Category: Market Action

So much for the rally! The market’s back to normal …

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The market turnaround is being ascribed to dovish hopes for the Fed:

Comments by U.S. Federal Reserve Chair Jerome Powell that interest rates were “just below” neutral propelled Wall Street higher on Wednesday, easing investor worries about the pace of interest rate hikes next year.

Hopes that the United States and China could call a trade war ceasefire at the upcoming G20 summit also helped stocks.

Meanwhile, the U.S. dollar retreated with potentially fewer rate increases on the horizon, and sterling rose after the Bank of England said the economy could shrink by as much as 8 per cent in about a year after a no-deal Brexit.

Equity investors reacted favorably to the comments by Powell, who indicated there may not be as many future interest rate hikes from the central bank as was initially anticipated.

The meaty section of Powell’s actual speech was:

Outlook and Monetary Policy

Congress assigned the Federal Reserve the job of promoting maximum employment and price stability. I am pleased to say that our economy is now close to both of those objectives. The unemployment rate is 3.7 percent, a 49-year low, and many other measures of labor market strength are at or near historic bests. Inflation is near our 2 percent target. The economy is growing at an annual rate of about 3 percent, well above most estimates of its longer-run trend.

For seven years during the crisis and its painful aftermath, the Federal Open Market Committee (FOMC) kept our policy interest rate unprecedentedly low–in fact, near zero–to support the economy as it struggled to recover. The health of the economy gradually but steadily improved, and about three years ago the FOMC judged that the interests of households and businesses, of savers and borrowers, were no longer best served by such extraordinarily low rates. We therefore began to raise our policy rate gradually toward levels that are more normal in a healthy economy. Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy‑‑that is, neither speeding up nor slowing down growth. My FOMC colleagues and I, as well as many private-sector economists, are forecasting continued solid growth, low unemployment, and inflation near 2 percent.

There is a great deal to like about this outlook. But we know that things often turn out to be quite different from even the most careful forecasts. For this reason, sound policymaking is as much about managing risks as it is about responding to the baseline forecast. Our gradual pace of raising interest rates has been an exercise in balancing risks. We know that moving too fast would risk shortening the expansion. We also know that moving too slowly–keeping interest rates too low for too long–could risk other distortions in the form of higher inflation or destabilizing financial imbalances. Our path of gradual increases has been designed to balance these two risks, both of which we must take seriously.

We also know that the economic effects of our gradual rate increases are uncertain, and may take a year or more to be fully realized. While FOMC participants’ projections are based on our best assessments of the outlook, there is no preset policy path. We will be paying very close attention to what incoming economic and financial data are telling us. As always, our decisions on monetary policy will be designed to keep the economy on track in light of the changing outlook for jobs and inflation.

Under the dual mandate, jobs and inflation are the Fed’s meat and potatoes. In the rest of my comments, I will focus on financial stability–a topic that has always been on the menu, but that, since the crisis, has become a more integral part of the meal.

It doesn’t seem all that dovish to me, but then I’m not trying to convince my clients that these are turbulent times in which Skilled Fed Watchers examine the entrails of Powell’s chickens between naps.

The Canadian preferred share market was on wheels today.

TXPR closed 647.04, up 0.96% (on a price basis). Volume was on the high side in the context of the last thirty days, but nothing special.

CPD closed at 12.93, up 0.47%. Volume was about average in the context of the last thirty days.

ZPR closed at 10.59, up 0.67%. Volume was the fourth-highest of the past thirty days, exceeded only by November 27, November 16 and October 29.

PerpetualDiscounts now yield 5.94% (!), equivalent to 7.72% at the standard equivalency factor of 1.3x. Long corporates now yield about 4.20%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 350bp (!), a significant widening from the 340bp reported November 21.

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Today we learned that the recent – ongoing – market collapse is all the Fed’s fault:

President Trump placed responsibility for recent stock market declines and this week’s General Motors plant closures and layoffs on the Federal Reserve during an interview Tuesday, shirking any personal responsibility for cracks in the economy and declaring that he is “not even a little bit happy” with his hand-selected central bank chairman.

In a wide-ranging and sometimes discordant 20-minute interview with The Washington Post, Trump complained at length about Federal Reserve Chairman Jerome H. “Jay” Powell, whom he nominated earlier this year. He argued that rising interest rates and other Fed policies were damaging the economy — as evidenced by GM’s announcement this week that it was laying off 15 percent of its workforce — though he insisted that he is not worried about a recession.

“I’m doing deals, and I’m not being accommodated by the Fed,” Trump said. “They’re making a mistake because I have a gut, and my gut tells me more sometimes than anybody else’s brain can ever tell me.”

Well, I said on October 29:

Trump trying to pick a fight with the Fed (I think this is probably because he wants some political cover in case a US slowdown does occur to a noticeable degree)

Not the most astute prediction I’ve ever made, but it’s nice to have a winner nevertheless! And, of course, Trump’s huffing and puffing with his version of crony capitalism:

U.S. President Donald Trump said Tuesday that he was “very disappointed” that General Motors was closing plants in the United States and warned that the White House was “now looking at cutting all GM subsidies,” including for its electric cars program.

Trump unleashed on Twitter a day after GM announced it would shutter five plants and slash 14,000 jobs in North America, with many of the job cuts coming from the U.S.Midwest, where the president has promised a manufacturing rebirth.

Politicians are afraid to say it: highly paid manufacturing jobs will all disappear in the near future. Anything repetitive and finicky can be done better by a robot – it’s just a matter of time and money and not too much of those. But in the meantime, there are real people experiencing real pain, so they have to huff and puff.

But the market – according to the chatteratti – is so desperate for good news it will take anything!

The S&P 500 and Dow edged higher on Tuesday after White House economic adviser Larry Kudlow said a meeting between President Donald Trump and his Chinese counterpart on Saturday was an opportunity to “turn the page” on a trade war.
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All three major U.S. indexes turned positive after spending much of the session in negative territory, after Kudlow’s comments days ahead of the high-stakes dinner between the two leaders after the G20 summit in Buenos Aires.

But Kudlow also said the White House has been disappointed so far in China’s response to trade issues with the United States. On Monday, Trump threatened to move ahead with additional tariffs on Chinese goods, due to take effect on Jan. 1.

But what a day it was!

TXPR touched a new 52-week low of 632.64 (1.02% down from yesterday‘s close) before closing at 640.91, up 0.28%. Volume was enormous at 4.21-million (shares in the underlying issues, I thing), easily the highest of the last thirty days.

CPD touched a new 52-week low of 12.63 (down 1.48% from yesterday’s close) before closing at 12.87, up 0.39%. Volume was the second-highest of the last thirty days (far ahead of yesterday’s), exceeded only by November 20.

ZPR touched a new 52-week low of 10.34 (down 1.43% from yesterday’s close) before closing at 10.52, up 0.29%. Volume was the third highest of the past thirty days, exceeded only by November 16 and October 29.

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Grim news from Government Motors didn’t help the mood:

General Motors said Monday that it planned to idle five factories in North America and cut more than 14,000 blue-collar and salaried jobs in a bid to trim costs.

The action follows similar job-cutting moves by Ford Motor in the face of slowing sales and a shift in consumer tastes, driven in part by low gasoline prices.

The five G.M. plants will halt production next year, resulting in the layoff of 3,300 production workers in the United States and about 3,000 in Canada. The company also aims to trim its salaried staff by 8,000.

Why do we subsidize them? Because they’re good jobs. Why are they good jobs? Because they’re subsidized.

TXPR closed at a new 52-week low of 639.14, down 0.94%. Volume was about average in the context of the last thirty days.

CPD touched a new 52-week low of 12.81 before closing at 12.82, down 1.08%. Volume was the second-highest of the last thirty days, exceeded only by November 20.

ZPR touched a new 52-week low of 10.47 before closing at 10.49, down 1.13%. Volume was high side in the context of the last thirty days, but not extraordinarily so. The high-volume days were at the end of October.

The Canadian jobs report was ho-hum:

The Canadian economy added 11,200 jobs in October on higher full-time hiring, and the unemployment rate dipped to 5.8 per cent, although wage growth was sluggish, Statistics Canada data indicated on Friday.
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Although full-time jobs rose by 33,900 compared to a loss of 22,600 part-time positions, the labour participation rate dropped to 65.2 per cent, its lowest since October, 1998.

And the average year-over-year wage growth of permanent employees – a figure closely watched by the Bank of Canada – fell to just 1.9 per cent, the lowest since the 1.7 per cent recorded in August 2017.

Meanwhile, in the States:

• ■ 250,000 jobs were added last month.
• ■ The unemployment rate was unchanged at 3.7 percent, a nearly 50-year low.
• ■ Average earnings rose by 0.2 percent and are up 3.1 percent over the past year.
• ■ The number of people working or looking for a job increased by 711,000, nudging the labor force participation rate up to 62.9 percent, from 62.7 percent in September.

But so much for the rally!

A steep decline in shares of Apple Inc. further weighed on sentiment in the U.S. stock market after the iPhone maker warned that sales during the crucial holiday quarter would likely miss expectations.

White House economic adviser Larry Kudlow told CNBC that while President Donald Trump plans to meet China President Xi Jinping later this month, he has not asked U.S. officials to draw up a proposed trade plan, contradicting a report earlier in the day that had buoyed hopes of a trade dispute resolution.

That erased early gains in U.S. stocks and curtailed a rally in global markets that had lifted emerging market stocks by their largest daily gain since 2016.
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The Dow Jones Industrial Average fell 111.34 points, or 0.44 per cent, to 25,269.4, the S&P 500 lost 17.6 points, or 0.64 per cent, to 2,722.77 and the Nasdaq Composite dropped 77.06 points, or 1.04 per cent, to 7,356.99.

Apple’s shares tumbled nearly 7 per cent, taking its market value below $1-trillion, after the company said sales for the final quarter would likely miss expectations.

In Toronto, Canada’s main stock index also erased early gains on Friday.

The Toronto Stock Exchange’s S&P/TSX composite index unofficially closed down 0.2 per cent, or 30.87 points, at 15,119.28.

No cashiers here!

Think of it as the ultimate self check-out experience. Instead of waiting for someone to ring up your grocery items, customers can now simply pick out what they need, scan an app and walk out of the store.

Amazon started it first with its cashier-less Amazon Go store, but now Sam’s Club (owned by Walmart) is following suit with its Sam’s Club Now store, which will open in Dallas next month.

It’s a relatively simple concept that requires zero cashiers. Customers use the Sam’s Club Scan & Go app to add products to their receipt as they shop. When they’re done shopping, customers pay through the app with a single click and just walk out of the store. Instead of traditional checkout lines, there are 700 cameras to keep customers honest and monitor inventory.

Fortunately, Canadian retailers don’t have to worry about all this technology guff – we’ve got cheap labour! Productivity, schmoductivity!

There haven’t been too many good days this month, but we’re closing on a good note!

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The TXPR price index was up 1.69% today after six straight trading days of losses; it was only the sixth gain in the month and most of the other five were pretty skimpy!

PerpetualDiscounts now yield 5.80%, equivalent to 7.54% interest at the standard equivalency factor of 1.3x. Long corporates now yield a little over 4.15%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 340bp, a slight (and perhaps spurious) widening from the 335bp reported October 24.

The equity markets did well today:

Broad gains in the U.S. equity market boosted a measure of global stock markets on Tuesday after President Donald Trump said a “great deal” could be struck with China that would relieve fears of a growing trade war between the world’s two largest economies.

MSCI’s gauge of stocks across the globe gained 1 per cent. Still, the index is down nearly 9 per cent for the month.
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Trump said during an interview with Fox News late on Monday that he thought there could be an agreement with China on trade. But he also said he had billions of dollars worth of new tariffs ready to be imposed if a deal was not possible.

The Dow Jones Industrial Average rose 431.96 points, or 1.77 per cent, to 24,874.88, the S&P 500 gained 41.39 points, or 1.57 per cent, to 2,682.64 and the Nasdaq Composite added 111.36 points, or 1.58 per cent, to 7,161.65.

The gains were broad in the U.S., with all 11 sectors of the benchmark S&P index up for the day. Trade-sensitive industrial shares rose 2 per cent.

Correlation is not causation and I’m pretty skeptical of the claim that suddenly kindled trade hopes were at the bottom of this. But then, I’m not a talking head with a desperate need to make everything sound clear and logical!

Somebody forgot to tell the preferred market about the wonderful news: TXPR was down 0.66%, touching a new 52-week low of 669.90 … it spend a good chunk of the day near that level, down 1.25% or so; volume, at 3.81-million (constituent) shares, was the second-highest for the month; CPD hit a new low of 13.37, with about $3.6-million worth being traded, the highest volume of the month by far; and ZPR hit a new 52-week low of 11.005 on its second-highest volume of the month, which was only a little more than half of yesterday’s volume.