Crude oil futures settled slightly lower on Tuesday after posting gains in the previous two sessions.
Traders are awaiting the upcoming meeting of OPEC+, scheduled to take place on Sunday (November 26).
The group, which has already pledged total oil output cuts of 5.16 million barrels per day, is widely expected to extend its production cuts.
West Texas Intermediate Crude oil futures for January ended down $0.06 at $77.77 a barrel.
Traders now await weekly crude oil reports from the American Petroleum Institute (API) and U.S. Energy Information Administration (EIA). The API report is due later today, while the EIA is scheduled to release its inventory data Wednesday morning.
After ending the previous session at a 2-month high, the Canadian market turned in a weak performance on Tuesday, despite data showing a drop in consumer price inflation. Losses in consumer, utilities and healthcare sectors weighed down the market.
The benchmark S&P/TSX Composite Index ended down 136.50 points or 0.67% at 20,109.97, near the day’s low. The index touched a high of 20,259.47 in early trades.
Data from Statistics Canada showed the annual inflation rate in Canada fell to 3.1% in October of 2023 from 3.8% in the previous month. The result was softer than the Bank of Canada’s forecast that inflation is likely to remain close to 3.5% through the middle of next year.
The core inflation rate fell slightly to 2.7%, while the closely-watched trimmed-mean core rate dropped to 3.5%, compared to expectations of 3.7%. From the previous month, consumer prices edged 0.1% higher.
Consumer discretionary stocks Park Lawn Corp (PLC.TO), Brp Inc (DOO.TO), Magna International (MG.TO), Pet Valu Holding (PET.TO), Linamar Corp (LNR.TO), Aritzia Inc (ATZ.TO), Mty Food Group (MTY.TO) and Canada Goose Holdings (GOOS.TO) lost 2 to 4.1%.
In the consumer staples section, Weston George (WN.TO) tumbled 5.6% after reporting a sharp drop in third quarter net earnings. Maple Leaf Foods (MFI.TO) drifted down 4.4%.
Healthcare stocks Sienna Senior Living (SIA.TO), Bausch Health Companies (BHC.TO) and Tilray Inc (TLRY.TO) lost 1.6 to 2%, while Chartwell Retirement Residences (CSH.UN.TO) ended 1.28% down.
Among the stocks in the Utilities index, Transalta Corp (TA.TO) and Capital Power Corp (CPX.TO) both ended down 6.4%. Innergex Renewable Energy (INE.TO) ended 2.35% down, and Atco Ltd (ACO.X.TO) drifted down 2.25%.
New home prices in Canada fell by 0.8% from the previous year in October, following a 1% drop in September and marking the seventh consecutive decrease since November 2019, data from Statistics Canada showed.
New home prices in Canada remained unchanged month-on-month in October 2023, following a 0.2% drop in September and in line with market forecasts.
Despite the dollar’s weakness amid easing concerns about interest rates, gold futures failed to hold early gains and settled lower on Friday.
The dollar index dropped to 103.95, losing nearly 0.4%, amid speculation the Federal Reserve might announce a rate cut in the first half of 2024.
Data showing softer than expected increase in inflation has reinforced investors’ expectations that the Federal Reserve will refrain from raising interest rates over the next several months before cutting rates in mid-2024.
The Fed’s next monetary policy meeting is scheduled for December 12-13, with CME Group’s FedWatch Tool currently indicating a 99.8% chance the central bank will leave rates unchanged.
Still, some economists are of the view that the central bank will maintain a somewhat hawkish tone to avoid the appearance of declaring victory over inflation too soon.
Gold futures for December ended down $2.60 at $1,984.70 an ounce, off the day’s high of $1,996.40. Gold futures gained more than 2% in the week, their first weekly gain in three weeks.
Silver futures for December ended lower by $0.081 at $23.852 an ounce, while Copper futures for December settled at $3.7385 per pound, gaining $0.0360.
In U.S. economic news today, a report from the Commerce Department said housing starts in the U.S. jumped by 1.9% to an annual rate of 1.372 million in October after surging by 3.1% to a downwardly revised rate of 1.346 million in September.
Economists had expected housing starts to dip to a rate of 1.350 million from the 1.358 million originally reported for the previous month.
The Commerce Department said building permits also shot up by 1.1% to an annual rate of 1.487 million in October after plunging by 4.5% to a revised rate of 1.471 million in September.
Building permits, an indicator of future housing demand, were expected to decrease to a rate of 1.450 million from the 1.475 million originally reported for the previous month.
Crude oil futures ended sharply higher on Friday, but the most active futures contract still posted its fourth straight weekly loss amid concerns about the outlook for near term energy demand.
West Texas Intermediate Crude oil futures for December ended higher by $2.99 or about 4.1% at $75.89 a barrel. WTI crude futures shed about 4% in the week.
Brent crude futures surged nearly 4% to 80.47 a barrel.
Crude oil saw some weak spells this week due to a sharp rise in U.S. crude stockpiles over the last couple of weeks, and concerns about the outlook for energy demand due to weak economic data from the U.S., Europe and Asia.
Meanwhile, a report released by Baker Hughes this afternoon showed the rig count in the U.S. rose by 6 to 500 this week.
The focus now is on the OPEC meeting, scheduled to take place on November 26. Traders are waiting to see if Saudi Arabia and Russia will consider rolling over their voluntary supply cuts into 2024.
Some reports indicate OPEC+ may deepen its production cuts to provide additional support to the market.
The Canadian dollar CADUSD +0.26%increase weakened against its U.S. counterpart on Thursday, giving back some recent gains, as oil prices tumbled and the rally in equity markets lost some momentum.
The loonie was trading 0.6 per cent lower at 1.3765 to the greenback, or 72.65 U.S. cents after moving in a range of 1.3678 to 1.3776. On Wednesday, it touched its strongest intraday level since Nov. 6 at 1.3652.
“The loonie is falling on weaker oil and a paring back on risk sentiment,” said Amo Sahota, director at Klarity FX in San Francisco. “The former is the key driver today.”
The price of oil, one of Canada’s major exports, dropped to its lowest level since July 7 as investors worried about global demand following weak data from the U.S. and Asia. U.S. crude oil futures settled 4.9 per cent lower at $72.90 a barrel.
Wall Street’s main indexes edged lower after some disappointing earnings forecasts and data showing U.S. weekly jobless claims rising more than expected, but a drop in U.S. Treasury yields kept the decline in stocks in check.
Domestic data showed that housing starts unexpectedly rose in October, climbing 1 per cent compared with the previous month.
Canadian government bond yields fell across the curve, tracking moves in U.S. Treasuries. The 10-year touched its lowest level since Sept. 14 at 3.662 per cent before recovering to 3.692 per cent, down 6 basis points on the day.
(8:30 a.m. ET) Canadian construction investment for September.
(10 a.m. ET) U.S. leading indicator for October. Analysts on the Street are projecting a decline of 0.6 per cent from September.
Earnings include: Agilent Technologies Inc.
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Tuesday November 21
(8:30 a.m. ET) Canada’s CPI for October. The Street is projecting an increase of 0.2 per cent from September and up 3.2 per cent year-over-year.
(8:30 a.m. ET) Canada’s new housing price index for October. Estimate is a decline of 0.2 per cent from September and a 1.0-per-cent drop year-over-year.
(10 a.m. ET) U.S. existing home sales for October. Consensus is an annualized rate decline of 1.5 per cent.
(2 p.m. ET) U.S. Fed minutes from Oct. 31- Nov. 1 meeting released
Also: Canada’s Federal Fall Economic Statement
Earnings include: Analog Devices Inc.; Autodesk Inc.; Dell Technologies Inc.; George Weston Ltd.; HP Inc.; Lowe’s Companies Inc.; Medtronic PLC; Nvidia Corp.; Zoom Video Communications Inc.
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Wednesday November 22
Euro zone consumer confidence
(8:30 a.m. ET) U.S. initial jobless claims for week of Nov. 18. Estimate is 229,000, down 2,000 from the previous week.
(8:30 a.m. ET) U.S. durable and core goods orders for October.
(10 a.m. ET) U.S. University of Michigan Consumer Sentiment Index for November.
(11:30 a.m. ET) Bank of Canada Governor Tiff Macklem speaks at the Saint John Region Chamber of Commerce in New Brunswick.
Earnings include: Deere & Co.
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Thursday November 23
U.S. markets closed (Thanksgiving)
Japan’s markets closed
Euro zone PMI
(8:30 a.m. ET) Canada’s wholesale trade for October.
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Friday November 24
U.S. markets close at 1 p.m. ET
Japan CPI and PMI
Germany GDP and business climate
(8:30 a.m. ET) Canadian retail sales for September. Consensus is flat month-over-month and down 0.3 per cent year-over-year.
(8:30 a.m. ET) Canada’s manufacturing sales for October.
The Canadian market ended flat on Thursday after moving in a tight band in cautious trade amid lingering concerns about global economic slowdown.
Some none too encouraging quarterly earnings and revenue guidance from top U.S. companies also weighed on sentiment.
The benchmark S&P/TSX Composite Index ended down 4.82 points or 0.02% at 20,053.07, after five successive days of gains.
Energy and healthcare stocks declined. Materials and industrials shares found fairly good support. A few stocks from consumer staples and technology sectors also posted notable gains.
The Health Care Caped Index dropped 2.22%. Bausch Health Companies (BHC.TO) and Tilray Inc (TLRY.TO) ended down 4.8% and 4%, respectively.
Energy stocks fell as oil prices tumbled nearly 5%. Birchcliff Energy (BIR.TO) and MEG Energy (MEG.TO) ended down 5.2% and 4.5%, respectively. Nuvista Energy (NVA.TO), International Petroleum Corp (IPCO.TO), Baytex Energy (BTE.TO), Crescent Point Energy (CPG.TO), Suncor Energy (SU.TO), Cenovus Energy (CVE.TO), Paramount Resources (POU.TO) and Precision Drilling Corp (PD.TO) ended lower by 1.9 to 3%.
Materials stocks Fortuna Silver Mines (FVI.TO), Oceanagold Corp (OGC.TO), Torex Gold Resources (TXG.TO), Endeavour Silver Corp (EDR.TO) and Eldorado Gold (ELD.TO) ended higher by 4.7 to 5.4%. Wheaton Precious Metals (WPM.TO), Kinross Gold (K.TO), Equinox Gold Corp (EQX.TO) and Pan American Silver Corp (PAAS.TO) also moved up sharply.
Industrials sector shares Thomson Reuters (TRI.TO) and Snc-Lavalin Group (ATRL.TO) gained 3.1% and 2.1%, respectively.
In Canadian economic news, housing starts in Canada edged up by 1% over a month earlier to 274,700 units in October 2023, above market expectations of 252,900 units, according to the Canada Mortgage and Housing Corporation.
Oil prices edged lower on Thursday after data showed a sharp increase in U.S. crude stockpiles and a significant jump in crude production.
Investors also fretted about prolonged weakness in China’s property sector and its likely impact on fuel demand.
Benchmark Brent crude futures dipped 0.7 percent to $80.63 a barrel while WTI crude futures were down half a percent at $76.26.
According to the data released by the U.S. Energy Information Administration (EIA), crude stockpiles in the U.S. increased by 17.5 million barrels in the last two weeks. Crude stocks rose by 3.6 million barrels last week to 421.9 million barrels, twice the expected increase.
The EIA data also showed U.S. crude production was at a record 13.2 million barrels per day.
Additionally, China demand concerns weighed after data showed home prices in the country fell the most in eight years in October due to weak demand.
Japan’s export growth slowed in October and China’s new home prices fell for the fourth straight month, rekindling worries about slowing global growth.
The dollar held its ground in European trade after seeing sharp declines in the previous two sessions.
Has Benj lost it? Has he become a traitor after over 45 years of investing? Please do not come to that conclusion as he carefully considers whether he should buy shares in Bank of Nova Scotia (BNS-T +0.51%increase).
Gallander got to know the institution well while pursuing his MBA degree at Dalhousie University, not so long after graduating from the University of Western Ontario. His thesis, done with four other students in 1983, was written when Canadian banks were having nightmares, primarily because of loans to what were then called “third world countries.”
The banks, in their zeal, were lending money to poor nations in their attempts to achieve higher rates of return. When the borrowers had difficulty paying back the loans, huge writedowns resulted. Fat bottom lines morphed into steep losses for the banks as the risk had not been adequately calibrated. Ultimately, of course, they pulled through, but not without considerable pain.
Currently bank share prices are taking another beatdown, with all of Canada’s majors losing a piece of their value. As a large percentage of Canadians are invested in this sector – either directly, through ETFs and mutual funds, or pensions – their net worth has been falling. Not attractive, to be sure. But for investors who do not need the money, the best thing to do, at least from this angle, is stay the course and be patient, as capital appreciation is likely and Canadian banks rarely reduce dividends.
However, here’s a suggestion: To dramatically reduce risks and solidify the Canadian economy, it is time the banks put the brakes on increasing dividends and, instead, pay down their obligations. This could be done by buying back preferred shares, of which each bank has many, and taking them out of circulation, thereby reducing the future dividends that need to be paid and ultimately fattening the banks’ bottom lines.
Will the federal government mandate something like this to help ensure the stability of the Canadian financial system? The odds are almost zero. Ottawa generally only acts after it is clear that a major problem exists. And as often happens, things often seem tickety-boo until they aren’t. Looking overseas, many people are asking why the Swiss government did not get involved with Credit Suisse before the bank was in such dire straits.
Given the recent slide in BNS’s share price to below $60, Benj is considering buying the common shares. Though the upside is far less than he normally targets when buying stocks – 100 per cent plus is the norm – an initial sell north of $80 seems reasonable. That would offer a handsome return from the current price, with dividends to boot.
We’re monitoring the valuation of BNS closely with the possibility that the stock is facing some tax-loss selling before the end of the year, which could drop its price further. In addition, the bank’s bottom line will be dinged by about $590-million, or 49 cents per share, owing to layoffs, consolidation of real estate and contract costs and a $280-million impairment charge owing to the investment in Bank of Xi’an. Less savvy investors might conclude that these one-off charges will continue to affect the bottom line.
They won’t, as they are one-offs. BNS is scheduled to announce its fiscal fourth-quarter and year-end results on Nov. 28.
A primary reason that this BNS share purchase is being deliberated is because of that old bugaboo, the stages of life. Yes, it is hard for Benj to believe and accept that he is now a senior, as he prefers to remember the teenaged lad trying out for four Major League Baseball teams.
Still, even with the passage of decades, he continues to practice his same old contrarian investment techniques, with minor modifications, but he’s also ratcheting up his eye on very secure corporations that pay handsome dividends, with an excellent possibility of capital appreciation. The transition will not be swift or dramatic but, as he loves to say when speaking in public, “Dividends allow me to be stupid longer.” If they are being received, at least there is some return on the outlay, while waiting for capital growth.
Benj has no time frame to achieve the $80-plus share price. He will simply sit back and clip the dividend coupons that are north of 7 per cent and enjoy their preferred tax status if he does indeed buy the shares. It might all seem quite boring, but dull can be good when investing.
Benj Gallander and Ben Stadelmann are co-editors of Contra the Heard Investment Letter.
