Author: Consultant

Cenovus Energy CVE-T -3.15%decrease on Thursday said it plans to invest $1.5-billion in its Ohio refineries over the coming five years, including Lima and Oregon.

The investment in Ohio refineries include maintenance, reliability measures and market access projects, the company said.

Cenovus produces oil and natural gas with locations in Canada, the United States and the Asia Pacific region and is the largest refiner in the state of Ohio where it employs almost 1,200.

Cenovus’ Toledo refinery in Oregon, Ohio has a processing capacity of up to 160,000 barrels per day (bpd), according to the company’s website. The Lima refinery has a refining capacity of 183,000 bpd, per the U.S. Energy Information Administration.

Stocks tanked on Wednesday after March inflation data came in hotter than expected, likely pushing off interest rate cuts by the Federal Reserve that investors have been anticipating.

The Dow Jones Industrial Average dropped 436 points, or about 1.2%. The S&P 500 and Nasdaq Composite slid 1.1% and 1.2%, respectively.

The S&P 500 had been treading water in April in anticipation of this inflation report following a roaring start to the year where the benchmark rallied 10% for its best first quarter gain in five years.

The CPI in March rose 0.4% for the month and 3.5% year-over-year, versus estimates of a 0.3% monthly increase and 3.4% year-over-year, according to economists polled by Dow Jones. Core CPI, which excludes volatile food and energy prices, accelerated 0.4% from the previous month while rising 3.8% from a year ago, compared to estimates for 0.3% and 3.7%, respectively. CPI in April increased at a 3.2% annual pace for all items.

Fed funds futures trading data now suggests just a 20.6% likelihood that the Fed will lower rates at its June meeting, according to the CME FedWatch Tool. Traders are now betting that the first rate cut will likely take place at the central bank’s meeting in September.

The 10-year Treasury yield, a benchmark for mortgage and other loans, soared back above 4.5% as March CPI reaccelerated from the prior month, defying a Federal Reserve hoping for inflation to slow back to its 2% target. The 2-year Treasury yield spiked to nearly 5%.

Bank shares, including JPMorgan Chase and industrial shares like Caterpillar, both fell around 1% on worries higher rates will start to suffocate the economy. Once red-hot tech stocks like Nvidia and Meta also pulled back as investors dumped the bull market winners as their Fed rate-cut hopes were dashed.

“Disinflation is out and inflation is in with today’s CPI report,” said Karen Manna, portfolio manager at Federated Hermes. “The forecasts for Fed easing this year will be reassessed even lower.”

“This CPI report provides a jolt to the market. … [but] I don’t think that the CPI-induced sell-off changes the underlying primary trend,” said Keith Lerner, co-chief investment officer at Truist.

To be sure, Lerner added that “if the Fed’s likely going to be on the sidelines a bit longer, we really need the earnings to come through to justify the move that we’ve seen this year.”

In addition to the big inflation report on Wednesday, investors are also looking forward to the meeting minutes from the Fed’s gathering last month. They will be hunting for clues on where policymakers stand on expected rate cuts this year. Those will be released at 2 p.m. ET.

China’s Finance Ministry denounced a report by Fitch Ratings that kept its sovereign debt rated at A+ but downgraded its outlook to negative, saying Wednesday that China’s deficit is at a moderate and reasonable level and risks are under control.

Risks to China’s public finances are rising, Fitch said, as Beijing works to resolve mounting local and regional government debts and to shift away from heavy reliance on its troubled property industry to drive economic growth.

But while slower growth is adding to the challenges of coping with heavy borrowing, Fitch said it kept China’s A+ rating due to its “large and diversified economy,” its vital role in global trade and its huge foreign exchange reserves.

The Finance Ministry said it was a “pity” that Fitch had downgraded its sovereign debt and faulted its methods, saying it had failed to take into account Beijing’s moves toward “appropriately intensifying, improving quality and efficiency” of its government spending.

“In the long run, maintaining a moderate deficit and making good use of precious debt funds will help expand domestic demand, support economic growth, and ultimately help maintain good sovereign credit,” the ministry said.

“Overall, our country’s local government debt resolution work is progressing in an orderly manner and risks are generally controllable,” it said.

Fitch’s report noted that China’s general government deficit was forecast to rise this year to 7.1 per cent of its GDP, up from 5.8 per cent in 2023. The median for countries with an “A” rating is 3.0 per cent, it said. China’s average deficit to GDP ratio averaged 3.1 per cent in 2015-2019 but jumped to 8.6 per cent in 2020, during the COVID-19 pandemic.

Tax relief measures and weaker property investments, which are usually a main source of local tax revenue, have eroded the government’s capacity to collect tax revenues to offset higher spending, the report said.

Fitch forecasts that China’s economy will expand at a 4.5 per cent annual rate this year, down from 5.2 per cent last year, due to the downturn in the property sector and lacklustre consumer spending, though it said higher government spending is likely to help make up for some of that weakness.

While the government has moved to support some property developers struggling to repay their debts after a crackdown on excessive borrowing, analysts have warned that the financial troubles are now rippling across construction companies and other industries linked to real estate.

Another ratings agency, Moody’s, downgraded China’s credit rating outlook in December, ING economists noted in a report Wednesday.

It said that “in general we can observe that the debt situation has worsened rapidly since the pandemic.”

Fitch’s move reflects the dilemma all policy-makers face, it said.

“Failing to restore growth and confidence would weaken the GDP side of the debt to GDP equation, and could have an equally harmful impact on long-term debt sustainability,” it said. “However, it is important that fiscal spending from this point onward is directed toward productive areas of growth for the future.”

 The Bank of Canada (BoC) is expected to hold its key overnight rate steady on Wednesday, with economists and analysts hoping to get some direction on the timing of its first rate cut.

The central bank has kept borrowing costs on hold at a 22-year high of 5% for its last five consecutive meetings in its bid to

It is widely expected to repeat it for the sixth time but markets will be eagerly sifting through Governor Tiff Macklem’s speech for a hint of when it plans to pivot to a rate cut cycle.

With inflation showing signs of cooling since the beginning of the year and the latest job market survey pointing at build up of some slack, traders have increased their bets for a rate cut in June.

Economists and analysts expect to get some clarity from the central bank, which had said last month it was too early to consider cuts, on the direction of inflation, growth and the first 25-basis point rate cut.

“The key points to watch on Wednesday will be how Governing Council characterizes inflation and how their discussions about the near-term path of policy have evolved,” Royce Mendes, head of macro strategy for Desjardins Group, wrote in a note.

The central bank’s Governing Council will announce its monetary policy decision on April 10 at 9:45 a.m. (1345 GMT) when it will also come out with its quarterly monetary policy report giving projections on the economy and inflation.

Canadian economic data has diverged from its biggest trading partner, the U.S., and much of the growth seen south of its border has not trickled into the Canadian market.

This has prompted traders to forecast the first rate cut to begin in Canada with money markets betting there will be an 85% chance of a rate cut in June. The chances of a mid-year rate cut in the U.S., however, has shrunk to 60%.

“We expect that the central bank’s first rate cut will occur in June and that there will be a total of four this year … but the tone of its statement (on Wednesday) will shift to dovish,” said Tu Nguyen, economist with assurance, tax & consultancy firm RSM Canada.

In a Reuters poll, more than 70% of economists, 27 out of 38, expected the BoC to deliver its first rate cut in June, in line with market pricing. Seven predicted the first cut would come in July, and the remaining four said September.

While high interest rates have managed to ease inflationary pressures in the country from a high of 8.1% seen in June 2022 to 2.8% in February, it has increased mortgage cost, the most common debt held by Canadians.

Monday April 8

China foreign reserves, aggregate yuan financing and new yuan loans

Japan real cash earnings

Germany industrial production and trade surplus

—

Tuesday April 9

Japan machine tool orders

(6 a.m. ET) U.S. NFIB Small Business Economic Trends Survey for March.

Earnings include: Tilray Inc.

—

Wednesday April 10

Japan bank lending

(8:30 a.m. ET) Canadian building permits for February. Estimate is a decline of 0.5 per cent from January.

(8:30 a.m. ET) U.S. CPI for March. The Street is projecting a rise of 0.3 per cent from February and 3.4 per cent year-over-year.

(9:45 a.m. ET) Bank of Canada policy announcement and monetary policy meeting with a press conference with governor Tiff Macklem to follow.

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

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

(2 p.m. ET) U.S. Fed minutes from March 19-20 meeting are released.

Earnings include: Delta Air Lines Inc.; North West Company Inc.

—

Thursday April 11

China CPI, PPI and trade surplus

ECB monetary policy meeting

(8:30 a.m. ET) U.S. initial jobless claims for week of April 6. Estimate is 214,000, down 7,000 from the previous week.

(8:30 a.m. ET) U.S. PPI final demand for March. Consensus is a rise of 0.3 per cent from February and up 1.9 per cent year-over-year.

Earnings include: BlackRock Inc.; Cogeco Communications Inc.; Constellation Brands Inc.; MTY Food Group Inc.; Richelieu Hardware Ltd.

—

Friday April 12

Japan industrial production

Germany CPI

(8:30 a.m. ET) Canadian new motor vehicle sales for February. Estimate is a year-over-year rise of 20.0 per cent.

(8:30 a.m. ET) U.S. import prices for March. The Street is forecasting a rise of 0.3 per cent from February and up 0.3 per cent year-over-year.

(9 a.m. ET) Canadian existing home sales and average prices. Estimates are rises of 12.0 per cent and 2.5 per cent year-over-year, respectively.

(9 a.m. ET) Canada’s MLS Home Price Index for March. Estimate is an increase of 1.5 per cent from the same period a year ago.

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

Earnings include: Citigroup Inc.; JPMorgan Chase & Co.; State Street Corp.; Wells Fargo & Co.

You have to give Canadian Tire Corp. Ltd. CTC-T -5.91%decrease some credit when the retailer’s board this week decided to award no cash bonuses to its top executives for 2023. As a statement, this one is clear: There are no excuses for delivering disappointing financial performance.

The more important issue for investors, though, is whether the board’s tough approach to executive compensation will have any impact on Canadian Tire’s struggling share price.

The stock has slumped 28 per cent since July, reflecting the company’s declining fortunes. It is now trading at levels seen five years ago.

Last year, revenue fell 6.5 per cent. The fourth quarter was particularly rough, with revenue down 16.8 per cent from the same period in 2022.

Net profit shrank to $339.1-million in 2023, down from $1.18-billion in the previous year and missing targets.

“This past year was challenging, more so than we expected at the outset, given rising interest rates, stubborn inflation impacting discretionary spend and unfavourable weather,” said Greg Hicks, Canadian Tire’s chief executive officer, during a conference call with analysts in February.

That last bit – an allusion to the unusually warm winter, which robbed the retailer of its ability move snow-themed clothing and outdoor gear – may have hit Canadian Tire harder than many other retailers, given its rows of skates, boots and snow blowers.

For the most part, though, retailers have faced a difficult environment over the past year, as high inflation and rising borrowing costs have weighed on consumers.

According to The Conference Board, U.S. consumer confidence remains well below recent highs in 2021, when interest rates were near-zero.

The present situation part of the overall index, which is based on assessments of current business and labour market conditions, ticked higher last month. But the expectations part of the index, which is on the short-term outlook for income, business and labour market conditions, fell deeper into territory that signals a coming recession.

“Consumers’ assessment of the present situation improved in March, but they also became more pessimistic about the future,” said Dana Peterson, chief economist at The Conference Board, in a release.

Sure, many Wall Street economists may be taking a sunnier view of the economy in 2024, at least compared with far more dour assessments of the economy this time last year, when recession predictions were popular.

But the share prices of a number of retailers suggest that the outlook remains far from upbeat, as consumers turn to essentials and experiences such as travel.

Best Buy Co Inc. BBY-N +0.77%increaseshares are up just 2 per cent over the past year, trailing the tech-fuelled Standard & Poor’s 500 by 29 percentage points.

Nike Inc. NKE-N -0.26%decrease is down 27 per cent over this same period, and Dollar General Corp. DG-N +0.32%increase is down 25 per cent. Lululemon Athletica Inc. has fallen 29 per cent this year alone.

In other words, Canadian Tire has plenty of company as it navigates cautious consumers. That may be comforting: It suggests that the retailer isn’t floundering with misguided direction or poor execution. Rather, it is facing a tough environment that may be largely reflected in the current share price.

According to February valuation numbers from Mark Petrie, an analyst at CIBC Capital Markets, Canadian Tire shares trade at 12.3 times his estimated earnings for 2024.

That’s higher than the average price-to-earnings ratio of 10.4 for peers in the sporting goods sector, according to Mr. Petrie’s numbers. But the valuation is lower than general merchandise and automotive peers, which have P/Es of 23.6 and 18.5, respectively.

What’s more, Canadian Tire shares have an unusually attractive dividend yield for a retailer. As the share price has retreated over the past year, the yield has risen to 5.2 per cent, offering investors an incentive for holding on.

Is the dividend safe? The company aims to distribute 30 to 40 per cent of its prior year’s “normalized net income,” which are profits related to Canadian Tire’s core business operations.

By that measure, the current payout ratio is about 68 per cent, which is well above target. Over the long term, that could be a risk, especially if the economy deteriorates.

Still, Canadian Tire looks like a decent bet on better days ahead for retail stocks. Interest rate cuts, which should come with subsiding inflationary pressures, will likely help. So, too, will rebounding consumer confidence as borrowing costs decline.

Top executives might have missed their bonuses this year. But at least they have delivered something far more important to investors: an attractive stock.

Canada’s labour market stumbled in March as the unemployment rate jumped above 6 per cent for the first time in more than two years, the latest sign of a weakening economy.

The country lost a net 2,200 jobs last month, Statistics Canada said Friday, undershooting analyst expectations of 25,000 positions added. The unemployment rate rose to 6.1 per cent from 5.8 per cent in February, and it has risen by a full percentage point over the past year.

The unemployment rate was driven higher in March by an increase of 60,000 people searching for work or on temporary layoff, Statscan said.

The Canadian numbers offered a stark contrast to the United States, which on Friday reported a gain of 303,000 jobs in March, a result that blew past estimates, while its unemployment rate fell a tick to 3.8 per cent. Because of the continuing strength in the U.S. economy, investors are dialling back their expectations that the Federal Reserve will start to lower interest rates in June, viewing it as roughly a 50-50 chance.

In contrast, traders are raising their bets that the Bank of Canada will start to cut rates in June, with July seen as a lock. The central bank will make its next monetary policy decision on Wednesday. While analysts don’t expect a change to the overnight lending rate, now at 5 per cent, they are looking for any clues that rate cuts will begin in June or July.

“The Canadian labour market is beginning to show more cracks,” Royce Mendes, head of macro strategy at Desjardins Securities, wrote in a client note. “Combined with the recent run of soft [Consumer Price Index] prints, these numbers should have the Bank of Canada opening the door next week to easing policy around the middle of this year.”

Of late, the country has struggled to create work for a historic influx of newcomers, with the population aged 15 and up rising by nearly 91,000 in March alone. As a result, the employment rate has fallen for six consecutive months to 61.4 per cent.

Self-employment fell by 29,000 in March, offsetting increases in the public and private sectors. Employment fell by 29,000 in accommodation and food services, the worst result of any industry, followed by a decline of 23,000 positions in wholesale and retail trade.

Total hours worked across the economy fell by 0.3 per cent in March, which doesn’t bode well for gross domestic product, which had started the year with strong gains.

Wage growth is proving sticky, a frequent concern for the Bank of Canada as it tries to wrestle inflation back to its 2-per-cent target. Average hourly wages rose 5.1 per cent over the past year, in line with growth of 5 per cent in February.

In a client note, Bank of Montreal chief economist Doug Porter said the combination of rising unemployment and elevated wage growth “leaves the Bank of Canada in a tricky spot, with the job market clearly softening, yet still spinning off strong income gains. On balance, the BoC will likely view the overall results as pointing to more disinflationary pressure ahead, and will await the next couple of inflation prints, but a June cut is looking a bit more likely now.”

At the March decision, Bank of Canada Governor Tiff Macklem said it was still too early to consider lowering the overnight lending rate. “Recent inflation data suggest monetary policy is working largely as expected,” he said at a news conference. “But future progress on inflation is expected to be gradual and uneven, and upside risks to inflation remain. Governing Council needs to see further and sustained easing in core inflation.”

The annual inflation rate is tracking lower than the Bank of Canada projected for the first quarter, and, in February, it ebbed to 2.8 per cent. (Inflation had peaked at roughly 8 per cent in mid-2022.) Combined with weakness in the labour market, this could prompt the Bank of Canada to use its April decision to set up a rate cut soon after, as central bankers often telegraph their moves in advance.

After Friday’s report, investors ramped up their bets for a first rate cut in June. Interest-rate swaps, which capture market expectations about monetary policy, were pricing in an 77-per-cent chance of a quarter-point cut in June as of Friday afternoon, up from 72 per cent on Thursday, according to Bloomberg data. Traders are expecting up to three cuts in 2024, which is fewer than earlier this year.

“While today’s jobs data isn’t dire enough for the BoC to renege on its forward guidance and cut rates next week, it is weak enough to confirm our view that June’s decision to cut will be the first of a sequence,” Simon Harvey, head of FX analysis at foreign-exchange company Monex Europe, said in a research note.

Canada’s merchandise trade surplus increased to $1.4 billion in February as exports of gold hit an all-time high, Statistics Canada said Thursday.

The agency said the result compared with a revised surplus of $608 million in January.

Total exports in February rose 5.8 per cent to $66.6 billion, boosted by an increase in exports of unwrought gold.

Exports of metal and non-metallic mineral products surged 31.1 per cent in the month to a record $9.4 billion powered by increased high-value shipments of refined gold as well as transfers of gold assets in the banking sector.

Statistics Canada said that excluding the product group for unwrought gold, exports were up 2.8 per cent for the month.

Meanwhile, total imports rose 4.6 per cent to $65.2 billion in February, helped by a 9.7 per cent increase in imports of electronic and electrical equipment and parts to a record $7.6 billion.

In volume terms, total exports rose 6.2 per cent in February, while total imports rose 4.1 per cent.

“Canada’s merchandise trade activity improved in February, supporting the sturdy flash estimate for GDP growth in the month, and adds to signs that economic activity accelerated in the first quarter,” BMO economist Shelly Kaushik wrote in a report.

Statistics Canada said last week that its preliminary estimate for February pointed to real GDP growth of 0.4 per cent for the month, helped by strength in the mining, quarrying, and oil and gas extraction, manufacturing, and finance and insurance sectors.

The result came after it said the economy grew 0.6 per cent in January, helped by the end of public sector strikes in Quebec in November and December.

The overall trade results came as Canadian exports to the United States rose 3.3 per cent in February and imports from Canada’s largest trading partner increased 3.4 per cent, resulting in a trade surplus with the U.S. of $9.1 billion in February compared with $8.8 billion in January.

Canada’s trade deficit with countries other than the United States was $7.7 billion compared with a deficit of $8.2 billion in January.

In a separate release, Statistics Canada said the country’s international trade in services deficit narrowed to $1.0 billion in February compared with $1.2 billion in January as exports of services rose 1.9 per cent and imports of services increased 0.8 per cent.

When international trade in goods and services are combined, the agency said Canada’s total trade balance with the world came in at a surplus of $367 million in February compared with a deficit of $595 million in January.

Published: 4/4/2024 8:36 AM ET | 

A day ahead of the release of the more closely watched monthly jobs report, the Labor Department released a report on Thursday showing first-time claims for U.S. unemployment benefits rose by more than expected in the week ended March 30th.

The report said initial jobless claims climbed to 221,000, an increase of 9,000 from the previous week’s revised level of 212,000.

Economists had expected jobless claims to inch up to 214,000 from the 210,000 originally reported for the previous week.

The Labor Department said the less volatile four-week moving average also crept up to 214,250, an increase of 2,750 from the previous week’s revised average of 211,500.