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Canadians are sitting on record amounts of cash – but nobody is sure what to do with the money
More than two years into the pandemic, Canadians’ wallets are still stuffed with cash.
There is currently about $113-billion worth of physical money in circulation in Canada, up by nearly 25 per cent from pre-pandemic levels. As a share of the overall economy, that’s more cash floating around than at any time since the early 1960s.
So much for the cashless society.
Most of the recent buildup of cash occurred in the early stages of the pandemic, when disastrous outcomes of all sorts suddenly seemed much more realistic than they previously had.
But cash holdings are still well above trend, after being relatively stable for the quarter-century prior to the pandemic.
Two years ago, there was little harm in stashing a bunch of cash for peace of mind. With interest rates near zero, it wasn’t as though a person could earn anything respectable in a savings account or fixed income investment. And with inflation nearly non-existent, there wasn’t much erosion to cash holdings from rising prices.
Big changes are afoot on both fronts. Inflation in Canada has averaged about 6 per cent in the first three months of 2022, while the yield on five-year Government of Canada bonds is higher than 2.8 per cent for the first time since 2011.
“People are now realizing they’re making a negative 6 per cent return on their cash,” said Kurt Rosentreter, a portfolio manager at Manulife Securities.
“Everyone’s revisiting cash balances, but I’m not sure they know what to do with it yet.” That will probably depend on why they held cash in the first place.
In the spring of 2020, with most of the country in lockdown and many grocery-store shelves stripped bare, many Canadians likely thought they needed to have some cash on hand just in case, said Doug Porter, chief economist at Bank of Montreal.
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“I think a lot of people were thinking of worst-case scenarios and how they might protect themselves, which I don’t think is irrational at all,” Mr. Porter said.
As the pandemic dragged on, household finances at the national level actually improved, in part thanks to government income support. Consumers found themselves flush with cash, with nowhere to spend it.
Travel wasn’t an option. And bars and restaurants were shut down on and off through subsequent waves of COVID-19 infections.
Many businesses stopped accepting cash altogether, with contactless payment seen as a safer option. Cash transactions in Canada fell by 16.5 per cent in 2020 from the previous year, according to Payments Canada.
Many found a use for their excess cash in home-improvement projects. “Let’s be honest, that’s certainly a sector that has long been associated with quite a bit of underground activity,” Mr. Porter said.
With the renovation boom showing signs of slowing down, some Canadians are now looking at other ways to deploy their cash reserves.
Fast-rising interest rates have emphasized the risk of elevated household debt, leading many to turn to debt-reduction plans. “I’m seeing more doubling of payments and more lump-sum paydowns on mortgages,” Mr. Rosentreter said.
The flip side of higher borrowing rates is better returns for savers. The going rate on five-year guaranteed investment certificates is approaching 4 per cent for the first time in more than a decade.
“It’s about time,” Mr. Rosentreter said. “I’m almost seeing the stress levels go down with my retirees.”
The current trends provide powerful incentives for putting cash to use, and could bring an end to elevated growth rates of cash holdings, Mr. Porter said.
“I would not be surprised to see that number come down a lot in the next year, as presumably and hopefully we put the pandemic behind us,” he said. “People will realize they don’t really need to hold on to that much cash and there is an opportunity cost to holding that cash.”
Stock futures fall on Sunday as Wall Street braces for a busy earnings week
U.S. stock futures fell on Sunday night as investors looked ahead to a stacked week of earnings, including reports from major tech companies such as Amazon and Apple.
Dow Jones Industrial Average futures fell 0.2%. S&P 500 futures dipped 0.3% and Nasdaq 100 futures declined 0.4%.
Those moves come ahead of the busiest week yet in corporate earnings season. About 160 companies in the S&P 500 are expected to report earnings this week, and all eyes will be on reports from big tech companies, including Amazon, Apple, Google-parent Alphabet, Meta Platforms and Microsoft.
Meantime, investors will be watching Twitter, which reportedly is re-examining Elon Musk’s takeover bid after the billionaire investor disclosed he secured $46.5 billion in financing, according to a Wall Street Journal report, citing unnamed sources.
On Friday, all the major averages declined as traders absorbed the prospect of rising interest rates from the Federal Reserve and the week’s corporate quarterly results.
The Dow Jones Industrial Average lost 981.36 points, or 2.8%, to 33,811.40, in what was the Dow’s worst day since October 2020. The S&P 500 fell 2.8% to 4,271.78, or its worst day since March. The Nasdaq Composite dropped by 2.6% to 12,839.29.
“There has been severe damage in many areas of the market, while money rotated into perceived ‘defensives’ like Utilities, Staples, Pharma, and even mega-cap growth,” said Jonathan Krinsky, chief market technician at BTIG. “Those areas, despite their strong momentum, are now unwinding lower, while the low-momentum names continue to trend down.”
Coca-Cola is expected to report before the bell on Monday with a management call set at 8:30 a.m. ET. Other companies reporting on Monday include Activision Blizzard, Otis, Whirlpool and Zions Bancorp.
Wall Street is also looking forward to a key measure of inflation this week. The personal consumer expenditures index is set to be released Friday before the bell. In February, the core PCE jumped 5.4%.
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EARNING RELEASES APRIL 29, 2022
April 25 – April 29
Monday April 25
Japan department store sales
Germany business climate
(8:30 a.m. ET) Canadian wholesale trade for March.
(8:30 a.m. ET) U.S. Chicago Fed National Activity Index for Match.
(11 a.m. ET) Bank of Canada Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers appear before the House of Commons Standing Committee on Finance
Earnings include: Coca-Cola Co.
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Tuesday April 26
Japan jobless rate
(8:30 a.m. ET) Canadian manufacturing sales for March.
(8:30 a.m. ET) U.S durable goods and core orders for March. The Street is forecasting increases of 1.0 per cent and 0.5 per cent from February, respectively.
(9 a.m. ET) U.S. Case-Shiller Home Price Index (20 city) for February. Consensus is a rise of 1.5 per cent from January and 19.2 per cent year-over-year.
(9 a.m. ET) U.S. FHFA House Price Index for February. Consensus is an increase of 1.5 per cent month-over-month and 18.5 per cent year-over-year.
(10 a.m. ET) U.S. new home sales for March. Consensus is an annualized rate rise of 0.4 per cent.
(10 a.m. ET) U.S. Conference Board Consumer Confidence Index for April.
Earnings include: Air Canada; Canadian National Railway Co.; Capstone Mining Corp.; First National Financial Corp.; First Quantum Minerals Ltd.; General Electric Co.; General Motors Co.; Morguard North American Residential; PepsiCo Inc.; Raytheon Technologies Corp.; Texas Instruments Inc.; United Parcel Service Inc.; Visa Inc.; Winpak Ltd.
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Wednesday April 27
Bank of Japan monetary policy meeting (thru Thursday)
Germany consumer confidence
(8:30 a.m. ET) U.S. goods trade deficit for March.
(8:30 a.m. ET) U.S. wholesale and retail inventories for March.
(10 a.m. ET) U.S. pending home sales for March. Consensus is a decline of 0.5 per cent from February.
(6:30 p.m. ET) Bank of Canada Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers appear before the Senate Standing Committee on Banking, Trade and Commerce
Earnings include: Aecon Group Inc.; Alamos Gold Inc.; Allied Properties REIT; Alphabet Inc.; Atco Ltd.; Boeing Co.; Canadian Pacific Railway Ltd.; Canadian Utilities Ltd.; Cenovus Energy Inc.; CGI Inc.; Choice Properties REIT; FirstService Corp.; Lundin Mining Corp.; Meta Platforms Inc; Methanex Corp.; New Gold Inc.; Norfolk Southern Corp.; PayPal Holdings Inc.; Qualcomm Corp.; Teck Resources Ltd.; T-Mobile US Inc.; Yamana Gold Inc.
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Thursday April 28
Japan retail sales and industrial production
Germany CPI
Euro zone economic and consumer confidence
(8:30 a.m. ET) Canada’s Survey of Employment, Payrolls and Hours for February is released.
(8:30 a.m. ET) U.S. initial jobless claims for week of April 23. Estimate is 180,000, down 4,000 from the previous week.
(8:30 a.m. ET) U.S. real GDP and GDP deflator for Q1. Consensus is annualized rate rises of 1.0 per cent and 7.2 per cent, respectively.
(11 a.m. ET) U.S. Kansas City Fed Manufacturing Activity for April.
Also: Ontario budget
Earnings include: AbbVie Inc.; Agnico Eagle Mines Ltd.; AltaGas Ltd.; Amazon.com Inc.; Apple Inc.; Baytex Energy Corp.; BCE Inc.; Caterpillar Inc.; Celestica Inc.; Constellation Software Inc.; Eldorado Gold Corp.; Eli Lilly and Co.; Ford Motor Co.; Intel Corp.; McDonald’s Corp.; Merck & Co. Inc.; Microsoft Corp.; Newcrest Mining Ltd.; OceanaGold Corp.; Pason Systems Inc.; Precision Drilling Corp.; Secure Energy Services Inc.; Southern Copper Corp.; Stryker Corp.; TFI International Inc.; Twitter Inc.; West Fraser Timber Co Ltd.; Whitecap Resources Inc.
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APRIL 22, 2022: The close: Dow dives nearly 1,000 points, TSX suffers worst day of 2022, as traders fret about higher rates
Wall Street tumbled more than 2.5% on Friday, ensuring the three main benchmarks ended in negative territory for the week, as surprise earnings news and increased certainty around aggressive near-term interest rate rises took its toll on investors. The TSX, fully swept up in the action, was down more than 2% – its worst day of 2022.
It was the third straight week of losses for both the S&P 500 and the Nasdaq, while the Dow Jones posted its fourth weekly decline in a row.
For the Dow, its 2.82% drop on Friday was its biggest one-day fall since October 2020.
The S&P/TSX Composite Index ended down 464.03 points, or 2.1%, at 21,186.38, its biggest decline since last November and its lowest closing level since March 1. For the week, the index was down 3.1%.
Exaggerated trading swings have become more common recently, as traders adjust to new data points from earnings, as well as when rates will rise again. For the Nasdaq, Friday was the eighth session in April, out of 15 trading days this month, where the index either rose or fell by more than 2%.
“It’s not very common, over the course of my time doing this job, for the market to move 2% in either direction and to think ‘there’s not too much to read into that’,” said Craig Erlam, senior market analyst at OANDA.
“That’s not normal, but that’s just how things have been for such a long time now.”
Concerns about risks from interest rate hikes continued to reverberate after Federal Reserve Chair Jerome Powell’s hawkish pivot on Thursday, where he backed moving more quickly to combat inflation and said a 50-basis-point increase would be “on the table” when the Fed meets in May.
The idea of “front-end loading” the U.S. central bank’s retreat from super-easy monetary policy, which Powell articulated support for on Thursday, has also forced traders to re-evaluate how aggressive subsequent rate rises would be.
The Bank of Canada has also turned more hawkish. It could consider a larger rate increase than the half-point move it made last week, Governor Tiff Macklem said on Thursday.
Canadian economic data showed the largest monthly gain in producer prices since the series began in January 1956.
All 10 of the TSX’s major sectors lost ground, with the heavily-weighted financial services sector falling 2.6% and technology ending 2.5% lower.
Energy was down 1.9% as U.S. crude futures settled 1.7% lower at $102.07 a barrel. Oil was burdened by the prospect of higher interest rates, weaker global growth and COVID-19 lockdowns in China hurting demand.
The TSX materials group, which includes precious and base metals miners and fertilizer companies, lost 2.6%. It included a decline of 9.1% for copper producer First Quantum Minerals Ltd as copper prices fell.
The CBOE Volatility index, also known as Wall Street’s fear gauge, jumped on Friday, ending at its highest level since mid-March.
Meanwhile, on Wall Street, the latest earnings forecasts to jolt investors came from healthcare, with HCA Healthcare and Intuitive Surgical Inc the worst performers on the S&P 500.
HCA slumped 21.8% after reporting a downbeat profit view, while other hospital operators felt the contagion: Tenet Healthcare, Community Health Systems and Universal Health Services all tumbled between 14% and 17.9%.
Surgical robot maker Intuitive Surgical dropped 14.3% after warning of weaker demand from hospitals due to tighter finances.
All 11 major S&P 500 sectors were down, although the 3.6% slip by healthcare was outdone by materials, which was off 3.7%.
Materials was weighed down by Nucor Corp – down 8.3% after hitting a record high after posting earnings on Thursday – and Freeport-McMoRan Inc, which slipped 6.8% as investors fretted over how interest rate hikes would impact copper miners.
The Dow Jones Industrial Average fell 981.36 points, or 2.82%, to 33,811.4, the S&P 500 lost 121.88 points, or 2.77%, to 4,271.78 and the Nasdaq Composite dropped 335.36 points, or 2.55%, to 12,839.29.
For the week, the Dow dipped 1.9%, the S&P dropped 2.8%, and the Nasdaq declined 3.8%.
The prospect of a more hawkish Fed has led to a rocky start to the year for equities, with Friday’s sell-off taking declines on both the S&P and Dow since the start of the year beyond 10%.
The trend is more pronounced in tech and growth shares whose valuations are more vulnerable to rising bond yields. The Nasdaq is down 17.9% in 2022.
Earnings are due next week for the four biggest U.S. companies by market capitalization: Apple, Microsoft , Amazon and Google parent Alphabet.
The quartet declined between 2.4% and 4.1% on Friday. Meta Platforms Inc, which also has results on deck for next week, dropped 2.1%, taking its losses in the last three days to 15.3%.
Investors are worried after streaming giant Netflix Inc’s dismal earnings earlier this week sent shockwaves through big tech and stay-at-home darlings which benefited from pandemic factors such as lockdown measures.
The volume on U.S. exchanges was 11.66 billion shares, compared with the 11.67 billion average for the full session over the last 20 trading days.
Canada & USA
