Author: Consultant

First-time applications for U.S. unemployment benefits drifted lower last week, which could allay fears of a material shift in the labour market.

Initial claims for state unemployment benefits dropped 6,000 to a seasonally adjusted 233,000 for the week ended June 22, the Labor Department said on Thursday. The claims data included last Wednesday’s Juneteenth National Independence Day, a new holiday. Claims tend to be volatile around public holidays.

They had risen to the upper end of their 194,000-243,000 range of this year.

Economists are split on whether the recent increase in claims pointed to rising layoffs or the repeat of volatility experienced during the same time last year.

Claims remain at historically low levels and are being closely watched for signs whether employers are laying off more people as the economy slows in response to the 525 basis points worth of interest rate hikes delivered by the Federal Reserve since 2022 to tame inflation.

The government confirmed in a separate report on Thursday that economic growth moderated sharply in the first quarter.

Gross domestic product increased at a slightly upwardly revised 1.4 per cent annualized rate last quarter, the Commerce Department’s Bureau of Economic Analysis said in its third estimate of GDP for the January-March quarter.

Growth was previously estimated at a 1.3 per cent pace. The economy grew at a 3.4 per cent rate in the fourth quarter.

The U.S. central bank has maintained its benchmark overnight interest rate in the current 5.25 per cent-5.50 per cent range since last July.

The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 18,000 to a seasonally adjusted 1.839 million during the week ending June 15, the claims report showed. The so-called continuing claims data covered the period during which the government surveyed households for June’s unemployment rate.

The jobless rate rose to 4.0 per cent in May for the first time since January 2022. Most economists, however, did not view the rate at the current level as posing a danger to the labour market, arguing that the increase was concentrated among the 35-44 age group, recent immigrants and certain industries.

“Though job growth will slow, it will remain sufficient to limit a significant and broad-based increase in the unemployment rate,” said Ryan Sweet, chief economist at Oxford Economics.

Oil prices inched up on Wednesday nearing their highest level in almost two months, driven by forecasts for an eventual inventory drawdown during the third quarter peak summer demand season and geopolitical risks from the Middle East conflict.

The American Petroleum Institute (API) on Tuesday reported U.S. crude oil stocks rose by 914,000 barrels, market sources said. Still, analysts expect them to decline by nearly 3 million barrels in official inventory data due on Wednesday.

Brent crude oil futures were up 63 cents, or 0.7 per cent, to $85.64 a barrel by 0938 GMT. U.S. West Texas Intermediate crude futures gained 74 cents, or 0.9 per cent, to $81.57.

“The ubiquitous view is that demand will increase during the summer,” said Tamas Varga of oil broker PVM. “Geopolitics is still seen as a supportive element of the equation.”

However, a stronger dollar capped gains, as the market remained optimistic of a rate cut before the end of the year.

The dollar was up 0.18 per cent, highlighting currency strength that makes dollar-priced oil more expensive for buyers holding other currencies.

“It seems the market is shrugging off demand concerns for now, anticipating inventory drawdowns in peak third quarter demand season,” said Suvro Sarkar, energy sector team lead at DBS Bank.

Official U.S. inventory data from the Energy Information Administration is out at 1430 GMT.

Strength in front-month prices is also indicating strong physical demand for oil, a boon for prices in the near-term, analysts say. August Brent and WTI prices were around 80 cents a barrel higher than September prices.

“Key oil market indicators are signaling that crude’s rebound is reflecting a stronger underlying physical market,” JP Morgan analysts wrote in a client note.

On the geopolitical front, Houthi attacks on shipping in the Red Sea and mounting Israel-Hezbollah hostilities in Lebanon are also bullish for oil prices, DBS’ Sarkar said.

The Houthis have so far sunk two vessels and seized another, and said on Tuesday they used a missile to hit a vessel in the Arabian Sea.

Alimentation Couche-Tard Inc. says its net earnings fell by almost a third in its fourth quarter as inflation-squeezed consumers watch their spending.

The convenience store giant says net earnings attributable to shareholders totalled $453 million in the quarter ending April 28, down from $670.7 million in the same quarter last year.

The company says the earnings decline was in part from lower gross margins on fuel, the quarter being a week shorter than last year, and expenses and deprectiaion related to investments and acquisitions.

Same-store merchandise revenue was down 0.5 per cent in the U.S., by two per cent in Europe and by 3.4 per cent in Canada because of lower discretionary spending.

Chief executive Brian Hannasch says in a statement that it was no doubt a challenging quarter, but even with the decline in same-store sales he remains optimistic about the business.

To adapt, Hannasch says the company has been working to expand its loyalty program, launch summer drink promotions and improve employee training.

8:30 A.M.

Canada’s inflation rate unexpectedly accelerated in May, Statistics Canada said on Tuesday. The Consumer Price Index rose 2.9 per cent in May on a year-over-year basis, up from 2.7 per cent in April. Analysts were expecting a slight slowing to 2.6 per cent.

The Liberal government’s changes to capital gains taxation came into effect Tuesday, despite significant pushback from business and physicians’ groups.

Finance Minister Chrystia Freeland’s spring budget proposed making two-thirds of capital gains – the profit made on the sale of assets such as a secondary residence or stocks – taxable, rather than one-half.

For individuals’ capital gains of $250,000 or less, the inclusion rate would remain the same, at 50 per cent.

At a time when the Liberals are looking to woo back young voters, Prime Minister Justin Trudeau has pitched the effective tax increase as a way to deliver generational fairness.

The Liberal government says the $19.4-billion it expects to raise in five years due to the changes will help pay for housing and other priorities for young people.

Freeland introduced a stand-alone motion on the changes, which easily passed the House of Commons earlier this month.

The NDP, Bloc Quebecois and Greens voted with the Liberals in favour of the motion while the Conservatives, who had been silent on the tax changes until then, voted against it.

Conservative Leader Pierre Poilievre insisted the wealthy will find ways to move their money out of Canada to avoid paying the tax, which will negatively affect farmers, small businesses, doctors and home builders.

The changes have sparked backlash from business groups who say that the higher inclusion rate will hurt the economy by lessening competition and innovation.

Physicians’ groups have spoken out against it as well, noting that many doctors have used their incorporated medical practices to invest and save for retirement.

But the Liberals have brushed off the opposition, arguing that only a small portion of wealthy Canadians will face a higher tax bill.

During a speech earlier this month, Freeland questioned Canada’s wealthiest on what kind of country they want to live in. The finance minister painted a bleak picture of the alternative to hiking taxes and increasing spending on health care and social services.

“Do you want to live in a country where those at the very top live lives of luxury, but must do so in gated communities behind ever-higher fences using private health care and airplanes because the public sphere is so degraded and the wrath of the vast majority of their less privileged compatriots burns so hot?” Freeland said.

Ottawa estimates that in any given year, 0.13 per cent of Canadians would pay higher taxes on their capital gains.

To encourage entrepreneurship, the government is also proposing the Canadian Entrepreneurs’ Incentive, which will reduce the inclusion rate to a third on a lifetime maximum of $2-million in eligible capital gains.

A statement by The International Monetary Fund on June 11, written by IMF staff after concluding a regularly scheduled visit to Canada, was quietly positive about the capital gains change.

The preliminary concluding statement said the change “improves the tax system’s neutrality with respect to different forms of capital income and is likely to have no significant impact on investment or productivity growth.”

Bank of Canada governor Tiff Macklem said the Canadian economy appears to be on track for a soft landing where inflation falls back to the bank’s target without a major spike in unemployment.

At the same time, the continuing slowdown in the labour market is hitting some groups harder than others, especially new Canadians and young people, Mr. Macklem said in a speech to the Winnipeg Chamber of Commerce on Monday.

The unemployment rate in Canada has risen more than a percentage point over the past year, hitting 6.2 per cent in May, just above pre-pandemic levels. There has not been a large increase in layoffs. But businesses have pulled back on hiring as high interest rates have weighed on consumer spending and dulled corporate investment.

“This is the soft-landing scenario,” Mr. Macklem said. “It has always been a narrow path, and we have yet to fully stick the landing. Looking forward, the unemployment rate could rise further. … But we continue to think that we don’t need a large rise in the unemployment rate to get inflation back to the 2-per-cent target.”

The speech comes two weeks after the bank lowered its policy interest rate to 4.75 per cent from 5 per cent, the first rate cut in four years.

Mr. Macklem offered few hints about the timing of further rate cuts. But his focus on how the labour market has come into “better balance” suggests policy makers are increasingly comfortable that inflationary pressures are easing.

The rapid pace of wage growth, which can feed into inflation as companies raise prices to cover costs, remains a concern. Average hourly wages were up 4.7 per cent year-over-year in April compared to an inflation rate of 2.7 per cent. Mr. Macklem said he “will be looking for wage growth to moderate further.”

However, he also said the bank is focusing on certain measures of wage growth that have slowed more than the overall rate. That suggests the bank may be less concerned about wage pressures than markets expect.

“Ultimately, the Bank of Canada seems content with the progress on the labour market, although they want to see more of it,” Desjardins economist Tiago Figueiredo wrote in a note to clients about the speech.

“Barring any major surprises, we continue to see the Bank of Canada cutting rates by another 25 basis points in July,” Mr. Figueiredo wrote, noting that the bank will receive two key pieces of economic data this week – the May inflation numbers on Tuesday and the April GDP numbers on Friday.

While the speech highlighted the “smooth” labour market cooling – companies have stopped posting jobs instead of laying people off outright – Mr. Macklem said the slowdown in hiring has hit young people and new Canadians particularly hard.

“With fewer job vacancies, it’s taking longer for young people entering the labour market to find a job, and their unemployment rate has risen. It’s now about 2 percentage points above its pre-pandemic average,” he said.

Likewise, job creation has failed to keep pace with the historic level of immigration over the past year, leaving more new immigrants without work.

This dynamic could help explain growing signs of financial stress among renters, who are often younger workers and newcomers. While mortgage delinquency rates remain relatively low, late payments on credit cards and auto loans are above pre-pandemic levels, especially for renters.

Looking further ahead, Mr. Macklem used his podium to highlight Canada’s lagging productivity (output per worker), which he called the country’s “Achilles’ heel.”

This has become a major theme for central bank officials. Senior deputy governor Carolyn Rogers created a stir several months ago by calling poor productivity and low levels of business investment in machinery and equipment an “emergency.”

Mr. Macklem said Canada has been good at growing its economy by increasing the number of workers, but not by increasing output per worker. This needs to change for the Canadian standard of living to keep improving as the population ages and the country bumps up against the “limits” of immigration policy, he said in a news conference after the speech.

He said that politicians and policy makers need to get a grip on why business investment is relatively weak in Canada. And he offered a few ideas to improve the investment climate, including lowering interprovincial trade barriers and speeding up regulatory approvals for companies and projects.

“There are also a whole range of bigger questions that I think are going to need more thought,” he said. “The role of multinational versus home headquartered businesses. Investing in houses, investing in machinery and equipment. There are a number of big questions. I don’t have all the answers but I think we need to collectively be thinking about those.”

By RTTNews Staff Writer   ✉  | Published: 6/24/2024 5:31 PM ET | 

The Canadian market ended on a strong note on Monday with its benchmark S&P/TSX Composite Index recording its biggest increase in about seven weeks. Shares from energy, utilities, real estate, financials and consumer staples sectors turned in a fine performance.

Investors picked up stocks ahead of Canada’s consumer price inflation data, due on Tuesday.

The S&P/TSX Composite Index ended with a gain of 293.73 points or 1.36% at 21,848.59. The index touched a low of 21,585.30 and a high of 21,866.93 in the session.

The Energy Capped Index climbed 3.42%. Africa Oil Corp (AOI.TO) soared 10.4%. Birchcliff Energy gained about 6.5%. Athabasca Oil Corp (ATH.TO), Tamarack Valley Energy (TVE.TO), Nuvista Energy (NVA.TO), Precision Drilling Corp (PD.TO), Baytex Energy (BTE.TO), Kelt Exploration (KEL.TO), Veren Inc (VRN.TO), Headwater Exploration (HWX.TO), International Petroleum (IPCO.TO) and Arc Resources (ARX.TO) gained 4 to 6%.

Utilities stocks Brookfield Renewable Partners (BEP.UN.TO), Brookfield Infra Partners (BIP.UN.TO), Algonquin Power (AQN.TO), Emera Corporated (EMA.TO), Innergex Renewables (INE.TO), Boralex (BLX.TO), Fortis (FTS.TO) and Canadian Utilities (CU.TO) advanced 2 to 5%.

In the financials section, Onex Corp (ONEX.TO) and EQB Inc (EQB.TO) climbed 3.77% and 3.1%, respectively. Laurentian Bank (LB.TO), Royal Bank of Canada (RY.TO), Fairfax Financial Holdings (FFH.TO), Toronto-Dominion Bank (TD.TO), Manulife Financial (MFC.TO), Canadian Imperial Bank of Commerce (CM.TO) and Power Corporation of Canada (POW.TO) gained 1.5 to 2.3%.

Consumer staples stocks George Weston (WN.TO), Saputo Inc (SAP.TO), Premium Brands Holdings Corp (PBH.TO) and Maple Leaf Foods (MFI.TO) climbed 2.4 to 3.3%. Metro Inc (MRU.TO) gained nearly 2%.

Several stocks from consumer discretionary, communications, materials and healthcare sectors too ended notably higher. Industrials and technology stocks turned in a mixed performance.

Monday June 24

Germany business climate

(10:30 a.m. ET) U.S. Dallas Fed Manufacturing Activity for June.

(1:30 p.m. ET) Bank of Canada governor Tiff Macklem speaks at the Winnipeg Chamber of Commerce (with press conference to follow at 3 p.m.).

—

Tuesday June 25

Japan machine tool orders

(8:30 a.m. ET) Canadian CPI for May. The Street is projecting an increase of 0.3 per cent month-over-month (versus 0.5 per cent in April) and a gain of 2.6 per cent year-over-year.

(8:30 a.m. ET) Canada’s manufacturing sales for May.

(9 a.m. ET) U.S. S&P CoreLogic Case-Shiller Home Price Index (20 city) for April. Consensus is a gain of 0.3 per cent from March and up 7.0 per cent year-over-year.

(9 a.m. ET) U.S. FHFA House Price Index for April. Consensus is a month-over-month rise of 0.5 per cent and a gain of 6.6 per cent year-over-year.

(10 a.m. ET) U.S. Conference Board Confidence Index for June.

Earnings include: Alimentation Couche-Tard Inc.; Carnival Corp.; FedEx Corp.

—

Wednesday June 26

Germany consumer confidence

(8:30 a.m. ET) Canadian wholesale trade for May

(10 a.m. ET) U.S. new home sales for May. The Street is estimating an annualized rate rise of 2.5 per cent.

Earnings include: AGF Management Ltd.; BlackBerry Ltd.; General Mills Inc.; Micron Technology Inc.; Novagold Resources Inc.

—

Thursday June 27

China industrial profits and current account surplus

Japan retail sales

Euro zone private sector credit and economic confidence

(8:30 a.m. ET) Canada’s payroll survey: job vacancy rate for April.

(8:30 a.m. ET) U.S. initial jobless claims for week of June 22. Estimate is 240,000, up 2,000 from the previous week.

(8:30 a.m. ET) U.S. GDP for Q1. Consensus is an annualized rate rise of 1.4 per cent with the GDP price index up 3.0 per cent.

(8:30 a.m. ET) U.S. goods trade deficit for May.

(8:30 a.m. ET) U.S. wholesale and retail inventories for May.

(8:30 a.m. ET) U.S. durable and core orders for May. Estimates are flat and up 0.2 per cent from April, respectively.

(10 a.m. ET) U.S. pending home sales for May.

Earnings include: Nike Inc.; Walgreens Boots Alliance Inc.

—

Friday June 28

Japan jobless rate and industrial production

ECB three-year CPI expectations

Germany unemployment

(8:30 a.m. ET) Canada’s monthly real GDP for April. The Street expects a rise of 0.4 per cent from March.

(8:30 a.m. ET) U.S. personal spending and income for May. The consensus projections are month-over-month rises of 0.3 per cent and 0.4 per cent, respectively.

(8:30 a.m. ET) U.S. core PCE price index for May. Consensus is a rise of 0.1 per cent from April and up 2.6 per cent year-over-year.

(9:45 a.m. ET) U.S. Chicago PMI

(10 a.m. ET) U.S. University of Michigan Consumer Sentiment Index for June.

Oil edged higher on Monday as hopes for a boost to demand from the summer driving season in the northern hemisphere offset Chinese data that underscored a bumpy recovery for the world’s biggest crude importer.

Apart from retail sales that beat forecasts due to a holiday boost, the flurry of Chinese data on Monday was largely downbeat. The data followed a survey on Friday showing U.S. consumer sentiment fell to a seven-month low in June.

Global benchmark Brent crude futures were up 33 cents, or 0.4 per cent, to $82.95 a barrel at 1212 GMT. U.S. West Texas Intermediate crude futures gained 25 cents, or 0.3 per cent, to $78.70.

Last week, both benchmarks posted their first weekly gain in four weeks on elevated confidence that oil inventories are set to plunge as the summer season gets under way in the northern hemisphere amid continued OPEC+ supply cuts.

“The crude oil market initially responded negatively to mixed data from China,” said Ole Hansen of Saxo Bank.

“But the outlook for strong fuel demand into the coming quarter and Saudi reassurance about the October hike being subject to prevailing conditions and added focus on quota breakers to bring production down and into line all seems to be supporting.”

Saudi Arabia has said OPEC+’s planned fourth-quarter increase in output can be can paused or reversed if needed.

Russia and Iraq , which have been pumping more than their OPEC+ quotas, pledged last week to meet their obligations.

Reports from OPEC and the International Energy Agency last week, although differing on the strength of oil demand growth this year, had supported confidence that inventories would be drawn down in the second half.

Still, BofA analysts said in a report that while the market consensus is for higher oil prices in the third quarter, there is a risk to prices if weak supply and demand balances persist.

“It is not yet clear whether balances will firm enough in the third quarter to tip the market from a large apparent surplus into a deficit that can lift prices,” BofA analysts including Francisco Blanch wrote.

On the geopolitical front, concerns of a wider Middle East war lingered after the Israeli military said on Sunday that intensified cross-border fire from Lebanon’s Hezbollah movement into Israel could trigger serious escalation.