Author: Consultant

The number of Americans filing new applications for unemployment benefits rose more than expected last week, but there has been no material shift in the labour market and the data is typically noisy in July because of summer breaks and temporary factory closures.

Initial claims for state unemployment benefits increased 20,000 to a seasonally adjusted 243,000 for the week ended July 13, the Labor Department said on Thursday. Economists polled by Reuters had forecast 230,000 claims for the latest week.

Claims dropped in the prior week, pulling further away from a 10-month high touched in early June.

Some of that decline was attributed to difficulties adjusting the data around holidays, like the U.S. Independence Day. In addition, auto makers typically shut down assembly plants starting the July 4 week to retool for new models.

But the shutdown schedules are different for every manufacturer, which can throw off the model that the government uses to smooth out the data for seasonal fluctuations. Claims rose in July last year through the first half of August, before fully reversing course by early September.

Disregarding the volatility, the labour market is cooling as the Federal Reserve’s interest rate increases in 2022 and 2023 slow demand. The unemployment rate rose to a 2-1/2-year high of 4.1 per cent in June.

The Fed’s “Beige Book” report on Wednesday showed “employment rose at a slight pace” in early July, but noted a decline in manufacturing employment.

It said supply had improved and “labour turnover was lower, which reduced demand to find new workers,” adding that businesses “in several districts expect to be more selective on who they hire and not backfill all open positions.”

The claims data covered the period during which the government surveyed business establishments for the nonfarm payrolls portion of July’s employment report. Nonfarm payrolls increased by 206,000 jobs in June.

Data next week on the number of people receiving benefits after an initial week of aid, a proxy for hiring, will shed more light on the state of the labour market in July. The so-called continuing claims increased 20,000 to a seasonally adjusted 1.867 million during the week ending July 6, the claims report showed.

It is getting harder for the unemployed to land new jobs relative to last year. The U.S. central bank has maintained its benchmark overnight interest rate in the current 5.25 per cent-5.50 per cent range for the past year. It has hiked its policy rate by 525 basis points since 2022 to tame inflation.

Financial markets are expecting a rate cut in September followed by additional cuts in November and December.

U.S. crude oil stockpiles last week fell more than expected, while gasoline and distillate inventories rose, the Energy Information Administration (EIA) said on Wednesday.

Crude inventories fell by 4.9 million barrels to 440.2 million barrels in the week ending July 12, the EIA said, compared with analysts’ expectations in a Reuters poll for a 33,000-barrel draw.

Crude stocks at the Cushing, Oklahoma, delivery hub for U.S. futures fell by 875,000 barrels last week, the EIA said.

Brent crude and U.S. West Texas Intermediate crude(WTI) futures were little changed following the report.

“The positive element was the large crude inventory draw,” said UBS analyst Giovanni Staunovo. “But implied demand and builds in gasoline and distillate inventories were disappointing,” Staunovo added.

Gasoline stocks rose by 3.3 million barrels in the week to 233 million barrels, the EIA said, compared with expectations for a 1.6 million-barrel draw.

Distillate stockpiles, which include diesel and heating oil, rose by 3.5 million barrels in the week to 128.1 million barrels, versus expectations for a 800,000-barrel drop, the EIA data showed.

U.S. diesel and gasoline futures pared gains after the report.

Refinery crude runs fell by 181,000 barrels per day, and refinery utilization rates fell by 1.7 percentage points in the week.

Some refiners along the U.S. Gulf Coast and offshore producers were impacted last week by Hurricane Beryl, which knocked out power and brought heavy rain and wind.

“The refineries, despite the widespread power outages, seem to have held up,” said John Kilduff, partner at Again Capital. Net U.S. crude imports rose last week by 312,000 bpd, the EIA said.

Canada’s annual inflation rate cooled more than expected to 2.7% in June, largely due to softer growth in gas prices, while core inflation measures were marginally down, Statistics Canada said Tuesday in a report.

Financial analysts were expecting an inflation rate of 2.8 per cent.

All eyes are now on the Bank of Canada, which announces its next policy rate decision on July 24.

Canada’s main stock index hit a record high on Tuesday after domestic annual inflation eased more than expected in June, boosting hopes for another rate cut by the Bank of Canada.

At 11:10 a.m. ET, the S&P/TSX composite index was up 171.31 points, or 0.75%, at 22,922.99, set for its fifth straight session of gains.

The country’s annual inflation rate cooled a tick more than expected to 2.7% in June, largely due to softer growth in gas prices, Statistics Canada data showed. Meanwhile, core inflation measures were marginally down,

Month-over-month, the consumer price index was down 0.1%, compared with a forecast for no change.

“The progress (disflationary trend) is not quite as swift as it was early in the year, but the Bank of Canada is still getting what it needs to greenlight a fresh rate cut next week,” said Kyle Chapman, FX markets analyst at Ballinger Group.

With the BoC set to host its next monetary policy meeting on July 24, markets are pricing in a likelihood of about 92% of a 25 basis points (bps) rate cut.

“As inflation continues to fall, you will see interest rates cut perhaps as many as two more times before the end of the year,” said Allan Small, senior investment advisor at Allan Small Financial Group with iA Private Wealth.

The yield on the Canadian 10-year benchmark notes fell 6 bps following the inflation data.

Tech shares topped the benchmark index with a 1.6% rise, boosted by Shopify stock, which jumped 5% after BofA Global Research upgraded it to “buy.”

On the flip side, energy shares led the sectoral losses with a 0.5% fall as oil prices dropped on concerns about crimping demand in China after data showed slower-than-expected economic growth in the world’s second-largest economy.

Barrick Gold shares rose 0.7% after the Canadian miner’s second-quarter gold output climbed almost 0.9% from a year earlier.

U.S. stocks are flirting again with their records on Tuesday after several big companies delivered better profits reports for the spring than Wall Street expected.

The S&P 500 was 0.3% higher in early trading and on track to top its all-time high set in the middle of last week. The Dow Jones Industrial Average was up 209 points, or 0.5%, a day after setting its own record. The Nasdaq composite was 0.4% higher.

UnitedHealth Group helped push the market higher after reporting stronger results for the spring than analysts expected, despite losses it took due to a massive cyberattack. Its stock rose 2.8%, and the health care company reported growth in people served at both its Optum and UnitedHealth businesses.

Bank of America added 2.3% after it likewise reported stronger profit for the latest quarter than forecast. It benefited from growth at its investment banking business.

They helped offset a 1.4% drop for Morgan Stanley, which also reported stronger results for the latest quarter than expected. The financial company’s stock had already rallied more than 8% this month heading into its profit report, which may have raised the bar of expectations further. Analysts also pointed to some softer-than-expected results within its wealth-management business.

Several big winners from the day before, which benefited from heightened expectations for former President Donald Trump to retake the White House, also gave back some of their immediate jumps following Trump’s dodging of an assassination attempt over the weekend.

Trump Media & Technology Group fell 8.1%, a day after leaping 31.4%. Shares of the company behind Trump’s Truth Social platform regularly swing by big percentages each day, up or down.

In the bond market, some of the prior day’s moves also reversed themselves. Longer-term yields receded, while shorter-term yields rose after a report showed that sales at U.S. retailers held firm last month despite economists’ expectations for a decline.

The yield on the 10-year Treasury edged down to 4.20% from 4.23% late Monday. It’s fallen from 4.70% in April, which is a major move for the bond market, and that has given a solid boost to stock prices.

Yields have fallen on rising expectations that inflation is slowing enough to convince the Federal Reserve to begin cutting interest rates soon. The Fed has been keeping its main interest rate at the highest level in more than two decades in hopes of slowing the economy just enough to get inflation fully under control.

Tuesday’s stronger-than-expected data on retail sales may give Fed officials some pause, because too-strong activity could keep upward pressure on inflation. But traders are still betting on a 100% probability that the Fed will cut its main interest rate in September, according to data from CME Group. A month ago, before some encouraging data on inflation, they saw a 70% chance.

Even though the economy’s growth is slowing, the hope on Wall Street is that the Federal Reserve can pull off an odds-defying tightrope walk. The goal is to grind down on the economy with high interest rates but then to ease rates at the right time by the right amount so that it can avoid a recession. Tuesday’s resilient data on retail sales points to an economy that can continue to grow.

Risks lie on both sides of the Fed’s tightrope, though. While cutting rates too late could result in unnecessary economic pain that throws workers out of their jobs because of a recession, cutting too early could allow inflation to reaccelerate.

In stock markets abroad, indexes were lower across much of Europe. Asian indexes were mixed, with the 1.6% drop for Hong Kong’s Hang Seng a big mover.

Reuters and The Associated Press

Gold futures prices jumped to a record high Tuesday as rising expectations of a September interest rate cut bolstered demand for bullion.

Spot gold climbed 1.4% to $2,454.77. Gold futures advanced 1.3% to $2,461.10, an intraday record topping the previous high of $2,454.20 reached May 20.

Gold prices hit all-time highs earlier this year before pulling back as the prospect of higher-for-longer interest rates dampened investor enthusiasm for the precious metal.

But interest in the asset has grown after June’s softer inflation data and some recently dovish comments from Federal Reserve Chair Jerome Powell combined to raise the odds of rate cuts coming this year. Markets are pricing in three quarter-percentage point cuts coming this year, with the first slated for September, according to the CME FedWatch Tool, which uses 30-day fed funds futures to find probabilities.

A weakening dollar has also supported demand for bullion. On Tuesday, the U.S. greenback rebounded after falling to a five-week low.

“Interest to ‘buy-the-dip’ remained prevalent among investors amid strong sentiment towards gold, which is likely why the market was quick to rally on soft U.S. data prints and dovish Fed expectations,” UBS’ strategist Joni Teves said in a note on Friday.

“With the market sitting just above the psychological $2400 level, we think risks are skewed to the upside,” Teves continued. “We think positioning remains lean and there’s space for investors to build gold exposure.”

Gold rallied to record highs in the first half of 2024 on the back of a multi-year spike in demand from central banks around the world, as mounting global geopolitical risks boosted interest in the safe haven asset. According to UBS, central bank buying of bullion is the highest it’s been since the late 1960s.

“With some central banks now questioning the safety of holding USD- and EUR-denominated assets (following the financial and debt crises and more recently the war in Ukraine), many are choosing to instead fill their reserves with gold,” read a note last month from UBS.

On the flip side, gold has also come under pressure from lackluster Chinese demand. In a recent note, Citi said China central bank and retail consumption of gold is expected to remain weak over the summer, but noted “underlying strength” in demand amid a slow recovery in the China real estate market.

Gold mining stocks also advanced on Tuesday. The VanEck Gold Miners ETF gained 1.2% in the premarket, on pace for a fifth winning day in six. The U.S.-listed shares of Harmony Gold and Gold Fields rose 6% and 4%, respectively. The U.S. listed shares of DRDGold popped more than 5%.

• Here’s what they reported: Earnings of 83 cents a share vs. 80 cents a share estimate.
• Revenue of $25.54 billion vs. $25.22 billion estimate.
• The firm said net interest income would rise to about $14.5 billion later this year, giving investors confidence that a turnaround is under way.

Bank of America (BAC) earnings Q2 2024 (cnbc.com)

The Dow Jones Industrial Average advanced to new highs on Tuesday, as the market rally continued broadening out beyond big technology names on hopes of forthcoming interest rate cuts.

The Dow surged by 547 points, or 1.3%, hitting a new intraday record. The S&P 500 added 0.3%, while the Nasdaq Composite flickered around its flatline.

Bank of America and Morgan Stanley jumped more than 5% and 2%, respectively, after earnings came in ahead of analyst forecasts. They’re the latest household names to post quarterly financial results as the new reporting season kicks into gear.

Stock market today: Live updates (cnbc.com)

Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, fell 0.8 per cent to $82.2-billion in May.

The overall decrease came as sales fell in five of the seven subsectors, with the largest decline coming from motor vehicle and motor vehicle parts and accessories, which decreased by 3.8 per cent to $13.9-billion.

In volume terms, wholesale sales decreased by 0.8 per cent in May.

Meanwhile, Statistics Canada says manufacturing sales rose 0.4 per cent to $71.4-billion in May, driven by 11.2 per cent higher production in the aerospace product and parts industry group.

That followed an increase of 1.1 per cent in April.

In constant dollars, Statistics Canada says manufacturing sales rose 0.4 per cent in May, indicating a higher volume of goods was sold.

Asia’s crude oil imports from Canada’s newly expanded Trans Mountain pipeline will rise in September as major refiners in Japan and South Korea and a refinery in Brunei have bought their first cargoes alongside China, multiple trade sources said.

The purchases come after exports commenced from the expanded TMX pipeline in May which will triple the flow of crude from landlocked Alberta to Canada’s Pacific coast to 890,000 barrels per day (bpd). Owned by the Canadian government, the pipeline gives Canadian producers more access to U.S. West Coast and Asian markets while providing Asian refiners an opportunity to diversify their imports.

Chevron CVX-N +1.06%increase will split a Cold Lake crude cargo between its South Korean joint venture refiner GS Caltex and Japan’s top refiner ENEOS, traders said. ENEOS bought 250,000 barrels while GS Caltex takes the remaining 300,000 barrels, they added.

South Korea’s top refiner SK Energy, a unit of SK Innovation, bought a cargo from Unipec while Hengyi Petrochemical, a refinery operator in Brunei, also purchased a cargo from PetroChina, traders said.

The cargoes, of 550,000 barrels each, to be delivered in September were sold at discounts of between $5 and $6 a barrel to ICE Brent, they added.

Meanwhile, Chinese private refiner Rongsheng Petrochemical has also purchased another two TMX cargoes from ConocoPhillips COP-N +0.26%increase and Vitol after buying two cargoes via a tender, traders said.

Rongsheng’s four Canadian Access Western Blend (AWB) crude cargoes will be delivered to Zhoushan, in eastern China, in September, they added.

These companies typically do not comment on commercial deals.

Cold Lake and AWB are heavy sour crude with API gravity of 21-22 degrees and contain 3.5-4 per cent sulfur.

Most North Asia refiners prefer Cold Lake as AWB is more acidic, which could cause corrosion in plants, traders said.

“Canada’s TMX crude attracts interest from Asian buyers who are keen to secure cheap supplies of heavy grades but do not have access to U.S.-sanctioned Venezuelan crude,” said Muyu Xu, a senior crude oil analyst at analytics firm Kpler.

“It will still take some time for refiners to experiment with and test TMX crude as the first few cargoes have just arrived.”

TMX crude exports, expected at about 350,000 to 400,000 bpd, will mostly compete with heavy grades from Latin America and the Middle East, Xu said.

Cold Lake is about $10 per barrel cheaper than Iraq’s Basra Heavy for deliveries to China, she added.

TMX crude exports in June were at 343,000 bpd, with 187,000 bpd to China, 60,000 bpd to India and the remainder to U.S. West Coast refineries, Kpler data showed.

Cargoes to China are expected to be discharged later this month at PetroChina’s Qinzhou and Jieyang refineries as well as Sinopec’s Maoming plant in southern China.

India has yet to purchase more Canadian crude due to abundant Russian supplies, traders said, after Reliance Industries bought its first TMX cargo from Shell for July delivery.

Some traders are also watching out for any impact from the wildfire season on Canadian oil production.