Category: Market Action

TXPR closed at 555.07, down 0.63% on the day. Volume today was 1.28-million, near the median of the past 21 trading days.

CPD closed at 11.03, down 0.72% on the day. Volume was 70,360, below the median of the past 21 trading days.

ZPR closed at 9.22, down 0.86% on the day. Volume was 224,300, above the median of the past 21 trading days.

Five-year Canada yields were up to 3.62% today.

Even more spending from the Feds today:

Finance Minister Chrystia Freeland delivered a fall economic update Thursday that warns of a potential recession next year, and includes plans for a tax on share buybacks, significant incentives for green energy investment, and spending on students and low-income workers.

All Canada student and apprentice loans would be interest free, at a cost of $2.7-billion over five years, and another $4-billion over six years would be automatically issued in advance payments of the Canada Workers Benefit to people who had qualified the previous year.
…
The new measures specifically related to boosting business investment are worth $10.9-billion over six years. They include $250-million over five years for a package of new job training programs. There is also a new Investment Tax Credit for Clean Technologies that will offer a refundable tax credit equal to 30 per cent of the capital cost of investments in energy projects such as solar, wind and small nuclear reactors. The Finance Department is planning consultations to include labour conditions in order to access the full credit.
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The proposed tax on share buybacks had not previously been signalled and is sure to generate significant policy debate, as it has south of the border.

The share buyback and energy incentives are aimed at responding to a major package of tax and climate policy reforms approved this year through the U.S. Inflation Reduction Act.

The U.S. act includes a 1-per-cent excise tax on stock buybacks, which refers to situations when companies use excess cash to purchase their own shares. U.S. Democrats said the tax will raise billions in new revenue while also encouraging companies to put excess cash toward investment and wages. The economic impact of the tax and buybacks in general is a matter of considerable policy debate.

Ms. Freeland’s update proposes a 2-per-cent tax that would apply on the net value of all types of share buybacks by public corporations in Canada. The government says details of the new tax will be announced in the 2023 budget and would come into force on Jan. 1, 2024.
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Robert Asselin, senior vice-president of policy for the Business Council of Canada, said he was skeptical about Ms. Freeland’s vow of fiscal prudence.

“They are spending about 45 per cent of the revenue windfall they are getting for a very inflationary economy. For me, that is not fiscal prudence,” Mr. Asselin said in an interview, adding all of their windfall should have been directed at deficit reduction.

The student loan interest relief is modest:

Finance Minister Chrystia Freeland has announced plans to erase the interest on federal student and apprentice loans as part of the government’s fall fiscal update.

The move, made amid soaring living costs and the threat of a looming recession, would bring relief to many budget-strapped young Canadians who’ve been borrowing to finance their education. The measure, if implemented, would kick in on April 1, the day after a temporary freeze on the accrual of interest on federal student loans is set to expire.

It would make the loans interest free at that point and apply to those currently being repaid as well.
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Half of all postsecondary students in Canada rely on student loans to help them pay for school, the federal government said in its fall update, released on Thursday. Eliminating the interest on the federal portion of government loans would save the average borrower $410 a year, it added.

The proposed change would cost taxpayers $2.7-billion over five years and $556.3-million a year thereafter, the government estimated.

The share buyback tax is more controversial:

Ottawa plans to introduce a 2-per-cent tax on share buybacks, in an effort to have corporations increase spending on workers – and potentially reap some of the financial windfall being enjoyed by the oil and gas sector.

The federal Liberals said Thursday that the change would also encourage companies to reinvest their profits in workers and in Canada more broadly. The new tax reflects a similar move in the United States, which imposed a 1-per-cent tax on stock buybacks in August as part of the Biden administration’s Inflation Reduction Act.

While details of the corporate tax will be announced in Budget 2023, it will apply to the net value of all types of share buybacks by public companies in Canada from Jan. 1, 2024, according to the government’s fall economic update. Ottawa estimates the measure will dump an extra $2.1-billion into federal coffers over a five-year period.
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The use of stock buybacks in corporate Canada has exploded over the past few years.

Five years ago, the members of the S&P/TSX 60 Index – some of Canada’s biggest companies – spent nearly twice as much cash paying dividends to shareholders as they did repurchasing their shares. Now, stock buybacks outpace dividend payments.

The TSX 60 companies spent $67.1-billion in the past 12 months repurchasing their common shares, according to S&P Global Market Intelligence. That compares to $26.1-billion five years ago.

In contrast, dividend payments to shareholders have not grown nearly as much. The TSX 60 companies paid $59.4-billion in dividends in the past 12 months, according to S&P Global Market Intelligence. That compares to $45.8-billion five years ago.

TXPR closed at 558.61, down 0.61% on the day. Volume today was 1.74-million, fourth-highest of the past 21 trading days.

CPD closed at 11.105, down 0.76% on the day. Volume was 53,510, second-lowest of the past 21 trading days.

ZPR closed at 9.30, down 0.54% on the day. Volume was 198,970, above the median of the past 21 trading days.

Five-year Canada yields were up to 3.52% today.

The Fed bumped the policy rate 75bp to 3.75%:

Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.

Russia’s war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity. The Committee is 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 raise the target range for the federal funds rate to 3-3/4 to 4 percent. The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the pace of future increases in the target range, 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 the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May. 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 public health, 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; Lael Brainard; James Bullard; Susan M. Collins; Lisa D. Cook; Esther L. George; Philip N. Jefferson; Loretta J. Mester; and Christopher J. Waller.

Mohamed El-Erian comments:

As widely expected, the Federal Reserve hiked interest rates by 75 basis points.

As to what’s next: I suspect the entire focus will be on interpreting the additional language in the statement (in red).

… and the NYT commented:

While Mr. Powell said during a new conference that “at some point” it would be appropriate to slow the pace of increases, he also suggested that interest rates would peak at a higher level than the 4.6 percent that the Fed predicted in September.

He also noted that rates would “have to go higher and stay higher for a while” — a development that could make achieving a so-called “soft landing” harder.

Here’s what else to know:

The Fed acknowledged that more rate increases were coming, but also signaled that it was aware that its tightening was adding up.
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Stocks rallied immediately after the Fed’s announcement, rebounding from losses earlier in the day, while government bond yields fell. But as Mr. Powell began answering questions from reporters, stocks fell sharply after he suggested that interest rates could peak at a level higher than what policymakers previously projected and noted that it would be “very premature” to consider a pause in rate increases. Bond yields became more mixed, with traders seemingly unsure what to make of Mr. Powell’s comments.

Mr. Powell also made clear that the bigger risk to the economy was in not acting to tame inflation, noting that if the Fed over-corrects, it has the tools to walk that back. The bigger economic risk is “if we don’t get inflation under control because we don’t tighten enough.”

And Macklem spoke to the Senate:

Inflation remains far too high, Mr. Macklem told the Senate committee on banking, commerce and the economy. At the same time, the Canadian economy is expected to “stall” in the coming quarters, he said. This puts the central bank in a precarious spot.

“If we don’t do enough, Canadians will continue to endure the hardship of high inflation. And they will come to expect persistently high inflation, which will require much higher interest rates and, potentially, a severe recession to control inflation,” Mr. Macklem told the Senate committee. He was there to explain the bank’s latest interest rate hike, announced last week.

“If we do too much, we could slow the economy more than needed. And we know that has harmful consequences for people’s ability to service their debts, for their jobs and for their businesses.”

PerpetualDiscounts now yield 6.56%, equivalent to 8.53% interest at the standard equivalency factor of 1.3x. Long corporates have posted an awesome recovery recently to yield 5.49%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has gaped wider to 305bp from the 260bp reported October 26.

How about that US inflation, eh?:

Friday’s report from the Commerce Department showed that prices rose 6.2 per cent in September from 12 months earlier, the same year-over-year rate as in August.

Excluding volatile food and energy costs, so-called core prices rose 5.1 per cent last month from a year earlier. That’s faster than the 4.9 per cent annual increase in August, though below a four-decade high of 5.4 per cent reached in February.
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Higher pay is helping maintain spending for many workers. Wages and benefits rose 5 per cent in the July-September quarter from a year ago. That was a healthy gain, just below a two-decade high of 5.1 per cent reached in the April-June quarter.

Still, there are signs that pay growth is cooling a bit. On a quarterly basis, it rose 1.2 per cent from the April-June quarter to the July-September period. Yet that marked a second straight quarterly slowdown after compensation growth had reached a 20-year high of 1.4 per cent in the first three months of 2022.
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Americans, on average, built up their savings during the pandemic, a time when many people stayed home, postponed travel and vacations and dined out less. Economists estimate that that extra savings totalled about $2.4-trillion last year, mostly among higher-income Americans. But it is being spent down and now stands at about $1.5-trillion.

Friday’s report also showed that consumers spent more last month, even after adjusting for inflation, a sign of Americans’ willingness to keep spending in the face of high prices. Consumer spending increased 0.6 per cent from August to September, or 0.3 per cent after accounting for price increases.

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Europe’s worse:

Preliminary data on Monday from Europe’s statistics office showed headline inflation came in at an annual 10.7% this month. This represents the highest ever monthly reading since the euro zone’s formation. The 19-member bloc has faced higher prices, particularly on energy and food, for the past 12 months. But the increases have been accentuated by Russia’s invasion of Ukraine in late February.

This proved to be the case once again, with energy costs expected to have had the highest annual rise in October, at 41.9% from 40.7% in September. Food, alcohol and tobacco prices also climbed in the same period, jumping 13.1% from 11.8% in the previous month.
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Monday’s data comes after individual countries reported flash estimates last week. In Italy, headline inflation came in above analysts’ expectations at 12.8% year on year. Germany also said inflation jumped to 11.6% and in France the number reached 7.1%. The different values reflect measures taken by national governments, as well as the level of dependency that their nations have, or had, on Russian hydrocarbons.

There are, however, euro nations where inflation rose by more than 20%. This includes Estonia, Latvia and Lithuania.

Sorry it’s late!

TXPR closed at 565.05, down 0.66% on the day. Volume today was 1.34-million, near the median of the past 21 trading days.

CPD closed at 11.23, down 0.09% on the day. Volume was 119,260, fifth-highest of the past 21 trading days.

ZPR closed at 9.38, down 0.95% on the day. Volume was 121,730, below the median of the past 21 trading days.

Five-year Canada yields were down substantially to 3.34% today. I guess the recession starts tomorrow!

TXPR closed at 568.79, up 1.46% on the day. Volume today was 1.97-million, third-highest of the past 21 trading days.

CPD closed at 11.24, up 0.54% on the day. Volume was 113,590, well above the median of the past 21 trading days.

ZPR closed at 9.47, up 0.85% on the day. Volume was 184,620, above the median of the past 21 trading days.

Five-year Canada yields were down precipituously to 3.44% today in the wake of the BoC rate decision.

PerpetualDiscounts now yield 6.51%, equivalent to 8.46% interest at the standard equivalency factor of 1.3x. Long corporates have been hammered in the past week to yield 5.84%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed sharply to 260bp from the 300bp reported October 19.

TXPR closed at 560.61, down 0.59% on the day. Volume today was 1.33-million, near the median of the past 21 trading days.

CPD closed at 11.175, down 0.22% on the day. Volume was 104,790, above the median of the past 21 trading days.

ZPR closed at 9.39, unchanged on the day. Volume was 98,540, fourth-lowest of the past 21 trading days.

Five-year Canada yields were down to 3.69% today.

Tomorrow is the BoC rate decision. Place yer bets, gents, place yer bets!

TXPR closed at 563.92, down 0.79% on the day. Volume today was 925,210, fourth-lowest of the past 21 trading days. The decline is a little over half of Friday’s gain … it would be interesting to work out the transaction costs of the accounts that were buying late on Friday. Say, 3-million shares extra, 0.75% peak market impact, $20/share … say, up to $450,000? And commission on top of that?

CPD closed at 11.20, down 0.53% on the day. Volume was 67,110, fourth-lowest of the past 21 trading days.

ZPR closed at 9.39, down 0.53% on the day. Volume was 252,790, third-highest of the past 21 trading days.

Five-year Canada yields were down slightly to 3.75% today.

Rishi Sunak will be the next UK PM:

He’s got a glittering résumé, billionaire in-laws and enjoyed a meteoric rise in politics. But Rishi Sunak, the man about to become Britain’s next prime minister, remains something of a mystery to many in the country.

Mr. Sunak, 42, was acclaimed Conservative Party Leader on Monday and he’ll formally take over as prime minister on Tuesday, replacing Liz Truss who resigned after just 45 days in office. He’ll make history as Britain’s first person of Indian origin to hold the post and the youngest in more than 200 years. He’ll also be the country’s third prime minister in seven weeks.
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Mr. Sunak’s victory comes with a certain amount of vindication. He finished second to Ms. Truss in a bruising leadership campaign this summer that pitted his experience as Chancellor of the Exchequer against her free-market ideology. Mr. Sunak tried to be the voice of reason during the race and he criticized Ms. Truss’s pledge to slash taxes as a “fairy tale.”

In the end, Ms. Truss proved Mr. Sunak’s point by introducing a tax-cutting mini-budget that caused so much financial turmoil that Conservative members of Parliament moved quickly to force her out.

So we’ll see how that turns out. In the meantime, have a look at an American reaction to the Truss budget, courtesy of Fox News.

Speaking of quick flameouts, the OSC has a job opening:

Heather Zordel, the new chair of the recently restructured Ontario Securities Commission has resigned, just seven months after she was appointed to lead the board of Canada’s largest securities regulator.

Ms. Zordel, a Bay Street lawyer, was appointed in March by the Progressive Conservative government of Ontario Premier Doug Ford, immediately prompting two high-profile board resignations in protest.
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But when Ms. Zordel’s appointment was announced in March, it immediately caused a stir. Ms. Zordel had a previous, contentious term as a commissioner between 2019 and 2021, which ended not long after a majority of commissioner peers recommended against her reappointment. Her elevation to chair a little more than a year later prompted two sitting commissioners – lead director Lorie Haber and Craig Hayman, the chair of the OSC’s governance and nominating committee – to resign in protest.

She has also been criticized by investor protection advocates for some of the views she espoused in two decisions she worked on during her first stint with the OSC.

In both cases, she was part of a three-person adjudicative panel, but dissented, in part, from the majority. Her dissents were two of just three dissents in OSC enforcement proceedings over the past decade, according to the regulator’s records.

In her dissents, Ms. Zordel differed from the other two members of each adjudicative panel on several core issues in securities law. Those issues include what constitutes material, non-public information (MNPI), which can lead to illegal insider trading. She also disagreed with other panelists about how much leeway an investment fund has to deviate from its offering memoranda before its actions become fraudulent.

TXPR closed at 568.42, up 1.44% on the day. Volume today was 5.91-million, highest of the past 21 trading days by far – nearly four times as high as the second-place day.

CPD closed at 11.26, up 0.99% on the day. Volume was 73,460, below the median of the past 21 trading days.

ZPR closed at 9.44, up 0.86% on the day. Volume was 126,840, fourth-lowest of the past 21 trading days.

Five-year Canada yields were down to 3.76% today.

The market popped up big time at the end of the session and during the extended session; it looks like Raymond James was acting for somebody who got a really, really itchy trigger finger. Of the top six issues by volume today, they:
– sold TRP.PR.B (deep discount FixedReset)
– sold PWF.PR.P (deep discount FixedReset)
– Bought POW.PR.C (high-coupon straight)
– Sold IAF.PR.I (FixedReset discount)
– Sold RY.PR.N (PerpetualDiscount)
– Sold RY.PR.O (PerpetualDiscount)

Of course, there may be issues with higher volume that I don’t report because they’re junk. But there’s some guy on a preferred desk who’s going home with a big commission-derived smile tonight!