Category: Market Action

PerpetualDiscounts now yield 7.08%, equivalent to 9.20% interest at the standard equivalency factor of 1.3x. Long corporates yielded 5.71% on 2023-10-27 and since then the closing price has changed from 13.90 to 14.37, an increase of 338bp in price, with a Duration (BMO doesn’t specify Modified or Macaulay – I will assume the former) of 11.96 implying a decrease of 28bp in yield to 5.43%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is unchanged at the 375bp reported November 1.

OK, the excitement’s over. For now.

TXPR closed at 516.05, up 1.86% on the day and taking us all the way back to where we were on August 22! Volume today was 1.81-million, fifth-highest of the past 21 trading days.

CPD closed at 10.33, up 1.97% on the day. Volume was 157,740, highest of the past 21 trading days.

ZPR closed at 8.68, up 2.12% on the day. Volume was 233,190, highest of the past 21 trading days.

Five-year Canada yields were down to 3.82%.

I’ve never minded being controversial, so I’m going to stick my neck out and suggest that one factor in the day’s excitement was jobs, jobs, jobs!

Employers added 150,000 jobs in October on a seasonally adjusted basis, the Labor Department said on Friday.

The increase was slightly below what economists had forecast, but not too different from the sort of monthly jobs growth the U.S. economy was experiencing prepandemic.

The unemployment rate, based on a survey of households, ticked up to 3.9 percent from 3.8 percent in September. It has been below 4 percent for nearly two years, a stretch not achieved since the late 1960s.

Figures for August and September were revised downward by a total of more than 100,000 from earlier reports. The surprisingly strong September gain, initially reported as 336,000, was restated as 297,000 and will be revised again next month.
…
Average hourly earnings were up 0.2 percent from the previous month, slightly less than expected, and were 4.1 percent higher than a year earlier, slightly exceeding forecasts.

The October numbers may have been held down because the survey was taken during major work stoppages — notably the strikes by the United Automobile Workers and related layoffs. Since then, the U.A.W. has reached tentative contract agreements with the three major U.S. automakers and told striking members to return to their jobs.

Some 96,000 people reported being out of work because of a strike or labor dispute in October, the most since 1997.
…
People are also taking on more than one job. Multiple job holders as a percentage of the total number employed climbed to 5.2 percent in October, the highest it’s been since 2019.
…
Julia Pollak, chief economist at ZipRecruiter, said the “good news” is that the labor market slowdown has been “carefully orchestrated” by the Federal Reserve, rather than being driven by economic fundamentals.

“Businesses tell ZipRecruiter that they have many vacancies, they want to hire, and they want to expand. But high interest rates are holding them back. If rates start coming down next year, expect that pent-up demand for labor, transportation, building materials and a host of other inputs to be unleashed again,” she wrote in a note.

It was much the same in the frozen north:

The Canadian economy added a net 17,500 jobs in October, fewer than expected, while the jobless rate edged up to a 21-month high of 5.7 per cent, Statistics Canada data showed on Friday.

Analysts polled by Reuters had forecast a net gain of 22,500 jobs and for the unemployment rate to tick up to 5.6 per cent from 5.5 per cent in September.
…
The average hourly wage for permanent employees – a figure closely watched by the central bank – rose 5.0 per cent from October 2022, down from the 5.3 per cent year-over-year increase in September.

TXPR closed at 506.60, up 1.61% on the day and taking us all the way back to where we were on October 13! Volume today was 1.62-million, above the median of the past 21 trading days.

CPD closed at 10.13, up 2.01% on the day. Volume was 107,310, third-highest of the past 21 trading days.

ZPR closed at 8.50, up 1.68% on the day. Volume was 122,200, below the median of the past 21 trading days.

Five-year Canada yields were down to 3.98%.

Is it all about declining yields?

North American main stock indexes rallied Thursday on hopes that the Federal Reserve had reached the end of its tightening campaign, while a raft of upbeat corporate updates added to the bullish mood in both Canada and the U.S. The Canadian benchmark stock index achieved its biggest daily gain in a year, closing up 2.8%, aided by a 21.3% surge in shares of tech heavyweight Shopify.

The Fed held interest rates steady on Wednesday as expected, and while Chair Jerome Powell left the door open to further tightening he also acknowledged the impact of a recent surge in bond yields on the economy.

The comments, viewed as hints that the central bank is done with its rate hikes, sent longer-dated U.S. Treasury yields tumbling, which supported stocks.

TXPR closed at 498.59, up 0.70% on the day and taking us all the way back to where we were on October 20! Perhaps someday we will surpass October 19 levels! Volume today was 1.40-million, below the median of the past 21 trading days.

CPD closed at 9.93, up 1.02% on the day. Volume was 139,910, highest of the past 21 trading days.

ZPR closed at 8.36, up 0.84% on the day. Volume was 215,720, second-highest of the past 21 trading days.

Five-year Canada yields were down to 4.01%.

If I don’t ascribe anything that happened today to the Fed, I’ll get kicked out of the Pundits’ Union, so …it must have been the Fed:

Recent indicators suggest that economic activity expanded at a strong pace in the third quarter. Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation remains elevated.

The U.S. banking system is sound and resilient. Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. The Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Adriana D. Kugler; Lorie K. Logan; and Christopher J. Waller.

PerpetualDiscounts now yield 7.29%, equivalent to 9.48% interest at the standard equivalency factor of 1.3x. Long corporates yielded 5.71% on 2023-10-27 and since then the closing price has been unchanged at 13.90, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed slightly (and perhaps spuriously) to 375bp from the 380bp reported October 25.

TXPR closed at 495.10, up 1.56% on the day and taking us all the way back to where we were on October 23. Volume today was 2.18-million, second-highest of the past 21 trading days.

CPD closed at 9.83, up 0.92% on the day. Volume was 56,910, above the median of the past 21 trading days.

ZPR closed at 8.29, up 1.97% on the day. Volume was 228,010, second-highest of the past 21 trading days.

Five-year Canada yields were up to 4.18%.

Other markets were calm. The day’s rise might have been due to reinvestment of the TD.PF.K redemption money.

A quiet day, overall, for the Canadian preferred share market. But we did manage another trifecta of new 52-week lows for TXPR, CPD and ZPR!