Category: Market Action

Click for Big

TXPR closed at 599.07, down 0.61% on the day. Volume was 1.89-million, well below average in the context of the past thirty days.

CPD closed at 11.97, down 0.50% on the day. Volume of 96,361 was above the median in the context of the past 30 days.

ZPR closed at 9.56, down 0.42% on the day. Volume of 266,063 was third-highest of the past 30 days, behind only October 30 and October 2.

Five-year Canada yields were down 4bp to 1.42% today.

The Bank of Canada policy rate announcement was no surprise:

The Bank of Canada today maintained its target for the overnight rate at 1 ¾ percent. The Bank Rate is correspondingly 2 percent and the deposit rate is 1 ½ percent.

The outlook for the global economy has weakened further since the Bank’s July Monetary Policy Report (MPR). Ongoing trade conflicts and uncertainty are restraining business investment, trade, and global growth. A growing number of countries have responded with monetary and other policy measures to support their economies. Still, global growth is expected to slow to around 3 percent this year before edging up over the next two years. Canada has not been immune to these developments. Commodity prices have fallen amid concerns about global demand. Despite this, the Canada-US exchange rate is still near its July level, and the Canadian dollar has strengthened against other currencies.

Growth in Canada is expected to slow in the second half of this year to a rate below its potential. This reflects the uncertainty associated with trade conflicts, continuing adjustment in the energy sector, and the unwinding of temporary factors that boosted growth in the second quarter. Business investment and exports are likely to contract before expanding again in 2020 and 2021. At the same time, government spending and lower borrowing rates are supporting domestic demand, and activity in the services sector remains robust. Employment is showing continuing strength and wage growth is picking up, although with some variation among regions. Consumer spending has been choppy, but will be supported by solid income growth. Meanwhile, housing activity is picking up in most markets. The Bank continues to monitor the evolution of financial vulnerabilities in light of lower mortgage rates and past changes to housing market policies.

The Bank projects real GDP will grow by 1.5 percent this year, 1.7 percent in 2020 and 1.8 percent in 2021. This implies that the current modest output gap will narrow over the projection horizon. Measures of inflation are all around 2 percent. CPI inflation likely will dip temporarily in 2020 as the effect of a previous spike in energy prices fades. Overall, the Bank expects inflation to track close to the 2 percent target over the projection horizon.

All things considered, Governing Council judges it appropriate to maintain the current level of the overnight rate target. Governing Council is mindful that the resilience of Canada’s economy will be increasingly tested as trade conflicts and uncertainty persist. In considering the appropriate path for monetary policy, the Bank will be monitoring the extent to which the global slowdown spreads beyond manufacturing and investment. In this context, it will pay close attention to the sources of resilience in the Canadian economy – notably consumer spending and housing activity – as well as to fiscal policy developments.

Still no reporting of the voting and any reasons for dissent. Drives me crazy.

David Parkinson of the Globe reports:

The Canadian dollar fell immediately after the bank’s decision, to 76 US cents from 76.45 US cents prior to the announcement. It closed the day’s trading at 76 US cents. Bond market pricing also indicated that traders now see a nearly 30-per-cent chance of a quarter-point cut at the Bank of Canada’s next rate-setting decision, in December, up from 13 per cent a day earlier.

The Federal Reserve’s Open Market Committee also met and cut their policy rate by 25bp:

Information received since the Federal Open Market Committee met in September indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports remain weak. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent. This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles. Voting against this action were: Esther L. George and Eric S. Rosengren, who preferred at this meeting to maintain the target range at 1-3/4 percent to 2 percent.

Jeanna Smialek of the New York Times reports:

The Fed chair, Jerome H. Powell, said that while “there’s plenty of risk left,” there are signs that some challenges are subsiding, including the possibility of a limited trade deal between the United States and China and a negotiated exit for Britain from the European Union.

This week’s decision to lower rates was intended to “provide some insurance against ongoing risks,” Mr. Powell said, adding that the United States economy remains strong. “Over all, we see the economy as having been resilient to the winds that have been blowing this year,” he said.
…
The Fed has now reduced its policy rate by a cumulative 0.75 percentage point this year, just as it did during two mid-business-cycle interest rate adjustments in the 1990s. While those insurance cut cycles were eventually reversed — the Fed returned to interest rate increases — Mr. Powell indicated that increases were not on the table unless inflation showed signs of moving higher. Price gains have been falling short of the Fed’s 2 percent target for years, making that unlikely.

PerpetualDiscounts now yield 5.38%, equivalent to 6.99% interest at the standard equivalency factor of 1.3x. Long corporates now yield 3.43%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed slightly (and perhaps spuriously) to 355bp from the 360bp reported October 23.

Edmonton’s getting a drone port!

We may not have flying pizza delivery robots in Canada yet, but the commercial drone industry is no joke — and we’re at the forefront of it.

Drone Delivery Canada Corp., which in June signed a partnership agreement with Air Canada, announced today that it is officially moving forward with the establishment of “the world’s first airport drone delivery hub” at Edmonton International Airport.

The Vaughan, ON-based tech company intends to use its “proprietary drone delivery platform” to move products to and from the airport using specific takeoff and landing zones designated for drones.

PerpetualDiscounts now yield 5.41%, equivalent to 7.03% interest at the standard equivalency factor of 1.3x. Long corporates now yield 3.42%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) remains at the 360bp reported October 16.

Great news! FAIR Canada, that superannuation scheme for surplus regulatory staff is on its last legs:

The primary advocacy group for Canadian investors is facing extinction after it has returned a $2-million grant, unable to raise matching funds.

The Canadian Foundation for the Advancement of Investor Rights, known as FAIR Canada, has given back money provided in 2012 by Stephen Jarislowsky, the founder of investment firm Jarislowsky Fraser Ltd. Mr. Jarislowsky provided the endowment funding on the condition that FAIR found two-for-one matching money within two years.

FAIR Canada received $2-million from the Ontario Securities Commission as part of the match, but has fallen short since and required multiple extensions on the Jarislowsky deadline.
…
All told, the self-regulatory IIROC and its predecessors have given FAIR Canada a total of $4.9-million over the years. In the fall of 2018, it gave a $250,000 grant from its restricted fund that comes from fines and settlements.