Loblaw hikes supply chain charges for its suppliers as transportation costs rise
Loblaw Companies Ltd. L-T -1.38%decrease is raising the supply chain handling fees it charges suppliers of its grocery and drugstores.
In a letter to suppliers dated Oct. 3, the company says it experienced significant year-over-year increases in many of its supply chain costs, including higher “cartage” or freight costs.
Loblaw says its fees will go up Jan. 1, 2023, with distribution centre delivery charges increasing to 1.17 per cent and direct-to-store delivery charges rising to 0.36 per cent.
Sylvain Charlebois, Dalhousie University professor of food distribution and policy, says the notice is an example of a unilateral decision made by grocers to increase fees and get suppliers to financially support their operations.
He says sometimes the higher fees and charges are warranted, and sometime they aren’t, and says this points to why the grocery industry needs a code of conduct.
In a progress report in July, an industry committee set up to establish a grocery code of conduct said it made significant progress but may require government intervention if it fails to resolve the outstanding matters by November.
Loblaw vice-president of communication Catherine Thomas says at this time of year, the company advises its suppliers of fees to move goods through its network for the following year.
“This includes situations where we pick up, ship and deliver their goods for them,” she said in an emailed statement.
“Our costs for handling this business have gone up and consequently we are notifying suppliers of some adjustments to the fees, if they choose to use these services.”
Inflation: 6.9%, mainly Food Inflation. Bank of Canada to raise interest rates next week
Wednesday’s Canadian inflation report left little doubt short-term interest rates in this country will continue to go up – and money markets are now reflecting better odds of a 75 basis point hike by the Bank of Canada at its next policy meeting than 50 basis points. Some economists have also changed their forecasts, believing a 75 bps hike is on the way.
While the annual inflation rate inched down to 6.9% in September from August’s 7%, the third consecutive monthly deceleration, that was still higher than the average economist forecast of 6.8%.
When excluding food and energy, prices rose 5.4% from a rise of 5.3% in August. On the month, Canada’s consumer price index rose 0.1%, slightly ahead of forecasts that it would remain flat. Lower prices at the gas pump offset another 41-year high in food costs.
Money markets are now pricing in a 67% likelihood of a 75 basis point hike by the Bank of Canada at its Oct. 26 policy rate decision, up from about 30% prior to the data. The policy rate is seen peaking between 4.25% and 4.50% early next year, according to Refinitiv Eikon data. It now stands at 3.25%.
The Canadian dollar only rose modestly following the 830 am (ET) inflation data but the Canadian bond market reacted immediately: the 2-year government of Canada bond yield rose to 4.18% – up about 10 basis points from prior to the data. The closely watched 5-year bond yield, influential on the setting of fixed mortgage rates, is up about 13 basis points to 3.639%. That’s just below a multiyear high of 3.693% hit earlier this month.
Here’s how economists and market strategists are reacting to the inflation report:
Douglas Porter, Chief Economist, BMO Capital Markets:
Bluntly, inflation did not ease as much as anticipated last month, even as gasoline costs took a big step back. Underlying inflation remains extremely persistent and sticky at above 5%. Combined with the BOC’s recent tough rhetoric, the recent weakness in the Canadian dollar, and the strong likelihood that the Fed hikes by 75 bps at the next FOMC, we are now expecting a like-sized 75 bp hike next week from the Bank. This would take the overnight rate to 4.0%, and we suspect that will not be the end of it—pencilling in a 25 bp move in December.
Stephen Brown, Senior Canada Economist, Capital Economists:
The Bank’s core CPI inflation measures were unchanged in September but, given that we expected a decline due to more favourable base effects, that probably increases the odds of another 75bp hike next week, particularly when households near-terms inflation expectations have risen further.
The monthly acceleration in non-food and energy prices, together with the unchanged annual rates of CPI-median, CPI-trim and CPI-common, means that the Bank is still yet to see “clear evidence that underlying inflation has come down”, as Macklem stressed in his speech earlier this month. With Macklem also warning us about elevated consumer inflation expectations, and the data this week showing that housing starts in the apparently interest rate-sensitive construction sector surged in September, the data this week lead us to think that the Bank is likely to press on with a 75 bp hike next week, rather than drop down to a 50 bp move.
Karyne Charbonneau, executive director, Economics, CIBC Capital Markets:
There will be some long faces at the Bank of Canada this morning as inflation cooled less than in expected. Unadjusted headline CPI increased 0.1% in September, with the annual rate easing only one tick to 6.9% (consensus -0.1%, 6.7% y/y). This is the third consecutive deceleration in headline CPI driven mainly by the fall in gasoline prices. Given that those prices have since reversed, the next month could see headline inflation temporarily heading in the wrong direction again. Meanwhile, food prices continued to rise at a historic pace. But that is not the main focus for the Bank of Canada, who is paying closer attention to core inflation. CPI excluding food and energy rose by 0.4% seasonally adjusted on the month, faster than last month and a pace too high to be consistent with the 2% target, but still an improvement from earlier in the summer.
The Bank of Canada has clearly not slayed the inflation dragon yet and is therefore set for another large rate hike next week. The pace of growth in seasonally adjusted inflation excluding food and energy picked up by more than expected this month and is too high for comfort. As such, we now believe the Bank will need to go with a 75 bps hike next week rather than the 50 bps we previously anticipated. The Bank might then be left with a last 25 bps in December if growth numbers support it.
Matthieu Arseneau and Alexandra Ducharme of National Bank Financial:
September’s inflation data was disappointing. Indeed, after a welcomed calm in August, price growth picked up in September. Economists were expecting gasoline prices to fall, but did not foresee the dramatic jump in food prices. Let’s hope that rumors of a price war among major grocery chain will contribute to calm down this critical expenditure for Canadians. Housing was also a major contributor to price increases this month, with mortgage interest cost rising by 2.5%, the largest increase since 1971. Since the central bank is responsible for this development, it is interesting to note that this component increased monthly headline inflation by roughly 0.1%. Nevertheless, gains were widespread in September as evidenced by CPI-Median and CPI-Trim increasing 0.27% and 0.35%, a pace that, when annualized, stands above the Bank of Canada’s target range.
It turns out that we must not be overly influenced by the volatile monthly movements and perhaps look at the recent trend which remains encouraging for the Bank of Canada. Back in July, Bank of Canada expectations for Q3 headline annual inflation was at 8.0%, it finally came out 8 ticks lower (7.2%). There is also downside risk to the 2.0% annualized growth the central bank was expected for the quarter given the evolution of the economy since then. Those positive developments on the inflation front and on the pace of the economy which has moderated significantly suggest less acute price pressures in the coming months and that monetary tightening could be less aggressive than it is south of the border.
Leslie Preston, Managing Director & Senior Economist, TD Economics:
It is great that headline inflation took a small step in the right direction in September, but underlying inflation pressures in core measures showed no signs of cooling down. The BoC has hiked interest rates 300 basis points so far this year, and the impact of that is starting to be felt in the economy, from housing to consumer spending. But, with the Bank of Canada’s (BoC) core measures of inflation more than 2 percentage points from the target range of 1-3%, more cooling in demand is required. Today’s report emphasizes the need for a hefty 50 basis point hike next week in the BoC’s overnight rate. We expect the bank is getting closer to a pause on rate hikes, once it reaches 4% by the end of the year.
Biden to announce release of up to 15 million barrels of oil from Strategic Petroleum Reserve
President Joe Biden will announce the release of up to 15 million more barrels of oil from the Strategic Petroleum Reserve, sources familiar with the plan told CNBC.
The move aims to extend the current SPR delivery program through December.
An EU embargo on Russian oil is scheduled to go into effect on Dec. 5.
Oil prices rise as investors seek riskier assets and on China demand outlook
Oil prices climbed on Wednesday, paring losses from the previous session, as investors jumped into riskier assets such as commodities amid gains in broader equity markets and on signs of renewed demand from top oil importer China.
Brent crude futures for December settlement rose 22 cents, or 0.2%, to $90.25 a barrel by 0620 GMT.
U.S. West Texas Intermediate crude for November delivery was at $83.50 a barrel, up 68 cents, or 0.8%.
Gold dips as steady U.S. dollar, looming rate hikes dim appeal
Gold inched lower on Wednesday as the dollar gained some ground, while the U.S. Federal Reserve’s commitment to tightening its monetary policy also weighed on zero-yield bullion’s appeal.
Spot gold was down 0.1% at $1,650.02 per ounce, as of 0317 GMT, while U.S. gold futures were flat at $1,654.80.
While gold is generally seen as a hedge against inflation, higher interest rates increase the opportunity cost of holding non-yielding bullion.
Canada’s main stock index opened higher Tuesday, adding to the previous session’s advance. On Wall Street, key indexes were also up in early trading on the back of positive earnings from Goldman Sachs and Johnson & Johnson.
At 9:31 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 275.83 points, or 1.48 per cent, at 18,896.85.
The Dow Jones Industrial Average rose 511.7 points, or 1.70 per cent, at the open to 30,697.52. The S&P 500 rose 68.3 points, or 1.86 per cent, at the open to 3,746.26, while the Nasdaq Composite rose 288.2 points, or 2.70 per cent, to 10,963.98 at the opening bell.
“Earnings remain the focus across corporate America while simmering concerns about the path of the Fed and the lack of a pivot from the hawkish stance takes a back seat for now,” Stephen Innes, managing partner with SPI Asset Management, said.
“Expectations are low for this earning season, with many challenges, the hawkish Fed notwithstanding.”
On Monday, sentiment got a lift from better-than-forecast results from Bank of America. Goldman Sachs reports on Tuesday morning. After the bell, markets will get results from Netflix.
Ahead of the start of trading, Goldman said profit applicable to common shareholders fell to US$2.96-billion, or US$8.25 per share, in the quarter ended Sept. 30, from US$5.28-billion, or US$14.93 per share, a year ago. Analysts had expected a profit of US$7.69 per share in the most recent quarter. Shares were up more than 4 per cent in early trading in New York.
“For Q3, Netflix said it hoped to start adding back subscribers, with hopes that they will see growth of 1 million, reversing the decline in Q2,” Michael Hewson, chief market analyst with CMC Markets U.K., said in a note. “For Q3 revenue forecasts were lower than expected at $7.84-billion, although it’s still a 4.7-per-cent increase on the same quarter a year ago.”
In this country, investors got September housing starts before the start of trading. Canada Mortgage and Housing Corp. says the seasonally adjusted annual rate of housing starts for September was 299,589 units, up 11 per cent from 270,397 in August. The increase came as the annual pace of urban starts rose 12 per cent to 276,142 in September.
Overseas, the pan-European STOXX 600 was up 1.13 per cent by midday. Britain’s FTSE 100 rose 1.28 per cent. Markets got a boost at the start of the week after Britain’s new finance minister reversed most of the tax cuts announced just weeks earlier, easing concerns about funding the measures.
Germany’s DAX added 1.79 per cent. France’s CAC 40 was up 1.53 per cent In Asia, Japan’s Nikkei ended up 1.42 per cent. Hong Kong’s Hang Seng rose 1.82 per cent.
Commodities
Crude prices wavered in early going, with a softer U.S. dollar being offset by continued concerns about demand in China amid measures to control the spread of COVID-19.
The day range on Brent was US$91.35 to US$92.66 in the early premarket period. The range on West Texas Intermediate was US$85 to US$86.51.
“It’s been another turbulent few weeks in oil markets from global growth concerns to super-sized OPEC+ output cuts and it seems they’re yet to fully settle down,” OANDA senior analyst Craig Erlam said.
“Brent has seen lows of US$82 and highs of US$98 so perhaps what we’re now seeing is it finding its feet somewhere in the middle. Whether that will satisfy the oil alliance only time will tell but there will be some relief that it’s not back in triple figures already, even if that is a result of the ever-worsening economic outlook.”
Crude drew some support early Tuesday from a softer U.S. dollar. The U.S. dollar index, which weighs the greenback against a group of world currencies, fell to its lowest since Oct. 6. A weaker dollar makes crude less expensive for buyers holding other currencies.
Elsewhere, traders continue to watch developments in China, where the government continues with measures aimed at curbing the spread of COVID-19.
Later Tuesday, markets will get the first of two weekly U.S. crude inventory reports with the release of fresh numbers from the American Petroleum Institute. More officials figures follow Wednesday morning from the U.S. Energy Information Administration.
Analysts polled by Reuters are expect to see a weekly increase in crude inventories of about 1.6 million barrels for the week of ended Oct. 14.
Gold prices, meanwhile, were up, also supported by a weaker U.S. dollar.
Spot gold rose 0.2 per cent to US$1,653.31 per ounce by early Tuesday morning.
U.S. gold futures were down 0.3 per cent at US$1,658.50.
Currencies
The Canadian dollar was lower while its U.S. counterpart took a breather against a basket of world currencies.
The day range on the loonie was 72.69 US cents to 73.22 US cents in the predawn period.
“The CAD is under-performing on the session,” Shaun Osborne, chief FX strategist with Scotibank, said.
Traders will get fresh housing starts figures early Tuesday morning from Canada Mortgage and Housing Corp.
On world markets, the U.S. dollar index, which measures the greenback against six major peers, including sterling, the euro and the yen, was down 0.1% at 111.99, after hitting its lowest level since Oct. 6, according to figures from Reuters.
Britain’s pound, meanwhile, paused after rallying about 2 per cent on Monday on the U.K. fiscal turnaround. The pound was last down 0.1 per cent against the U.S. dollar at US$1.1340.
The euro was last up 0.1 per cent at US$0.9855.
Iamgold Corp. has signed a deal to sell its 95 per cent interest in Rosebel Gold Mines N.V. to Chinese company Zijin Mining Group Co. Ltd. for US$360-million in cash.Under the terms of the agreement, Iamgold will also be released from about US$41-million in obligations for certain equipment leases. Rosebel owns the Rosebel gold mine in Suriname and a 70 per cent participating interest in the Saramacca Mine, also located in the South American country. –The Canadian Press
Economic news
(8:15 a.m. ET) Canadian housing starts for September.
(8:30 a.m. ET) Canada’s international securities transactions for August.
(9:15 a.m. ET) U.S. industrial production for September.
(10 a.m. ET) U.S. NAHB Housing Market Index for October.
UK inflation moves back up to 40-year high as Brits battle cost-of-living crisis
U.K. inflation rose in the year to September 2022 as the country’s cost-of-living crisis continues to hammer households and businesses ahead of a tough winter.
Inflation unexpectedly dipped to 9.9% in August, down from 10.1% in July, on the back of a fuel price decline.
LONDON — The consumer price index rose 10.1% in September, according to estimates published Wednesday by the Office for National Statistics, just exceeding a consensus forecast among economists polled by Reuters.
Increasing food, transport and energy prices were the biggest contributing factors to inflation, the ONS said. Food was up 14.6% year-on-year, transport was up 10.9% compared to last year, while the price of furniture and household goods rose 10.8%.
Sterling fell against the dollar following the news, trading at $1.1289, down from $1.1330.
Xi warns against foreign interference in Taiwan, says China will ‘never promise to renounce’ force
Chinese President Xi Jinping said China reserves the option of “taking all measures necessary” against “interference by outside forces” on the issue of Taiwan.
In a wide-ranging speech Sunday, Xi spoke firmly about China’s resolve for reunification with the self-governed island, which Beijing considers part of its territory.
Xi was speaking at the opening ceremony of the ruling Communist Party of China’s 20th National Congress — held once every five years.
BEIJING — Chinese President Xi Jinping said China reserves the option of “taking all measures necessary” against “interference by outside forces” on the issue of Taiwan.
In a wide-ranging speech Sunday, Xi spoke firmly about China’s resolve for reunification with the self-governed island, which Beijing considers part of its territory.
He was speaking at the opening ceremony of the ruling Communist Party of China’s 20th National Congress, held once every five years.
“We will continue to strive for peaceful reunification with the greatest sincerity and the utmost effort,” Xi said in Chinese, according to an official translation. “But, we will never promise to renounce the use of force. And we reserve the option of taking all measures necessary.”
“This is directed solely at interference by outside forces and a few separatists seeking Taiwan independence,” he said, emphasizing that resolving the Taiwan question is a matter for the Chinese to resolve.
The drama begins at the Communist Party’s 20th National Congress, which starts Sunday. At the Congress’s first plenum, which convenes immediately after the Congress ends, the members of the new Politburo Standing Committee will be revealed as they walk from behind a curtain. Everyone expects Xi to lead the pack as ruler for the next five years. Moreover, most think he will be able to exercise essentially unrestrained power during this term.
What will Xi do with such power? Among other things, he wants to redraw the map of the world, with force if necessary. During his decade-long tenure as supremo, China has stepped up efforts to take territory from neighbors, especially India, Taiwan, Japan and the Philippines.
His ambitions extend far beyond China’s neighborhood, however. Xi is a revolutionary. He speaks in benign-sounding phrases, such as “a community of shared future for mankind.”
His words, however, cloak breathtaking ambition. As subordinates make clear, Xi has been promoting the imperial-era notion that Chinese rulers not only had the Mandate of Heaven over tianxia — “All Under Heaven” — but they also had an obligation to rule the world.
“The Chinese have always held that the world is united and all under heaven are one family,” Xi Jinping declared in his 2017 New Year’s Message.
But why stop with Planet Earth? In 2018, Chinese officials talked about the moon and Mars as sovereign Chinese territory.
Japan tertiary industry index and industrial production
(8:30 a.m. ET) Canadian construction investment for August.
(8:30 a.m. ET) Canada’s new motor vehicle sales for August. Estimate is a year-over-year decline of 12.0 per cent.
(8:30 a.m. ET) U.S. Empire State Manufacturing Survey for October.
(10:30 a.m. ET) Bank of Canada’s Outlook Survey and Survey of Consumer Expectations for Q3 is released.
(4 p.m. ET) Bank of Canada Senior Governor Carolyn Rogers speaks at the 25th anniversary event for Toronto Centre.
Earnings include: Bank of America; Bank of NY Mellon; Charles Schwab Corp. and Rio Tinto.
==
Tuesday October 18
China GDP, industrial production, retail sales and fixed asset investment
(8:15 a.m. ET) Canadian housing starts for September. The Street is expecting an annualized rate decline of 1.4 per cent.
(8:30 a.m. ET) Canada’s international securities transactions for August.
(9:15 a.m. ET) U.S. industrial production for September. Consensus is a rise of 0.1 per cent from August with capacity utilization remaining at 80.0 per cent.
(10 a.m. ET) U.S. NAHB Housing Market Index for October.
Earnings include: BHP Group Ltd. ADR; Goldman Sachs Group Inc.; Intuitive Surgical Inc.; Johnson & Johnson; Netflix Inc.; Roche Holding Ltd. ADR; Truist Financial Corp.
==
Wednesday October 19
Euro zone CPI
(8:30 a.m. ET) Canada’s CPI for September. Consensus is flat month-over-month and up 6.8 per cent year-over-year.
(8:30 a.m. ET) Canadian industrial product and raw materials price indexes for September. Estimates are month-over-month declines of 1.2 per cent and 4.3 per cent, respectively.
(8:30 a.m. ET) U.S. housing starts for September. Consensus is an annualized rate decline of 6.3 per cent.
(8:30 a.m. ET) U.S. building permits for September. The Street is expecting a 0.5-per-cent increase on an annualized rate basis.
(2 p.m. ET) U.S. Beige Book is released.
Earnings include: Abbott Laboratories; IBM; Kinder Morgan Inc.; Procter & Gamble Co.; Tesla Inc.
==
Thursday October 20
Japan trade surplus
Germany PPI
(8:30 a.m. ET) Canadian household and mortgage credit for August.
(8:30 a.m. ET) U.S. initial jobless claims for week of Oct. 15. Estimate is 235,000, up 7,000 from the previous week.
(10 a.m. ET) U.S. existing home sales for September. The Street is estimating an annualized rate decline of 2.2 per cent.
(10 a.m. ET) U.S. leading indicator for September. Estimate is a decline of 0.3 per cent from August.
Earnings include: AT&T Inc.; Blackstone Group Inc.; CSX Corp.; Danaher Corp.; Dow Inc.; Freeport-McMoRan Inc.; Mullen Group Ltd.; Nucor Corp.; Philip Morris International Inc.; Union Pacific Corp.
==
Friday October 21
Japan CPI
Euro zone consumer confidence
(8:30 a.m. ET) Canadian retail sales for August. The Street is projecting an increase of 0.1 per cent from July.
(8:30 a.m. ET) Canada’s new housing price index for September. Estimate is flat month-over-month.
(8:30 a.m. ET) Canadian wholesale trade for September.
Earnings include: American Express Co.; Schlumberger NV; Verizon Communications Inc.
