Electric vehicle start-up Nikola has begun production of its first battery-electric semitruck

https://www.cnbc.com/2022/03/23/nikola-begins-production-of-battery-electric-tre-semitruck.html

Bank of Montreal Shares Fall on C$2.7B Stock Offering

Bank of Montreal shares fell early Wednesday after the company said it would seek to raise around 2.7 billion Canadian dollars, or US$2.15 billion, in a public offering.

At 9:38 a.m. ET, shares were down 2.9% at C$149.23.

The Canadian financial institution said Tuesday it would offer 18.1 million common shares at C$149 apiece.

On Tuesday, shares closed at C$153.72.

The bank has also granted its underwriters an option to purchase up to an additional 2.7 million common shares at the same price at any time up to 30 days after the closing of the offering.

BMO said it plans to use the proceeds to finance a portion of its acquisition of Bank of the West and its subsidiaries.

Saudi oil deal with China

News that Saudi Arabia is considering pricing oil sales to China using the Chinese yuan instead of the U.S. dollar has Sen. Ben Sasse, R-Neb., concerned the U.S. could be losing its footing on the world stage.

In an interview with “Fox News Sunday,” Sasse said this development, along with how the war between Russia and Ukraine develops, could send a message to the rest of the world that could have a significant impact.

SAUDI ARABIA CONSIDERS ACCEPTING YUAN INSTEAD OF DOLLARS FOR CHINESE OIL SALES

“Just this point of the Saudis pricing some of their commodity in Chinese currency or signaling that that’s where they’re headed, that is a big, bad thing,” Sasse said. “But let’s take a bigger step up. The 10-year-out existential battle on the globe is between the United States and Western values against the Chinese Communist Party’s exported surveillance state oppression of peoples around the globe.”Video

Sasse then addressed why, if China is really a main concern, he is so worried about Russia and Ukraine. 

“Partly because Chairman Xi greenlit this invasion,” Sasse explained. “And so we need to recognize that defeating Vladirmir Putin or helping the Ukrainians defeat Putin here is an important shot across the bow of Chairman Xi, who wanted to see if the West had any will to stand up to Putin because Xi desires to seize Taiwan.”

STATE DEPT REFUSES TO DETAIL ‘RED LINE’ IF CHINA PROVIDES SUPPORT TO RUSSIA AMID WAR IN UKRAINE

Sasse went on to say that China’s objective of trying to “displace the dollar” is something the U.S. must monitor.

Sen. Ben Sasse, R-Neb. 

“We need to keep our eye on this because we need to demonstrate that freedom-loving peoples around the world would rather have U.S. leadership than Chinese oppression,” Sasse said.

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Sasse claimed that other countries would not gravitate toward China out of preference for its policies but out of concern that “America is weak.” 

“We need our commander in chief to be strong, both in these conversations with Chairman Xi but more proximately in this moment with arming the Ukrainians immediately and rapidly,” Sasse concluded.

Inflation rate hits new three-decade high as price pressures broaden

Canada’s inflation rate hit a new three-decade high in February as consumers faced an onslaught of price hikes, adding pressure on the Bank of Canada to tame the situation with a speedy course of policy tightening.

The Consumer Price Index (CPI) rose 5.7 per cent in February from a year earlier, up from 5.1 per cent in January, Statistics Canada said Wednesday. That was the highest inflation rate since August, 1991, and it marked the 11th consecutive month that inflation has surpassed the Bank of Canada’s target range of 1 per cent to 3 per cent.

Households are feeling the pinch on several fronts. Shelter costs rose 6.6 per cent for the largest annual increase since 1983. Groceries rose 7.4 per cent, the most since 2009. And gas prices jumped 6.9 per cent in a single month.

Canadian dollar notches nine-day high as inflation accelerates

Wholesale sales rose 4.2 per cent in January: Statscan

The average of the central bank’s core measures of inflation – which strip out volatile components and give a better sense of underlying price pressures – rose to 3.5 per cent, also the highest since 1991.

Around two-thirds of the goods and services that make up the CPI basket are experiencing inflation of more than 3 per cent, showing how sticker shock is getting tougher to avoid.

“If it feels like everything is getting more expensive, it’s because it is,” Royce Mendes, head of macro strategy at Desjardins Securities, said in a note to clients.

Central bankers are now trying to tamp down inflation. The U.S. Federal Reserve joined the Bank of Canada on Wednesday in raising its benchmark interest rate from record lows and for the first time since 2018. Both central banks are expected to raise borrowing costs several times this year and next.

Throughout the pandemic, central bankers have consistently underestimated the scale and duration of inflation. The Bank of Canada in January projected that inflation rates would average 5.1 per cent in the first quarter of 2022 – a forecast that is already short of reality. The U.S. inflation rate hit a 40-year high of 7.9 per cent in February.

The latest threat to consumer prices is the Russia-Ukraine war, which has led to surging costs of wheat, gasoline, fertilizer and other products, on fears of supply shortages. There is, however, very little that central bankers can do to calm volatility in global commodity markets, making the situation even more complicated.

Several analysts said Wednesday that Canada’s inflation rate could reach – or exceed – 6 per cent in short order.

“Whether it’s a supply or demand shock is becoming less and less consequential,” said Jean-François Perrault, chief economist at Bank of Nova Scotia. The central bank is “behind the curve” on rate hikes “and they need to move aggressively to try and signal that they’re very serious about bringing inflation back to target.”

In a recent speech, Bank of Canada Governor Tiff Macklem would not rule out a rate hike of 50 basis points later this year. (A basis point is 1/100th of a percentage point.) A hike of that magnitude has not happened since 2000.

A key concern is that consumers, who are sensitive to price hikes at gas pumps and supermarkets, come to think that steep inflation is a long-term reality.

Inflation can be self-fulfilling, in that companies set prices and workers negotiate wages in anticipation of expected costs. Their expectations of inflation over the next two years have risen substantially, but remain “well anchored” over a five-year horizon, the central bank has said.

Not everyone agrees. Scotiabank said Tuesday that inflation expectations have already become unmoored. “This recent de-anchoring of expectations means that the bank’s monetary policy will need to be more aggressive to bring inflation back to target,” read the report, which was co-written by a former research director at the Bank of Canada.

Scotiabank estimates the central bank’s policy rate – now at 0.5 per cent – will end the year at 2.5 per cent, which is the quickest pace of rate hikes that a major bank is projecting.

That would heap pressure on a Canadian consumer that’s loaded up on debt. The household debt burden – more formally known as the ratio of credit market debt to disposable income – rose to 186 per cent in the fourth quarter, the highest on record. The pandemic debt surge has been entirely driven by demand for residential mortgages.

Mr. Perrault said Canadians can handle a quick pace of rate hikes. The economy is growing quickly, highlighted by the addition of nearly 340,000 jobs in February, which took the employment rate back to pre-pandemic levels.

“Rates are rising in a remarkably strong growth environment,” he said. “To us, that means households are going to have much greater flexibility and greater ability to manage these higher rates than would be the case if inflation was going up and growth was not there.”

The Fed is about to hike rates. Here’s what history shows should happen to the stock market next

The Federal Reserve is set to raise interest rates for the first time since 2018 to rein in inflation, and here’s how the stock market could react to the move, if history is any guide.

The central bank is widely expected to raise its target fed funds rate by a quarter-percentage point from zero at the end of its two-day meeting Wednesday. The Fed will also release its new forecasts for rates, inflation and the economy, given the uncertainty from the escalated geopolitical tensions.

Here’s the bottom line: When the Fed embarks on a series of rate hikes in a row, the stock market still typically manages to go higher during that time, but the gains are harder to come by than normal times, or when the central bank is lowering rates.

It especially struggles in the short term, according to Sam Stovall, CFRA chief investment strategist, who studied market performance and the Fed’s moves going back to 1946.

The S&P 500 has edged up an average of 1.3% six months after the start of a rate-hiking cycle since 1946, compared to an average gain of 5.5% six months after a rate cut, according to the data.

The underperformance continues 12 months and 18 months later with the S&P 500′s returns significantly lagging the periods after an easing cycle begins, the data showed.

Perhaps it’s not too surprising that the market tends to underperform during a tightening cycle as contractionary monetary policy is intended to slow down overheated economic growth and curb surging price pressures. Boosting interest rates increases the cost of borrowing and could negatively impact growth-oriented company performance.

Tech stocks are seen as sensitive to rising rates because increased debt costs can hinder growth and can make their future cash flows appear less valuable. They have suffered a particularly severe sell-off recently with the Nasdaq Composite falling into bear market territory recently, or down more than 20% from its record high.

Will market struggle more this time?

Some investors believe history may not be the best guide this time around and the stock market could struggle even more because the Fed is not dealing with a typical economic upturn. Inflation is the highest in four decades, which could cause the central bank to act faster and bigger than is typical of past rate cycles.

“Investors need to recognize that this hiking cycle could in all probability look very different than recent ones, and its exact nature is still ill-defined,”  said Scott Ruesterholz, a portfolio manager at Insight Investment.

“Higher inflation could force the Fed to move even more quickly than our expected 5 hikes this year while additional growth shocks could mean the economy needs fewer hikes than currently expected to slow sufficiently to stifle inflation,” Ruesterholz added.

Inflation hit a fresh 40-year high of 7.9% in February. Notable investor Jeffrey Gundlach said he sees the likelihood for inflation to hit 10% this year, calling for more aggressive tightening than the market expects. Current pricing indicates the equivalent of seven total rate increases this year — or one at each meeting.

“To the extent that the Fed can continue down the path the market expects — deliberate rate hikes all year long — the areas that have held up since the stock market became unglued five months ago look set to continue functioning as havens,” said Jeff Weniger, Head of Equity Strategy for WisdomTree.

Weniger said opportunity lies in indexes that have lighter exposures to “trouble” groups such as consumer discretionary and speculative tech stocks.