Category: Market Action

The New York Fed has updated its Global Supply Chain Pressure Index (GSCPI):

• Global supply chain pressures declined in June, continuing the decrease we observed for May.
• The June decline was mostly due to a large decrease in Chinese supply delivery times.
• The moves in the GSCPI over the past three months suggest that although global supply chain pressures have been decreasing, they remain at historically high levels.

PerpetualDiscounts now yield 6.10%, equivalent to 7.93% interest at the standard equivalency factor of 1.3x. Long corporates now yield 5.23%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened to 270bp from the 255bp reported June 29.

Sorry this is so late, but I went to see Harry Potter and the Cursed Child last night. It was a great show and I endorse it completely. Loaded with very well done special effects and a superb set. My friend and I were most impressed by the portrayals of the Dementors and Moaning Myrtle; I particularly liked the magic duel in the first act.

Moaning Myrtle

It was definitely a ‘risk-off’ kind of day!

Peter Misek of Framework Venture Partners takes us down memory lane:

Let’s revisit the past. In 1993, the new Chrétien government was ripe with ideas for pumping stimulus into the country. Its problems were familiar: health and education were clamouring for investment and every government department had needs.

Less than a year into the government’s mandate, a usually uneventful moment became a watershed lesson for Canada. With hours to go before a regular bond auction, there were no bids at any price, Mr. Chrétien confirmed in a 2011 Reuters interview.
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At the last minute, the auction received bids, but the damage was done. In a rare moment of clarity, common sense and heroism, Mr. Chrétien called emergency cabinet meetings and set the painful but needed course toward renewed prosperity in Canada.

Yes, it was common knowledge in the industry that the GOC bond auctions had come within a hairsbreadth of failing in 1993. Not enough people know that.

One of the truisms of politics is that the politicians generally know what has to be done; they just don’t know how to get re-elected if they do it. We were very fortunate that at that time there was a Liberal government in Canada: they had the political room to take the harsh steps that were required. If it had been a Progressive Conservative government in power, doing so would have reinforced their political stereotypes and in short order have taken them to the political wilderness – as Mike Harris and the Ontario PCs found out soon enough.

It’s time to break up the banks. This is tied selling:

Some of Canada’s largest banks are blocking online investors from buying high-interest-savings exchange traded funds, which compete with the banks’ own lucrative deposit accounts.

The discount brokerage arms at Royal Bank of Canada, Bank of Montreal and Toronto-Dominion Bank do not allow do-it-yourself investors to purchase high-interest-savings ETFs, also known as cash ETFs, or HISA ETFs. The funds, which are run by independent asset managers, mainly invest in pools of banks’ high-interest savings accounts and deposits.

Rising yields are doing wonders for the solvency ratios of DB pension plans:

Consulting firm Mercer Canada Ltd. said its Mercer Pension Health Pulse, which tracks the median solvency ratio of the defined benefit (DB) pension plans of Mercer clients, increased from 108 per cent on March 31 to 109 per cent by June 30. The measure was 96 per cent at the end of 2020 and 103 per cent at the end of 2021
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Aon PLC … said its pension risk tracker, which measures the aggregate solvency of DB pension plans of companies in the S&P/TSX Composite Index, increased from 100.5 per cent to 101.5 per cent during the past three months. It has risen all the way from 89.4 per cent at the end of 2020 and 97.2 per cent at the end of 2021.

Well, that’s the end of the first half!

U.S. and Canadian stocks on Thursday closed out their worst quarter since the onset of the COVID-19 pandemic with another session of broad losses and growing unease among investors that the bloodletting in markets won’t let up any time soon.

The world’s most closely followed benchmark stock index, the S&P 500, saw the steepest percentage decline in the first half of a year since 1970.

The Canadian stock market has fared better, but its outperformance has been eroding in recent weeks amid growing bets that a rush by central bankers to hike interest rates to combat skyrocketing inflation will push economies into recession. Such a scenario paints an unsupportive picture for the S&P/TSX Composite Index, due to its heavy weighting of economically sensitive sectors such as energy, metals and financials.

In total, more than US$13-trillion has been erased from global stocks in a year that has also seen steep losses in bond markets and a breathtaking drop in cryptocurrencies, once thought to be a compelling way to diversify away from larger asset classes.

But we’ll end things on a hopeful note:

An international team of researchers, led by scientists at the University of Manchester, has developed a fast and economical method of converting methane, or natural gas, into liquid methanol at ambient temperature and pressure. The method takes place under continuous flow over a photo-catalytic material using visible light to drive the conversion.

An eMail from the New York Fed brought news of a new index:

The Federal Reserve Bank of New York today announced the monthly publication of a first-of-its-kind research product focused on identifying periods of widespread distress in the U.S. corporate bond market. Starting with today’s publication, the Corporate Bond Market Distress Index (CMDI)—a summary metric of U.S. corporate bond market functioning—will be updated regularly at 10:00 AM ET on the last Wednesday of each month. The CMDI was first introduced through a New York Fed Staff Report in January 2021, and a subsequent Liberty Street Economics blog post in February 2021.

The CMDI is a unified measure that identifies periods of dislocations and is associated with future realizations of other financial market conditions. By applying the CMDI to historical data, the index identifies past periods of market distress, such as those around the global financial crisis peaking in late 2008 and early 2009 as well as during COVID-19-related market stress in 2020. Additional periods since the beginning of 2022 were identified in a recent Liberty Street Economics blog post in June 2022.

PerpetualDiscounts now yield 6.07%, equivalent to 7.89% interest at the standard equivalency factor of 1.3x. Long corporates now yield 5.33%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed slightly (and perhaps spuriously) to 255bp from the 260bp reported June 22.

<
td>Notes

TXPR closed at 619.18, up 1.53% on the day. Volume today was 781,400, second-lowest of the past 21 trading days.

CPD closed at 12.24, unchanged on the day. Volume was 125,610, third-highest of the past 21 trading days.

ZPR closed at 10.30 up 0.78% on the day. Volume of 142,060 was third-lowest of the past 21 trading days.

Five-year Canada yields were up a bit to 3.24% today.

TXPR closed at 609.84, down 0.70% on the day. Volume today was 2.58-million, third-highest of the past 21 trading days.

CPD closed at 12.24, down 0.08% on the day. Volume was 87,630, above the median of the past 21 trading days.

ZPR closed at 10.22 down 0.58% on the day. Volume of 211,150 was below the median of the past 21 trading days.

Five-year Canada yields were down sharply to 3.21% today; the volatility is amazing:

U.S. Treasury yields fell to their lowest levels in almost two weeks on Thursday, as data from the euro area stoked worries about a sharp slowdown in the global economy.

Euro zone business growth has slowed significantly this month – and by much more than expected – as consumers concerned about soaring bills opted to stay at home and defer purchases to save money, a survey showed on Thursday.

In London trade, the 10-year Treasury yield fell to 3.087 % , its lowest level in almost two weeks. It was down 6 bps on the day and followed sharp falls in bond yields across the euro area.
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S&P Global’s flash euro zone Composite Purchasing Managers’ Index (PMI), seen as a good gauge of overall economic health, slumped to 51.9 in June from 54.8 in May, far below the 54.0 predicted in a Reuters poll.
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Since hitting its highest since 2011 early last week, the benchmark 10-year Treasury yield has tumbled around 40 bps, highlighting investor uncertainty in the wake of aggressive monetary tightening from the Federal Reserve

There’s a lot of weeping and wailing about how abnormally high interests rates are right now:

Rising rates could bake higher expenses into family finances for years. With a fixed-rate mortgage, you are locking in today’s higher payments in for whatever term you choose. From that perspective, the familiar old five-year fixed rate mortgage doesn’t look great.

Higher mortgage costs also make houses less affordable to buy, which is itself a retirement problem. In no way does a home guarantee a financially secure retirement. But if you do own one, you have a valuable asset to sell in order to free up money for retirement costs like care provided through in-home services or nursing homes.
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A return to normal inflation levels and an interest rate reversal would help avert this crisis, but we have a broader affordability problem to contend with in the form of lifestyle inflation.

I don’t get it. I don’t see anything abnormal at all about GOC-5 yields in the 3.00%-3.50% range when inflation is at 2% (or at least is projected to be there, according to the Canada Break-Even Inflation Rate). What I think is abnormal is fourteen years of ridiculously low yields, negative real yields, even negative NOMINAL yields, for heavens sake. Hell, it used to be that a negative yield on US Treasury Bills was breathlessly mentioned in textbooks as a gross aberation that only existed fleetingly due to special conditions in the Great Depression. And after reading this factoid, you checked it with a puzzled frown. Now, not so much.