Category: Uncategorized

Before the Bell: Sept 23

Equities

Wall Street futures were down early Friday with all three main indexes facing weekly losses as concerns over higher interest rates and a weaker global economy rattle markets. Major European markets were also weaker in morning trading. TSX futures were negative.

In the early premarket period, Dow, S&P and Nasdaq futures were all underwater. All three saw losses during a choppy session Thursday and are now on track for weekly declines. Heading into Friday’s session, the Dow is off more than 2 per cent for the week while the S&P and Nasdaq are both down more than 3 per cent. The S&P/TSX composite index ended down nearly 1 per cent on Thursday, its weakest closing level since July 26.

“The prospect of much more [monetary policy] tightening and a recession weighs on sentiment,” OANDA senior analyst Craig Erlam said.

“The last 48 hours have seen central banks around the world aggressively tightening as they continue their fight against high inflation.”

The Federal Reserve hiked rates by three-quarters of a percentage point this week, as expected, but also struck a more hawkish stand on future moves. Other global central banks, including the Bank of England, followed suit through the week, also raising key policy rates.

In this country, investors will get a fresh reading on Canadian retail sales before the start of trading.

“RBC Economics expects Canadian retail sales to have declined 2 per cent in July, in line with Statcan’s preliminary estimate,” Elsa Lignos, global head of FX strategy for RBC, said in a note.

“That’s due to lower sales at gasoline stations. Sales for other goods have stayed mostly flat through the month, according to our own tracking of RBC spending data.”

Friday’s analyst upgrades and downgrades

On Wall Street, shares of retailer Costco were down more than 1 per cent in premarket trading after the company topped analysts’ estimates in the latest quarter but also reported gross margins were hit by higher freight and labour costs. Excluding one-time items, Costco earned US$4.20 per share, beating estimates of US$4.17 per share. The company’s gross margin on a reported basis came in at 10.18 per cent, compared to 10.92 per cent, a year earlier.

Overseas, the pan-European STOXX 600 was down 0.91 per cent. Britain’s FTSE 100 fell 0.87 per cent. Early Friday, Britain’s finance minister Kwasi Kwarteng delivered a mini-budget with the aim of cutting taxes and energy bills for households and businesses to try to drive economic growth.

Germany’s DAX fell 0.87 per cent. France’s CAC 40 was off 0.97 per cent.

In Asia, Hong Kong’s Hang Seng lost 1.18 per cent. Markets in Japan were closed.

Commodities

Crude prices were on track for weekly losses as recession fears and a strong U.S. dollar continue to weigh on sentiment.

The day range on Brent was US$88.51 to US$90.84 in the early premarket period. The range on West Texas Intermediate was US$81.51 to US$83.92.

Brent is down more than 1 per cent for the week so far. WTI is off more than 2 per cent.

“The threat of a global recession continues to weigh on oil prices, with widespread monetary tightening over the last couple of days fueling fears of a significant hit to growth,” OANDA’s Craig Erlam said in an early note.

“Central banks now appear to accept that a recession is the price to pay for getting a grip on inflation, which could weigh on demand next year.”

Still, he said, markets remain tight and OPEC+ is ready to restrict supply further to shore up prices even as it fails to deliver on quotas it has set for itself so far.

“What’s more, a nuclear deal between the U.S. and Iran looks no closer and Russia’s mobilization could pose a risk to its supply,” Mr. Erlam said.

In other commodities, gold prices slid.

Spot gold was down 0.4 per cent at US$1,664.39 per ounce by early Friday morning and was heading for its second straight weekly decline, down 0.6 per cent. U.S. gold futures fell 0.5 per cent to US$1,672.10.

Currencies

The Canadian dollar was down, dipping below 74 US cents in the early hours, amid weak risk sentiment and falling crude prices.

The day range on the loonie is 73.86 US cents to 74.26 US cents. On Thursday, the loonie hit its lowest level in two years against the U.S. dollar.

“The CAD is weaker but it is holding up relatively well against the USD amid sharper G10/commodity FX losses elsewhere,” Shaun Osborne, chief FX strategist with Scotiabank, said, also noting “it will be the risk backdrop, not domestic fundamentals, that drive the CAD.”

On world markets, the U.S. dollar index rose 0.16 per cent to 111.40, hovering near a two-decade high of 111.81 hit in the previous session, and is on track for a weekly gain of 1.5 per cent, according to figures from Reuters.

The euro fell 0.11 per cent to US$0.9823, close to a 20-year low of $0.9807 hit overnight.

Japan’s yen, meanwhile, was on track for its first weekly gain against the U.S. dollar after officials intervened in the markets this week to shore up Japan’s currency.

The yen was up about 0.1 per cent at 142.22 per U.S. dollar in Asia, after a more than 1 per cent rally in the previous session, Reuters reported.

In bonds, the yield on the U.S. 10-year note was higher at 3.748 per cent in the predawn period.

Economic news

(8:30 a.m. ET) Canadian retail sales for July.

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

(2 p.m. ET) U.S. Fed chair Jerome Powell delivers opening remarks at a Fed Listens webinar.

Canada to face a moderate recession in last quarter of 2022, economic model predicts

A Canadian recession model constructed by Oxford Economics shows the country’s economy has crossed a critical thresholdindicating a recession is “imminent,” with the firm’s director of Canada economics, Tony Stillo, warning in a report this week a moderate downturn will start in the next quarter and last until the middle of 2023

The model, which tracks five macroeconomic and financial indicators, including the spread between the yields on Government of Canada 10-year and three-month debt, Canadian stock prices and energy’s share of the Bank of Canada commodity price index, has predicted four of the past six downturns in Canada.

The two exceptions, Mr. Stillo says, followed the 2014 collapse in oil prices and the onset of the pandemic in 2020, two episodes triggered entirely by external factors.

The warning signs: Eight charts to watch as Canada flirts with recession

In its forecast Oxford predicts the Canadian economy will shrink 1.8 per cent over three quarters, a slowdown which would be similar in length but shallower than the “typical” Canadian recession over the past 50 years.

And while Mr. Stillo believes the chance of a recession turning into a deeper financial crisis remains low, he warned heavily indebted Canadian households and the housing market will feel the brunt of the pain.

As of August, house prices had fallen 16 per cent from their February peak, and Oxford predicts the correction won’t end until prices are down 30 per cent from their peak. That would still leave prices 7 per cent above their prepandemic level, meaning those most at risk are homebuyers who rushed into the market over the past two years.

Even so, with rising interest rates, high inflation and an unemployment rate that’s predicted to rise to 8 per cent from 5.4 per cent in August, Oxford warns consumers will be squeezed into slashing spending and reining in their debts.

U.S. weekly unemployment claims rise moderately as labour market remains resilient

The number of Americans filing new claims for unemployment benefits increased moderately last week, indicating the labour market remains tight despite the Federal Reserve’s attempt to cool demand with aggressive interest rate increases.

The weekly unemployment claims report from the Labor Department on Thursday, the most timely data on the economy’s health, suggested that job growth remained solid this month. The U.S. central bank delivered a 75-basis-point rate hike on Wednesday, its third straight increase of that magnitude. It signalled more large increases to come this year.

“Fed officials are hitting the brakes hard, but so far employers are just giving this policy a great, big yawn and holding on tight to their workers,” said Christopher Rupkey, chief economist at FWDBONDS. “It’s either that or there is some sort of stealth job losses where those made redundant are not getting unemployment benefits.”

Initial claims for state unemployment benefits rose 5,000 to a seasonally adjusted 213,000 for the week ended Sept. 17, the Labor Department said on Thursday. Data for the prior week was revised to show 5,000 fewer applications filed than previously reported. Economists polled by Reuters had forecast 218,000 applications for the latest week.

Fed Chair Jerome Powell told reporters on Wednesday that “there’s only modest evidence that the labour market is cooling off,” describing it as continuing “to be out of balance.”

Since March, the Fed has raised its policy rate by three percentage points to the current range of 3.00 per cent to 3.25 per cent.

Unadjusted claims rose 19,385 to a still-low 171,562 last week. There was a surge in applications in Michigan and notable increases in California, Georgia, Massachusetts and New York. Only Indiana reported a significant decrease in filings.

Economists say companies are hoarding workers after experiencing difficulties hiring in the past year as the COVID-19 pandemic forced some people out of the work force, in part because of prolonged illness caused by the virus.

There were 11.2 million job openings at the end of July, with two jobs for every unemployed person.

U.S. stocks opened lower. The dollar rose against a basket of currencies. U.S. Treasury prices fell.

The claims report covered the period during which the government surveyed businesses for the nonfarm payrolls portion of September’s employment report.

Applications fell 32,000 between the August and September survey periods. Payrolls increased by 315,000 jobs in August. Employment is now 240,000 jobs above its pre-pandemic level.

“There are no signs here of a change in labour market fundamentals,” said Conrad DeQuadros, senior economic adviser at Brean Capital in New York.

The number of people receiving benefits after an initial week of aid decreased 22,000 to 1.379 million in the week ending Sept. 10. Data next week on the so-called continuing claims, a proxy for hiring, will shed more light on September’s employment picture.

The Fed on Wednesday raised its median forecast for the unemployment rate this year to 3.8 per cent from its previous forecast of 3.7 per cent in June. It boosted its estimate for 2023 to 4.4 per cent from the 3.9 per cent projected in June, a move that economists viewed as recessionary. The jobless rate rose to 3.7 per cent in August from 3.5 per cent in July.

“Historically, an increase in the unemployment rate of this magnitude over a year has been followed by a recession,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “The jury is still out on whether the Fed can pull off a soft landing.”

The far-right is expected to win Italy’s election in Rome’s biggest political shift for decades

• Italy’s voters head to the polls on Sunday in a snap general election that is likely to see a government led by a far-right party come to power.
• The far-right Fratelli d’Italia party, led by Giorgia Meloni, is expected to win a majority of the vote, leading a right-leaning coalition into power.
• The vote could mark a big political shift for a pivotal European country dealing with ongoing economic and political instability.

https://www.cnbc.com/2022/09/22/italian-election-italy-turns-to-the-right-with-fdis-georgia-meloni.html

Australia stocks drop nearly 2%; Asian markets slide, Singapore inflation reaches 2008 levels

Asia-Pacific shares fell on Friday as investors continue to weigh the Federal Reserve’s aggressive stance.

In Australia, the S&P/ASX 200 fell to its lowest levels since July on its return to trade after a holiday on Thursday, then recovered some losses to close 1.87% down at 6,574.70. South Korea’s Kospi dipped 1.81% to 2,290.

Hong Kong’s Hang Seng index lost 1.18% in the final hour of trade. Mainland China stocks were also lower, with the Shanghai Composite shedding 0.66% to 3,088.25 and the Shenzhen Component losing 0.972% to 11,006.41.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 1.35%. Japan markets were closed for a holiday Friday.

Elsewhere in Asia, inflation in Malaysia came in in line with expectations, while Singapore’s consumer price index rose more than expected. The Straits Times index extended losses after the announcement and was 1.14% lower in afternoon trade.

On Wall Street overnight, stocks fell for a third consecutive day over recession fears following the Fed’s latest 75-basis-point rate hike.

The S&P 500 was 0.8% lower at 3,757.99, while the Nasdaq Composite lost 1.4% to 11,066.81. The Dow Jones Industrial Average dipped 107.10 points, or 0.3%, to 30,076.68.

https://www.cnbc.com/2022/09/23/asia-markets-inflation-cpi-currencies-stocks-oil.html

UK government dishes out extensive tax cuts as country braces for recession

The new U.K. government announced a sweeping program of tax cuts and investment incentives Friday, as Prime Minister Liz Truss seeks to boost the country’s faltering economic growth.

Finance minister Kwasi Kwarteng confirmed previously-leaked plans to cancel a planned rise in corporation tax to 25%, keeping it at 19%, the lowest rate in the G20.

“We believe high taxes reduce incentives to work, deter investment and hinder enterprise,” Kwarteng said.

Kwarteng also outlined plans for a network of “investment zones” around the country that will have lower taxation rates for businesses and reduced regulations, a new bill to unpack planning restrictions and EU laws and a list of infrastructure projects across transport, energy and telecoms.

Speaking to the House of Commons, Kwarteng said the government wanted a “new approach for a new era focused on growth” and was targeting a medium-term trend rate of growth of 2.5%.

He said the government wanted to expand the supply side of the economy through tax incentives and reform to deliver higher wages, greater opportunities, fund public services and “compete with dynamic economies around the world.”

It comes a day after the Bank of England said the U.K. economy was likely to have entered an official recession in the third quarter, as it hiked interest rates by 50 basis points to combat decades-high inflation.

Despite containing extensive reforms, the package is not being described by the government as an official economic budget as it has not been accompanied by the usual economic forecasts from the Office for Budget Responsibility.

Critics of Truss’s proposals warn that the combination of extensive tax cuts and the government’s plan to shield households and businesses from soaring energy prices will see the U.K. take on high levels of debt at a time of rising rates. The energy support package is expected to cost more than £100 billion ($111 billion) over two years.

Data published Wednesday showed the U.K. government borrowed £11.8 billion in August, significantly above forecasts and £6.5 billion more than the same month in 2019, due to a rise in government spending.

Kwarteng said Friday the U.K. had the second-lowest debt to GDP ratio in the G-7 and would announce a plan to reduce debt as a percentage of GDP in the medium term.

On energy, he said price caps would reduce peak inflation by 5 percentage points and lower the wider cost-of-living pressures. He also announced an energy markets financing scheme, in conjunction with the Bank of England, that will offer a 100% guarantee to commercial banks who offer emergency liquidity to energy traders.

The Institute for Fiscal Studies, an economic research group, said the reversal in the income tax rise and canceling the planned rise in corporation tax would lead to a £30 billion reduction in taxation revenue. It added that “setting plans underpinned by the idea that headline tax cuts will deliver a sustained boost to growth is a gamble, at best.”

TUCKER CARLSON: Oakville Trafalgar High School is protecting a child abuser, has institutionalized child abuse

Last night we told you about a teacher at Oakville Trafalgar High School in Ontario, Canada. The teacher has recently started wearing giant prosthetic breasts in the classroom in front of children as a fetish. The teacher’s costume is intended to emulate a genre of Japanese pornography that translates roughly to “exploding milk porn.”

For several days, a number of media organizations  — including a Canadian media outlet that visited the school — reported the teacher’s identity as Stephen Hanna. Oakville Trafalgar High School made no attempt to correct those reports. They wanted to protect the fetishist and child abuser in their school.

But after our segment, the Halton District School Board in Ontario emailed us to say that, contrary to these multiple reports, which we cited, the teacher in question is not named Stephen Hanna. At the same time, the school board refused to tell us who the teacher is. The school said, “We cannot confirm the identity of the individual in the photos/videos/radio segments.”

https://www.foxnews.com/opinion/tucker-carlson-oakville-trafalgar-high-school-protecting-child-abuser-institutionalized-child-abuse?dicbo=v2-a177edfc43edf72072217260743e3c9f

Florida Democrat sues DeSantis for flying migrants to Martha’s Vineyard: ‘He can’t comply with the law’

A Florida state lawmaker is suing Gov. Ron DeSantis and other state officials for orchestrating the transportation of migrants from Texas to Martha’s Vineyard in Massachusetts.

State Sen. Jason Pizzo, a Democrat who represents the Miami-Dade area, claims in a new lawsuit that relocating migrants from another state using Florida funds is an illegitimate use of those funds and violates Florida laws. The lawsuit also requests a judge to stop such relocations.

“This is very clear and straightforward,” Pizzo said during an interview, the Miami Herald reported. “The governor had legislators carry and pass bills that were designed to suit his agenda and that he subsequently signed into law. And even with that completely privileged position, he still can’t comply with the law. He set the rules for the game and then he can’t follow them.”

https://www.foxnews.com/politics/florida-democrat-sues-desantis-flying-migrants-marthas-vineyard-cant-comply-with-law

Canadians are bracing for what could be the strongest storm to ever hit their country’s coast.

“Every Nova Scotian should be preparing today and bracing for impact,” John Lohr, the minister responsible for the provincial Emergency Management Office, said in a Thursday news conference.

Hurricane Fiona has lashed the Caribbean, is forecast to brush by Bermuda as a dangerous Category 3 storm and shows no signs of slowing before it slams into Canada on Saturday morning.

“This could be Canada’s version of (Hurricane) Sandy,” said Chris Fogarty, a meteorologist for Canada’s hurricane center, pointing to the size and intensity of Fiona and its combination of hurricane and winter-storm characteristics. Hurricane Sandy affected 24 states and all of the eastern seaboard, causing an estimated $78.7 billion in damage.

https://www.cnn.com/2022/09/22/weather/hurricane-fiona-forecast-canada-thursday/index.html