Category: Market Action

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!

TXPR closed at 488.09, down 1.32% on the day and setting a new 52-week low. Volume today was 1.91-million, second-highest of the past 21 trading days.

CPD closed at 9.72, down 1.22% on the day and setting a new 52-week low. Volume was 18,840, second-lowest of the past 21 trading days.

ZPR closed at 8.21, down 0.73% on the day and setting a new 52-week low. Volume was 157,870, above the median of the past 21 trading days.

Five-year Canada yields were up to 4.28%.

It was a grisly day in lots of places:

U.S. stocks tumbled in a broad sell-off on Wednesday as Alphabet shares slid after the Google parent posted disappointing earnings and as U.S. Treasury yields rose, reviving fears that interest rates could stay higher for longer.

The benchmark S&P 500 index notched its fifth daily decline in six to close below the closely watched 4,200 level. The Nasdaq Composite slumped to its biggest single-session percentage drop since Feb. 21, with interest rate sensitive megacaps weighing heavily on the tech-laden index.

The Dow Jones Industrial Average as well as the S&P/TSX Composite Index finished modestly lower. Energy shares rallied, keeping a lid on losses for the Canadian benchmark, which is on its longest losing streak since June.

Shares of Alphabet Inc plunged 9.5% after the company reported disappointing cloud services revenue, reviving fears of an economic slowdown.

Benchmark Treasury yields resumed their upward drift, edging closer to the 5% level, feeding fears high interest rates could linger.
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Yields on 10-year Treasury notes rose after robust new U.S. home sales data and mortgage rates reaching 23-year highs stoked fears of prolonged elevated rates.

The BoC maintained its policy rate today but closed with a paragraph of tough talk so we’d know it means business:

The Bank of Canada today held its target for the overnight rate at 5%, with the Bank Rate at 5¼% and the deposit rate at 5%. The Bank is continuing its policy of quantitative tightening.

The global economy is slowing and growth is forecast to moderate further as past increases in policy rates and the recent surge in global bond yields weigh on demand. The Bank projects global GDP growth of 2.9% this year, 2.3% in 2024 and 2.6% in 2025. While this global growth outlook is little changed from the July Monetary Policy Report (MPR), the composition has shifted, with the US economy proving stronger and economic activity in China weaker than expected. Growth in the euro area has slowed further. Inflation has been easing in most economies, as supply bottlenecks resolve and weaker demand relieves price pressures. However, with underlying inflation persisting, central banks continue to be vigilant. Oil prices are higher than was assumed in July, and the war in Israel and Gaza is a new source of geopolitical uncertainty.

In Canada, there is growing evidence that past interest rate increases are dampening economic activity and relieving price pressures. Consumption has been subdued, with softer demand for housing, durable goods and many services. Weaker demand and higher borrowing costs are weighing on business investment. The surge in Canada’s population is easing labour market pressures in some sectors while adding to housing demand and consumption. In the labour market, recent job gains have been below labour force growth and job vacancies have continued to ease. However, the labour market remains on the tight side and wage pressures persist. Overall, a range of indicators suggest that supply and demand in the economy are now approaching balance.

After averaging 1% over the past year, economic growth is expected to continue to be weak for the next year before increasing in late 2024 and through 2025. The near-term weakness in growth reflects both the broadening impact of past increases in interest rates and slower foreign demand. The subsequent pickup is driven by household spending as well as stronger exports and business investment in response to improving foreign demand. Spending by governments contributes materially to growth over the forecast horizon. Overall, the Bank expects the Canadian economy to grow by 1.2% this year, 0.9% in 2024 and 2.5% in 2025.

CPI inflation has been volatile in recent months—2.8% in June, 4.0% in August, and 3.8% in September. Higher interest rates are moderating inflation in many goods that people buy on credit, and this is spreading to services. Food inflation is easing from very high rates. However, in addition to elevated mortgage interest costs, inflation in rent and other housing costs remains high. Near-term inflation expectations and corporate pricing behaviour are normalizing only gradually, and wages are still growing around 4% to 5%. The Bank’s preferred measures of core inflation show little downward momentum.

In the Bank’s October projection, CPI inflation is expected to average about 3½% through the middle of next year before gradually easing to 2% in 2025. Inflation returns to target about the same time as in the July projection, but the near-term path is higher because of energy prices and ongoing persistence in core inflation.

With clearer signs that monetary policy is moderating spending and relieving price pressures, Governing Council decided to hold the policy rate at 5% and to continue to normalize the Bank’s balance sheet. However, Governing Council is concerned that progress towards price stability is slow and inflationary risks have increased, and is prepared to raise the policy rate further if needed. Governing Council wants to see downward momentum in core inflation, and continues to be focused on the balance between demand and supply in the economy, inflation expectations, wage growth and corporate pricing behaviour. The Bank remains resolute in its commitment to restoring price stability for Canadians.

PerpetualDiscounts now yield 7.44% (!), equivalent to 9.67% interest at the standard equivalency factor of 1.3x. Long corporates yielded 5.85% on 2023-10-20 and since then the closing price has been unchanged from 13.75, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has wudened significantly to 380bp from the 355bp reported October 18.

A relatively calm day today, but we did hit another trifecta – 52-week lows on TXPR, CPD and ZPR.

TXPR closed at 495.10, down 0.68% on the day and setting a new 52-week low – and I only had to change one of the numbers in this sentence! Volume today was 1.81-million, fourth-highest of the past 21 trading days.

CPD closed at 9.85, down 1.20% on the day and setting a new 52-week low. Volume was 42,700, near the median of the past 21 trading days.

ZPR closed at 8.31, down 0.72% on the day and setting a new 52-week low. Volume was 141,640, above the median of the past 21 trading days.

Five-year Canada yields were down to 4.22%.

Equities were off a bit and nobody knows what to say about bonds:

Stocks wavered to a mixed close on Monday as benchmark U.S. Treasury yields backed down from 5% and investors shifted their focus to this week’s high profile earnings and closely watched economic data.

The S&P 500 index ended modestly lower, while a host of interest rate sensitive momentum stocks buoyed the tech-laden Nasdaq Composite Index to a higher close. Both the Dow Jones Industrial Average and the S&P/TSX Composite Index notched their fourth straight daily drop.
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The run-up in yields on the 10-year U.S. Treasury note, seen as a safe haven in times of economic uncertainty and a benchmark for borrowing costs around the world, has been driven by investors pricing in stronger U.S. growth.

Yields in longer-term bonds rose quickly after Federal Reserve Chair Jerome Powell said last week that the U.S. economy’s strength and hot labor market might warrant tighter financial conditions.

The 10-year yield was briefly bid at a 16-year high of 5.001% on Thursday, breaking 5% again on Monday morning before slipping to 4.83%. It has risen 160 basis points since mid-May.

Yields have been tempered by the threat of an expanding conflict in the Middle East, which has caused investors to turn to the safe haven of U.S. government bonds after Hamas fighters attacked Israel on Oct. 7.
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So far, 86 of the companies in the S&P 500 have posted earnings. Of those, 78% have beat expectations, LSEG data showed.

Analysts see aggregate S&P 500 earnings for the July-September period growing 1.2% year-on-year, slightly below the 1.6% growth projected at the start of the month, according to LSEG.

TXPR closed at 498.49, down 0.68% on the day and setting a new 52-week low. Volume today was 3.19-million, second-highest of the past 21 trading days and not quite double the volume of the third-place finisher.

CPD closed at 9.97, down 0.50% on the day and setting a new 52-week low. Volume was 44,910, near the median of the past 21 trading days.

ZPR closed at 8.37, down 0.12% on the day. Volume was 65,370, third-lowest of the past 21 trading days.

Five-year Canada yields were down to 4.28%.

Equities got hit:

Major U.S. and Canadian stock indexes ended sharply lower on Friday, with technology and financial shares among the biggest drags, as investors worried about high interest rates and the Israel-Hamas conflict spreading. The selloff came even as bond yields eased after their steady march higher this week.

All of the S&P 500 index’s 11 sectors fell in broad-based selling. Losses were also broad in Toronto, where financials lost nearly 2% and the S&P/TSX composite index fell to its lowest level in two weeks.

The benchmark 10-year Treasury yield fell on Friday, a day after crossing 5% for the first time since July 2007 in the wake of comments by Federal Reserve Chair Jerome Powell. He said the U.S. economy’s strength and tight labour markets could require tougher borrowing conditions to control inflation.
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Echoing some of Powell’s more dovish remarks, Federal Reserve Bank of Atlanta President Raphael Bostic said on CNBC Friday that while inflation remains too high it is coming down amid rising evidence of growth slowing that could open the door to easier monetary policy late next year.

Fed funds futures show bets that the Fed will hike rates once more this year continue to decline. A November hike was almost completely priced out, while a 25 basis points hike in December had a 24% probability, down from 39% on Wednesday, CME Group data showed. The consensus among futures traders remained for a first rate cut to happen in June.

Traders have also started to price in higher odds that the Bank of Canada will start cutting interest rates next year. Implied probabilities in interest rate swaps suggest only a slight 12% chance the Bank of Canada will hike interest rates again when it announces its latest decision next week. And by December 2024, traders are pricing in about a 50% chance the central bank’s overnight rate would be lower than where it is today.
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The TSX ended down 233.17 points, or 1.2%, at 19,115.64, its lowest closing level since Oct. 4. For the week, the index was down 1.8%.

Financials hit a one-year low, while energy was down 1.5% as oil settled 0.7% lower at US$88.75 a barrel, giving back some of this week’s gains. Together, financials and energy account for nearly 50% of the TSX’s weighting.

The interest-rate sensitive utilities and real estate sectors also lost ground, falling 1.7% and 1.6% respectively.

In the U.S., the S&P 500 financial index was down 1.6% while the KBW regional banking index fell 3.5%. Shares of Regions Financial slid 12.4% after its profit missed analysts’ average estimate.