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Bank of England set for fifth straight rate hike as growth and the pound wobble
Fed raises interest rate by 75-basis points in historic move to fight inflation
The Federal Reserve on Wednesday raised its benchmark interest rate by 75-basis points for the first time in nearly three decades as policymakers intensify their fight to cool red-hot inflation, a move that threatens to slow U.S. economic growth and exacerbate financial pressure on Americans.
Bitcoin plunges below $23,000 as the crypto meltdown continues
Bitcoin and other cryptocurrencies continued to slide Tuesday as investors bailed out of risky assets in anticipation of sharp rises in interest rates to tackle inflation.
Nerves remain raw after two of the world’s biggest cryptocurrency platforms restricted activity on Monday as the wider market meltdown continued apace.
The Celsius Network, which has 1.7 million customers, said that “extreme market conditions” had forced it to temporarily halt all withdrawals, crypto swaps and transfers between accounts.
“We are taking this necessary action for the benefit of our entire community in order to stabilize liquidity and operations while we take steps to preserve and protect assets,” the company said in a blog post.
The UK-registered company has about $3.7 billion in assets, according to its website. It pays interest on cryptocurrency deposits, and loans them out to make a return.
“Celsius suspending withdrawals yesterday gave extra downside momentum,” noted Jeffrey Halley, senior market analyst, Asia Pacific, at Oanda. “I can only assume the next big level for bitcoin psychologically will be $20,000.”
The cryptocurrency market has taken a hammering in recent months after its pandemic boom turned to bust. As the world’s major central banks have hiked interest rates to tame spiraling inflation, traders have rushed to ditch riskier investments, including their volatile crypto assets.
Bitcoin, the world’s most valuable cryptocurrency, fell about 8% Tuesday, dropping below $23,000. It has lost about 25% of its value since Friday — putting it about 67% below its all-time high in November last year, when it traded around $69,000, according to data from Coinbase.
Ether, the second-most-valuable digital coin, dropped 4%, taking its losses since Friday to about 32%. It has now lost about 75% of its value since November.
Binance, the world’s biggest cryptocurrency exchange, suspended withdrawals on its bitcoin network for a few hours on Monday. The company said some transactions had gotten “stuck” and were causing a backlog.
“Binance team is working on a long-term solution to accelerate pending transactions on the bitcoin (BTC) network and prevent similar situations in the future,” it said in a statement.
So-called “stablecoins” — cryptocurrencies that are tied to the value of more traditional assets — have also taken a hit. Tether, a popular stablecoin, broke its peg to the US dollar in May, puncturing the view that it could serve as a hedge against volatility.
TerraUSD, a riskier algorithmic stablecoin that used complex code to peg its value to the the US dollar, collapsed the same month, wiping out the savings of thousands of investors. The coin was valued at a little over $18 billion in early May before it crashed, according to data from CoinMarketCap.
Celsius Network did not say when it would allow customers to withdraw their deposits again, only that it would “take time.”
Meanwhile, governments are watching the fallout of the crypto crash closely and could move to protect investors.
“There are many risks associated with cryptocurrencies,” United States Treasury Secretary Janet Yellen told the Senate last month. She said her department was due to release a report on the matter.
At the open: TSX rebounds after dropping into correction territory in Monday’s rout (June 14, 2022)
U.S. Treasury yields held near multi-year highs on Tuesday, while stock markets reeled from the previous session’s rout on signs that central banks’ action to curb inflation would tip the world economy into recession.
Canada’s main stock index opened higher, a day after tumbling back into correction territory, helped by gains in energy shares on the back of higher crude prices.
At 9:31 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 92.96 points, or 0.47%, at 19,835.52.
On Monday, the index tumbled back into correction territory, ending down 2.6% at 19,742.56, leaving it 10.6% below the record closing high it notched up in March.
A correction is confirmed when an index closes 10% below its record closing high. The TSX did that on May 11 and May 12 but then rallied.
Money markets see about a 75% chance that the Bank of Canada would raise interest rates by three-quarters of a percentage point next month, which would be the biggest hike since August 1998, and expect rates to peak at about 3.9% next year.
Just two weeks ago, investors expected a so-called terminal rate of 3%.
Wall Street’s main indexes also opened higher on Tuesday, a day after the S&P 500 confirmed it was in a bear market, as investors took relief from a smaller-than-expected rise in core producer prices.
The Dow Jones Industrial Average rose 75.60 points, or 0.25%, at the open to 30,592.34.
The S&P 500 opened higher by 13.89 points, or 0.37%, at 3,763.52, while the Nasdaq Composite gained 88.20 points, or 0.82%, to 10,897.43 at the opening bell.
The benchmark S&P 500 on Monday closed 20% below its all-time closing high hit on Jan. 3, while a key part of the Treasury yield curve inverted for the first time since April on mounting fears that the Federal Reserve’s attempts to control soaring inflation will dent the economy.
The selling pressure appeared to ease in early trading. Market heavyweights such as Apple Inc, Amazon, Microsoft Corp and Tesla rose between 0.7% and 0.9%.
Oracle Corp was another gainer after posting upbeat quarterly results on demand for its cloud products. Its shares jumped 12.1%.
U.S. delivery firm FedEx Corp on Tuesday raised its quarterly dividend by more than 50% to $1.15 per share, sending its shares 10.9% higher in early trading.
“There may be opportunity for a bit of a breather from the aggressive expectations baked in, and you can see that in terms of how the markets are wandering today,” said Edward Park, chief investment officer at Brooks Macdonald Asset Management in London.
“Markets are undoubtedly going to be choppy.”
Expectations are growing that central banks, especially the U.S. Federal Reserve, may have to up the pace of policy-tightening to stamp on inflation, potentially sparking economic recession. Markets now see the Fed’s rate hike cycle peaking around 4%, rather than the 3% seen last month.
Those expectations lifted U.S. 10-year borrowing costs, the benchmark interest rate for the global economy, as high as 3.44% on Monday, a 2011 peak.
While yields slipped on Tuesday to around 3.3% they remain some 180 basis points (bps) above end-2021 levels.
With the Fed due to start a two-day meeting later on Tuesday, markets waited to see if it could raise rates by a bigger-than-expected 75 bps, a possibility flagged by several investment banks, including Goldman Sachs.
That move, which would be the biggest increase since 1994, is also almost fully priced for Wednesday.
That repricing has pummelled assets that benefited from rock-bottom interest rates – stocks, crypto, junk-rated bonds and emerging markets.
“Quite simply, when we see monetary tightening the order of what we are seeing globally, something is going to break,” said Timothy Graf, head of EMEA macro strategy at State Street.
“Stock markets are reflecting the reality of the first-order effect of tighter financial conditions,” Graf said, predicting that with U.S. stock valuations still above COVID-time lows, there was more pain to come.
“I think there are other shoes to drop,” he added.
MSCI’s index of global shares slipped 0.3%, extending Monday’s 3.7% fall, while a pan-European equity index slumped 1% to March 2020 lows.
Asian shares too fell 1%, catching up with Monday’s bleak Wall Street session, when the S&P 500 and the Nasdaq indexes lost 4% and 4.7% respectively.
There was little let-up for crypto markets, where bitcoin and ether plumbed new 18-month lows, reacting to interest rate expectations and crypto lender Celsius Network’s decision to freeze withdrawals.
Bitcoin which fell as low as $20,816, is down more than 50% this year.
World markets latest lurch lower was triggered on Friday by U.S. data showing annual inflation to May shot up by 8.6%.
The ensuing bond sell-off lifted two-year U.S. yields more than 50 basis points over two sessions, pushing them above 10-year borrowing costs on Monday in the so-called curve inversion that is considered a harbinger of recession.
Two-year yields eased to 3.3% on Tuesday, versus its 3.43% peak, its highest since 2007. The yield curve remains flat reflecting concern for the world economy, especially as commodity prices offer little respite.
Brent crude futures rose above $123 a barrel, supported by the tight oil supply picture.
State Street’s Graf does not see recession as inevitable but acknowledged that “monetary tightening and the squeeze on real incomes from commodity prices mean the probability has gone up”.
Markets are also having to contend with the dollar’s surge to new 20-year peaks against a basket of currencies.
It eased 0.10% on Tuesday, offering respite to other currencies, but the yen continues to languish at 24-year lows against the greenback.
With the Bank of Japan expanding bond purchases on Tuesday and unlikely to budge from ultra-low rates policy at its Friday meeting, yen respite looks unlikely.
“Given Wednesday may see the Fed go 75 bps and flag more, while the BOJ on Friday will only flag more bond-buying, the yen is not going to stay at these levels for long. It’s going to get much, much worse,” Rabobank strategist Michael Every said.
Reuters
Wholesale inflation climbs 10.8% in May, hovering near 40-year high
https://www.foxbusiness.com/economy/wholesale-inflation-climbs-in-may-remaining-near-40-year-high
Stocks sink, S&P enters bear market inflation, Fed meeting this week: LIVE UPDATES (June 13)
https://www.foxbusiness.com/live-news/stocks-today-6-13-2022
Nearly 1 in 4 homeowners would have to sell their home if interest rates rise more: survey
Nearly one in four homeowners say they will have to sell their home if interest rates go up further, according to a new debt survey from Manulife Bank of Canada.
The survey, conducted between April 14 and April 20, also found that 18 per cent of homeowners polled are already at a stage where they can’t afford their homes.
Over one in five Canadians expect rising interest rates to have a “significant negative impact” on their overall mortgage, debt and financial situation, the survey found.
The Bank of Canada remains on a rate-hike path as it tries to tame inflation, which is now at a 31-year high at 6.8 per cent. On June 1, the central bank increased its key interest rate by half a percentage point to 1.5 per cent.
The Manulife survey also found that two-thirds of Canadians do not view home-ownership as affordable in their local community.
Additionally, close to half of indebted Canadians say debt is impacting their mental health, and almost 50 per cent of Canadians say they would struggle to handle surprise expenses.
Bitcoin plunges as crypto company Celsius Network freezes customer withdrawals, transfers
Celsius Network, which touted itself as the “world’s leading crypto earning and lending platform,” is freezing all withdrawals and transfers between its 1.7 million customers, as digital assets and tokens have sunk to their lowest levels in years.
In a blog post late Sunday, citing “extreme market conditions,” the New Jersey-based company said a clause about risk management framework in its terms-of-use agreement has been activated while it works to meet its withdrawal obligations. “There is a lot of work ahead as we consider various options, this process will take time, and there may be delays,” the company said.
“We are taking this necessary action for the benefit of our entire community in order to stabilize liquidity and operations while we take steps to preserve and protect assets,” Celsius said. “Our ultimate objective is stabilizing liquidity and restoring withdrawals, Swap, and transfers between accounts as quickly as possible.”
Just last year, Canadian pension fund giant Caisse de dépôt et placement du Québec pitched in for a US$400-million investment into Celsius. “Celsius is the world’s leading crypto lender with a strong management team that puts transparency and customer protection at the core of their operations,” said Alexandre Synnett, executive vice-president and chief technology officer at the Caisse, in a press release for the investment made in October, 2021.
The Caisse’s investment, in partnership with equity firm WestCap, placed a total value of US$3-billion for Celsius, which was founded in 2017. Other investors for Celsius include Tether International, an issuer for tether, the most prominent stablecoin cryptocurrency pegged to and backed by the U.S. dollar.
In a tweet on Monday, rival lending platform Nexo offered to buy qualifying assets from Celsius, calling it an “insolvency” that is causing repercussions for retail investors in the crypto community. Nexo attached a letter of intent to its tweet, which mentioned its interest in the collateralized loan portfolio from Celsius, but did not provide a price for its offer.
Major cryptocurrencies tumbled on Monday following the Celsius announcement. Bitcoin touched an 18-month low of $30,349. Ether dropped as much as 16 per cent to $1,565, its lowest in two years.
‘We’re playing offence now’: Saputo planning more price hikes as profits slump
Dairy giant Saputo Inc. is planning another round of price hikes on grocers and restaurants in an attempt to offset production cost increases.
“We’re playing offence now,” chief executive Lino Saputo Jr. told analysts on June 9 after the Montreal-based company reported that profits sagged in the fourth quarter because of higher input costs.
Saputo said inflationary pressures in the supply chain are making it more and more expensive to makes dairy products, with the cost of everything from milk to packaging skyrocketing. Freight and logistics costs alone jumped $41-million in the quarter, the company said in an earnings update.
Saputo, like almost every other food manufacturer, has been trying to pass on the added costs to its customers. Grocery chains in Canada say they’ve been facing an unprecedented wave of requests from suppliers, all asking for more money for the same products. Those negotiations can turn ugly, as seen in the recent price dispute between Loblaw Companies Ltd. and PepsiCo Inc. that cleared out chip aisles across Canada’s biggest grocery chain. But despite the squabbling, it’s clear that much of the cost increases are making their way onto Canadians’ grocery bills, resulting in the worst food inflation since 1981.
Saputo, a global dairy processor that includes the Neilson brand, said its price increases led to better-than-expected revenue of $3.96 billion in the quarter ended March 31, up more than 15 per cent compared with the same quarter last year. But the extra revenues weren’t enough to keep profits from slipping.
Saputo’s adjusted EBITDA fell to $260 million, down 14.2 per cent compared to $303 million last year. The company said its price hikes “were not sufficient to mitigate the ongoing impact of inflation on our costs.”
RBC analyst Irene Nattel said Saputo’s performance amounted to ending its fiscal year “with a whimper.” Still, results matched expectations, which “could come as a relief to investors,” she wrote in a report to investors titled “Soft cheese.”
Saputo management promised its profits will make a “meaningful recovery” in the coming fiscal year, as more price increases start to kick in across the network. Saputo increased its prices in the United States in April, with another hike scheduled for July. In Canada, Saputo said it is waiting to see whether the federal body that manages the national dairy supply will raise prices for a second time this year.
The Canadian Dairy Commission (CDC) — a Crown corporation that controls the “farm-gate” price that processors like Saputo pay to farmers for their milk — already increased prices by a record 8.4 per cent in February. The annual increase was meant to offset rising costs for feed, fertilizer and fuel. But last week, the CDC announced it was mulling an uncommon “mid-year” price increase, after the Dairy Farmers of Canada reported that production costs have continued to soar in the wake of Russia’s invasion into Ukraine.
“The likelihood of that is high,” Colizza said.
Saputo last raised prices in Canada in February, in line with CDC’s farm-gate increase. If CDC raises prices again, so will Saputo.
“We will absolutely be recovering costs from our milk price inputs,” Colizza said.
Dairy prices rose by eight per cent in April compared to the same period last year, just below the overall food inflation rate of 9.7 per cent, according to the latest Consumer Price Index report from Statistics Canada.
The company booked net earnings of $37 million, or nine cents per share — a drop of about $66 million or 64 per cent, though Saputo said that included restructuring costs of $51 million after tax. On an adjusted basis, fourth-quarter profits were $108 million, down $16 million, or 12.9 per cent, compared to last year.
