Author: Consultant

Canada’s inflation rate dropped below 2 per cent in September for the first time in more than three years, the latest sign of price stability that potentially tips the Bank of Canada to a larger interest-rate cut next week.

The consumer price index (CPI) rose at an annual rate of 1.6 per cent in September, down from a 2-per-cent pace in August, Statistics Canada said Tuesday in a report. Financial analysts were expecting a slowdown to 1.8 per cent. On a monthly basis, consumer prices fell 0.4 per cent.

This marked the weakest inflation rate since early 2021, when Canada was in the throes of a pandemic that momentarily resulted in tepid price increases, but gave way to the largest upswing in consumer prices in four decades.

The surprisingly softresults in Tuesday’s report were heavily influenced by gasoline prices, which fell 7.1 per cent in September from August. Excluding gas, the CPI rose at an annual pace of 2.2 per cent, matching the increase in August.

The inflation fight is effectively over, a milestone for the Canadian economy after CPI growth peaked in 2022, prompting central bankers to jack up interest rates to cool demand. Because of the progress to date, the Bank of Canada has delivered three consecutive rate cuts since June, taking its policy rate to 4.25 per cent from 5 per cent.

In recent weeks, economists and investors have debated whether the central bank will cut rates by another quarter-point at its next decision on Oct. 23, or opt for a larger half-point reduction.

However, after the inflation report was published, investors are more heavily leaning toward a larger cut. Markets are pricing in a 75-per-cent chance that the BoC lowers its benchmark interest rate by 50 basis points next, compared to roughly 50-50 odds before the report, according to Bloomberg data. (A basis point is 1/100th of a percentage point.)

“The Bank of Canada needs to do something to revive the economy and stop inflation from falling too far,” said Royce Mendes, head of macro strategy at Desjardins Securities, in a client note. “Our view is that a 50-basis-point rate cut is the right dose of medicine.”

Inflation came in lower than Bank of Canada estimates in the third quarter, and it’s been generally soft this year. Weaker household spending, more resilient supply chains and lower commodity prices have all helped to quell consumer price increases. Because of higher borrowing costs, many households have been forced to tighten their budgets.

Housing costs rose by an annual 5 per cent in September, down from 5.3 per cent in August. Rents rose by 8.2 per cent – quite elevated by historical standards, but down from 8.9 per cent in August. Other data sources are indicating that rents are declining in some cities.

Grocery prices rose 2.4 per cent in September, year over year, matching the increase in August. Clothing and footwear prices have dropped 4.4 per cent over the past year.

On a three-month annualized basis, the Bank of Canada’s core measures of inflation – which strip out volatile movements in the CPI – slowed to 2.1 per cent in September from 2.3 per cent in August.

The Bank of Canada has recently warned that inflation could drift below its 2-per-cent target. And while the BoC is unlikely to be alarmed by one month of below-target inflation – especially when the results are heavily influenced by volatile gas prices – it has stressed that economic activity needs to pick up to ensure this doesn’t become a trend.

Several analysts have said that inflation could pick up in the coming months, particularly with gas prices rising in October. The Bank of Canada is projecting a sustainable return to the 2-per-cent inflation target in 2025, although its economic forecasts will be updated next week.

Bank of Montreal chief economist Doug Porter said the drop in the annual inflation rate below 2 per cent was a “watershed moment.”

“It’s a close call, but we suspect that the big improvement in inflation, the still-high unemployment rate, and the still-sour consumer and business sentiment will be enough to prompt the Bank of Canada to opt for a 50 [basis point] rate cut later this month,” he said in a client note. “After all, the BoC has dovishly signalled that they are now more concerned about downside risks to the economy and the possibility that inflation may drop too low.”

• Oil prices have gained more than 10% through Thursday’s close since Iran hit Israel with ballistic missiles last week.
• The rally has eased, however, amid uncertainty over how Israel will respond

U.S. crude oil on Friday was on pace to eke out its second weekly gain in a row as Israel prepares to retaliate against Iran.

The U.S. benchmark has gained 1% this week, while global benchmark Brent is ahead 0.8%. Oil prices have gained more than 10% through Thursday’s close since Iran hit Israel with ballistic missiles last week.

“Nevertheless, sustaining bullish price momentum in oil has proven to be a high maintenance task: without additional catalysts, the ‘war’ and ‘stimulus’ premiums have shown easy susceptibility to fading,” Natasha Kaneva, head of global commodity strategy at JP Morgan, told clients in a Friday note.

Here are Friday’s energy prices:

• West Texas Intermediate November contract: $75.21 per barrel, down 64 cents, or 0.84%. Year to date, U.S. crude oil has gained nearly 5%.
• Brent December contract: $78.77 per barrel, down 63 cents, or 0.79%. Year to date, the global benchmark has increased about 2%.
• RBOB Gasoline November contract:  $2.1414 per gallon, down 0.44%. Year to date, gasoline is ahead 1.7%.
• Natural Gas November contract: $2.685 per gallon, up 0.37%. Year to date, gas has risen about 6%.

Israel’s security cabinet met Thursday to discuss the country’s response to Iran’s attack, according to media reports. President Joe Biden and Prime Minister Benjamin Netanyahu spoke by phone on Wednesday.

Traders have worried that Israel will hit Iran’s oil industry, potentially triggering a cycle of escalation that causes a significant disruption of supplies in the Middle East. Biden has discouraged Israel from targeting Iran’s oilfields. The Arab Gulf states have also reportedly lobbied the White House to pressure Israel to refrain from hitting Iranian energy infrastructure.

“We expect that the White House is potentially encouraging Israel to target refineries instead of oil export facilities, arguing that the economic impact would be more directly felt by Iran,” Helima Croft, head of global commodities strategy at RBC Capital Markets told clients in a Thursday note.

Croft warned, however, that the U.S. influence may have waned since April, when Israel’s response to Iran’s first missile and drone attack was relatively muted.

• TD Bank pleaded guilty in a criminal money laundering case and agreed to pay a whopping $3 billion in fines and other penalties to the Department of Justice and federal financial regulators to settle a probe over its failure to monitor money laundering by drug cartels.
• TD Bank is also set to accept limits on its growth as part of the settlement.
• The restrictions on TD Bank’s growth would be similar to those imposed by the Federal Reserve on Wells Fargo in 2018.

https://www.cnbc.com/2024/10/10/td-bank-3-billion-fine-doj-settle-money-laundering-drug-cartel.html

• The producer price index was flat for the month and up 1.8% from a year ago. Economists surveyed by Dow Jones had been looking for a monthly gain of 0.1%.
• Excluding food and energy, the PPI rose 0.2%, meeting expectations.
• A 0.2% decline in final demand goods prices offset a 0.2% increase in services.

https://www.cnbc.com/2024/10/11/producer-price-index-september-2024-.html

Canadian employment rebounded in September and the unemployment rate ticked lower, forcing investors to trim their bets that the Bank of Canada will deliver a larger interest-rate cut later this month.

After four months of little change, employment jumped by nearly 47,000 in September, easily outpacing analyst expectations of a 27,000 gain, Statistics Canada said Friday in a report. The unemployment rate edged lower to 6.5 per cent from 6.6 per cent. Analysts were expecting the jobless rate to rise to 6.7 per cent.

Despite the increase in hiring, the employment rate has been sliding for much of the past two years, given the population is growing at a far quicker pace than jobs are being created.

The labour market has been going through a tough stretch as employers cope with higher interest rates and weaker consumer spending. Over the past year, the economy had added a net 313,000 positions, compared to 542,000 in the previous 12-month period.

Bank of Canada Governor Tiff Macklem has said he wants to see a pickup in hiring and economic activity, flagging concerns that inflation could drift below the central bank’s 2-per-cent target. The annual inflation rate ebbed to 2 per cent in August and has undershot the central bank’s expectations this year.

The BoC has delivered three consecutive quarter-point rate cuts since the summer, taking its policy rate to 4.25 per cent from 5 per cent. Because of some weak data of late, many economists and investors are predicting the bank will opt for a larger half-point cut on Oct. 23.

However, investors pared back their bets for a larger cut on Friday. Shortly after the release of Statscan’s numbers, financial markets were pricing in a 32-per-cent chance of a half-point cut, down from 53 per cent earlier on Friday morning, according to Bloomberg data.

The details of Statscan’s report were mixed. The entirety of the job gains were concentrated in the private sector and in full-time positions. Average hourly wages rose by an annual 4.6 per cent, down from 5 per cent in August – an encouraging sign for the Bank of Canada as it looks to tame price growth.

On the downside, total hours worked fell 0.4 per cent in September. Labour force participation also declined during the month, which contributed to a lower unemployment rate.

“Over all, the mixed report isn’t enough to make a [half-point] cut a sure thing in October,” Katherine Judge, an economist at CIBC Capital Markets, said in a note to clients.

Statscan will release its consumer price index for September on Tuesday, the last major economic release before the central bank’s decision.

Bank of Montreal chief economist Doug Porter said in a note that “one of the strongest arguments in favour a bigger rate move was the previously steady softening in the job market. With jobs delivering at least a one-month wonder of strength – and offering a tantalizing glimmer of hope that the economy may be pulling out of its funk –the case for an even more aggressive BoC just took a big step back.”

Toronto-Dominion Bank’s TD-T +0.61%increase retail banking growth in the United States will be constrained by an asset cap, adding to TD’s financialpenalties from U.S. regulators and law enforcement for anti-money laundering failures, executives were told on a conference call Wednesday evening.

TD has already set aside $4-billion to cover financial penalties from three different regulators and the U.S. Department of Justice, but investors have been bracing for details of non-financial penalties that could limit how quickly the bank can keep growing in the United States.

At 7 p.m. on Wednesday, TD held a call with senior executives to say details had been finalized, and they include growth limitations on its U.S. retail banking business, according to someone familiar with the conversation.

The Globe and Mail is not identifying the source because they were not authorized to speak publicly.

The limitation comes in the form of an asset cap, preventing TD from expanding its balance sheet by adding new loans, for instance, because loans are considered assets. However, the asset cap will apply to the U.S. retail banking division, meaning other units, such as TD Securities, will still be able to expand their own balance sheets and lend to large corporate clients.

TD has been hampered by the money-laundering scandal since early 2023, when the bank disclosed it may not get regulatory approval for a proposed US$13.4-billion takeover of First Horizon Corp. Over the year and a half since, the bank killed the takeover because it could not get regulators’ blessings; set aside the $4-billion to cover expected financial penalties; and named a new chief executive officer.

In September, TD named Raymond Chun, a relatively unknown insider, as its next CEO. Mr. Chun will become chief operating officer effective Nov. 1 and then take over at the bank’s next annual general meeting in April. Mr. Chun is currently the head of Canadian personal banking, which is TD’s most profitable division.

TD Bank’s dirty laundry

On top of pulling Canada’s second-largest financial institution out of its U.S. regulatory crisis, Mr. Chun will have to restore morale because TD has also suffered from a cultural erosion that stifled financial performance, The Globe and Mail reported in August. Inside the bank, conservatism took hold and dense layers of bureaucracy hindered decision-making. Frustration over this, coupled with a U.S. regulatory crisis that kept snowballing, contributed to a number of respected leaders leaving the bank.

When financial institutions fall into the crosshairs of law enforcement, asset caps are typically reserved for the most severe cases. In the U.S., the asset cap imposed on Wells Fargo & Co. in 2018, which limited its balance sheet to US$1.95-trillion in assets, is often held up as one of the more extreme examples.

Beyond the growth limitations, asset caps can be difficult for banks because there often are no specific end dates, and lenders have to apply to regulators to get them lifted. Six years on at Wells Fargo, the bank is still limited by its own cap.

On Wednesday, the Wall Street Journal reported that TD’s $4-billion in total fines (US$3-billion) will be split between multiple bodies. The Justice Department will receive around US$1.8-billion and FinCEN will get US$1.3-billion.

In a statement in September, Bharat Masrani, TD’s outgoing CEO, addressed the anti-money-laundering woes that have plagued the bank. “The anti-money laundering challenges we face took place on my watch as CEO and I take full responsibility,” he said in a statement.

“In the coming months, I will continue to advance and direct the critical remediation program required to meet our obligations and responsibilities and strengthen our risk and control foundation.”

TD declined to comment for this story.

Oil prices slumped by more than 4% early on Tuesday as traders have yet to see an actual supply disruption in the Middle East while focusing on China’s underwhelming demand again.

Both benchmarks, WTI Crude and Brent Crude, were down by about 3% as of 9:30 a.m. EDT on Tuesday. The U.S. benchmark fell below $75 per barrel, and the Brent price was down to the $78 a barrel handle, after breaking above $80 on Monday in an 11% total gain in oil prices since Iran fired missiles on Israel a week ago.

The war premium has started to evaporate, especially after the recent rally and the return of business in China after the Golden Week holiday.

As China returned from the holiday, the authorities said they were confident that growth in the world’s second-largest economy would hit their forecasts this year. The officials, however, refrained from unveiling additional measures to prop up the economy and oil demand, which disappointed traders and speculators.

“China’s National Development and Reforms Commission (NDRC) failed to announce any new supportive measures. Without policy support, an economic slowdown could keep China’s oil demand subdued in the short to medium term,” ING commodities strategists Warren Patterson and Ewa Manthey wrote in a note on Tuesday.

The return of Libya’s oil production and exports after more than a month of hiatus due to the political stalemate has also weighed on the prices.

“Oil can keep ascending only for so long purely based on perceptions and not actual supply disruption,” oil brokerage PMV said in a Tuesday note.

“The geopolitical risk premium has an obscure and unforeseeable expiry date. When that point arrives and is not replaced by genuine and supportive fundamental factors, in the case of the Middle East conflict by a palpable supply shortage, the move higher will not be sustainable.”

By Charles Kennedy for Oilprice.com

CALGARY, AB, Oct. 4, 2024 /CNW/ – Enbridge Inc. (TSX: ENB) (NYSE: ENB) (Enbridge or the Company) will host a conference call and webcast to provide a business update and review 2024 third quarter results on November 1, 2024, at 7 a.m. MT (9 a.m. ET).

Read more at newswire.ca

Monday October 7

China markets closed

Euro zone retail sales

Germany factory orders

(2 p.m. ET) U.S. budget balance for September.

(3 p.m. ET) U.S. consumer credit for August.

—

Tuesday October 8

China aggregate yuan financing and new yuan loans

Japan real cash earnings, household spending and current account surplus

Germany industrial production

(6 p.m. ET) U.S. NFIB Small Business Economic Trends Survey for September.

(8:30 a.m. ET) Canada’s merchandise trade balance for August.

(8:30 a.m. ET) U.S. goods and services trade deficit for August.

Earnings include: PepsiCo Inc.

—

Wednesday October 9

Japan machine tool orders

Germany trade surplus

(10 a.m. ET) U.S. wholesale inventories for August.

(2 p.m. ET) U.S. Fed minutes from Sept. 17-18 meeting are released.

—

Thursday October 10

Japan bank lending

Germany retail sales

(8:30 a.m. ET) U.S. initial jobless claims for week of Oct. 5. Estimate is 235,000, up 10,000 from the previous week.

(8:30 a.m. ET) U.S. CPI for September. The Street is projecting a rise of 0.1 per cent from August and up 2.3 per cent year-over-year.

Earnings include: Aritzia Inc.; Delta Air Lines Inc.; Domino’s Pizza Inc.; Progressive Corp.; Richelieu Hardware Ltd.

—

Friday October 11

Germany CPI

(8:30 a.m. ET) Canadian employment for September. The Street expects a gain of 0.2 per cent, or 31,500 jobs, from August with the unemployment rate rising 0.1 per cent to 6.7 per cent.

(8:30 a.m. ET) Canadian building permits for August. Estimate is a month-over-month decline of 10.0 per cent.

(8:30 a.m. ET) U.S. PPI Final Demand for September. Consensus is a rise of 0.1 per cent from August and up 1.8 per cent year-over-year.

(10 a.m. ET) U.S. University of Michigan Consumer Sentiment Survey for October (preliminary reading).

(10:30 a.m. ET) Bank of Canada Business Outlook Survey and Survey of Consumer Expectations for Q3 is released.

Earnings include: Bank of New York Mellon; JPMorgan Chase & Co.; Wells Fargo & Co.