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  • At midday: TSX hits near-three week low on concerns over U.S. policy tightening

    At midday: TSX hits near-three week low on concerns over U.S. policy tightening (Apr 6, 2022)

    Canada’s main stock index fell on Wednesday, with technology and financial shares leading declines, as investors fretted over the prospect of aggressive policy tightening by the U.S. Federal Reserve to tackle inflation.

    The Toronto Stock Exchange’s S&P/TSX composite index was down 148.11 points, or 0.68%, at 21,782.72, its lowest level since March 18.

    On Wall Street, the Nasdaq led declines for a second straight day, ahead of the minutes of the Fed’s March meeting that could indicate just how fast and how far policymakers would proceed in shrinking a massive balance sheet and raising interest rates.

    The information technology sector was the biggest decliner among Canada’s 11 main sectors, with a 4.3% drop. Valuations and returns of growth and technology stocks are discounted deeply when rates go up.

    “Its a sour mood. The equity market doesn’t like rising interest rates, too high inflation, a recession and war. So you got four big uncertainties and no one can talk about anything positive right now – that sentiment will have to play out until it ends,” said Barry Schwartz, portfolio manager at Baskin Financial Services.

    “It’s just the velocity of the moves in the treasury markets and the fact that there’s still no continued resolution in Russia, the markets are now starting to price in much slower growth going forward.”

    Artillery pounded key cities in Ukraine, as its president urged the West to act decisively in imposing new and tougher sanctions being readied against Russia. Separately, the Kremlin said peace talks with Kyiv were not progressing as rapidly or energetically as it would like.

    The financials sector fell 0.7% with Bank of Nova Scotia and Toronto-Dominion Bank among the most heavily traded shares. The industrials sector slid 1.5%.

    The Nasdaq slumped 2% on Wednesday as tech stocks extended their selloff for a second straight day on mounting concerns over aggressive actions by the Federal Reserve to fight inflation, with minutes from the central bank’s March meeting on tap.

    Shares of megacap growth companies such as Microsoft , Apple and Amazon.com tumbled between 2.2% and 3.3%, dragging down the Nasdaq and the S&P 500.

    High-growth stocks, whose valuations stand to be pressured by higher bond yields, bore the brunt as the benchmark 10-year yield hit a three-year high.

    Fed Governor Lael Brainard said on Tuesday she expected a combination of interest rate hikes and a rapid balance sheet runoff, sparking losses on Wall Street.

    “The pre-earnings rally has now been somewhat cut short due to surging yields and a very strong dollar,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

    “The Fed minutes today will likely show an even more hawkish attitude by the Fed members. I think they’ll point to a half-a-percent rise next month.”

    The Federal Open Market Committee’s minutes, set to be released at 2 p.m. ET (1800 GMT), could indicate how fast and how far policymakers will proceed in trimming several trillion dollars from the stash of assets purchased to stabilize financial markets through the pandemic.

    While estimates of the impact vary, Fed Chair Jerome Powell after the March meeting said the reductions might have the same effect as an additional quarter-point increase in short-term rate.

    Traders now see 83.1% odds of a 50 basis points rate hike at the central bank’s meeting next month.

    The CBOE Volatility index, also known as Wall Street’s fear gauge, rose to 24.36 points, its highest since March 21.

    U.S. stock markets had a rough start to the year as the prospects of a more hawkish Fed weighed on growth shares, while the war in Ukraine compounded worries over rising inflation.

    The United States targeted Russian banks and elites with a new package of sanctions on Wednesday that includes banning any American from investing in Russia, after Washington and Kyiv accused Moscow of committing war crimes in Ukraine.

    The Dow Jones Industrial Average was down 237.28 points, or 0.68%, at 34,403.90, the S&P 500 was down 54.20 points, or 1.20%, at 4,470.92, and the Nasdaq Composite was down 328.14 points, or 2.31%, at 13,876.03.

    Among other stock movers, JetBlue Airways Corp slid 8.4% after the carrier said it made an unsolicited $3.6 billion bid for Spirit Airlines Inc, potentially snarling merger plans between the ultra-low-cost carrier and Frontier Group Holdings Inc.

    Frontier Group and Spirit Airlines fell 10.2% and 3.0%, respectively.

  • The most intriguing policy idea in the federal government’s new Emissions Reduction Plan is to fix something that is far shakier than it might appear: the carbon pricing system that is supposed to underpin Canada’s entire climate strategy.

    CLIMATE POLICY – Carbon Pricing

    At first glance, that system might appear to be on more solid ground than ever before. An increase in the federally imposed carbon price, bringing it to $50 per tonne, just took effect on Friday. Further annual increases of $15 per tonne seem assured for the next couple of years, courtesy of a Liberal-NDP agreement meant to keep the current government in power until 2025.

    But that doesn’t mean it will keep rising, as currently scheduled, all the way to $170 per tonne by 2030 – not when the federal Conservatives, the likeliest alternative to the Liberals in the next election, appear to be shifting back to carbon-pricing opposition after flirting with support for it.

    And that political instability is a big impediment to carbon pricing fulfilling its biggest purpose, which is to incentivize big, long-term investments in clean technology that don’t offer enough financial upside otherwise.

    Speak to leaders of large Canadian industries – including, very notably, the oil and gas sector – and you will hear less opposition to carbon pricing than frustration with the uncertainty around its future. If they knew it would keep going up as planned, they say, it would drive adoption of carbon capture, electrification, and other means of reducing emissions. Without that confidence, they feel at risk of high costs if the price does keep going up, but reluctant to spend in ways that won’t pay off if the price is flattened or scrapped altogether.

    So there was very good reason for Ottawa to announce in the Emissions Reduction Plan (ERP) that “to enhance long-term certainty” it will be “exploring measures that help guarantee” the carbon price. That was mostly a reference to developing a mechanism to reduce the private sector’s exposure to risks from policy changes – ensuring companies will get the benefits from investments contingent on carbon pricing reaching a certain level, even if that doesn’t actually happen.

    And it was equally encouraging to get the impression from Environment Minister Steven Guilbeault, in an interview with The Globe and Mail following the ERP’s release, that the government is readier to move than the exploratory language in the plan made it sound.

    “I think this is something we can do very quickly,” he said, anticipating only “a matter of months” to choose from possible methods.

    The biggest risk of Canada’s net-zero strategy? Not reaching net zero

    It’s sink-or-swim time for Canada’s oil and gas industries

    There is some cause for skepticism about the government moving at quite that pace, given its usual slowness. But it should help in this case that a credible idea for how to achieve greater carbon pricing certainty is already in play.

    Known as “contracts for differences,” and explicitly mentioned as an option in the ERP, it was first proposed in a C.D. Howe Institute paper last year by Dale Beugin of the Canadian Climate Institute and Blake Shaffer of the University of Calgary.

    The arrangement would boil down to a transfer of risk from private investors to the government. A public entity, such as the Canada Infrastructure Bank, would commit in advance to paying a company investing in a clean-technology project a specific amount, based on the anticipated value attached by carbon pricing to that project’s reduction of emissions. If the carbon pricing did not go up as expected, the government, rather than the company, would be on the hook for the lost revenue; if the carbon price went up more stringently than expected, the government would be the beneficiary.

    It’s important here, contextually, to understand that this would not be primarily about the version of carbon pricing paid by Canadian families and smaller businesses. It would mostly apply to the system that covers large industrial emitters, in which companies can not only generate savings for themselves by reducing their emissions, but also earn credits they can sell to other emitters.

    That’s where much of the worth for big clean-tech investments is supposed to come in – but again, only if there’s enough policy certainty. And while the Conservatives have not outright opposed industrial pricing, the way they have with the levy paid by most consumers, they have been non-committal at best on increasing its stringency.

    It’s also worth considering how much the lack of certainty may be costing the government at the moment. The less that industries can count on carbon pricing to make their emissions-reducing investments economical, the more they are able to make a compelling case for subsidies, such as the large carbon-capture tax credit expected in next week’s federal budget.

    The contracts for differences would not be ironclad, exactly. A new government could conceivably tear them up. But it would be given pause before doing so because such an action would open it up to lawsuits and compensation costs, and perhaps more importantly, reputational damage to Canada’s broader investment climate.

    The mechanism would also provide disincentive to scrap or weaken carbon pricing itself, since that would leave the government on the hook for large sums of money.

    For that reason, the idea’s inclusion in the new climate plan – and Mr. Guilbeault’s talk of acting quickly – is liable to be painted by Conservatives as undemocratic, because of the way it could tie their hands in future.

    That’s probably a better argument when it comes to another possibility, mentioned in the same section of the ERP, that the government will somehow try to more firmly enshrine the carbon price in law. (That prospect seems somewhat dubious anyway, since presumably future parliaments could simply roll the law back.)

    But when it comes to the contracts for differences, as Mr. Shaffer noted in an interview, governments already commit to all sorts of long-term investments and financial partnerships – in infrastructure, for instance – that are costly to break for their successors.

    There is no good reason, at this point, why carbon pricing should be any different.

    Canadians have essentially given it a green light in the last two federal elections. Industries, including those in a fossil-fuel sector that carbon pricing’s opponents claim it threatens, insist they’re ready to embrace it. It’s time to give it a chance to do its job.

  • Royal Bank Of Canada To Buy Brewin Dolphin For GBP 1.6 Bln

    Royal Bank Of Canada To Buy Brewin Dolphin For GBP 1.6 Bln

    RBC Wealth Management (Jersey) Holdings Limited, a wholly owned subsidiary of Royal Bank of Canada, announced cash offer for the entire issued and to be issued share capital of Brewin Dolphin (BRW.L) for 515 pence per share, implying an equity value of about C$2.6 billion or 1.6 billion pounds on a fully diluted basis.

    The offer prices represents a premium of 62 percent to the closing price of 318.0 pence per Brewin Dolphin Share on 30 March 2022.

    RBC anticipates completion of the transaction by end of third-quarter of 2022.

    The Brewin Dolphin Directors intends to recommend unanimously that Scheme Shareholders vote in favour of the Scheme at the Court Meeting.

  • Oil Prices Drop For 2nd Straight Day As IEA Set To Release Oil From Its Reserve

    Oil Prices Drop For 2nd Straight Day As IEA Set To Release Oil From Its Reserve

    Crude oil prices dropped on Friday, extending their slide from the previous session, as the International Energy Agency (IEA) said its members have agreed to release oil from strategic reserve to stabilize global energy markets.

    “Details of the new emergency stock release will be made public early next week,” the IEA said, a day after the United States pledged its biggest oil release ever.

    West Texas Intermediate Crude oil futures for May ended down by $1.01 or about 1% at $99.27 a barrel. WTI crude futures shed nearly 13% in the week, posting the biggest weekly loss in two years.

    Brent crude futures settled lower by $0.32 or about 0.3% at $104.39 a barrel today, recovering from a low of $102.37. Brent crude futures too dropped about 13% in the week.

    On Thursday, U.S. President Joe Biden authorized the release of 1 million barrels of oil per day from the nation’s Strategic Petroleum Reserve, for the next six months.

    The White House made the announcement about the historic release from SPR, aiming to combat the spike in oil prices sparked by Russia’s invasion of Ukraine.

    “The scale of this release is unprecedented: the world has never had a release of oil reserves at this 1 million per day rate for this length of time,” the White House said. “This record release will provide a historic amount of supply to serve as bridge until the end of the year when domestic production ramps up.”

    A report released by Baker Hughes this afternoon said U.S. energy firms added oil and natural gas rigs for a second week in a row. The rig count rose by three to 673 this week, the highest level since March 2020.

    The total rig count increased by 243 or 57% over this time last year, the report said.

    Oil rigs increased by two to 533 this week, while gas rigs rose one to 138.

  • Median home prices hit record $405K in US: report

    Median home prices hit record $405K in US: report

    Housing prices in the U.S. hit a record high in March.

    The median home price in the country was $405,000, according to Realtor.com’s latest Monthly Housing Trends Report, which the company published on Thursday, March 31.

    Data from the report shows the record-breaking median listing price is up 13.5% from March 2021. Compared to March 2020 – the start of the COVID-19 pandemic – the current March 2022’s median listing price is up 26.5%.

    Despite the record price tag, the experts at Realtor.com believe the housing market is set to “moderate” in the near future.

    The median home price in the U.S. in March 2022 was $405,000, according to Realtor.com. (iStock)

    “Buyer demand is moderating in the face of high costs, and we’re beginning to see more homeowners take price cuts on their listings and overall inventory declines lessen in response,” said Realtor.com’s Chief Economist Danielle Hale, in a statement.

    “Assuming all these factors and new construction hold steady, we could begin to see inventory increases this summer – welcome news for buyers who have endured pandemic home shopping and can continue their journey despite higher buying costs,” Hale continued. “For buyers currently in the market, there’s good reason to aim to find a home before interest rates increase further. But if it takes longer than a few months, don’t give up hope, as there may be more to choose from in the summer months.”

    While the national listing price median for March was $405,000, home prices varied significantly in the 50 U.S. metro areas Realtor.com evaluated, which it selected based on size.

    California was home to three of the priciest housing metros in the country in March 2022, according to Realtor.com’s Monthly Housing Trends Report. (iStock)

    Not so surprisingly, California was home to some of the most costly home price medians in the country.

    The Golden State’s San Jose-Sunnyvale-Santa Clara had a home sale median that nearly reached $1.4 million while San Francisco-Oakland-Hayward had a home sale median the $1.04 million. San Diego-Carlsbad came in third place with a home sale median of $884,000.

    Outside California, Boston-Cambridge-Newton, Mass.-N.H.and Seattle-Tacoma-Bellevue, Wash. tied with a median of $755,000.

    The four U.S. metros that had the lowest median home sale prices on Realtor.com’s list were Buffalo-Cheektowaga-Niagara Falls, N.Y. ($225,000), Pittsburgh, Pa. ($223,000), Rochester, N.Y. ($220,000) and Cleveland-Elyria, Ohio ($199,000).

    Cleveland-Elyria, Ohio was the U.S. metro on Realtor.com’s list that had the lowest median home sale price in March 2022, which was $199,000. (iStock)

    Last year, mortgage-finance company Freddie Mac estimated that the U.S. had a shortage

  • US economy sees solid job growth in March as payrolls jump by 431,000

    US economy sees solid job growth in March as payrolls jump by 431,000

    U.S. job growth continued at a brisk clip in March, suggesting the labor market is still strong as it confronts the highest inflation in four decades, global supply chain constraints and new headwinds from the Russian war in Ukraine. 

    The Labor Department said in its monthly payroll report released Friday that payrolls in March rose by 431,000, missing the 480,000 jobs forecast by Refinitiv economists. The unemployment rate, which is calculated based on a separate survey, fell to 3.6%, the lowest level since February 2020. 

    Job gains were broad-based, with the biggest increases in leisure and hospitality (112,000), professional and business services (102,000) and retail (49,000).

    “Although today’s job report was a little softer than expected, it still paints a picture of a steaming labor market,” said Seema Shah, chief strategist at Principal Global Investors. “In fact, the final vestiges of COVID-19 are close to being fully eradicated from the economic data.”

    Businesses are eager to onboard new employees and are raising wages in order to attract workers as they confront a labor shortage. There are roughly 11.3 million open jobs – the third-highest on record – while the pace of layoffs has moderated in recent months. 

    Friday’s payroll report also painted a brighter employment picture in the first two months of the year, with upward revisions to the jobs figure in January (504,000, up from the initially reported 481,000) and February (750,000, up from the initially reported 678,000). There are still about 1.6 million more out-of-work Americans than there were in February 2020, before the pandemic shut down broad swaths of the economy. 

  • Why the global supply chain mess is getting so much worse

    Why the global supply chain mess is getting so much worse

    Problems with global supply chains were supposed to be getting better by now. Instead, experts say they are getting worse.Russia’s invasion of Ukraine, which cut off exports from Ukraine and put Russian businesses under sanction, has set off a series of new supply-chain bottlenecks. So has a surge in Covid cases in China, which has led to temporary lockdowns in parts of the country.No one was predicting that the supply chain would return to normal by this point. Even before these latest crises, shortages of some parts and raw materials had been expected to continue into 2023. But companies had been confident that there was finally a light at the end of the tunnel. In early February, three weeks before Russia invaded Ukraine, GM forecast that it would be able to build 25% to 30% more cars this year than last year.

    “[We’re] definitely seeing improvement in first quarter over fourth quarter. We saw fourth quarter better than third quarter. And we really see with the plans we have in place now, by the time we get to third and fourth quarter, we’re going to be really starting to see the semiconductor constraints diminish,” GM CEO Mary Barra told investors when discussing fourth quarter results and 2022 outlook.

    But GM just announced a two-week shutdown starting next week at its plant in Fort Wayne, Indiana, that builds Chevrolet Silverado and GMC Sierra pickup trucks, because of the lack of computer chips.

    Ukraine and Russia don’t produce computer chips used by global automakers. But Ukraine is the world’s leading source of neon, a gas needed for the lasers used in the chip-making process. While some chipmakers have stockpiled neon ahead of the fighting, there are concerns about the long-term availability of the gas.

    Russia-Ukraine crisis replaces Covid as top risk to global supply chains, Moody's says

    Russia-Ukraine crisis replaces Covid as top risk to global supply chains, Moody’s says“People expected the semiconductor shortage to continue. But nobody predicted Ukraine,” said Bernard Swiecki, director of research at the Center for Automotive Research, a Michigan think tank.Supply chain disruption is a major factor driving prices higher around the globe, as demand for goods such as cars, oil and computer chips have outpaced supplies. And predicting when those disruptions will end is nearly impossible due to the uncertain nature of the war in Ukraine. The longer it goes on, the more problems it’s likely to cause.”We were looking at 2023 for things to get back to normal before the [Ukraine] crisis,” said Joe Terino, who leads management consultant Bain & Co.’s global supply chain practice. “Now it’s hard to say when it might end, because we don’t know how long it will go, how far reaching it could become.”Problems keep piling on top of another. Global supply chains may be disrupted for quite some time.”We lived under the assumption that products, resources can move freely across geography,” said Hernan Saenz, who leads the global performance Improvement practice at Bain. “When that’s no longer true, it has massive implications. You can adapt in the long term but short-term, recovery is very painful.”Problems in the supply chain caused by fire, bad weather or other natural disasters are the norm for those who manage supply chains said Kristin Dziczek, policy advisor at Fed Reserve of Chicago. The difference is that those problems generally affected one city or region, not the entire globe as the pandemic did.”Supply chain managers were miracle workers and we never noticed this because these things happen all the time and they are able to adjust,” she said. “But it’s never happened like this before.”

    And the widespread nature of the disruptions clogged the system. The old expression about a chain only being as strong as its weakest link is an apt one for supply chains she said, since the problems with current supply chains have demonstrated a number of weak links that existed.” Chains are an apt metaphor and always have been,” she said

  • Scotiabank increases size of share buyback to 36 million from 24 million

    Scotiabank increases size of share buyback to 36 million from 24 million

    The Bank of Nova Scotia is increasing the size of its share buyback plan.

    The bank says it now plans to buy back and cancel up to 36 million of its common shares compared with its initial plan for up to 24 million that it announced late last year.

    Bank of Nova Scotia says the new amount represents about 3 per cent of its issued and outstanding common shares as of Nov. 22, 2021.

    The effective date of the change is Wednesday.

    To date, the bank says it has bought back 20.2 million of its common shares for cancellation since the start of its current normal course issuer bid, which ends Dec. 1.

    By buying back its shares, the bank spreads its profits over fewer shares, increasing its earnings per share, a key ratio used to evaluate a company.

  • Dollarama set to hike prices up to $5, raise dividend as profits continue to grow

    Dollarama set to hike prices up to $5, raise dividend as profits continue to grow

    Inflation is coming to the dollar store.

    Discount retailer Dollarama Inc.DOL-T +3.04%increase announced on Wednesday that price tags up to $5 will begin appearing on its store shelves in the coming year. Until now, Dollarama’s highest price point was $4.

    The decision is yet one more signal that prices are rising across the board: The Montreal-based company has consistently said that it would only pass on elevated costs to shoppers if competitors do so first. Retailers are facing higher costs for everything from transportation, to wages, to packaging and the raw materials such as plastic that go into making products.

    “We’ve seen huge pressure on all retailers to increase their prices and mitigate some of the pressures that are coming from all the multiple points and inputs that create the final retail [price],” Dollarama president and chief executive officer Neil Rossy said on a conference call Wednesday to discuss the company’s fourth-quarter results.

    Even with the increasing costs, Dollarama has continued to grow its profits, as sales have increased and costs related to COVID-19 have come down. The company reported that its net earnings jumped to nearly $220-million, or 74 cents per share in the fourth quarter, compared to $173.9-million or 56 cents per share in the same period last year.

    At times of high inflation, shoppers typically become more price-sensitive, which can benefit discount stores. Grocery giant Loblaw Cos. Ltd. for example, recently noted that traffic to its No Frills stores has been rising. Dollarama is focused on maintaining “relative value” compared to other stores, even as its prices rise, Mr. Rossy said.

    It has been more than six years since Dollarama introduced the $4 price point at its stores, and the company has been absorbing any rising costs since then, he said. Adding new price points will allow the company to offset higher costs, and will also mean new products will be offered at Dollarama stores that otherwise would be out of the price range.

    On Wednesday, the company announced a 10-per-cent increase to its quarterly dividend, to 5.5 cents per common share.

    Dollarama has been opening new stores, which helped push its sales to $1.2-billion in the 13 weeks ended Jan. 30, up 11 per cent compared to the same period in the prior year. Comparable sales – an important metric that tracks sales growth not related to new store openings – also grew, by 5.7 per cent in the quarter.

    The sales bump was partly due to easing restrictions related to COVID-19: in the same period the prior year, a temporary ban on the sale of non-essential items in Quebec affected roughly 30 per cent of Dollarama’s stores. While fourth-quarter sales this year were impacted by the Omicron variant of the virus – which changed people’s shopping patterns and led to some provincial restrictions in December and January – Dollarama was able to sell its full product assortment, and reported strong sales for its seasonal products and for household items. As restrictions have eased, the retailer has seen shoppers generally stocking up less on each trip, but visiting more frequently.

    The company now has 1,421 stores across Canada, and plans to open 60 to 70 new locations in the coming year. Dollarama is forecasting comparable sales growth in the 4 to 5 per cent range. But the company also expects that it will be more impacted by supply chain and other inflationary pressures, including rising costs for shipping.

    “The real challenge for everybody who imports a large quantity of goods, across the entire retail platform, is a logistics challenge – for the last six months to a year and will continue for the foreseeable future,” Mr. Rossy said. “… Those goods are en route, and we have enough goods that it’s a non-issue. But certainly it is more of a challenge than it’s ever been.”

    The company’s warehouse space provides a buffer that has allowed it to handle supply chain delays better than many other companies, Mr. Rossy said. To support its store growth, the company is currently building a new 500,000-square-foot warehouse in Laval, Que., its seventh warehouse in Canada.

    “There is something to be said, at times, for not-just-in-time delivery,” Mr. Rossy said.

    For the full fiscal year ended Jan. 30, Dollarama reported net earnings of $663.2-million or $2.19 per share, compared to $564.3-million or $1.82 per share in the prior year. Sales for the full year grew by 7.6 per cent to $4.3-billion.