As China reopens and data surprises, economists are starting to get less gloomy
Economic Calendar: Jan 16 – Jan 20
Monday January 16
U.S. markets closed (Martin Luther King Jr. Day)
Japan machine tool orders
(8:30 a.m. ET) Canadian manufacturing sales and new orders for November. Analyst estimates are month-over-month increases of 0.5 per cent and 0.6 per cent, respectively.
(8:30 a.m. ET) Canadian construction investment for November.
(9 a.m. ET) Canada’s existing home sales and average prices for December. Estimates are year-over-year declines of 39.5 per cent and 11.5 per cent, respectively.
(9 a.m. ET) Canada’s MLS Home Price Index for December. Estimate is a year-over-year decline of 7.5 per cent.
(10:30 a.m. ET) Bank of Canada’s Business Outlook Survey and Survey of Consumer Expectations for Q4 are released.
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Tuesday January 17
China real GDP, industrial production, retail sales and fixed asset investment
Germany CPI
Bank of Japan monetary policy meeting and outlook report (through Wednesday)
(8:15 a.m. ET) Canadian housing starts for December. The Street is expecting an annualized rate drop of 2.5 per cent.
(8:30 a.m. ET) Canada’s CPI for December. Analysts expect a decline of 0.6 per cent from November but an increase of 6.3 per cent year-over-year.
(8:30 a.m. ET) Canadian international securities transactions for November.
(8:30 a.m. ET) U.S. Empire State Manufacturing Survey for January.
Earnings include: Goldman Sachs Group Inc.; Morgan Stanley; United Airlines Holdings Inc.
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Wednesday January 18
Japan core machine orders and industrial production
Euro zone CPI
(8:30 a.m. ET) Canadian industrial product and raw materials price indexes for December. Estimates are flat and a decline of 3.0 per cent month-over-month, respectively.
(8:30 a.m. ET) U.S. retail sales for December. The Street expects a decline of 0.8 per cent from November.
(8:30 a.m. ET) U.S. PPI Final Demand for December. Consensus is a month-over-month drop of 0.1 per cent but a year-over-year rise of 6.7 per cent.
(9:15 a.m. ET) U.S. industrial production for December. The Street is forecasting a 0.1 per cent decline from November with capacity utilization also falling 0.1 per cent to 79.6 per cent.
(10 a.m. ET) U.S. NAHB Housing Market Index for January.
(10 a.m. ET) U.S. business inventories for November. Consensus is an increase of 0.4 per cent from October.
(2 p.m. ET) U.S. Beige Book is released.
(4 p.m. ET) U.S. net TIC flows for November.
Earnings include: Alcoa Corp.; Charles Schwab Corp.; Discover Financial Services; Kinder Morgan Inc.; PNC Financial Services Group Inc.; Prologis Inc.
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Thursday January 19
Japan trade deficit
(8:30 a.m. ET) Canada’s wholesale trade for November. Estimate is a month-over-month increase of 0.9 per cent.
(8:30 a.m. ET) Canadian household and mortgage credit for November.
(8:30 a.m. ET) Canadian new motor vehicle sales for November. Estimate is a rise of 6.0 per cent year-over-year.
(8:30 a.m. ET) U.S. initial jobless claims for week of January 14. Estimate is 212,000, a rise of 7,000 from the previous week.
(8:30 a.m. ET) U.S. existing home sales for December. Consensus is an annualized rate decline of 4.7 per cent.
(8:30 a.m. ET) U.S. building permits for December. Consensus is an annualized rate increase of 1.4 per cent.
Earnings include: American Airlines Group; Netflix Inc.; Procter & Gamble Co.; Richelieu Hardware Ltd.; Truist Financial Corp.
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Friday January 20
Japan CPI
Germany PPI
(8:30 a.m. ET) Canadian retail sales for November. The consensus estimate is a decline of 0.6 per cent from October.
(10 a.m. ET) U.S. existing home sales for December. The Street expects an annualized rate drop of 3.4 per cent.
Earnings include: Schlumberger NV; State Street Corp.
JPMorgan tops estimates for fourth-quarter revenue, but says mild recession is now ‘central case’
https://www.cnbc.com/2023/01/13/jpmorgan-chase-jpm-earnings-4q-2022.html
Citigroup’s fourth-quarter profit declines by 21% as bank sets aside more money for credit losses
Sweden finds Europe’s largest deposit of rare earth metals, which could become ‘more important than oil and gas’
Algonquin Power cuts dividend by 40 per cent, shares slump
Algonquin Power and Utilities Corp. (AQN-T -4.62%decrease) slashed its quarterly dividend by about 40 per cent amid what the company called challenging headwinds related to rising borrowing costs and a determination to maintain its investment grade credit rating.
The share price of the Canadian-based water utility and renewable power producer fell 3.6 per cent, or 36 cents, to $9.60 in Toronto in early trading on Thursday.
The dividend reduction, which follows disappointing financial results in November and a soaring dividend yield above 10 per cent as the share price slumped, means that the quarterly payout will fall to US10.85 cents per share from US18.08 cents previously.
Based on Thursday’s share price in U.S. dollars (the shares also trade in New York), the yield will fall to 6.1 per cent.
Arun Banskota, Algonquin’s chief executive officer, called the action one of the decisive steps the company is taking in response to an economic backdrop that has driven up interest rates to multiyear highs as central banks confront rising inflation.
“We have reached an inflection point, and as the market continues to evolve we are facing various challenges that are putting pressure on our growth rates and making our dividend payout unsustainable,” Mr. Banskota said during a call with analysts.
“As a result, we are taking decisive actions to address these challenges and strengthen our financial position,” Mr. Banskota added.
The company expects that the lower dividend payout will save US$1-billion over five years. It also means that the payout ratio – which compares dividends paid to shareholders with profits – will decline from above 100 per cent to an estimated range between 71 per cent and 79 per cent, according to estimates from Bank of Nova Scotia.
Algonquin said it is committed to completing the acquisition of Kentucky Power, which the U.S. Federal Energy Regulatory Commission blocked last month.
It said it will reduce its capital expenditures by about 15 per cent and target about US$1-billion in asset sales. Also, it will end new common equity issuance for the next two years and suspend its dividend reinvestment plan, to put a brake on shareholder dilution.
“Generally speaking, we see the steps the company is taking as prudent and should help reduce uncertainty surrounding the shares, though we have questions regarding the earnings outlook,” Robert Hope, an analyst at Bank of Nova Scotia, said in a note.
Algonquin expects it can generate net earnings of US55 cents to US61 cents per share for the 2023 fiscal year, excluding the potential impact of asset sales, down from an estimated US68 cents per share in fiscal 2022.
U.S. inflation cooling as consumer prices fall; labour market still tight
U.S consumer prices fell for the first time in more than 2-1/2 years in December amid declining prices for gasoline and motor vehicles, offering hope that inflation was now on a sustained downward trend, though the labour market remains tight.
Americans also got some relief at the supermarket, with the report from the Labor Department on Thursday showing food prices posting their smallest monthly increase since March 2021. But rents remained very high and utilities were more expensive.
The report could allow the Federal Reserve to further scale back the pace of its interest rate increases next month. The U.S. central bank is engaged in its fastest rate hiking cycle since the 1980s.
“The mountain peak of inflation is behind us but the question is how steep the downhill is,” said Sung Won Sohn, finance and economics professor at Loyola Marymount University in Los Angeles. “To be sure, the efforts by the Federal Reserve have begun to bear fruit, even though it will be a while before the promised land of a 2 per cent inflation rate is here.”
The consumer price index dipped 0.1 per cent last month, the first decline since May 2020, when the economy was reeling from the first wave of COVID-19 cases. The CPI rose 0.1 per cent in November.
Economists polled by Reuters had forecast the CPI unchanged. It was third straight month that the CPI came in below expectations.
Gasoline prices tumbled 9.4 per cent after dropping 2.0 per cent in November. But the cost of natural gas increased 3.0 per cent, while electricity rose 1.0 per cent. Food prices climbed 0.3 per cent, the smallest gain since March 2021, after rising 0.5 per cent in the prior month. The cost of food consumed at home increased 0.2 per cent.
In the 12 months through December, the CPI increased 6.5 per cent. That was the smallest rise since October 2021 and followed a 7.1 per cent advance in November. The annual CPI peaked at 9.1 per cent in June, which was the biggest increase since November 1981. Inflation remains well above the Fed’s 2 per cent target.
Price pressures are subsiding as higher borrowing costs cool demand, and bottlenecks in the supply chains ease. The Fed last year raised its policy rate by 425 basis points from near zero to a 4.25 per cent-4.50 per cent range, the highest since late 2007. In December, it projected at least an additional 75 basis points of hikes in borrowing costs by the end of 2023.
Excluding the volatile food and energy components, the CPI climbed 0.3 per cent last month after rising 0.2 per cent in November. In the 12 months through December, the so-called core CPI increased 5.7 per cent after advancing 6.0 per cent in November.
U.S. stocks opened higher. The dollar fell against a basket of currencies. U.S. Treasury prices rose.
Prices for used cars and trucks fell 2.5 per cent, recording their sixth straight monthly decline. New motor vehicles slipped 0.1 per cent.
Goods prices dropped 1.1 per cent after decreasing 0.3 per cent in November as deflation in this category becomes entrenched. But services, the largest component of the CPI basket, accelerated 0.6 per cent after gaining 0.3 per cent in November.
They are being driven by sticky rents. Owners’ equivalent rent, a measure of the amount homeowners would pay to rent or would earn from renting their property, jumped 0.8 per cent after rising 0.7 per cent in November. Independent measures, however, suggest rental inflation is cooling.
The rent measures in the CPI tend to lag the independent gauges. Healthcare costs gained 0.1 per cent after two straight monthly declines. Even stripping out rental shelter, services inflation shot up 0.4 per cent after being unchanged in November.
Still, the moderation in inflation will be welcomed by Fed officials, though they will probably want to see more compelling evidence of abating prices pressures before pausing rate hikes.
The labour market, which has remained tight, will be key in this regard. The unemployment rate is back at a five-decade low of 3.5 per cent. There were 1.7 jobs for every unemployed person in November.
A separate report from the Labor Department on Thursday showed initial claims for state unemployment benefits fell 1,000 to a seasonally adjusted 205,000 for the week ended Jan. 7. Economists had forecast 215,000 claims for the latest week.
Part of the surprise drop in claims reflects challenges adjusting the data for seasonal fluctuations at the start of the year. Nevertheless, claims have remained low despite high– profile layoffs in the technology industry as well as job cuts in interest rate-sensitive sectors like finance and housing.
Economists say companies are for now reluctant to send workers home after difficulties finding labour during the pandemic. They, however, expect claims to rise by the second half of the year as higher borrowing costs choke demand and push the economy into recession.
The claims report also showed the number of people receiving benefits after an initial week of aid, a proxy for hiring, dropped 63,000 to 1.634 million in the week ending Dec. 31.
The government reported last week the economy created 223,000 jobs in December, more than double the 100,000 that economists say the Fed wants to see to be confident inflation is cooling.
Consumer prices fell 0.1% in December, in line with expectations from economists
Inflation crisis poses greatest near-term global threat, Davos survey warns