Category: Market Action

What a great day! Only one of the mainstream indicators made a new 52-week low!

TXPR closed at 575.74, up 0.11% on the day. Volume was 2.18-million, nothing special in the context of the past 30 days.

CPD closed at 11.52, up 0.17% on the day. Volume of 97,108 was above median but nothing special in the context of the past 30 days.

ZPR closed at 9.15, unchanged on the day after touching a new 52-week low of 9.145. Volume of 111,979 was a little above average but nothing special in the context of the past 30 days.

Five-year Canada yields were up 5bp to 1.33% today.

There was good news for Poloz in today’s inflation numbers:

The Canadian dollar strengthened against its U.S. counterpart on Wednesday, recovering from a two-month low it hit the previous day after stronger-than-expected domestic inflation data, but earlier gains were capped as the greenback rallied broadly.

The U.S. dollar gained against a basket of currencies after minutes from the Federal Reserve’s July meeting showed that policy-makers were united in wanting to avoid the appearance of being on the path to further rate cuts.

Canada’s annual inflation rate held steady in July at 2 per cent as lower costs for services were offset by higher prices for durable goods. Analysts had expected the annual rate to fall to 1.7 per cent from 2 per cent in June.
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Canada’s retail sales data is due on Friday, with a Reuters poll forecasting a 0.1 per cent decrease, which could help guide expectations about the Bank of Canada’s interest rate decision.

Canadian government bond prices were lower across the yield curve, with the two-year down 10 cents to yield 1.395 per cent and the 10-year falling 53 cents to yield 1.213 per cent.

Each of the mainstream indicators made a new 52-week low today. This is getting monotonous.

TXPR closed at 575.08, down 0.41% on the day after touching a new 52-week low of 574.94. Volume was 2.44-million, above average but nothing special in the context of the past 30 days.

CPD closed at 11.50, a new 52-week low and down 0.26% on the day. Volume of 73,613 was above median and nothing special in the context of the past 30 days.

ZPR closed at 9.15, a new 52-week low and down 0.11% on the day. Volume of 163,912 was a little above average but nothing special in the context of the past 30 days.

Five-year Canada yields were up 8bp to 1.28% today.

PerpetualDiscounts now yield 5.58%, equivalent to 7.25% interest at the standard equivalency factor of 1.3x. Long corporates now yield 3.15%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened to an eye-popping 410bp, a new post-Credit Crunch record (second only to the 445bp recorded November 26, 2008, a day on which

The TXPR index was down 5.94% on the BCE news.

) and a slight (and possibly spurious) widening from the 405bp the reported August 14.

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Each of the mainstream indicators made a new 52-week low today.

TXPR closed at 577.43, a new 52-week low and down 0.56% on the day. Volume was 2.40-million, above average but nothing special in the context of the past 30 days.

CPD closed at 11.53, a new 52-week low and down 0.69% on the day. Volume of 138,446 was above average but nothing special in the constext of the past 30 days.

ZPR closed at 9.16, a new 52-week low and down 0.97% on the day. Volume of 249,098 was high but oddly the “Price History” tab on tmxmoney refuses to display data for this issue. Yahoo Finance comes through with the information that today had the third-highest volume of the past thirty days, behind August 13 and August 14.

Five-year Canada yields were down 2bp to 1.20% today.

Mohamed A. El-Erian has again updated my favourite financial market chart:

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He also passed on another great chart:

Along with the chart showing that the stock of negative-yielding bonds now stands at some $17 trillion, this one, via Zerohedge on Austria’s 100-year bond, screams how unusual — very very very unusual — conditions are in global fixed income.

Issued two years ago with a yield of 2.1%, its price has doubled … implying that, if held to maturity, buyers today would recoup half of their investment.

Look tonight for a Bloomberg Opinion post on a related issue.

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Husky, which has been a feature on the price-movement highlights charts recently, saw a modest counter-move today:

Shares in Husky Energy Inc. are up by about five per cent after an RBC Dominion Securities analyst suggested its low share price makes this a good time for the company to be taken private.

The stock jumped by as much as 47 cents to $9.24 on Monday morning, still well off its 52-week high of $22.98 set last Sept. 27.

In a report over the weekend, analyst Greg Pardy suggests that Husky’s near-15-year-low share prices make privatization attractive for the entities controlled by Hong Kong billionaire Li Ka-Shing which own 69.5 per cent of the equity.

There was more good news, of sorts, today: neither CPD nor ZPR made a new low!

TXPR closed at 580.66, down 0.07% on the day after setting a new 52-week low of 580.61. Volume was 1.54-million, the lowest since August 2 and nothing special in the context of the past 30 days.

CPD closed at 11.61, up 0.09% on the day. Volume of 84,120 was at about the median of the past 30 days.

ZPR closed at 9.25, up 0.22% on the day. Volume of 66,962 was very low in the context of the past thirty days.

Five-year Canada yields were up 2bp to 1.22% today.

So what’s going on with Structured Notes? BMO’s page shows JHN12544, to be issued August 21 with a seven year term; and JHN12545, to be issued August 21 with a seven year term. TD’s page shows Series 416 to be issued August 26 with a seven year term. National’s page shows nothing cooking after one was issued August 2 and four issued in July.

More sabre rattling in Trump’s trade war:

China signaled on Thursday that it might continue to weaken its currency, a move that threatens to again escalate the trade war with the United States.

China’s central bank set the midpoint of the renminbi’s daily trading range above 7 to the American dollar for the first time in more than a decade. Thursday’s move in effect tells financial markets that Beijing expects the renminbi to continue to weaken versus the dollar, perhaps well past the 7-to-the-dollar level.
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The move by the People’s Bank of China in itself will not change the economics of the Chinese-American trade relationship. China on Thursday set the currency’s midpoint at 7.0039 to the dollar, compared with the 6.9996 point it set on Wednesday. China tightly controls trading of its currency, with that midpoint determining the center of a narrow range in which the renminbi can strengthen or weaken during the day.

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Well, if Trump loses his trade war and tips the US into a recession, he’s got his excuse prepared:

Donald Trump lashed out at the U.S. central bank on Wednesday, accusing the Federal Reserve’s interest rate policy with holding back the economy from winning a trade war he is trying to wage with China.

In a series of tweets on Wednesday, U.S. President Donald Trump blamed the central bank for not initiating interest rate cuts that are “bigger and faster” for the current turmoil in financial markets.
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“Our problem is a Federal Reserve that is too proud to admit their mistake of acting too fast and tightening too much (and that I was right!). They must Cut Rates bigger and faster, and stop their ridiculous quantitative tightening NOW,” he said.

TXPR closed at 599.18, down 1.11% on the day. Volume was 2.63-million, second only to July 19 in the past 30 days.

CPD closed at 11.96, down 1.24% on the day. Volume of 267,654 was the highest of the past thirty days, edging out July 31‘s 258,950.

ZPR closed at 9.56, down 1.54% on the day. Volume of 242,011 was the highest of the past 30 days, trouncing July 18‘s volume of 177,940.

Five-year Canada yields were up 1bp to 1.23% today.

PerpetualDiscounts now yield 5.57%, equivalent to 7.24% interest at the standard equivalency factor of 1.3x. Long corporates now yield 3.33%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) remains at an amazing 390bp, the same as that reported July 31.

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Trump’s trade war heated up over the long weekend:

The trade war between the United States and China entered a more dangerous phase on Monday, as Beijing allowed its currency to weaken, Chinese enterprises stopped making new purchases of American farm goods and President Trump indicated he would look for ways to retaliate.

The escalation shook world markets on Monday, as nervous investors looked for safe places to park their money. Wall Street suffered its worst day of the year, with the S&P 500 closing down nearly 3 percent. Selling was especially heavy in the trade-sensitive technology, consumer discretionary and industrial sectors. Yields on United States Treasuries, which fall as prices rise, dropped as investors sought safety in government-backed bonds. Benchmark indexes in Asia and Europe also fell.

Mohamed A. El-Erian posted on Facebook:

With today’s move, the entire yield curve for government bonds in Germany closed at negative levels.

This will take the stock of negative-yielding bonds worldwide to some $15 trillion.

Given what has occurred since European markets closed, look for both to get worse tomorrow.

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One of those events was a declaration by the US Treasury:

Late Monday, the Treasury took the unusual step of labeling China a currency manipulator — the first time it has done so since 1994. In a statement, the Treasury said that Steven Mnuchin, the Treasury secretary, “will engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions.”

The action is mostly symbolic, requiring the administration to consult with the International Monetary Fund to try to eliminate the unfair advantage the currency measures have given a country. But China is likely to view the label as a rebuke, further escalating pressures between the countries.

The move will finally fulfill Mr. Trump’s campaign pledge to designate China a currency manipulator. As a presidential candidate, Mr. Trump was sharply critical of China’s currency practices and promised to label China a manipulator if elected.

Until Monday, Mr. Trump’s Treasury had declined to apply the label to China in the five currency reports it issued since the president took office. Instead, it has said the United States has deep concerns about China’s intervention in its currency.

For all that, the effect on Canadian major markets was muted:

Canada’s main stock index fell on Tuesday, hurt by a slide in energy and financial sectors amid heightened trade tensions between the United States and China.

The Toronto Stock Exchange’s S&P/TSX Composite index was down 122.17 points, or 0.75 per cent, at 16,149.49.

TXPR closed at 605.92, down 0.62% on the day. Volume was 1.72-million, slightly above the median of the past thirty days.

CPD closed at 12.11, down 0.86% on the day. Volume of 66,608 was slightly above the median of the past thirty days.

ZPR closed at 9.71, down 1.32% on the day. Volume of 101,277 was near the median of the past 30 days.

Five-year Canada yields were down 8bp to 1.37% today.

The BoC has released a staff analytical note titled Relative Value of Government of Canada Bonds:

We identify factors that are important for explaining why similar Government of Canada (GoC) bonds can have different values. For bonds that are expensive, we find they have higher trading volume and higher rental income. These factors can make these bonds more expensive than similar bonds, by up to 5 bps. For the cheap bonds, we find that they tend to have longer tenors and times to maturity. These bonds are typically harder and costlier to trade. Market participants may therefore value them less. The importance of rental income for GoC bond values suggests that a cap on rental income could hinder the ability of these bonds to reach their market value. This could lead to misallocation of these bonds among the buyers and sellers who value them most.

Yup. That’s why you have to be very careful when backtesting long-short hedge strategies! The borrow rates on expensive bonds can kill you!

RBC Wealth Management released some survey results (emphasis from original):

High-income Canadians are optimistic they will meet their goals, yet find wealth management topics complicated
Of the 48% of respondents who are not as wealthy as they thought they would be, almost three quarters (73%) believe they will reach their financial goals before retirement. This optimism seems to be at odds with their confidence when it comes to aspects of wealth management topics, with the majority agreeing the following topics are challenging:

Knowing which information to trust (78%)
Staying on top of what’s happening in the financial markets (76%)
Using tax strategies to minimize taxes (71%)
Ensuring they don’t outlive their assets during retirement (70%)
Understanding the use of insurance in a financial plan (66%)

Interesting survey from the UK:

Concerns putting people off accessing impartial professional retirement planning advice

44% of people are put off by the perceived cost of advice
45% fear that the financial adviser would not act in their best interests.