Category: Uncategorized

Millions tested in Shanghai as China grapples COVID-19 resurgence

Millions of people in Shanghai queued for a third day of mass COVID-19 testing on Thursday as authorities in several Chinese cities scrambled to stamp out new outbreaks that have rekindled worries about growth in the world’s second-largest economy.

Unless local officials succeed in preventing the virus from spreading, they could be compelled to invoke prolonged, major restrictions on residents’ movement, under China’s “dynamic zero COVID” strategy.

The country’s most populous city, Shanghai, has just emerged from a painful two-month lockdown and is again on high alert – racing to isolate infections linked to karaoke services that had been taking place illegally.

Shanghai reported 54 new locally transmitted COVID cases for Wednesday, versus 24 the previous day. More than 70 cases confirmed in recent days are linked to the karaoke joints, authorities said.

Overall, mainland China reported 338 new local COVID cases for Wednesday, down from 353, with no new deaths, numbers that most countries would now consider insignificant.

But China’s approach of rigorously stamping out outbreaks as they occur has residents wary of more of the kind of restrictions that have caused mental stress and financial hardship for many, disrupted global supply chains and overseas trade, and rattled financial markets.

“A resurgence of Omicron is not an issue in most other countries, but it remains a predominant issue for the Chinese economy,” Nomura analysts wrote in a note, referring to the highly transmissible COVID variant.

As China is “by far the largest manufacturing centre in the world, any new waves of Omicron are likely to have a non-negligible impact”, they added.

Shanghai, China’s commercial hub, ordered most of its 25 million residents to take two compulsory COVID tests between Tuesday and Thursday.

Residents of the city frequently take self-administered tests in order to enter shopping malls or travel on public transport, and they also have to take part in city-wide testing every weekend till end-July.

Another 50 residential compounds and venues were locked down on Thursday in Shanghai, taking the total to 81.

Around half of China’s 338 new cases were in the eastern Anhui province where more than 1 million people in small towns are locked down.

In Beijing, four new infections were reported, down from six the previous day.

The capital has mandated that from July 11 most people entering crowded venues, such as libraries, cinemas and gyms, will have to have been vaccinated.

After finding one COVID case involving someone who had arrived from Shanghai, the town of Xinjiang in the northern Shanxi province tested almost its entire 280,000 population, suspended taxis, ride hailing and bus services, and closed various entertainment venues.

In a different province, Shaanxi, which reported four new cases, the cultural and tourism authority requested travel agencies to cancel group tours in its capital Xian, famed for its Terracota Army.

China has justified its uncompromising coronavirus strategy by saying it is saving lives and is worth the “temporary” economic costs. Officials have contrasted the millions of COVID-linked deaths around the world with China’s reported death toll of 5,226 since the start of the pandemic 2-1/2 years ago.

Analysts warn, however, that some costs may become permanent if China’s debt burden increases and if curbs lead to investors and foreign talent reconsidering their presence in the country.

Premier Li Keqiang was quoted by state media on Thursday as saying that China’s economy is recovering but the foundation of that recovery is not solid and hard work is still needed.

China is planning to set up a 500 billion yuan ($75 billion)state infrastructure fund to revive the economy, two people with knowledge of the matter have told Reuters.

Canada to enter ‘moderate and short-lived’ recession in 2023, RBC economists warn

The Canadian economy will slip into a “moderate and short-lived” recession in 2023 as it copes with rising interest rates and lofty inflation, Royal Bank of Canada warned on Thursday.

The recession won’t be as severe as previous downturns, but will see consumers pull back on spending as they deal with the strongest price growth in decades, higher costs of borrowing and the loss of wealth, stemming from a slowdown in the housing market, the RBC report said.

Canadians will also be affected by job losses, sending the national unemployment rate – now at a record low of 5.1 per cent – to around 6.6 per cent, the bank estimates.

The Bank of Canada and its global peers are aggressively raising interest rates, aimed at curbing demand and knocking down inflation. Canada’s annual inflation rate hit 7.7 per cent in May, the highest since 1983. The consensus view on Bay Street is that the Bank of Canada will raise its policy rate by three-quarters of a percentage point next week to 2.25 per cent.

As monetary policy tightens, global investors are betting that it results in a recession, which has led to a selloff in stock markets and lower prices for commodities, such as crude oil. RBC is the first of Canada’s major lenders to predict the country will enter a recession in the near term.

In an April forecast, the Bank of Canada said the economy would grow 4.2 per cent this year and 3.2 per cent in 2023, after adjustments for inflation. The central bank will issue a new forecast on Wednesday, alongside its rate decision. Private-sector forecasters have been pencilling in slower rates of growth as the inflation threat lingers.

“When you’re at the top of the hill the only way to go is down. Canada’s economic growth has fired on all cylinders following pandemic shutdowns,” wrote RBC economists Nathan Janzen and Claire Fan in their report. “But a historic labour squeeze, soaring food and energy prices and rising interest rates are now closing in. Those pressures will likely push the economy into a moderate contraction in 2023.”

The authors noted that higher interest rates were “necessary to tame inflation” and that a downturn “can be reversed once inflation settles enough for central banks to lower rates” again.

More parts of China battle Covid and threats of lockdown as cases spike again

• The number of cities restricting local movement due to Covid more than doubled in a week to 11 as of Monday, up from five a week earlier, according to Ting Lu, chief China economist at Nomura.
• Many of the new cases are in the region around Shanghai.
• Last week, a small region called Si county in the neighboring province of Anhui ordered residents to stay in their homes, and leave only at designated times for virus testing.

https://www.cnbc.com/2022/07/05/more-parts-of-china-battle-covid-and-threats-of-lockdown-as-cases-spike.html

Home sales, prices in Toronto and Vancouver plunge from last year’s highs

Home sales in Toronto and Vancouver plunged in June from last year’s highs and property prices declined further as higher borrowing costs made it harder for would-be buyers to get into the country’s two priciest real estate markets.

In the Toronto region, home resales dropped 41 per cent over June of last year, and were down 4.7 per cent from May on a seasonally adjusted basis, according to the Toronto Regional Real Estate Board (TRREB). In the Vancouver region, resales fell 35 per cent year over year and were 16 per cent lower than May, according to the Real Estate Board of Greater Vancouver.

The home price index, which adjusts for price volatility, fell in both areas. In the Toronto region, the index fell 4.5 per cent to $1,204,900 from May to June, the third consecutive month of declines, with the steepest losses in the city’s suburbs. Since the peak in March, the typical home price across the region is down 9.7 per cent, according to TRREB data. In Halton, a wealthy suburb to the west of the city, the home price index is down 16 per cent from the peak in February.

In Ontario, real estate buyers are holding out for a price cut

Buyer activity wanes in Toronto-area real estate market

“Buyers are holding out waiting for a better deal,” said Felicia Jones, a broker with The Jones Group, who has sold homes in the Toronto region for nearly a decade. “But then we have sellers on the other side that haven’t quite shifted their minds. The value of today is not yesterday’s value or the maximum value of three months ago,” she said.

The price of a mortgage has doubled over the past year and is expected to become more expensive when the Bank of Canada raises interest rates yet again to help curb inflation. The jump in the benchmark interest rate from 0.25 per cent to 1.50 per cent over the past four months has slowed real estate activity across the country.

Realtors said that their clients either can’t afford today’s mortgage rates or, if they can afford the higher borrowing costs, they are waiting for home prices to drop further. At the same time, sellers refuse to accept lower prices after observing nearby homes fetching record prices in the first few months of this year.

The Toronto suburbs and less populated cities throughout Ontario had recorded some of the steepest price gains when interest rates were near zero. Those areas are now seeing some of the biggest declines.

Although fewer homeowners put their properties up for sale in June compared with the previous month, homes are taking longer to sell. In Toronto, the number of new listings remained steady month to month. In Vancouver, new listings declined.

TRREB said it expects current market conditions to remain in place during the slower summer months. Its president, Kevin Crigger, expects some buyers to re-enter the market once home prices stop falling.

In the Vancouver area, the home price index fell 2 per cent to $1,235,900 from May to June and was down 2.2 per cent over the past three months, according to the Vancouver board. Semi-detached houses shouldered the biggest price decline.

The typical price of a detached house in the Vancouver area was down 1.7 per cent to $2,058,600 from May to June. Semi-detached houses were down 2.2 per cent to $1,115,600 over the same period and condos fell 1.7 per cent to $766,300.

“Rising interest rates and inflationary concerns are making buyers more cautious in today’s housing market, which is allowing listings to accumulate,” Vancouver board chair Daniel John said in a press release, adding that the decline in home prices was a result of the drop in home-buying activity, not the increase in supply.

Oil prices bounce back from Tuesday tumble as supply concerns return

Oil prices rose as much as nearly 3% on Wednesday before paring some gains as investors piled back into the market after a heavy rout in the previous session, with supply concerns returning to the fore even as worries about a global recession linger.

Brent crude futures rose as much as $3.08, or 2.9%, to $105.85 a barrel in early trade after plunging 9.5% on Tuesday, the biggest daily drop since March. It was last up $1.25, or 1.3%, at $104.10 per barrel.

U.S. West Texas Intermediate crude climbed to a session high of $102.14 a barrel, up $2.64, or 2.7%, after closing below $100 for the first time since late April. It was last up 60 cents, or 0.6%, at $100.10 per barrel.

“Today is sort of a reset. No doubt there is short covering and bargain hunters are coming in,” said John Kilduff, partner at Again Capital LLC.

“The fundamental story regarding global tightness is still there… The sell-off was definitely overdone,” he added.

OPEC Secretary General Mohammad Barkindo said on Tuesday that the industry was “under siege” due to years of under-investment, adding shortages could be eased if extra supplies from Iran and Venezuela were allowed.

Russia’s former president Dmitry Medvedev also warned that a reported proposal from Japan to cap the price of Russian oil at around half its current level would lead to significantly less oil in the market and push prices above $300-$400 a barrel.

On the other hand, the Norwegian government on Tuesday intervened to end a strike in the petroleum sector that had cut oil and gas output, a union leader and the labor ministry said, ending a stalemate that could have worsened Europe’s energy crunch.

By Saturday, the strike would have cut daily gas exports by 1,117,000 barrels of oil equivalent (boe), or 56% of daily gas exports, while 341,000 of barrels of oil would have been lost, the Norwegian Oil and Gas (NOG) employers’ lobby said.

Worries about a recession, however, have continued to weigh on markets. By some early estimates, the world’s largest economy may have shrunk in the three months from April through June. That would be the second straight quarter of contraction, considered the definition of a technical recession.

More G10 central banks raised interest rates in June than in any month for at least two decades, Reuters calculations showed. With inflation at multi-decade highs, the pace of policy-tightening is not expected to let up in the second half of 2022.

“Although crude oil still faces the problem of a supply shortage, key factors that led to the sharp selloff in oil yesterday remain,” said Leon Li, a Shanghai-based analyst at CMC Markets. He cited policy tightening by global central banks and a likely interest rate hike by the U.S. Federal Reserve as pressuring commodities prices.

“Thus, today’s rebound could be a short-term correction for bears and oil prices are likely to remain under pressure in the near future.”

These Canadian banks are now among Citi’s top global stock picks

Morgan Stanley U.S. equity strategist Michael Wilson is looking for lower earnings forecasts to signal a durable market bottom,

“Over the past few weeks, interest rates have fallen sharply as the economic data continue to disappoint. Meanwhile, the S&P equity risk premium has also risen to 340 basis points, closer to our fair value level of 370bps. This is a necessary condition for a more durable low in equity prices, but until earnings estimates are cut to more reasonable levels or valuations reflect that risk, the bear market is not complete, in our view… several leading signals point to forward earnings expectations decelerating in the coming months from these elevated levels. Importantly, earnings revisions breadth, which often leads forward dollar EPS, is in negative territory and has decelerated further in the last few days/weeks … Generally, we find that defensive industries (Telecom, Utilities, Insurance, Real Estate, parts of Staples and Healthcare) screen relatively well when assessed on this basis. Meanwhile, we find that cyclical tech groups (Tech Hardware and Semis) screen as having higher risk on this basis. We also find that several consumer oriented groups (Food & Staples Retailing, Consumer Services, and Consumer Durables and Apparel) as well as Transports screen as being more at risk based on this framework.”

“MS: Sectors most at risk of downward earnings revisions” – (research excerpt) Twitter

***

Citi strategist Chris Montagu manages a World Radar stock screen methodology combining valuation and momentum in terms of stock price, earnings and cash flow growth.

Canadian bank stocks dominate the list of stocks that have moved into the top decile of MSCI World index members that have jumped into the first decile of attractiveness by Citi’s criteria.

Royal Bank of Canada and Toronto-Dominion Bank benefited from attractive relative valuation, while Bank of Nova Scotia and National Bank of Canada climbed into the top decile thanks primarily to relative stock price momentum.

“MSCI World stocks climbing to top decile in Citi’s World Radar screen” – (table) Twitter

***

BofA Securities U.S. equity strategist Savita Subramanian detailed the market carnage from the first half of the year and made strategic recommendations,

“The S&P 500 officially ended the post-COVID bull market in 1H, down more than 20% from its peak (see Hello, bear market report). The 20% decline in 1H (total returns) was the worst since 1962 (-22%) and the second worst start to the year in our data history since 1935. Historically, a negative 1H has led to a negative 2H 44% of the time, vs. just 19% when 1H was positive … Of the 45 factors we track, dividend yield was the only factor that gained in 1H, +0.7%. As we shift from a price return to a total return world – dividends have driven 36% of total returns since 1936 vs. just 15% since 2010 – and cash grows more valuable amid Fed hiking, we expect dividend yield and bird-in-the-hand strategies to continue to outperform in 2H. The Russell 1000 Value outperformed the Growth index by 15ppt in 1H, on track to be the biggest lead since the Tech Bubble. But despite the de-rating in Growth stocks, they still trade one standard deviation above the historical average vs. Value, with positioning also still tilted towards Growth (see report). High Quality stocks (‘B+ or better’ in S&P quality ratings) led Low Quality stocks (‘B or worse’) by 12ppt YTD in 1H, marking the biggest lead since 2002. We expect volatility to remain elevated in 2H, which should continue to drive High Quality’s lead.”

“BofA: “we expect dividend yield and bird-in-the-hand strategies to continue to outperform in 2H.”” – (research excerpt) Twitter

***

Greater China stocks lead losses as Covid concerns resurge; Asia-Pacific markets fall

• Greater China stock indexes led losses as Covid concerns resurge, while Asia-Pacific markets traded lower on Wednesday.
• U.S. stock indexes initially fell sharply on Tuesday stateside before rallying in the afternoon.
• In central bank news, Bank Negara Malaysia is expected to release its monetary policy statement today. Analysts polled by Reuters expect the bank to raise rates by 25 basis points.

https://www.cnbc.com/2022/07/06/asia-markets.html

Oil prices slip as recession fears rumble on, tight supply stems losses

• Brent crude futures slipped 35 cents, or 0.3%, to $111.28 a barrel at 0016 GMT, having jumped 2.4% on Friday.
• U.S. West Texas Intermediate (WTI) crude futures similarly dropped 32 cents, or 0.3%, to $108.11 a barrel, after climbing 2.5% on Friday.
• While recession fears have weighed on the market over the past two weeks, supply concerns linger, preventing steeper price falls.

https://www.cnbc.com/2022/07/04/oil-markets-recession-supply-opec-russia.html

Bank regulator beefs up rules for some types of home loans

Canada’s top banking regulator is changing the rules that cover certain types of home loans to make sure that lenders and borrowers are able to stay on top of their obligations at a time when the country’s housing market is looking vulnerable.

The Office of the Superintendent of Financial Institutions (OFSI) is implementing new guidelines for certain types of real estate loans, including shared equity mortgages, reverse mortgages and conventional mortgages that are paired with revolving credit lines.

The biggest change targets so-called combined loans, which are conventional mortgage loans paired with revolving lines of credit known as HELOCs that home owners can dip into as they see fit, without being obligated to pay that portion back on any sort of schedule.

The new regulations will kick in once a readvanceable loan exceeds 65 per cent of the underlying home’s value. Currently, an owner can technically borrow up to 80 per cent on such a loan, but the new rules will functionally ratchet that ceiling down to 65 per cent by forcing the borrower to start paying back some of the principal if they go above that line.

https://www.cbc.ca/news/business/osfi-rule-changes-1.6504148