Category: Uncategorized

Strong demand bolsters Canadian factory activity in May

Canadian manufacturing activity expanded at a faster pace in May as firms raised output to meet strong demand for their goods and inflation pressures showed some signs of easing, data showed on Wednesday.

The S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) rose to a seasonally adjusted 56.8 in May from 56.2 in April. A reading above 50 shows growth in the sector.

“Canada’s manufacturing sector has recovered well from the pandemic, registering output growth in almost every month for the last two years,” Shreeya Patel, an economist at S&P Global, said in a statement.

The output index rose to 55.6 from 54.8 in April, helped by greater client demand amid easing pandemic restrictions, while workforces expanded at the fastest pace since December 2020 and the index measuring the quantity of input purchases notched a survey-record high.

“Demand continues to flourish while firms are committed to growing their businesses through a variety of different ventures … As a result, companies have struggled to keep up with demand, though severe labour and material shortages can also be blamed,” Patel said.

Inflation pressures, which have soared globally this year, weighed on firms’ optimism but measures of input and output prices both fell.

Bank of Canada announces half-point rate hike, says it is ‘prepared to act more forcefully’

The Bank of Canada announced another oversized interest rate hike on Wednesday and said that it is “prepared to act more forcefully” going forward in an effort to bring inflation back under control.

The central bank’s governing council voted to raise the policy rate by half a percentage point – its third interest rate hike this year. That brings the benchmark rate to 1.5 per cent, just a quarter point below the pre-pandemic level.

The bank said that more interest rate hikes will be needed to cool Canada’s overheating economy and to slow the pace of consumer price growth, which hit a three-decade high of 6.8 per cent in April.

“With the economy in excess demand, and inflation persisting well above target and expected to move higher in the near term, the governing council continues to judge that interest rates will need to rise further,” the bank said in its rate announcement statement.

Wednesday’s widely-anticipated move follows rate hikes in March and April, the latter of which was also a half-point increase rather than the usual quarter-point move. This is the first time the bank has announced back-to-back 50 basis point rate increases since beginning fixed-date interest rate announcements in 2000.

After holding borrowing costs at record lows for the first two years of the COVID-19 pandemic, the Bank of Canada pivoted abruptly this spring and is now moving aggressively to make up for lost time and to shore up its credibility as an inflation-fighter.

It is particularly concerned that people will stop believing in its 2 per cent interest rate target, and it noted that “the risk of elevated inflation becoming entrenched has risen.”

Higher interest rates are already reverberating through the economy, most notably in the rate-sensitive housing market. The number of home sales across the country fell 12.6 per cent from March to April on a seasonally adjusted basis, while the home price index slid 0.6 per cent, according to the Canadian Real Estate Association.

The central bank faces a “delicate balance” as it tries to slow the economy without triggering a recession, Governor Tiff Macklem said after the last rate decision in April. At this point, however, Mr. Macklem and his team appear to be singularly focused on getting inflation down.

The bank’s comment that it is “prepared to act more forcefully if needed” appears to open the door to 75 basis point hikes in the future. Mr. Macklem had previously said that he would not rule anything out, but that a 75 basis point rate hike would be “very unusual.”

Central bank economists expect the rate of inflation to move higher in the near term, led by increases in energy and food prices. Inflationary pressures are also broadening out to a wider range of goods and services, making it harder for Canadians to avoid. Nearly 70 per cent of the components of the consumer price index are experiencing inflation above 3 per cent, the bank noted.

Higher interest rates won’t do much to deal with international sources of inflation, which include persistent supply-chain bottlenecks, COVID-19 lockdowns in China, and surging commodity prices following Russia’s invasion of Ukraine.

But higher interest rates do dampen demand in the economy. That can impact domestic sources of inflation tied to the service sector, housing market and ultra-tight labour market. In practice, this happens by increasing the cost of borrowing money, which shows up in things such as interest rates on mortgages, business loans and car loans.

Despite the string of rate hikes since March, the bank’s policy rate remains low by historical standards and continues to stimulate the economy. Central bank officials have said they intend to get the benchmark rate to a “neutral” level relatively quickly. They estimate that this is somewhere between 2 and 3 per cent.

Ahead of Wednesday’s announcement, markets were pricing in another half-point move in July, then smaller quarter-point moves at each of the bank’s remaining meetings this year. That would bring the policy rate to around 3 per cent by the end of the year.

Some Bay Street economists have argued that this rate hike path is too aggressive, given how much of the Canadian economy is based on real estate and how sensitive Canada’s highly indebted households are to higher borrowing costs.

Bank officials have said they aren’t on “autopilot.” Whether they stop raising rates once the policy rate reaches the 2 per cent to 3 per cent range will depend on how the economy reacts to higher borrowing costs.

“The pace of further increases in the policy rate will be guided by the Bank’s ongoing assessment of the economy and inflation,” the bank said Wednesday. “The Governing Council is prepared to act more forcefully if needed to meet its commitment to achieve its 2 per cent inflation target.”

Deputy Governor Paul Beaudry will give a speech on Thursday explaining the bank’s rationale for the decision.

TSX Snaps 7-session Winning Streak, Ends Notably Lower

After seven successive days of gains, Canadian stocks drifted lower on Tuesday as worries about rising inflation and fears of tighter policy measures by the Federal Reserve and other central banks triggered selling at several counters.

The benchmark S&P/TSX Composite Index ended with a loss of 190.06 points or 0.91% at 20,729.34.

Data released by Statistics Canada before the opening bell this morning showed the pace of economic growth in Canada slowed in the first quarter compared with the end of 2021.

The data said real gross domestic product grew at an annualized rate of 3.1% in the first quarter, helped by business investment and household spending. That was down from an annualized rate of 6.6% in the fourth quarter of 2021 as export volumes dropped 2.4% for the quarter, following two consecutive quarterly increases, due in part to decreased trade in energy products.

Energy stocks were the major losers as oil prices turned weak on reports that some members of the Organization of the Petroleum Exporting Countries (OPEC) are in favor of suspending Russia’s participation in an oil-production deal.

The Energy Capped Index dropped 2.77%. Imperial Oil (IMO.TO), Canadian Natural Resources (CNQ.TO), Vermilion Energy (VET.TO), Enerplus Corp (ERF.TO) and Suncor Energy (SU.TO) ended lower by 3 to 4.2%.

The Health Care Capped Index shed 1.55%. Bausch Health Companies (BHC.TO) ended lower by 5.3%, while Well Health Technologies (WELL.TO), Tilray Inc (TLRY.TO) and Aurora Cannabis (ACB.TO) lost 4.9%, 4.25% and 3.1%, respectively.

The Information Technology Capped Index also shed more than 1.5%. Hut 8 Mining Corp (HUT.TO), BlackBerry (BB.TO), Softchoice Corp (SFTC.TO), Converge Technology Solutions (CTS.TO), Magnet Forensics (MAGT.TO), Nuvei Corp (NVEI.TO) and Docebo Inc (DCBO.TO) ended lower by 4 to 8.1%.

The Materials Index drifted down 1.38%. Lithium Americas Corp (LAC.TO) tanked 14.6%. Stelco Holdings (STLC.TO), Fortuna Silver Mines (FVI.TO), Teck Resources (TECK.B.TO), Capstone Mining Corp (CS.TO) and Silvercrest Metals (SIL.TO) lost 5 to 6.5%.

Quebecor Inc (QBR.A.TO), Nutrien (NTR.TO), Linamar Corporation (LNR.TO), Colliers International Group (CIGI.TO), Open Text Corporation (OTEX.TO), Dollarama Inc (DOL.TO) and Kinaxis (KXS.TO) gained 1 to 4.5%.

Russia widens Europe gas cuts and halts Dutch, Danish and German contracts

Russia widened its gas cuts to Europe on Tuesday with Gazprom saying it will turn off supplies to several “unfriendly” countries which have refused to accept Moscow’s roubles-for-gas payment scheme.

The move by the Russian gas giant is the latest retaliation to Western sanctions imposed on Moscow following its Feb. 24 invasion of Ukraine, escalating its economic battle with Brussels and pushing up European gas prices.

Gazprom said on Tuesday it had fully cut off gas supplies to Dutch gas trader GasTerra.

It later said it would also stop as of June 1 gas flows to Denmark’s Orsted and to Shell Energy for its contract on gas supplies to Germany, after both failed to make payments in roubles.

The announcements follow Monday’s agreement by European Union leaders to cut the European Union’s imports of Russian oil by 90% by year-end, the bloc’s toughest yet response to the invasion.

NO THREAT TO SUPPLY

GasTerra, which buys and trades gas on behalf of the Dutch government, said it had contracted elsewhere for the 2 billion cubic meters (bcm) of gas it had expected to receive from Gazprom through October.

“This is not yet seen as a threat to supplies,” said Economy Affairs Ministry spokesperson Pieter ten Bruggencate.

Orsted, which has also said there was no immediate risk to Denmark’s gas supplies, said on Tuesday it would turn to the European gas market to fill the gap.

“The gas for Denmark must, to a larger extent, be purchased on the European gas market. We expect this to be possible,” Orsted Chief Executive Mads Nipper said in a statement shortly after Gazprom’s announcement.

The benchmark front-month gas contract rose around 5% on Tuesday afternoon to around 91.05 euros/MWh but remained well below highs over 300 euros/MWh hit in early March.

“While the market was largely expecting both companies to be cut off, this development will make the supply-demand balance that much tighter,” ICIS analyst Tom Marzec-Manser said on Twitter.

Russian gas flows to Germany via the Nord Stream pipeline fell on Tuesday which analysts said was likely due to the Nederlands being cut off.

Moscow had already stopped natural gas supplies to Bulgaria, Poland and Finland citing their refusal to pay in Russian roubles, a demand made in response to Western sanctions that have isolated Russia.

German, Italian and French companies, however, have said they would engage with the scheme to maintain supplies.

The supply cuts have boosted already high gas prices, turbocharging inflation and spurring European governments and companies to chase alternative sources and the infrastructure to handle them, including floating storage and regasification units (FSRUs).

STORAGE

Europe has been rushing to fill its gas storage sites ahead of winter, wary of Russian supply cuts, which typically provides around 40% of Europe’s gas.

Dutch gas storage is now around 37% full, data from Gas Infrastructure Europe showed.

The Dutch government last week said it would increase subsidies to 406 million euros to encourage companies to fill the Bergermeer facility, one of the largest open-access gas storage facilities in Europe.

Danish gas storages are currently 55% full and will be able to supply all Danish and Swedish gas customers for five months if supplies from Germany get cut off, a letter from the Danish energy minister Dan Jorgensen to parliament showed.

GDP disappoints, but Bank of Canada unlikely to alter rate path

Canada’s economic growth slowed in the first quarter of 2022, but an acceleration in demand showed why the Bank of Canada is unlikely to deviate from its course of rapid interest rate hikes.

After adjusting for inflation, gross domestic product grew at an annualized pace of 3.1 per cent, slowing from 6.6 per cent in the fourth quarter of 2021, Statistics Canada said on Tuesday. While that growth was in line with the central bank’s expectations, it fell short of the median estimate from Bay Street analysts, who called for growth of 5.2 per cent.

The weak spot in Tuesday’s report was international trade, with both exports and imports falling. However, economists were largely upbeat about other details – notably, that consumers and businesses are continuing to spend amid sky-high inflation. Final domestic demand rose 4.8 per cent on an annualized basis, with hefty gains in household spending, business investment and purchases of residential real estate.

The Canadian economy also held up better than other major economies during a first quarter that was jolted by the Omicron variant of COVID-19. For instance, the United States and Japan posted GDP declines at the outset of the year, while growth was muted in the euro zone.

“The relative resilience of the Canadian economy in the quarter may be a broader theme for 2022, aided by its heavy commodity component and a greater capacity to rebound in the service sector following two years of heavy restrictions,” Bank of Montreal chief economist Doug Porter wrote in a note to clients.

Financial analysts said the GDP report was unlikely to redirect the Bank of Canada from its quickest pace of policy tightening in decades. The central bank is widely expected to hike its benchmark interest rate by half a percentage point on Wednesday, taking that rate to 1.5 per cent, as part of its bid to slow inflation, which recently hit a 31-year high of 6.8 per cent.

The bank’s policies are “now geared almost exclusively on scalding inflation – so a modest growth miss is not going to divert coming rate hikes one iota,” Mr. Porter added.

In various respects, the Canadian consumer appears to be in good shape. Compensation of employees rose 3.8 per cent in the first quarter in nominal terms, following a 2-per-cent rise in the fourth quarter. It was the largest growth in compensation since 1981, excluding the third quarter of 2020, when the country was rebounding from the first wave of COVID-19.

Canadians also hung on to more of their money. The household savings rate rose to 8.1 per cent of disposable income from 6.9 per cent – and far above the quarterly average of 3.4 per cent during the 2010s.

Households have amassed a bulk of savings during the pandemic, particularly those in higher income brackets, and that’s helping them to continue spending amid lofty inflation. Household spending rose at an annualized rate of 3.4 per cent, with strong purchases of durable goods.

The flip side is that, because people are able to keep spending, that’s helping to fuel the rapid climb in consumer prices. After Wednesday’s rate decision, several analysts expect the Bank of Canada to hike by another half a percentage point in July – a rapid pace of increases that some households could struggle to adapt to.

This cycle of monetary policy tightening has already led to weaker sales and falling prices in many of Canada’s exuberant housing markets.

However, that shift hadn’t yet materialized in Tuesday’s GDP report. Investment in residential real estate jumped by 18 per cent, on an annualized basis, driven by expenditures on renovations and costs associated with home purchases.

“Another large positive contribution from residential investment clearly won’t be repeated,” Andrew Grantham, senior economist at CIBC Capital Markets, said in a client note.

While trade slipped during the opening months of 2022, Canada’s terms of trade – the ratio between the price of exports and imports – jumped to a record high, owing to the recent surge of commodity prices, such as crude oil and lumber.

Before the Bell: May 31

Equities

Wall Street futures wavered early Tuesday as traders head back to work after a long weekend. Major European markets were mixed after a weaker start. TSX futures wavered despite a jump in crude prices after after the EU agreed to a partial ban on Russian oil.

In the early premarket period, futures tied to all three key U.S. indexes struggled for direction after a choppy overnight period. U.S. markets were closed on Monday. The S&P/TSX Composite Index rose 0.82 per cent on Monday, marking its seventh straight day of gains.

Sentiment drew support from news of easing COVID-19 restrictions in China. Shanghai authorities said they will lift the city’s lockdown from midnight on Wednesday, allowing private cars back on to the roads and people to freely move in and out of low-risk housing compounds, according to a Reuters report. Traders have been cautiously watching the situation in China, concerned that tough COVID-19 controls would impact the broader world economy.

In this country, Canadian investors will get a reading on March and first-quarter gross domestic product growth before the start of trading.

“RBC economists forecast Q1 GDPgrew at a 4.5% rate (annualized; consensus 5.2 per cent),” RBC chief currency strategist Adam Cole said.

“Residential investment is expected to tick lower on a dip in home starts and decelerating home resale markets. Net trade is tracking a sizeable subtraction with exports falling more than imports. But we expect consumer spending rebounded quickly following the disruption to spending on services from the Omicron variant in January.”

On the corporate side, The Globe’s Alexandra Posadzki reports that Rogers Communications Inc. and Shaw Communications Inc. have agreed not to close their $26-billion merger until they either reach a deal with the Commissioner of Competition or win a challenge in front of the Competition Tribunal. Matthew Boswell, the Commissioner of Competition, has filed an application to block the merger of the country’s two largest cable networks, arguing the takeover has already reduced competition for wireless services and would result in higher cellphone bills.

In the U.S., U.S. President Joe Biden and Federal Reserve Chair Jerome Powell are slated to meet at the White House on Tuesday as the Fed continues its campaign of hiking rates.

Wall Street will also get results from HP and Salesforce after the close of trading.

Overseas, the pan-European STOXX 600 slid 0.08 per cent in morning trading. Britain’s FTSE 100 edged up 0.48 per cent. Germany’s DAX and France’s CAC 40 were down 0.30 per cent and 0.66 per cent, respectively.

In Asia, Japan’s Nikkei closed down 0.33 per cent. Hong Kong’s Hang Seng gained 1.38 per cent.

S&P 500 FUTURES

4,138.75-17.00 (-0.41%)

TSX 60 FUTURES

1,257.40-6.00 (-0.47%)

DOW FUTURES

32,979.00-179.00 (-0.54%)

PAST DAY

-0.41%-0.47%-0.54%

CLOSE, MAY 27

6:44 A.M., MAY 31

SOURCE: BARCHART

Commodities

Crude prices jumped in early going after the EU agreed to a partial ban on Russian oil.

The day range on the Brent for July delivery is US$121.60 to US$124.10. The range on West Texas Intermediate is US$116.89 to US$119.43. Both benchmarks look set to close out May with their sixth month of gains.

This week, EU leaders agreed in principle to cut 90 per cent of oil imports from Russia by the end of 2022. The embargo exempts pipeline oil from Russia as a concession to Hungary.

“The price action by oil this past week has been ominous, suggesting that supplies of refined products is getting worse, and not better,” OANDA senior analyst Jeffrey Halley said.

“The EU oil ban on Russia further complicates that picture and I am wondering how long markets can continue bottom-fishing elsewhere while ignoring oil’s price rise.”

Sentiment also drew support from news that Shanghai will end its two-month long COVID-19 lockdown, allowing most residents to leave their homes and drive vehicles starting Wednesday.

Later in the week, members of the OPEC+ group are scheduled to meet to discuss production levels. Early reports suggest that the group will stick to its current plan of hiking output by 432,000 barrels per day.

Elsewhere, gold prices eased as the U.S. dollar firmed.

U.S. gold futures were nearly flat at US$1,858.00.

WTI

US$118.55+3.48 (3.02%)

HIGH GRADE COPPER

US$4.33+0.03 (0.62%)

SPOT GOLD

US$1,854.00-3.30 (-0.18%)

PAST DAY

3.02%0.62%-0.18%3.02%0.62%-0.18%

CLOSE, MAY 27

7:12 A.M., MAY 31

SOURCE: BARCHART

WTI

US$118.55+3.48 (3.02%)

HIGH GRADE COPPER

US$4.33+0.03 (0.62%)

SPOT GOLD

US$1,854.00-3.30 (-0.18%)

PAST DAY

CLOSE, MAY 27

7:12 A.M., MAY 31

SOURCE: BARCHART

Currencies

The Canadian dollar was weaker as its U.S. counterpart steadied against a group of world currencies.

The day range on the loonie is 78.83 US cents to 79.04 US cents.

Traders will be watching March and first-quarter GDP figures later in the morning. Those numbers come ahead of Wednesday’s Bank of Canada rate decision.

On world markets, the U.S. dollar index was at 101.71, having fallen to a five-week low of 101.29 overnight, according to figures from Reuters.

The euro was at US$1.0737, down 0.4 per cent, having hit a five-week high of $1.0786 overnight. The euro is set for a 2.2-per-cent gain in May. That would be the biggest monthly rise in a year.

In bonds, the yield on the benchmark U.S. 10-year note edged up and was at 2.821 per cent by early Tuesday morning.

More company news

Cenovus Energy Inc said on Tuesday it would restart its West White Rose project offshore Newfoundland and Labrador

South African miner Gold Fields Ltd agreed to buy Canada-based precious metals miner Yamana Gold Inc in an all-share deal valuing the Toronto-listed company at US$6.7-billion. Gold Fields said its shareholders will own about 61 per cent of the combined group, while Yamana Gold shareholders will own around 39 per cent after the deal completes.

Unilever named activist investor Nelson Peltz as a new board member on Tuesday after his Trian Fund Management disclosed a 1.5-per-cent stake in the consumer goods giant. Unilever said it had held “extensive and constructive discussions” with Peltz, who will join as a non-executive director from July.

Economic news

(830 am ET) Canada real GDP for the first quarter.

(9 am ET) S&P Corelogic Case-Shiller 20-city Home Price Index.

(945 am ET) Chicago PMI.

(10 am ET) Conference Board Consumer Confidence Index for May.

With Reuters and The Canadian Press

(33) Gravitas Plus: Which countries could go the Sri Lanka way – YouTube

PUBLISHED MON, MAY 30 202212:50 AM EDT

• Brent crude futures gained 46 cents, or 0.4%, to $119.89 a barrel at 0111 GMT.
• U.S. West Texas Intermediate (WTI) crude futures jumped 60 cents, or 0.5%, to $115.67 a barrel, extending solid gains from last week.

https://www.cnbc.com/2022/05/30/oil-markets-russia-european-union.html

CGI completes acquisition of French-based Harwell Management to offer a broader range of financial consulting services

Paris, France, May 30, 2022

CGI (NYSE: GIB) (TSX: GIB.A) has completed, through its subsidiary CGI France SAS (“CGI France”), the previously announced acquisition of Harwell Management, a leading management consulting firm specializing in financial services for the French market. As the demand for management consulting services rises worldwide, CGI continues to broaden its capabilities to ensure the delivery of end-to-end capabilities, deep industry knowledge and experience, close collaboration, and trusted partnership for clients in France and across the globe.

Founded in 2009, Harwell Management has 150 employees who will join CGI Business Consulting in France, expanding its offerings in various financial services segments, including retail banking, corporate and investment banking, capital markets, insurance and healthcare mutuals, as well as other specialized financial services, such as leasing, personal financing and factoring.

https://www.cgi.com/en/cgi-completes-acquisition-french-based-harwell-management-offer-broader-range-financial-consulting-services#:~:text=Paris%2C%20France%2C%20May%2030%2C%202022%20CGI%20%28NYSE%3A%20GIB%29,specializing%20in%20financial%20services%20for%20the%20French%20market.