sector indexes climbed, led by consumer discretionary and communication services .
The S&P/TSX Composite Index gained 1.5%.
Oil prices edged higher after U.S. crude inventories fell more than expected amid high demand for fuel and OPEC+ agreed to boost crude output to compensate for a drop in Russian production.
Brent futures rose 1.32% to $117.83 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 1.5% to $117.
The U.S. dollar eased across the board, ceding some of the ground gained in recent sessions as firmer risk sentiment prompted investors to reach for higher-yielding currencies.
The dollar index fell 0.76%, with the euro up 0.91% to $1.0743.
Gold prices rose over 1%, supported by a dip in the dollar and the U.S. private payrolls data. Spot gold rose 1.2% to $1,868.04 an ounce, while U.S. gold futures gained 1.24% to $1,866.10 an ounce.
Gold Rises On Inflation Worries
Gold edged higher on Thursday as inflation and recession worries persist.
Spot gold rose 0.4 percent to $1,854.22 per ounce, while U.S. gold futures were up half a percent at $1,857.15.
Eurozone producer price inflation accelerated further to a new record high in April, data released by Eurostat showed today.
Producer prices advanced 37.2 percent on a yearly basis in April, faster than the 36.9 percent rise in March.
The 99.2 percent increase in energy prices and 25.1 percent rise in intermediate goods prices pushed producer price inflation to a new record.
Eurozone inflation accelerated to a new record of 8.1 percent in the year to May, data showed earlier this week.
Traders looked ahead to the European Central Bank’s meeting next week, when the central bank is likely to offer additional clues on the pace and scale of interest rate hikes to fight inflation.
The Bank of Canada on Wednesday raised its benchmark interest rate by half a percentage point – its third interest-rate increase this year in an effort to throttle skyrocketing inflation. The central bank also signaled that more hikes are on the way.
Growth worries linger, with JPMorgan Chase (JPM) CEO Jamie Dimon urging investors to brace for an economic hurricane.
Canada building permits for April, U.S. weekly jobless claims for the week ended May 28 and factory orders for April will be released in the New York session.
China central bank to step up policy implementation to support economy
China’s central bank will strengthen the implementation of its prudent monetary policy and bring forward steps to support the economy, vice governor Pan Gonsheng said on Thursday.
The People’s Bank of China (PBOC) will use various policy tools to step up liquidity injections to keep liquidity in the economy reasonably ample, Pan told a news conference.
The central bank aims to stabilize economic growth, employment and prices, Pan said, adding that financial institutions should maintain prudence in their operations and prevent risks.
“We will continue to strengthen the implementation of prudent monetary policy and create a sound monetary and financial environment,” Pan said.
China’s cabinet has announced a package of 33 measures covering fiscal, financial, investment and industrial policies to revive its pandemic-ravaged economy.
China’s trade in goods is expected to maintain a reasonable surplus this year and the relatively stable investment returns in yuan assets will help attract foreign investment, Pan said.
The central bank has pledged to step up support for the slowing economy, but analysts say the room to ease policy could be limited by worries about capital outflows, as the U.S. Federal Reserve raises interest rates.
China’s cabinet said on Wednesday that it will increase the credit quota for policy banks by 800 billion yuan ($120 billion) to enable them to support infrastructure construction, according to state TV.
Premier Li Keqiang has vowed to achieve positive economic growth in the second quarter, although many private sector economists have penciled in a contraction.
Zou Lan, head of the PBOC’s monetary policy department, told the briefing that the credit quota for policy banks will help improve their ability to finance infrastructure projects.
Saudi, OPEC may make up for Russian oil output loss as Biden visit looms
Saudi Arabia and other OPEC members may boost oil output to offset a drop in Russian production, a move that could take some pressure off surging global inflation and pave the way for an ice-breaking visit to Riyadh by U.S. President Joe Biden.
Two OPEC+ sources said the group was working on making up for a drop in Russian oil output as Russia’s production has fallen by about 1 million barrels per day (bpd) as a result of Western sanctions on Moscow over its invasion of Ukraine.
One OPEC+ source familiar with the Russian position said Moscow could agree to other producers raising production to compensate for Russia’s lower output but not necessarily making up all the shortfall.
“Ultimately, the compensation could be agreed,” the source said, but said a decision might not be taken at Thursday’s meeting of OPEC+, an alliance of the Organization of the Petroleum Exporting Countries, Russia and others.
However, a Gulf source in OPEC+ said a decision on the matter was “highly possible” at Thursday’s ministerial meeting.
U.S. diplomats have been working for weeks on organising President Joe Biden’s first visit to Riyadh after two years of strained relations because of disagreements over human rights, the war in Yemen and U.S. weapons supplies to the kingdom.
U.S. intelligence has accused Saudi Crown Prince Mohammed bin Salman, known as MbS, of approving the 2018 killing of Saudi journalist Jamal Khashoggi, a charge the prince denies. Biden has refused so far to deal with MbS as Saudi de-facto ruler.
A source briefed on the matter said Washington wanted clarity on oil output plans by Saudi Arabia and the United Arab Emirates before a potential Biden visit for a summit with Gulf Arab leaders, including MbS, in Riyadh.
“An impending Biden trip could apply pressure on Gulf OPEC producers to increase production,” said a Gulf source, who also declined to be named due to the sensitivity of the matter.
Faced with low approval ratings before U.S. mid-term elections amid surging gasoline prices, Biden has pressed Saudi Arabia to pump more oil. Sources on both sides say MbS has refused to act until Biden is ready to deal directly with him.
OPEC+ ministers hold online talks on Thursday when they had been widely expected to stick to an existing plan for a regular monthly increase of 432,000 bpd, mirroring previous meetings when they have spurned calls for bigger output hikes.
But Western sanctions could reduce production from Russia, the world’s second largest oil exporter, by as much as 2 million to 3 million bpd, according to a range of industry estimates.
Russia was already producing below its OPEC+ target of 10.44 million bpd in April with output of running at about 9.3 million bpd.
OPEC+ agreed to slash output by a record amount in 2020 when the pandemic hammered demand. The group has gradually wound down that deal, which expires in September. By then the group will have limited spare capacity to lift output further.
Saudi Arabia is now producing 10.5 million bpd and has rarely tested sustained production levels above 11 million bpd.
Alongside fellow Gulf state, the UAE, OPEC is estimated to have less than 2 million bpd of spare capacity.
“There is not much spare oil in the market to replace potential lost barrels from Russia,” said Bjarne Schieldrop, chief commodities analyst at SEB bank.
Canada’s big banks expect billions in added income following interest rates hike
Canada’s big banks expect to earn billions of dollars in added income from interest charges over the next year as central banks drive up interest rates, but the rapid pace of rate hikes could dampen the boost to profits if higher borrowing costs reduce demand for new loans.
The Bank of Canada announced its second consecutive oversized increase to its policy rate on Wednesday, hiking its benchmark rate by 0.5 percentage points to 1.5 per cent, as central bankers act aggressively to tame high inflation. That is good news for chartered banks: It promises to boost the profit margins they earn from lending money at higher rates than they pay for deposits.
For the past two years, banks’ net interest margins have been squeezed as central banks cut policy rates to rock-bottom levels in an effort to stimulate economies and help them rebound from COVID-19. But after the Bank of Canada hiked rates by 50 basis points for the second time since April, Canadian banks are expecting a surge in net interest income (NII) – as much as $3.5-billion combined over the coming 12 months, according to one set of estimates.
Toronto-Dominion Bank TD-T -0.69%decrease and Royal Bank of Canada RY-T +0.21%increase have the most to gain: In theory, each could reap well in excess of $1-billion in added interest income over the next year.
With the Bank of Canada predicting there are more rate hikes to come, and saying on Wednesday it is “prepared to act more forcefully” if needed to cool inflation, banks’ NII could keep rising for at least the next two years. Net interest income is key to bank performance, as it typically makes up about half of a major bank’s revenue, according to data from RBC.
On Wednesday, all five of Canada’s largest banks raised their prime lending rates by 50 basis points, from 3.2 per cent to 3.7 per cent.
Banks tend to earn higher interest income when interest rates rise. That is partly because they are able to charge wider spreads between deposits and loans, but also because they earn a better rate of return on financial assets they purchase with the deposits and other funds they hold.
Canada’s big banks grapple with rising expenses as inflation climbs
Canada’s Big Five banks move away from mandatory COVID-19 vaccine policy
The effect of fast-rising interest rates isn’t all upside for banks, however. As the cost to borrow increases, it can cool demand from clients for new loans, making it harder for banks to grow their loan books. And as more clients become financially stretched by the cost of servicing debt, loan defaults can rise and drive up losses.
The impact could be most obvious for banks’ mortgage balances, which have been rising at a furious pace over the last year, but are expected to grow more slowly in the coming quarters. Banks are also on the cusp of an early rebound in credit card balances, which generate higher profit margins for lenders, as customers travel and dine out more with pandemic restrictions easing.
Each of Canada’s Big Five banks estimates the change to its NII from a sudden increase in interest rates of 100 basis points, or one percentage point, that is consistent across the yield curve of rates for all time durations. That scenario is artificial, assuming that rates across the curve move in lockstep and banks’ balance sheets stay the same, with executives taking no action to adjust to changing rates.
At TD, a 100-basis-point spike in rates across the curve would generate nearly $1.6-billion in extra NII over 12 months. Over the past year, TD earned nearly $25-billion in net interest income, and $44.2-billion in total revenue.
“If the forward rates play out as expected, then we would see our margin expand, and it depends on how fast the rates are rising,” said Kelvin Tran, TD’s chief financial officer, in an interview last week. “When short rates increase we see that benefit fairly quickly.”
In the same scenario, RBC estimates its net interest income would rise by $1.1-billion, over and above the $20.7-billion in NII the bank earned in the past four quarters. Chief executive officer Dave McKay said late last year that rock-bottom rates reduced the bank’s revenue by about $1-billion in each of the past two years.
Bank of Montreal BMO-T -0.02%decrease estimates that a 100-basis-point rate shock would increase its NII by $635-million in the next 12 months, and CIBC predicts a $428-million increase over the same span.
Only Bank of Nova Scotia BNS-T -0.35%decrease predicts a decline in NII in the first year, of $126-million. Scotiabank has a large international banking operation in Latin America, where interest rates started rising sooner than elsewhere, allowing it to capture benefits to income earlier than some peers.
In the second year after a 100-basis-point rate hike, Scotiabank would expect net interest income to increase by $191-million.
