PrefBlog

TXPR closed at 554.08, up 1.04% on the day. Volume today was 1.65-million, well above the median of the past 21 trading days.

CPD closed at 11.05, up 1.00% on the day. Volume was 138,780, second-highest of the past 21 trading days.

ZPR closed at 9.30, up 0.87% on the day. Volume was 563,620, highest of the past 21 trading days and more than double that of the second-highest.

Five-year Canada yields were down precipitously to 3.34% today.

Equities had an even hotter day:

Investors stampeded back into stocks Thursday, and sent bond yields to their biggest daily decline in more than a decade, after U.S. consumer price data suggested the Federal Reserve may be reaching a turning point in its battle against stubborn inflation.
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Both Wall Street and Bay Street saw their biggest advance since April 2020. The S&P 500 jumped 5.5% and the Dow Jones Industrial Average rose just over 1,200 points. The tech-heavy Nasdaq, which is particularly sensitive to the path of interest rates, rallied 7.3%. The Canadian benchmark stock index rose 3.3%, closing at its highest level since Aug. 25.

Even bitcoin surged, recovering nearly all its losses from Wednesday when a failed buyout for a troubled cryptocurrency exchange sent shockwaves through the sector.
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For the next Bank of Canada policy meeting on Dec. 7, the market is now pricing in a 73% probability of a 25-basis-point hike in its overnight rate, versus 54% odds prior to the data, as bets of a larger 50-basis-point hike declined, according to Refinitiv Eikon data.

The U.S. 10-year Treasury yield dropped about 30 basis points to a five-week low of 3.813%, its largest daily fall since March 2009. Canada’s five-year government bond – influential in the setting of mortgage rates – fell 26 basis points to 3.336%. The U.S. dollar plummeted, sending the Canadian dollar up 1.2% to a seven-week high of 74.79 cents US.

Lower bond yields and expectations central banks are nearly at the end of their rate-hiking cycle provided a shot of confidence to market bulls who have been arguing the recovery in equity markets is only in its early stages. But most agreed several more months of declining inflation numbers would be needed to confirm the trend.

So, yes, there was an encouraging US inflation number:

Consumer Price Index data released on Thursday showed that inflation cooled more than expected in October, welcome news for the Federal Reserve and White House after months of limited progress on bringing down inflation.

While inflation is still rapid, it slowed notably last month. Consumer prices picked up by 7.7 percent in the year through October, less than the 7.9 percent that analysts had expected, and down from 8.2 percent in the year through September. On a monthly basis, price gains climbed by 0.4 percent between September and October, matching the previous month.

After stripping out food and fuel, both of which jump around in price, a “core” inflation index decelerated to 6.3 percent on an annual basis, down from 6.6 percent in the prior reading.
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Market expectations for where interest rates will move to next year dropped from a peak of over 5 percent to around 4.9 percent, as investors dialed back expectations of the number of interest rate increases to come.

The two-year Treasury yield, which is sensitive to changes in Fed policy, plummeted by more than 0.2 percent, to around 4.4 percent. The dollar also fell swiftly, down 1 percent against a basket of currencies that represent America’s major trading partners.
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Food prices continued to grow in October, inflating grocery bills for American households, though at a slightly slower pace than in previous months. The price of food rose 0.6 percent last month, down from 0.8 percent growth in September.

While prices of some items have retreated after spiking earlier this year, others are reaching fresh highs. The price of cereals and bakery products climbed 0.8 percent from the previous month, driven by a 2 percent increase in the price of flour. Lunch meats rose 3.4 percent from September and lettuce increased by 3.3 percent. The price of eggs, which have been inflated this year because of an outbreak of avian flu, soared 10.1 percent on the month.

But the price of some products began to fall after peaking earlier this year. The price of frankfurters fell 2.3 percent. Whole milk fell 0.9 percent, and fresh fruits declined 2.4 percent.

On an annual basis, the food index rose 10.9 percent, down slightly compared with the pace of growth last month.

Some support for the official numbers was provided by the Fed’s Underlying Inflation Gauge:

• The UIG “full data set” measure for October is currently estimated at 4.2%, a 0.3 percentage point decrease from the current estimate of the previous month.
• The “prices-only” measure for October is currently estimated at 5.7%, a 0.3 percentage point decrease from the current estimate of the previous month.
• The twelve-month change in the October CPI was +7.7%, a 0.5 percentage point decrease from the previous month.
• -For October 2022, trend CPI inflation is estimated to be in the 4.2% to 5.7% range, a similar range to September, with a 0.3% decrease on its lower and upper bounds.

The “prices-only” underlying inflation gauge (UIG) is derived from a large number of disaggregated price series in the consumer price index (CPI), while the “full data set” measure incorporates additional macroeconomic and financial variables. For a list of the series employed, see the data appendix.

But Tiff Macklem was not so sunny:

Bank of Canada governor Tiff Macklem said that unemployment needs to rise in order to slow down inflation, although elevated levels of job vacancies could soften the blow.

In a speech in Toronto hosted by the Public Policy Forum, Mr. Macklem said that Canada’s labour market is overheating, with unemployment near a record low and businesses struggling to find workers. This is feeding through into inflation, as companies bid up wages to compete for employees.

“We need to rebalance the labour market,” Mr. Macklem said. “This will be a difficult adjustment. We want to do this in the best way possible for Canadian workers and businesses.”

Mr. Macklem’s comments come on the heels of a blowout jobs report last Friday. Employment jumped by 108,000 in October, recouping all of the jobs lost during the summer slowdown. Average hourly wages were up 5.6 per cent that month compared to the previous year, while the rate of unemployment remained steady at 5.2 per cent as work force participation rose.
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“The unemployment rate in June hit a record low – and while that seems like a good thing, it is not sustainable,” Mr. Macklem said. “The tightness in the labour market is a symptom of the general imbalance between demand and supply that is fuelling inflation and hurting all Canadians.”

And it appears that troubles in the construction & development industry are worsening:

Romspen, one of Canada’s biggest private mortgage lenders, with $3.2-billion in assets under management, is freezing investor redemptions, citing some trouble with loan repayments.

The act of freezing redemptions, known as “gating” in the investment industry, prevents investors from taking their money out of the fund. Because Romspen is a private lender, a preset mechanism for redemptions normally permits a certain amount to be paid back to investors each month.

The company has not said how long the freeze will last. Instead, it told investors this week that it will “temporarily defer payment of unit redemptions requests until there is more clarity with respect to the fund’s timetable for borrower loan repayments and the receipt of proceeds of collateral and asset monetizations.”

Romspen’s portfolio largely comprises construction and predevelopment loans, and it lends to borrowers across the United States and Canada. In its letter to investors, the company warned that “if redemption demands continue at high levels, the trustees may be compelled to institute other temporary liquidity management measures.”

TXPR closed at 548.39, down 0.56% on the day. Volume today was 1.72-million, fourth-highest of the past 21 trading days.

CPD closed at 10.94, down 0.36% on the day. Volume was 63,550, well below the median of the past 21 trading days.

ZPR closed at 9.22, unchanged on the day. Volume was 275,640, highest of the median of the past 21 trading days.

Five-year Canada yields were down to 3.63% today.

And bitcoin got absolutely hammered today, which may be related to troubles at FTX:

The near-collapse of FTX, a dominant cryptocurrency exchange once seen as a trustworthy oasis in a sketchy industry, is ricocheting through the crypto sector at alarming speed, sending the prices of multiple cryptocurrencies plummeting and raising serious doubts about the business model for all crypto assets.

The potential for contagion is only growing following the news late Wednesday that Binance, a rival exchange, is walking away from its potential takeover of FTX, citing concerns about FTX’s finances and a new regulatory probe of the exchange.

I’ve thought for a long time that being a small-time landlord is one of the worst jobs in the world. Many disagree:

New data published by Statistics Canada suggests that while the share of Canadians reporting rental income has grown modestly since 2000, thanks to the growing population the net number of small landlords is up about 32 per cent just since 2008.

In a report published online, Statistics Canada says it obtained data from tax filings that showed 1,356,650 households reported income from rentals.
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In total about 7.9 per cent of Canadian households reported a median rental income of $2,750 (up from 2000 when 7.4 per cent reported a median rental income of $790).

Statcan’s data shows landlord life has also gotten more lucrative: In 2000, 65 per cent of landlord households reported their rental income was net positive (in other words, profitable), by 2020 with vastly more landlords to compete against 76.3 per cent reported profitable rental income. (The low point in that stretch came during the 2008 financial crisis when only 63 per cent reported profits.)

There’s also a significant wealth gap between those with rental income and those without: Artisinal landlords had a median annual income of $113,030, nearly double that of the 15,751,670 families with no rental income ($63,040).

I’m actually impressed that so many are cash-flow-positive; but I’ll bet that changes a bit when the mortgages get renewed!

Unfazed by the Republicans’ lack of wholesale success in the US mid-terms, the Junior Republicans are practicing their use of the victim card:

Unlike other party leaders, Mr. Poilievre does not routinely take questions from journalists, who are members of the press gallery, on Parliament Hill. The Parliamentary Press Gallery consists of 302 members from 48 agencies and outlets, including national and international organizations, not counting freelance journalists.

“It’s not just the Parliamentary Press Gallery that controls the agenda, and I think that’s what’s going on here. The Parliamentary Press Gallery believes it should dominate political discourse. I believe we have a big country, with people who are not necessarily part of the press gallery,” Mr. Poilievre told journalists.

Hey, it’s easier than answering questions!

PerpetualDiscounts now yield 6.82%, equivalent to 8.87% interest at the standard equivalency factor of 1.3x. Long corporates continue to yield 5.49%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has gaped wider to 340bp from the 305bp reported November 2. However, I suspect that the “Weighted Average Yield to Maturity” reported by BMO on their ZLC page is not kept current; anything to withhold information from the masses is good business for the banks! I’ve sent an inquiry; we’ll just see what kind of answer I get!