Category: Market Action

TD continues to have problems:

Clearly TD Canada has sent a message to us that customer service is not a priority and is STILL not prepared to handle the growing volume of Traders out there. And so, I have begun the transfer of my funds from my Webbroker to another platform. This should be completed within the week. I have decided on Qtrade. And I will in the next while prepare for a complete withdraw of all of my money into another bank or credit union. This will need some thoughtful consideration.

I understand that Banks, like any other business, want to keep their shareholders happy. However, a complete disregard of us, the customer, this past week is quite remarkable. With the billions that this company made in its last quarter, my loss of business will not affect them at all. But I know that I am going to feel much better knowing that TD Canada will never again disrespect me this way again. Shame!

Qtrade…you’re up.

Click for Big

The preferred share market continued to show good strength today, probably in response to continued chatter about a policy hike:

On Monday, Bank of Montreal became the last major Canadian bank to change its forecast for next week to a rate hike. That followed the release of the central bank’s latest quarterly survey, which showed a generally robust outlook for the country’s sales and businesses investment.

… and five-year Canadas now yield 1.97%!

Jobs, jobs, jobs! Not so much in the US…:

U.S. payroll gains slowed by more than forecast in December, wages picked up slightly and the jobless rate held at the lowest level since 2000, adding to signs of a full-employment economy.

Employers added 148,000 workers, compared with the 190,000 median estimate of economists surveyed by Bloomberg, held back by a drop in retail positions, a Labor Department report showed Friday. The jobless rate was at 4.1 percent for a third month, while average hourly earnings increased by 2.5 percent from a year earlier, after a 2.4 percent gain in November that was revised downward.

US markets were mildly impressed (insofar as one can assign cause and effect to market moves, which you generally can’t, but impresses the hoi polloi):

Treasuries slumped and the dollar was flat after a report showed U.S. payroll gains slowed by more than forecast in December, wages picked up slightly and the jobless rate held at the lowest level since 2000. The S&P 500 Index powered to a fresh record and registered its best week since December 2016 as investors looked past the jobs miss, speculating that Republican tax cuts will lead to higher corporate earnings. The Dow Jones Industrial Average and Nasdaq Composite Index also hit all-time highs.
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The yield on 10-year Treasuries rose two basis points to 2.47 percent.

Meanwhile, in the frozen north:

Canada’s unemployment rate plunged to the lowest in more than 40 years, suddenly raising the odds of a Bank of Canada rate hike this month.

The jobless rate fell to 5.7 percent in December, Statistics Canada said Friday in Ottawa, the lowest in the current data series that begins in 1976. The number of jobs rose by 78,600, beating expectations and bringing the full-year employment gain to 422,500. That’s the best annual increase since 2002.

The economy showed unexpected resiliency as the year came to an end, with the figures indicating rapidly diminishing slack in the labor market that may quicken the expected pace of interest-rate increases by the Bank of Canada. Since September, Canada added 193,400 jobs — the biggest three-month gain since at least 1976.
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Canadian bond yields and the currency soared on the surprisingly strong jobs data. The loonie strengthened to C$1.2376 per U.S. dollar, the strongest since September. The dollar buys 80.79 U.S. cents.

Bond prices plunged on expectations the jobs report may prompt the central to raise rates as early as this month. The yield on the two-year government of Canada bond jumped six basis points to 1.77 percent, close to a seven-year high. The odds of a rate hike at the Bank of Canada’s next meeting on Jan. 17 soared to 70 percent, from 40 percent yesterday, based on trading in the swaps market.

… and the banks – renowned for their forecasting prowess, provided you ignore completely random events like call volumes going up at the beginning of the year – are in a tizzy:

All but one of Canada’s six biggest commercial lenders now say the central bank will raise interest rates this month after the jobless rate dropped to its lowest in modern records.

Toronto-Dominion Bank, Bank of Nova Scotia, Royal Bank of Canada and the Canadian Imperial Bank of Commerce changed their forecasts after a Statistics Canada report Friday showed the unemployment rate unexpectedly fell to 5.7 percent in December, from 5.9 percent the previous month, on the strength of 78,600 new jobs.

At the end of the day, Perimeter reports three-month bills at 1.12% and five-year bonds at 1.96 – well above their Monday levels of 1.07% and 1.89%, respectively.

The Globe has a good story today highlighting the excellent planning and accurate forecasting of the banks’ investment industry hegemony:

But officials in the brokerage industry say the outages mostly boil down to a simple – but crucial – problem: server space. Retail demand is so unexpectedly high, particularly for stocks in the marijuana industry, that it has become overwhelming.

The brokerages won’t provide usage statistics, but according to the Investment Industry Regulatory Organization of Canada, which oversees trading activity, the volume of trades between Dec. 22 and Jan. 3 jumped 107 per cent from a year earlier. And of that surge, retail trading volumes jumped to 34 per cent of the total from 23 per cent.
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And even when clients are not transacting, they keep logging in to watch the markets and do research. This type of activity can create just as many bandwidth problems for the servers as trading does. Demand from retail investors tends to spike at particular times – such as when the market opens and again around lunch. One day recently, one brokerage’s user activity was already near full capacity before the market even opened at 9:30 a.m.

Theoretically, banks that make a billion dollars or more every quarter should not have trouble buying servers – but the situation is more complicated than that. For one, these institutions have been cutting costs for the past few years as they got leaner, in part to take on nimble fintech startups.

Servers are also expensive assets in a world where so many firms need them, because data is a critical commodity. Until now, it didn’t seem economical for discount brokerages to have servers sitting around just in case.

This is good reporting by Kiladze and Bradshaw, but they’re too impressed by the statistic cited regarding the Dec. 22 – Jan. 3 period. This is the lightest period of the year. If volume doubles … well, nothing doubled is still nothing.

TD has some awfully angry customers:

have been trying to talk to a person at Webbroker since 7 am on Tuesday. I can only do this transaction with a person as online transaction is not allowed. (From rif to other accounts) I have called at Webbroker all hours of day and night and stayed on line for hours at a time. Last evening from 7pm until midnight and again at 4am today no response.

My local branch of TD gave me another number to call and they admitted to also knowing that it would not work, and it did not.

No one and especially an 83 year old should not have to go through a terrible experience that many or going through. It is costing many of us thousands of dollars

Some person or persons should be held accountable and they should be dismissed, and if that is the CEO great.

Seems to me that a business as rife with volume peaks as retail brokerage would design their server system so extra servers could be snapped in overnight … ‘Bob, take a truck to Future Shop and buy 1000 PCs. Fred, you and your guys don’t go home until they’re wired in.’ But what do I know?

Well, I suppose I know that when we get our next market break along the lines of late 1987, early 2001 or late 2008, retail is fucked. Let us all give thanks to the regulators for their continual efforts to place the entire industry in such good hands.

Canadian banks take full advantage of the protection from competition they enjoy and aren’t in the business of making good products. They’re in the business of making plain-vanilla, marginally acceptable products, slapping a brand-name on them and charging a premium price.

The new year commenced on a positive note!

And that’s 2017, done and dusted! Best wishes for the new year, everybody!

Well, that’s the last day of tax-loss selling, which I believe has played a role in December’s softness. Thanks to two-day settlement, tax-loss season lasted until after Christmas this year!

PerpetualDiscounts now yield 5.31%, equivalent to 6.90% interest at the standard equivalency factor of 1.3x. Long corporates now yield a little over 3.70%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 320bp, a significant widening from the 310bp reported December 20.

Manulife has announced a 2.9-billion hit for 17Q4. Management must be distraught that such an important development had to be announced after the market closed for the Christmas holiday – with no time to publish a press release on their website, darn it! It only made it to Newswire – so I’ll help them out by passing along the word:

Manulife Financial Corp. is preparing to take two charges worth $2.9-billion in its fourth quarter as U.S. tax reforms and a new investment strategy reshapes the business.

The Toronto-based insurer said Friday evening that it would move to sell some private market assets, resulting in a one-time $1-billion hit to profits as the company aims to put capital toward investments that can offer higher returns.

At the same time, Manulife said that U.S. President Donald Trump’s overhaul of the U.S. tax code would result in a second $1.9-billion charge as a result of some accounting changes, but that the move would be beneficial to the company’s business south of the border over time. Both charges will be included in Manulife’s fourth-quarter results, which are set to be released on Feb. 7.
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Over the next year and a half, Manulife plans to sell some of its alternative assets, which are long-term holdings in sectors such as timberland, farmland, infrastructure and energy. Many of these assets are located in the U.S.
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As the alternative assets are sold, about $2-billion in regulatory capital will be freed up at Manulife. But the move will also mean that the company’s core earnings, a metric that strips out some accounting volatility, will be reduced by up to $60-million per year after tax until Manulife is able to put about $1-billion in capital to work in businesses that yield higher returns.

The second non-cash charge of $1.9-billion is an upfront hit related to major tax changes in the U.S. that are also expected to impact banks and other insurers. About one-third of Manulife’s business is in insurance and wealth-management operations in the U.S.

Readers of PrefLetter will be familiar with my long-standing qualms about Manulife’s focus on alternative assets. With respect to the $1.9-billion accounting charge, they have plenty of company:

Hours after the bill signing, announcements started to roll in from some of the world’s biggest companies — with some spectacular numbers. While the bill benefits most companies through a lower rate, it also requires them to recalculate some of the tax positions they may have been holding on their books for years.

Biotechnology company Amgen Inc. said it would take a $6 billion to $6.5 billion charge. Bank of America Corp. plans to take a $3 billion hit, and Credit Suisse Group AG will take a writedown of 2.3 billion Swiss francs ($2.32 billion).

The one-time changes are related mostly to what are known as deferred tax assets that accumulate on balance sheets when companies overpay taxes or take tax losses. On the other side of the ledger, deferred tax liabilities pile up when they’ve underpaid taxes on depreciated assets.

Hey, how ’bout that bond market, eh?:

Benchmark bond yields are headed for the biggest weekly advance since September as investors contemplate prospects for continued economic growth and reduced central bank stimulus.
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The yield on 10-year Treasuries slid 2 basis points Thursday, to 2.48 percent. That’s up from 2.35 percent at the end of last week.

…and Bloomberg supplies a chart of the generic 10-year Treasury yield:

Click for Big

In Canada, the five-year is at 1.86% and the 3-Month Bill has breeched the point at 1.03%.

… and the BoC supplies a chart of GOC-5:

Click for Big

PerpetualDiscounts now yield 5.29%, equivalent to 6.88% interest at the standard equivalency factor of 1.3x. Long corporates now yield a little over 3.75%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 310bp, a significant narrowing from the 320bp reported December 13.