Category: Uncategorized

A recent $4.6-billion capital raise by Enbridge ENB-T -1.23%decrease and a raft of new U.S. deals have spurred optimism for a revival in Canadian equity capital markets (ECM) issuance, bankers and lawyers said.

Enbridge’s jumbo equity sale to finance a portion of its acquisition of three utilities from Dominion Energy propelled Canadian ECM issuance to a two-year high of $6.7-billion in the third quarter of this year, according to data from Refinitiv.

“I think there is evidence out there that for the right transaction for the right reasons, investors will show up,” said François Carrier, co-head of Desjardins Capital Markets.

“We’re certainly in our team talking about a progressive opening of market between now and the end of the year and we’re certainly more optimistic going into 2024 in terms of what is achievable,” he added.

Canadian ECM issuance hit a more-than 22-year low of $13-billion in 2022 and IPOs in Canada fell to a three-year low in 2022 to $1.6-billion and are at $201.7-million for the first six months of the year, according to Refinitiv data.

Hopes of a revival have, however, increased in recent weeks after a flurry of new large offerings in the United States, and Enbridge’s deal.

Marketing automation firm Klaviyo, Arm Holdings and Instacart all debuted recently to strong initial demand. On Monday, Enbridge’s shares were trading some 1.8 per cent higher than the price they were placed at on Sept. 8.

That has encouraged market participants to hope that demand for IPOs, which had been hit hard over the last two years by the pandemic, geopolitical tensions and interest rate hikes, may be on the rebound.

“There is a long list of companies out there … that have been doing quite well over the last while and that are starting to dust off their IPO plans and their work plans to reinvigorate the process,” said Jeff Hershenfield, co-head of the Capital Markets and Public Mergers & Acquisitions Group at law firm Stikeman Elliott in Toronto.

Stephen Pincus, a partner at the Toronto office of law firm Goodmans, said market participants were hopeful of an IPO window opening up some time over the coming months.

Canada’s main stock exchange operator TMX Group has about 1,600 companies in its initial public offering (IPO) pipeline, with more than half of them technology companies, CEO John McKenzie said in a recent interview.

But not many dealmakers are expecting a rush of supply with an uncertain macroeconomic environment still keeping secondary equity markets volatile.

The post-sale performances of shares of Klaviyo, Arm and Instacart also tailed off after a strong first-day opening.

The shares dropped well below their first-day high, potentially limiting a comeback in Canadian equity capital raisings and IPOs.

“The fact is the market is materially better than it was six months ago, but we are not out of the woods yet and investors generally are still not receptive to hearing about riskier earlier stage stories,” said Neil Selfe, founder and CEO at advisory INFOR Financial Group.

“We do not have enough data to declare the IPO market open. Our own view is that we are still 12 to 18 months away from a robust IPO market,” he added.

Canada’s main stock index opened lower on Tuesday after a fall in commodity prices weighed on energy and materials stocks as demand concerns from China mounted while investors get ready to tackle higher-for-longer interest rates.

At 9:35 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 61.06 points, or 0.31%, at 19,739.55.

Wall Street’s main indexes fell at open on Tuesday as investors continued to grapple with the prospects of a prolonged restrictive monetary policy by the Federal Reserve and its subsequent impact on the economy.

The Dow Jones Industrial Average fell 144.20 points, or 0.42%, at the open to 33,862.68. The S&P 500 opened lower by 24.56 points, or 0.57%, at 4,312.88, while the Nasdaq Composite dropped 90.36 points, or 0.68%, to 13,180.96 at the opening bell.

Adding to investor anxiety was the likelihood of a partial shutdown of the U.S. government by Sunday, which, according to ratings agency Moody’s, is likely to be a “credit negative.”

“A polarized political environment, uncertainty on macroeconomic conditions, and then you throw a government shutdown on top of it will create a gray area where there’s no clear path,” said Chris Giamo, head of commercial banking at TD Bank.

All three major U.S. stock indexes are set to log quarterly declines for the first time this year heading into the last trading days of September.

Pressuring equities, the benchmark two- and 10-year Treasury yields have scaled multi-year highs after the Fed’s hawkish longer-term rate outlook, a stance also projected by other major central banks.

“There’s so much uncertainty in the market … interest rates at this (high) level and when will they go lower are the biggest drivers,” Giamo added.

Traders’ bets on the benchmark rate remaining unchanged in November and December stood close to 76% and 61%, respectively, according to CME’s FedWatch tool. Meanwhile, a 25-basis-point rate cut is being priced in as early as March, growing to over 33% in June and July.

A Goldman Sachs report showed hedge funds increased their bearish bets mainly on U.S. stocks last week, with clients mostly adding short positions and getting rid of long positions. Consumer discretionary, industrials and financials were the most net sold.

Investors will keep an eye out for the consumer confidence index for September and a report on new home sales for August, due after the opening bell.

Through the week, data including on durable goods, the personal consumption expenditures price index for August and second-quarter gross domestic product will be monitored for clues on inflation and the economic outlook.

Remarks by Fed policymakers such as Chair Jerome Powell will also be on investors’ watch list this week, with a handful of them already corroborating the central bank’s insistence to continue fighting against inflation above the 2% target.

Oil prices fell on Tuesday as a stronger U.S. dollar compounded concerns that demand for fuel will be held back by major central banks keeping interest rates higher for longer than expected.

Brent crude futures were down 51 cents, or 0.55%, at $92.78 a barrel, while U.S. West Texas Intermediate crude futures were trading 47 cents lower, or 0.52%, at $89.21.

Oil prices were mostly flat on Monday, after Russia softened its gasoline and diesel export ban.

“Fears of an economic recession may again dominate the oil market’s movement due to surging U.S. bond yields following the Fed’s hawkish stance last week,” said Tina Teng, a market analyst at CMC Markets in Auckland.

Reuters

The Canada Energy Regulator has approved Trans Mountain Corp.’s application to modify the pipeline’s route, a decision that could spare the government-owned pipeline project from an additional nine-month delay.

The regulator made the ruling Monday, just one week after hearing oral arguments from Trans Mountain and a B.C. First Nation that opposes the route change.

It didn’t release the reasons for its decision Monday, saying those will be publicized in the coming weeks.

By siding with Trans Mountain Corp., the regulator is allowing the pipeline company to alter the route slightly for a 1.3-kilometre stretch of pipe in the Jacko Lake area near Kamloops, B.C., as well as the construction method for that section.

Trans Mountain Corp. had said it ran into engineering difficulties in the area related to the construction of a tunnel, and warned that sticking to the original route could result in up to a nine-month delay in the pipeline’s completion, as well as an additional $86 million more in project costs.

Trans Mountain has been hoping to have the pipeline completed by early 2024.

But Trans Mountain’s application was opposed by the Stk’emlupsemc te Secwepemc Nation, whose traditional territory the pipeline crosses and who had only agreed to the originally proposed route.

In their regulatory filing, the First Nation stated the area has “profound spiritual and cultural significance” to their people, and that they only consented to the pipeline’s construction with the understanding that Trans Mountain would minimize surface disturbances by implementing specific trenchless construction methods.

The Stk’emlupsemc te Secwepemc argued that Trans Mountain never said its originally proposed construction method was impossible, only that it couldn’t be done in time to meet a Jan. 1 in-service date for the pipeline.

The First Nation didn’t respond to a request for comment by publication time.

The Trans Mountain pipeline is Canada’s only pipeline system transporting oil from Alberta to the West Coast. Its expansion, which is currently underway, will boost the pipeline’s capacity to 890,000 barrels per day (bpd) from 300,000 bpd currently.

The pipeline – which was bought by the federal government for $4.5 billion in 2018 after previous owner Kinder Morgan Canada Inc. threatened to scrap the pipeline’s planned expansion project in the face of environmentalist opposition and regulatory hurdles – has already been plagued by construction-related challenges and delays.

Its projected price tag has since spiralled: first to $12.6 billion, then to $21.4 billion and most recently to $30.9 billion (the most recent capital cost estimate, as of March of this year).

Keith Stewart with Greenpeace Canada said it’s alarming to see the regulator over-rule the wishes of Indigenous people in order to complete a pipeline on deadline.

“Every Canadian should be outraged that our public regulator is allowing a publicly owned pipeline to break a promise to Indigenous people to protect lands of spiritual and cultural significance,” Stewart said.

The federal government has already approved a total of $13 billion in loan guarantees to help Trans Mountain secure the financing to cover the cost overruns.

Trans Mountain Corp. has blamed its budget problems on a variety of factors, including inflation, COVID-19, labour and supply chain challenges, flooding in B.C. and unexpected major archeological discoveries along the route.

Given the Canadian regulatory system has a reputation for being slow and cumbersome, it was surprising to see the Canada Energy Regulator rule so quickly on Trans Mountain’s route deviation request, said Richard Masson, executive fellow with the University of Calgary’s School of Public Policy.

“It’s a challenging decision to have to make, when you’ve got a $30 billion pipeline that needs to be completed,” Masson said.

“If there’s no feasible way to do that tunnel, then I guess you have to allow for this.”

Masson added that if the regulator had denied Trans Mountain’s request, it would have been bad news for taxpayers as well as the federal government, which is seeking to divest the pipeline and has already entered into negotiations with several interested Indigenous-led buyers.

It also would have been bad news for Canadian oil companies, who have been eagerly anticipating the pipeline’s start date to begin shipping barrels to customers.

“If this can result in the pipeline being completed by year-end and started up in the first quarter, that’s good news. The world is still looking for oil, and oil prices are up at US$90 a barrel,” Masson said.

• Congress is still in a stalemate on the federal budget as GOP hard-liners refuse to budge on further spending cuts.
• “I don’t know what to think,” said Senate Majority Whip Dick Durbin over the weekend.
• Time is dwindling for lawmakers to reach an agreement or else a government shutdown will take effect on Oct. 1.

Lawmakers over the weekend expressed few signs of movement on a budget resolution that would keep the U.S. government funded for the remainder of the fiscal year, and the clock is ticking.

Current spending laws are due to expire on Sept. 30. That means if Congress does not reach an agreement before 12:01 a.m. on Oct. 1, the government will shut down. House Republicans on Thursday sent the chamber into recess, delaying further developments in the negotiations.

“I don’t know what to think,” said Senate Majority Whip Dick Durbin Sunday on CNN’s “State of the Union.”  

House Speaker Kevin McCarthy, a Republican representative from California, is responsible for piecing together the splintered GOP caucus that is struggling to come to an agreement.

Durbin, D-IL, noted that the Senate had been “moving forward” in negotiating a deal before it was interrupted by disagreement from Republican Congress members and the “inability of the Speaker to get a majority for anything.”

A primary obstacle ahead of McCarthy is a group of Republican hard-liners in the House who refuse to budge on further spending cuts.

“All of a sudden we’re the bad guys because we want to balance our budget,” Tennessee GOP Rep. Tim Burchett said Sunday on CNN’s “State of the Union.”

Burchett is among the House Republicans who are, as he puts it, “sticking to our guns.” He said he would not endorse a short-term bill called a continuing resolution, or CR, which would provide a temporary budget until the government can negotiate a more permanent deal for the new fiscal year.

“I’ve not voted for a CR, a continuing resolution. I didn’t vote for one under President Trump, and I haven’t voted for any in the past,” said Burchett. “You have folks that come to Washington and say, ‘Oh, I’m going to be a fiscal conservative, I’m going to be this,’ and then they’re not.”

Some House representatives have come together in a bipartisan effort to avert a shutdown. Late Wednesday night, the Problem Solvers Caucus, a group of 64 House representatives, equally split between Democrats and Republicans, proposed a budgetary framework endorsed by its members.

“All we’re focused on is keeping the lights on,” New Jersey Democratic Rep. Josh Gottheimer said Sunday on CNN’s “State of the Union.” Gottheimer co-chairs the caucus alongside Republican Rep. Brian Fitzpatrick of Pennsylvania.

But that symbol of bipartisan cooperation has not been enough to rally all 435 members of the House into an agreement.

If Speaker McCarthy is unable to unite his fellow Republicans, he could look across the aisle to secure the votes he needs to pass the budget. But turning to Democratic votes would come with its own wave of political backlash.

Tennessee’s Burchett said that were McCarthy to allow a deal to pass via Democrats’ votes, he would “strongly look at” giving his support to oust the speaker.  

“Our financial ship is sinking,” Burchett said.

A government shutdown would mean paused paychecks for millions of U.S. federal employees and a hiatus of many government services. Investors have also expressed worry about what a shutdown would mean for the fourth fiscal quarter in an already fragile stock market.

“Across the country, so many impacts would be felt. This has to be avoided,” U.S. Transportation Secretary Pete Buttigieg said Sunday on CNN’s “State of the Union.”

nflation staying stuck above the Fed’s 2 per cent target remains a greater risk than tight central bank policy slowing the economy more than needed to bring the pace of price increases under control, Chicago Fed president Austan Goolsbee said on Monday.

“The risk of inflation staying higher than where we want it is the bigger risk,” Goolsbee said in comments on CNBC. “We have got to get inflation back down to target…We ought to have 100 per cent commitment.”

Goolsbee said the Fed would need to “play by ear” whether any further rate increases are needed.

But he also said the debate over the current phase of Fed policy will “stop being how much more are they going to raise, and transform into well how long do we need to hold rates” at the peak level.

The Fed last week held its benchmark federal funds rate steady in a range of from 5.25 per cent to 5.5 per cent, with most policymakers anticipating one more quarter point rate increase would be needed this year.

More notably, they cut in half the pace at which the policy rate is expected to fall next year as inflation slows, with officials projecting only half a point of rate cuts next year versus the full percentage point reduction anticipated as of June.

“It spreads the pain around to a new level,” said Sam Fiorani, vice-president of global vehicle forecasting at AutoForecast Solutions.

The addition of distribution centres increase the chance of disrupting the supply chain and affecting Canadian parts suppliers, he said.

“As the days go by, parts suppliers are more and more hampered, and it gets worse as the parts suppliers themselves are smaller. So the smaller tier two and tier three suppliers will really get hurt.”

Canadian companies operating in the U.S. have already been affected by the strike.

Aurora, Ont.-based Magna International Inc. confirmed that LM Manufacturing, a joint venture they own 49 per cent of, has temporarily laid off about 650 employees because the plant supplies seats to a Ford Bronco plant that has been shut down.

Ford however was spared from the expanded strike on Friday as UAW president Shawn Fain says the union has had progress in negotiations with the company.

In Canada, Ford averted a strike by reaching a tentative deal with Unifor on Tuesday that members will vote on this weekend with results expected on Sunday.

Unifor national president Lana Payne said the agreement, expected to set a blueprint for contract negotiations with GM and Stellantis, addresses key issues such as wages, pensions and the electric vehicle transition.

Monday September 25

(8:30 a.m. ET) U.S. Chicago Fed National Activity Index for August.

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

Earnings include: Thor Industries Inc.

—

Tuesday September 26

(8:30 a.m. ET) Canadian manufacturing sales for August.

(9 a.m. ET) U.S. S&P CoreLogic Case-Shiller Home Price Index for July. The Street is projecting an increase of 0.6 per cent from June and down 0.2 per cent year-over-year.

(9 a.m. ET) U.S. FHFA House Price Index for July. Consensus is a month-over-month rise of 0.5 per cent and a year-over-year increase of 3.9 per cent.

(10 a.m. ET) U.S. new home sales for August. Consensus is an annualized rate slide of 2.0 per cent.

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

Earnings include: Aurora Cannabis Inc.; Cintas Corp.; Costco Wholesale Corp.; Ferguson PLC

—

Wednesday September 27

China industrial profits and current account balance

Japan machine tool order and minutes from Bank of Japan’s July 27-28 meeting

Germany consumer confidence

(8:30 a.m. ET) U.S. durable goods orders for August. The Street expects a decline of 0.4 per cent from July with core orders rising from 0.1 per cent.

Earnings include: AGF Management Ltd.; Micron Technology Inc.; Paychex Inc.

—

Thursday September 28

Euro zone economic and consumer confidence

Germany consumer prices

ECB Economic Bulletin is released

(8:30 a.m. ET) Canada’s Survey of Employment, Payrolls and Hours for July.

(8:30 a.m. ET) U.S. initial jobless claims for week of Sept. 23. Estimate is 218,000, up 17,000 from the previous week.

(8:30 a.m. ET) U.S. real GDP for Q2. Consensus is an annualized rate increase of 2.4 per cent.

(8:30 a.m. ET) U.S. corporate profits for Q2. Estimate is a year-over-year decline of 6.5 per cent.

(10 a.m. ET) U.S. pending home sales for August. Consensus is a rise of 0.3 per cent from July.

(4 p.m. ET) U.S. Fed Chair Jerome Powell hosts a town hall with educators in Washington.

Earnings include: Accenture PLC; Blackberry Ltd.; Carnival Corp.; Nike Inc.; SolGold PLC.

—

Friday September 29

China markets closed

Japan jobless rate, retail sales and industrial production

Euro zone CPI

Germany retail sales and unemployment

(8:30 a.m. ET) Canada’s monthly real GDP for July. The Street expects a month-over-month increase of 0.1 per cent.

(8:30 a.m. ET) U.S. personal spending and income for August. Consensus is month-over-month rises of 0.4 per cent and 0.5 per cent, respectively.

(8:30 a.m. ET) U.S. core PCE Price Index for August. Consensus is a rise of 0.2 per cent from July and up 3.9 per cent year-over-year.

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

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

(10 a.m. ET) U.S. University of Michigan consumer sentiment index for September.

 Published: 9/22/2023 3:24 PM ET

Oil prices briefly fell into the red a little past noon on Friday, but recovered swiftly to end the day’s session on a firm note.

Russia’s decision to impose a temporary ban on diesel and gasoline exports supported oil prices, reversing a recent downside movement in crude markets following hawkish comments on interest rates from the Federal Reserve and other central banks.

West Texas Intermediate Crude oil futures for November settled with a loss of $0.40 or about 0.5% at $90.03 a barrel.

WTI crude futures shed 0.6% in the week, the first weekly loss in four weeks.

Brent crude futures settled at $93.27 a barrel.

“There is no escaping how tight the oil market is. Everything you need to know about oil starts with the supply side. The latest bullish driver was Russia’s fuel export ban and that is still overshadowing another set of weak European PMIs. The crude demand outlook is going to start to look a lot weaker in the US, but the physical tightness is so extreme that we should still see $100 oil in the next month or two,” says Edward Moya, Senior Market Analyst at OANDA.

Data released by Baker Hughes said the oil and gas rig count fell by 11 to 630 in the week to September 22. The total rig count has dropped by 134 rigs of 18% from the level seen this time last year.

The oil rig count fell by eight to 507 this week, the lowest since February 2022, while gas rigs dropped by three to 118.

Canada’s main stock index fell for a fifth straight day on Friday as investors worried that borrowing costs would stay elevated for an extended period and waited for a more seasonally friendly month to step back into the market. Wall Street see-sawed to a lower close as well, capping a tumultuous week during which benchmark Treasury yields hit 16-year highs and investors digested the Federal Reserve’s hawkish outlook revisions.

The Toronto Stock Exchange’s S&P/TSX composite index ended down 11.65 points, or 0.1%, at 19,779.97, its lowest closing level since Aug. 24. For the week, it lost 4.1%, its biggest weekly decline since September 2022.

All three major U.S. stock indexes oscillated for much of the session but ended red. All three posted weekly losses, with the S&P 500 and the Nasdaq registering their largest Friday-to-Friday percentage drops since March.

On Thursday, the S&P 500 dipped below its 100-day moving average – a key support level – for the first time since March. Its failure to break above that level suggests the index is still under downward pressure.

“This week is about some Fed messaging colliding with overly optimistic equity investors,” said Zachary Hill, head of portfolio management at Horizon Investments in Charlotte, North Carolina.

Hill added that investors have “wanted to trade peak interest rates for almost a year now.” But he said it was clear in remarks this week by Fed Chair Jerome Powell “and in the dot plot that the Fed doesn’t think we’re there yet.”

“This week’s stock action has been about digesting that reality.”

Benchmark U.S. Treasury yields retreated from 16-year highs as investors turned their focus from hawkish Fed guidance to key economic data waiting in the wings.

Investors were still digesting the Fed’s decision to let its key interest rate stand, but update its quarterly Summary Economic Projections to suggest restrictive monetary policy will remain in place longer than previously anticipated.

On Friday, remarks from Fed Governor Michelle Bowman supported the FOMC hawks, suggesting the Fed funds target rate should be raised further and held “at a restrictive level for some time” to bring inflation down to the central bank’s 2% target.

“There are a lot of factors working against a soft landing and that’s something the Fed needs to be reminded of, because pushing rates higher could push us into recession,” said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut.

The Bank of Canada is also expected to leave interest rates at elevated levels for longer than previously thought after domestic data on Tuesday showed that inflation was hotter than expected in August.

The Toronto market’s materials sector, which includes precious and base metals miners and fertilizer companies, declined 0.5% on Friday. Heavily-weighted financials were also a drag, falling 0.3%.

September has historically been the worst month for stocks.

“I see the seasonally weaker parts as a time to increase your cash weighting somewhat and then deploy it when you get deeper into the month of September,” said Stan Wong, a portfolio manager at Scotia Wealth Management.

The Dow Jones Industrial Average fell 106.58 points, or 0.31%, to 33,963.84, the S&P 500 lost 9.94 points, or 0.23%, to 4,320.06 and the Nasdaq Composite dropped 12.18 points, or 0.09%, to 13,211.81.

Among the 11 major sectors of the S&P 500, consumer discretionary suffered the steepest percentage loss, while tech and energy were the only gainers.

Ford Motor Co gained 1.9% after the striking United Auto Workers union reported progress in talks with the automaker.

Activision Blizzard added 1.7% in the wake Britain’s antitrust regulator’s statement that Microsoft Corp’s restructured $69 billion acquisition of the company by “opens the door” to the biggest-ever gaming deal being cleared.

U.S.-listed shares of Chinese firms including PDD Holdings, JD.com, Li Auto and Baidu rose between 2% and 4% on signs of an economic a rebound, while Alibaba jumped 5.0% after Bloomberg reported that report the company’s logistics arm Cainiao was planning to file for a Hong Kong IPO as soon as next week.

Declining issues outnumbered advancing ones on the NYSE by a 1.12-to-1 ratio; on Nasdaq, a 1.29-to-1 ratio favored decliners. The S&P 500 posted one new 52-week high and 35 new lows; the Nasdaq Composite recorded 33 new highs and 321 new lows. Volume on U.S. exchanges was 9.47 billion shares, compared with the 10.09 billion average for the full session over the last 20 trading days.

Reuters, Globe staff