Category: Market Action

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.
…
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!

The five-year Canada yield popped up today to 3.88%%. This has been attributed, as ususal, to fear of the Fed:

North American stocks ended the session lower and benchmark Treasury yields continued their ascent on Thursday after investors weighed generally upbeat earnings against the prospect that the Federal Reserve could hold firm on its aggressive policy for longer than they had hoped.

Canada’s TSX and all three major U.S. stock indexes reversed an earlier rally, turning red after remarks from Philadelphia Federal Reserve President Patrick Harker suggested the central bank will “keep raising rates for a while.” Harker’s comments also helped support the 10-year Treasury yield’s climb past 14-year highs.
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Financial markets have now fully priced in yet another 75 basis point interest rate hike from the Federal Reserve when it meets next month, according to CME’s FedWatch tool.

A spate of mixed quarterly corporate results and economic indicators provided some evidence of economic slowdown, but a dip in jobless claims showed the Fed’s aggressive campaign of interest rate hikes has so far had minimal effect on the tight U.S. labor market.
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Benchmark Treasury yields resumed their rise after economic data appeared to confirm the Fed is unlikely to relent in its aggressive campaign to rein in inflation.

Benchmark 10-year notes last fell 25/32 in price to yield 4.2346%, from 4.129% late on Wednesday.

The 30-year bond fell 49/32 in price to yield 4.231%, from 4.127% late on Wednesday.

Oh, and what’s ‘er name resigned as UK PM:

Then-chancellor of the exchequer Kwasi Kwarteng, who shared Ms. Truss’s economic outlook, unveiled a mini-budget on Sept. 23 that included sweeping tax cuts but no detailed plan spelling out how the measures would be financed. That spooked investors and drove the British pound to a record low against the U.S. dollar. It also pummelled prices for government bonds, which in turn drove up the cost of mortgages.

Ms. Truss faced a chorus of criticism and began backtracking. First she scrapped plans to cut the top income tax rate to 40 per cent from 45 per cent. Then, she fired Mr. Kwarteng and replaced him with Jeremy Hunt, who started dismantling almost all the tax cuts in the mini-budget.

With her economic plan in disarray and almost all of her campaign promises broken, Ms. Truss vowed to fight on, but her efforts to address her many U-turns fell flat. Public opinion polls put the Conservatives 30 points behind the Labour Party, and one survey found that just 10 per cent of voters approved of Ms. Truss’s performance in office.

You can only get away with wingnut-scale tax cuts if you’re the richest country on Earth. And there’s only one of those … and cracks in the edifice are slowly spreading …

PerpetualDiscounts now yield 6.58%, equivalent to 8.55% interest at the standard equivalency factor of 1.3x. Long corporates have been hammered in the past week to yield 5.56%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has declined to 300bp from the 320bp reported October 12.

TXPR closed at 559.12, up 0.99% on the day. Volume today was 1.52-million, fourth-highest of the past 21 trading days.

CPD closed at 11.21, up 0.81% on the day. Volume was 130,720, near the median of the past 21 trading days.

ZPR closed at 9.36, up 0.21% on the day. Volume was 232,310, near the median of the past 21 trading days.

Five-year Canada yields were down to 3.53% today.

TXPR closed at 553.64, up 0.92% on the day. Volume today was 1.27-million, near the median of the past 21 trading days.

CPD closed at 11.12, up 2.11% on the day. Volume was 181,620, fourth-highest of the past 21 trading days.

ZPR closed at 9.34, up 2.52% on the day. Volume was 214,210, near the median of the past 21 trading days.

Five-year Canada yields were down slightly to 3.64% today.

DBRS published a commentary on gilts:

Pressures have continued to mount in the UK government bond market. To a large extent this reflects concerns over the current incongruence between fiscal and monetary policies in the UK, with the market volatility exacerbated by liability-driven investment (LDI) funds. UK gilts have again come under pressure in less than a month, with another sell-off and yield spike, following the governor of the Bank of England’s (BoE) confirmation that the temporary emergency support adopted in September would end on 14th October as planned. The sell-off of gilts took place despite additional interventions by the BoE on 10th and 11th October. We see with some concern how the BoE interventions this week initially failed to contain market pressures.

We highlight the risk that volatility in the gilt market could turn more long lasting. Persistent pressures and dysfunction could pose risks to the UK’s financial stability. Financial instability would ultimately have adverse consequences for the financial flexibility of the UK government. We see both the health of the pension fund sector – as one of the main holders of government bonds – and the efficient functioning of the gilt market, as key for the financial flexibility of the UK government.

While we see with concern the ongoing pressures in the gilt market and the liquidity issues in the pension fund sector, we expect the BoE to continue to address potential risks to financial stability, preventing liquidity issues turning into solvency problems at a systemic level. That said, we continue to monitor market and policy developments. We would see with great concern a situation in which the BoE measures fail to prevent contagion from the stresses in pension funds to other financial market participants.

Key Highlights
• The inconsistency between fiscal and monetary policies remains a concern, posing risks for policy credibility.
• If pressures in the gilt market prove persistent, financial stability risks could emerge.
• Financial stability risks could have adverse consequences for the financial flexibility of the UK government. The efficient functioning of the gilt market remains crucial.

My understanding is that Truss’ leadership is now a laughingstock on deathwatch.

TXPR closed at 548.21, down 1.38% on the day. Volume today was 1.51-million, tied for third-highest of the past 21 trading days.

That’s below all-time low for the TXPR price index, barring the depths of the COVID Catastrophe:

The prior non-COVID low close was reached on 2016-1-18, with TXPR at 549.26. This is wild. And at a time when widespread and substantial dividend increases are as certain as anything ever gets in this wicked world! We can argue about how widespread and how substantial, but really!

CPD closed at 10.95, down 1.00% on the day. Volume was 99,270, near the median of the past 21 trading days.

ZPR closed at 9.16, down 1.19% on the day. Volume was 230,090, well above the median of the past 21 trading days.

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

US inflation numbers came in high:

Prices continued to climb at a brutally rapid pace in September, with a key inflation index increasing at the fastest rate in 40 years, bad news for the Federal Reserve as it struggles to wrestle the cost of living back under control.

Overall inflation climbed 8.2 percent over the year through September, according to the latest Consumer Price Index report on Thursday, a slight moderation from August but more than what economists had expected.

Even more worrisome, underlying inflation trends are headed in the wrong direction. After stripping out fuel and food — which are volatile and removed to get a better sense of the trajectory — prices climbed 6.6 percent over the year through September. That was the quickest rate since 1982.
…
While wages are not climbing quickly enough to keep up with inflation, they are rising much more rapidly than is typical. Average hourly earnings for rank-and-file workers climbed 5.8 percent over the year through September. Those pay gains hovered around 2 percent or 3 percent in the decade leading up to the pandemic.

It is not just service costs increasing. Grocery bills were up across the board in September, with increases in the cost of fruit, vegetables and bakery products. The price of apples rose 5 percent from the previous month, while lettuce gained 6.8 percent and flour 2 percent.

Meanwhile, there was good fiscal news in Ottawa:

Parliamentary Budget Officer Yves Giroux says in a new report that this year’s federal budget deficit is on pace to come in at $25.8-billion, which would be a significant improvement over the $52.8-billion estimate in the Liberal government’s April budget.

The independent officer of Parliament released an economic and fiscal outlook Thursday. The report updates projections for federal spending and revenue in light of the latest economic data and federal spending announcements, including the Liberals’ recently announced $4.6-billion affordability plan aimed at assisting low-income Canadians with higher costs of living.

While higher inflation and a relatively strong economy have boosted federal tax revenues above previous projections, higher interest rates are also forcing Ottawa to spend more to service the higher debt load that built up during the COVID-19 pandemic.

“Despite the projected decline in the budgetary deficit, public debt charges are projected to more than double from their 2020-21 level (of $20.4-billion), reaching $47.6-billion in 2027-28 due to higher interest rates and the additional accumulation of debt,” the report states.

Well, we can hope that this windfall revenue doesn’t immediately get spent, but I don’t advise counting on it. Never mind the fact that fiscal policy is currently diametrically opposed to monetary policy – we are all Albertans now. If you got it, spend it! Politicians of all stripes will be quick to bleat that the debt to GDP ratio is going down (or is at least projected to) – but nobody in their right mind considers that impressive. If a COVID-level public spending emergency explodes next week, do we have the financial capacity to cope with it? I doubt it – but nobody’s talking about the pain it will take to regain that flexibility. Pain requires the immediate prospect of a failed bond auction, like in 1994.

TXPR closed at 555.87, down 0.81% on the day. Volume today was 2.00-million, highest of the past 21 trading days.

That’s close to an all-time low for the TXPR price index, barring the depths of the COVID Catastrophe:

… but on 2016-1-18, TXPR closed at 549.26. Well, not much more to go until we sink below that low point!

CPD closed at 11.06, down 0.45% on the day. Volume was 84,920, near the median of the past 21 trading days.

ZPR closed at 9.27, down 0.32% on the day. Volume was 267,320, fourth-highest of the past 21 trading days.

Five-year Canada yields were down to 3.60% today.

PerpetualDiscounts now yield 6.60%, equivalent to 8.58% interest at the standard equivalency factor of 1.3x. Long corporates have been hammered in the past week to yield 5.39% (I’m suspicious about this number, especially since it’s precisely equal to the “Distribution Yield”), so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has eased to 320bp from the 340bp reported October 5.

TXPR closed at 559.28, down 1.87% on the day. Volume today was 1.64-million, highest of the past 21 trading days.

CPD closed at 11.11, down 1.77% on the day. Volume was 256,720, highest of the past 21 trading days.

ZPR closed at 9.30, down 1.69% on the day. Volume was 269,210, third-highest of the past 21 trading days.

Five-year Canada yields were up to 3.65% today.

Markets in general were pretty bad. Pundits had to stretch for a rationale:

The TSX, S&P 500 and Nasdaq ended lower on Tuesday, with indications from the Bank of England that it would support the country’s bond market for just three more days adding to market jitters. Stocks were also volatile ahead of U.S. inflation data and the start of third-quarter earnings later this week.

The Canadian benchmark index fared worse than its U.S. counterparts, as energy stocks fell briskly and cannabis stocks continued to give back gains from last week, when U.S. President Joe Biden revealed he will review how cannabis is classified as a controlled substance. The TSX closed nearly 2% lower to its lowest level since March 2021.

Bank of England Governor Andrew Bailey told pension fund managers to finish rebalancing their positions by Friday when the British central bank is due to end its emergency support program for the country’s bond market.

The September 2022 Survey of Consumer Expectations was released:

Inflation

Median one-year-ahead inflation expectations continued to decline in September, falling by 0.3 percentage point to 5.4%, its lowest reading since September 2021. In contrast, three-year-ahead inflation expectations rose slightly to 2.9% from 2.8% in August. The survey’s measure of disagreement across respondents (the difference between the 75th and 25th percentile of inflation expectations) was unchanged at the one-year horizon and decreased at the three-year horizon.
Median five-year-ahead inflation expectations, which have been elicited in the monthly SCE core survey on an ad-hoc basis since the beginning of this year and were first published in July 2022, increased by 0.2 percentage point to 2.2%. Disagreement across respondents in their five-year-ahead inflation expectations declined in September.
Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—decreased at the short-term horizon and was unchanged at the medium-term horizon.
Median home price growth expectations declined by 0.1 percentage point to 2.0, its lowest reading since June 2020. The decline was most pronounced among respondents with a college education and annual household income over $100k, but was broad based across geographic regions. Home price growth expectations remain subdued relative to their pre-pandemic levels.
Expectations about year-ahead price changes rose by 0.4 percentage points for gas (to 0.5%), 1.0 percentage point for food (to 6.9%), 0.6 percentage point for college education (to 9.0%) and 0.1 percentage point for rent (to 9.7%). The median expected change in the cost of medical care, on the other hand, fell by 0.1 percentage point (to 9.2%).