PrefBlog

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%.
…
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.