Category: Market Action

TXPR closed at 614.13, down 0.80% on the day. Volume today was 2.06-million, well above the median of the past 21 trading days.

CPD closed at 12.25, down 1.05% on the day. Volume was 50,219, well below the median of the past 21 trading days.

ZPR closed at 10.28 down 0.77% on the day. Volume of 149,563 was below the median of the past 21 trading days.

Five-year Canada yields were up to 3.33% today.

Sorry that this is late: I had other things to do last night.

So, how about that Canadian inflation, eh?:

The consumer price index (CPI) rose 7.7 per cent in May from a year earlier, rising from April’s 6.8-per-cent pace, Statistics Canada said on Wednesday. It was the highest inflation rate since 1983 and part of a broader surge in prices that’s taken hold in advanced economies.

The recent jump in energy prices, stoked by the Russia-Ukraine war, is having a tangible effect on the numbers. Gasoline prices rose 12 per cent in May alone and were up 48 per cent from a year earlier; the national average price for regular unleaded remains north of $2 a litre.

So there’s another crypto company in trouble:

TSX-listed Voyager Digital Ltd.’s VOYG-T stock lost half its value in a single day after management warned of a potential default on a US$655-million loan to a troubled hedge fund, as investors continue to fear financial contagion owing to the crypto sector’s recent crash.

Voyager, which went public in Canada in 2019, was historically known for its trading venue that allows retail and institutional investors to buy and sell cryptocurrencies. Lately, however, the company has expanded its operations, and one of its newer divisions offers loans to institutional borrowers. At the end of March, Voyager had lent $2-billion worth of crypto assets, according to its quarterly filings.

On Wednesday, Voyager disclosed that it has lent US$655-million to Three Arrows Capital, a hedge fund known for trading cryptocurrencies, in the form of 15,250 bitcoin and US$350-million worth of USDC, another cryptocurrency.

According to their latest financials (SEDAR Voyager Digital Ltd. May 16 2022 07:30:45 ET Interim financial statements/report – EnglishPDF 606 K) they have loaned $2-billion in crypto while holding $227-million collateral. Sounds like the sooner these guys go bankrupt, the better.

Westjet’s unique take on planning has given me an idea for a new business:

On Wednesday, WestJet’s vice-president of government relations, Andrew Gibbons, said the airline is “disappointed” that the new rule unfairly makes it the “sole provider of reimbursement” for delays it cannot control. He said the airline relies on government agencies, NAV Canada, Canada Border Services Agency and Canadian Air Transport Security Authority (CATSA) to provide a seamless experience for travelers. These are the agencies that are understaffed and blamed for much of the delays at airports, particularly Toronto Pearson.

My idea is to offer valet parking at municipal lots downtown during sports events and other times of high demand; I figure I should be able to sell at least 5,000 tickets on busy days. Customers will not, of course, be refunded if I cannot actually park the cars due to the small number of such spots actually available; capacity is the government’s problem and I rely on them to provide a seamless experience for my customers.

PerpetualDiscounts now yield 6.14%, equivalent to 7.98% interest at the standard equivalency factor of 1.3x. Long corporates now yield 5.37%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrow sharply to 260bp from the 285bp reported June 15.

Oh, what a wicked world this is!

The Securities and Exchange Commission today charged Haverford, PA-based Egan-Jones Ratings Company, a nationally recognized statistical rating organization (NRSRO) registered with the Commission in certain ratings classes, with violating conflict of interest provisions. The SEC also charged the company’s founder and chief executive officer, Sean Egan, with causing certain of those violations.

The SEC’s order finds that, in 2019, Egan, who at the time headed Egan-Jones’s ratings group, became involved in business and marketing activities concerning a client and was influenced by sales and marketing considerations while participating in determining a credit rating for that client, which created a prohibited conflict of interest. The order finds that by issuing and maintaining a rating for the client under those circumstances, Egan-Jones violated the SEC’s NRSRO conflict of interest rules and, further, that Egan caused the company’s violations.

Egan-Jones is an investor-pay Credit Rating Agency; you know, those guys who are ever so much more ethical than the issuer-pay crowd.

Sorry this is so late!

TXPR closed at 617.13, down 1.74% on the day. Volume today was 1.51-million, slightly above the median of the past 21 trading days.

CPD closed at 12.26, down 2.16% on the day. Volume was 90,760, above the median of the past 21 trading days.

ZPR closed at 10.27 down 2.19% on the day. Volume of 227,820 was above the median of the past 21 trading days.

Five-year Canada yields were down to 3.33% today.

It was a bad day all ’round:

Canada’s main stock index slumped on Thursday to its lowest level in 14 months and its currency weakened as investors grew more worried that aggressive central bank interest rate hikes would trigger a recession, weighing on corporate earnings.

The Toronto Stock Exchange’s S&P/TSX composite index unofficially closed down 3.1%, or 607.50 points, at 19,004.06, its lowest level since April 2021.

The Canadian dollar was trading 0.3% lower at 1.2925 to the greenback, or 77.37 U.S. cents, after touching on Wednesday its weakest intraday level in more than one month at 1.2995.

U.S. stock indexes also tumbled on Thursday as the Swiss National Bank and the Bank of England lifted interest rates following the Federal Reserve’s 75-basis-point hike on Wednesday, with central banks aiming to slow domestic activity in the face of soaring price pressures.

The big news of the day was the FOMC meeting:

Overall economic activity appears to have picked up after edging down in the first quarter. 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 energy prices, and broader price pressures.

The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The invasion and related events are creating additional upward pressure on inflation and are weighing on global economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. 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 1‑1/2 to 1-3/4 percent and anticipates that ongoing increases in the target range will be appropriate. 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; Michelle W. Bowman; Lael Brainard; James Bullard; Lisa D. Cook; Patrick Harker; Philip N. Jefferson; Loretta J. Mester; and Christopher J. Waller. Voting against this action was Esther L. George, who preferred at this meeting to raise the target range for the federal funds rate by 0.5 percentage point to 1-1/4 percent to 1-1/2 percent. Patrick Harker voted as an alternate member at this meeting.

But the big market mover, it appears, was the accompanying economic projections.

The Globe & Mail remarks:

Bond yields fell after the release of Fed projections on Wednesday that showed economic growth slowing to a below-trend rate of 1.7 per cent, and policymakers expecting to cut interest rates in 2024. Stocks on Wall Street ended the day higher.

Interest rate futures markets also reflected about an 85 per cent probability that the Fed will raise rates by 75 basis points at its next policy meeting in July. For September’s meeting, however, the greater probability – at more than 50 per cent – was for a 50-basis-point increase.

Meanwhile, in the frozen North:

Canadian home prices and sales dropped in May in a second straight month of declines, as a sharp jump in borrowing costs rattles the market and makes it harder for homebuyers to get a mortgage.

The national home price index, which adjusts for pricing volatility, fell 0.8 per cent to $822,900 on a seasonally adjusted basis, according to the Canadian Real Estate Association, or CREA, with more sizable price declines in what had been some of the country’s hottest markets — southern Ontario and Chilliwack B.C.

The number of home resales dropped by 8.6 per cent from April to May on a seasonally adjusted basis, bringing the level of activity back in line with pre-pandemic times, CREA said. Last month’s sales were down in three-quarters of the country, with the greatest declines in the major cities, including Toronto.

PerpetualDiscounts now yield 5.98%, equivalent to 7.77% interest at the standard equivalency factor of 1.3x. Long corporates now yield 4.94%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened sharply to 285bp from the 245bp reported June 8.

TXPR closed at 631.54, down 2.00% on the day. Volume today was 1.30-million, below the median of the past 21 trading days.

CPD closed at 12.55, down 1.34% on the day. Volume was 55,120, near the median of the past 21 trading days.

ZPR closed at 10.51 down 1.22% on the day. Volume of 230,470 was above the median of the past 21 trading days.

Five-year Canada yields were rocketted up to 3.54% today. Geez, it seems like only last Friday that I was using 3.36% to prepare the number for PrefLetter and reflecting on what a whopping great big number that was. Wait a minute … it was last Friday. Never mind.

It wasn’t a good day in Canada:

Money markets see about a 75% chance that the Bank of Canada would raise interest rates by three-quarters of a percentage point next month, which would be the biggest hike since August 1998, and expect rates to peak at about 3.9% next year.

Just two weeks ago, investors expected a so-called terminal rate of 3%.
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But the energy sector gave back some recent gains on Monday and fell 3.1%, while the materials group, which includes precious and base metal miners and fertilizer companies, tumbled 4.8% as gold and copper prices fell.

Technology shares, which are particularly sensitive to higher rates, lost 3.6%, with shares of cloud-based commerce platform company Lightspeed Commerce Inc down 14.4%.
…
An index of world stocks dropped 3.7%.

As speculation simmers that the Fed could hike interest rates by 75 basis points at its June 14-15 policy meeting this week, markets ratcheted up expectations that U.S. rates would peak at around 4% next year, up an eye-watering 100 basis points from less than two weeks ago.

Investors are trying to predict where benchmark policy rates could peak in the United States and other major economies, as that would help determine equity valuations and how much further share prices could fall.

European shares tumbled 2.4% to their lowest in more than three months, and the euro STOXX volatility index – an equivalent in Europe of the U.S. VIX index, also known as Wall Street’s fear gauge – surged to a one-month high. The U.S. Vix index also leapt to its highest in over a month.

… and in the States:

On Monday, the S&P fell 3.9 percent, closing the day nearly 22 percent below its Jan. 3 peak and firmly in a bear market — a rare and grim marker of investors’ growing concerns for the economy.

A crucial report on Friday showed inflation in the United States was accelerating and creeping into every corner of the economy. Earlier last week, the World Bank issued a dire warning that global growth may be choked, especially as the war in Ukraine drags on.

Together, the data undercut optimism that the Federal Reserve, as it raises interest rates, would be able to keep price gains under control without damaging the American economy and sending ripples throughout the globe.

Monday’s trading ended with reports that the Fed is likely to discuss making its biggest interest-rate increase since 1994 when policymakers meet this week.

Meanwhile, Manulife Bank took a survey about the real economy:

• Over one in five Canadians of Canadians expect rising interest rates to have a significant negative impact on their overall mortgage, debt and financial situation.
• As many as eighteen per cent of homeowners believe they can no longer afford the house they own.
• Indebted Canadians are more likely to report that debt is causing them stress with close to half saying it is negatively impacting their mental health.
• The housing market is out of reach for most – two-thirds do not view home ownership as being affordable, in their local community.
• Nearly half of Canadians said they would struggle to handle unexpected expenses or are reconsidering summer vacation plans due to affordability concerns.

Oddly, I can’t find much about the survey itself on-line, in terms of details, demographics, financial situation of the respondents, etc. The ‘details’ provided at the link provided by Manulife aren’t worth much, so I suspect that this was simply a marketting effort, rather than a serious attempt to try to understand anything.

Now in its eleventh year, the Manulife Bank of Canada poll surveyed 2,001 Canadians in all provinces between ages 20 and 69 with household income of more than $40,000. The survey was conducted online by Ipsos between April 14 and April 20, 2022. National results were weighted by gender, age, region, and education. This survey has a credibility interval of +/- 2.5 per cent 19 times out of 20, of what the results would have been had all Canadian adults between the ages of 20 and 69 been surveyed.

US inflation wasn’t very encouraging:

Prices climbed 8.6 percent in the year through May, a re-acceleration of inflation that makes it increasingly difficult for consumers to afford everyday purchases and poses a major challenge for the Federal Reserve and White House as they try to secure a strong and stable economy.

The Consumer Price Index climbed 1 percent from April — far more quickly than in the previous month — and by 0.6 percent after stripping out food and fuel prices, which can be volatile. That so-called core inflation reading matched April’s reading.
…
The price of gasoline rose 4.1 percent in May over the previous month, bringing the increase from a year ago to 48.7 percent.

And globally, even the ECB is taking action:

The European Central Bank ended a long-running stimulus scheme on Thursday and said it would deliver next month its first interest rate hike since 2011, followed by a potentially larger move in September.

With inflation at a record-high 8.1% and still rising, the ECB now fears that price growth is broadening out and could morph into a hard-to-break wage-price spiral, heralding a new era of stubbornly higher prices.

The central bank for the 19 countries that use the euro said it would end quantitative easing on July 1, then raise interest rates by 25 basis points on July 21. It will then hike again on Sept. 8 and go for a bigger move, unless the inflation outlook improves in the meantime.

“We will make sure that inflation returns to our 2% target over the medium term,” ECB President Christine Lagarde told a news conference. “It is not just a step, it is a journey,” she said of the moves signalled on Thursday.

Meanwhile, supply chain fears originating in China are refreshing themselves:

China’s commercial hub of Shanghai will lock down millions of people for mass COVID-19 testing this weekend – just 10 days after lifting its gruelling two-month lockdown – unsettling residents and raising concerns about the business impact.

Racing to stop a wider outbreak after discovering a handful of community cases, including a cluster traced to a popular beauty salon, authorities have ordered PCR testing for all residents in 14 of Shanghai’s 16 districts over the weekend.

Five of the districts said residents would not be allowed to leave their homes while the testing was carried out. A notice issued by Changning district described the stay-home requirement as “closed management” of the community being sampled.

But at least there are jobs in Canada!

The economy added 40,000 jobs in May, driven by a gain in full-time jobs as the labour market continued to tighten and wages pushed higher, Statistics Canada said Friday.

The increase came as the unemployment rate fell to 5.1 per cent, the lowest rate since at least 1976 which is as far back as comparable data goes. The unemployment rate was 5.2 per cent in April.
…
Statistics Canada said Friday average hourly wages for all employees rose 3.9 per cent on a year-over-year basis in May, compared with an increase of 3.3 per cent in April.

The jobs report follows a decision by the Bank of Canada last week to raise its key interest rate by half a percentage point to 1.5 per cent in an effort to help bring inflation back under control.

The annual pace of inflation rose to 6.8 per cent in April, the fastest year-over-year rise in 31 years.

The upshot is that GOC-5 is now 3.37%.

To top everything else, we have to batten down the hatches in preparation for bathroom wars:

Speaking on Thursday at The Times’s DealBook D.C. policy forum, Mr. Schultz said the coffee giant might no longer allow people who were not customers to use their stores’ bathrooms. The move would reverse a policy Starbucks instituted in 2018 in the wake of the arrest of two Black men in one of its Philadelphia stores. The two men had been reported to the police by a Starbucks employee after they were denied use of the store’s bathroom and asked to leave. They hadn’t made a purchase.

At the time, Starbucks announced that “any customer is welcome to use Starbucks spaces, including our restrooms, cafes and patios, regardless of whether they make a purchase.”

But on Thursday Mr. Schultz said that a growing mental health problem was making it difficult for his company’s employees to manage its stores under the current policies. Mr. Schultz said that the decision was an “issue of just safety” and that he thought Starbucks might have to put policies in place that limit the number of non-customers who come into its stores.

It’s becoming an issue:

Toronto, like many cities in Canada, has a washroom problem. There are not enough of them. According to the Public Toilet Index, Canada has 18 public toilets per 100,000 people, which is better than the United States (eight) but much worse than Iceland (56). Even if you are lucky enough to find a washroom in a park, you’d better make sure you only want to use it between the hours of 9 a.m. and 9 p.m., from May to October. Otherwise, please turn off your body’s taps.

Washrooms may not figure in most people’s reckoning of a great city, but they should. They allow people who might otherwise feel leery about straying too far from their own bathrooms – the elderly, people with young children, those with inflammatory bowel disease – to have full access to their cities. Years ago, when I was living in London and writing about the lack of toilets there, I interviewed urban planning professor and public washroom advocate Clara Greed, who called this unnecessary constraint “the bladder’s leash.” I’ve loved that phrase ever since.
…
It was not always this way. In the early 20th century, Toronto built public palaces for its thrones, a fascinating history that is laid out in the Gotta Go TO report for Toronto’s Public Space Committee. But those public washrooms were closed by the early 1980s, because the city, like many others, insisted that bathrooms be installed in gas stations instead of being a municipal responsibility. This led to the private handoff of bathroom keys we’re stuck with today: If you don’t fill one tank, good luck trying to empty the other.

Well, of course public washrooms are a public good and should be publicly funded. Not in the States, though – that’s a radical left-wing idea!