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Msg  71789 of 72271  at  6/24/2022 9:29:28 AM  by


The following message was updated on 6/24/2022 9:29:28 AM.

The Launch Pad

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Daily market commentary

June 24, 2022
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Futures gained this morning as U.S. indexes look to close out a rare positive week in what has been a rough first half of the year. Recent stock gains, however, seem to be a function of a shift toward defensives rather than a “risk-on" roar. Treasuries rallied yesterday as weaker-than-forecast data combined with a hawkish tone from Fed officials increased worries the U.S. economy is heading for a recession. Data released yesterday did little to boost sentiment about the economy, with jobless claims hovering near a five-week high, while manufacturing and services activity cooled. Canadian equities did not fare as well as their U.S. counterparts this week, with the TSX set to finish the week in the red. The TSX fell sharply yesterday as investors continue to worry about the possibility of a recession with energy and mining stocks bearing the brunt of the impact.

Recession fears remain front of mind for investors, pushing Canadian bank stocks down more than 20% from their record highs. The S&P/TSX Financials Sector Index and the S&P/TSX Commercial Banks Index, both dropped yesterday, adding to another day of losses. Analysts covering banks are warning that profits may not be as strong going forward, with some earnings estimates falling by 16%. Scotiabank and CIBC are among the Big Six bank stocks leading losses this year, with analysts saying both could have further to fall.

Speaking of economic health, Copper prices are set to end the week with its biggest weekly loss in over a year on heightened fears over slowing economic growth. Copper is considered a gauge for the health of the economy due to its widespread use across various sectors from construction to power transmission and with the green transition, a key input for electric vehicles. Copper prices have hit its lowest level since February 2021 and is down -7.2% for the week thus far, which would be its worst weekly decline since June 2021.

Canada’s national housing agency estimates that the country must build an extra 3.5 million homes to get its housing market back in line with local incomes. The newest estimates released yesterday, indicate that the country needs to more than double its current pace of home construction to make up for the imbalance of supply and demand that has built up over recent years, with many of the additional units needing to go to Ontario and British Columbia. While prices have started to dip recently, affordability has only continued to deteriorate as rising mortgage rates reduce the size of loans prospective buyers can get. One measure of home affordability fell to its lowest level since the early 1990s in the first three months of this year.

Triggered by Russia's invasion, EU leaders formally accepted Ukraine as a candidate to join the 27-nation group yesterday. Although it could take Ukraine and neighbouring Moldova more than a decade to qualify for membership, the decision at a two-day EU summit is a symbolic step that signals the group's intention to reach deep into the former Soviet Union. President Zelensky spoke of his country's desire for candidate status in almost every speech over the past week, knowing that membership will permanently shift Ukraine out of Russia's sphere of influence.

Canadian basketball players on the up and up. Four Canadians were drafted into NBA yesterday including two in the top 10. Bennedict Mathurin, a 20-year-old from Montreal who starred at the University of Arizona, was selected sixth by the Indiana Pacers and the Portland Trail Blazers took a chance on Shaedon Sharpe with the seventh pick, a 19-year-old from London, Ont., who didn't play a single college game. Congrats also go to Andrew Nembhard, who went to the Indiana Pacers, and Caleb Houstan, drafted by Orlando Magic.

Diversion: This guy couldn’t even catch a break after he passed.

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Company news

Twitter is catching a bid this morning after Insider reported that Elon Musk got what he wanted which included more user data with real-time API information. Last week, Musk’s lawyers sent Twitter’s board a letter which claimed that the historical data supplied by Twitter wasn’t enough.

Following weak earnings and subscriber growth, Netflix has announced they will be laying off 300 employees in order to bring costs under control. This cut is twice as large as the one the streaming giant made last month. Netflix’s subscriber woes were in part due to a price hike in January. Further, it’s facing heightened competition with streaming content from Inc., Walt Disney Co., and Hulu, all of which have posted subscription growth recently.

Imperial Oil and E3 Lithium are collaborating to advance a direct-lithium-extraction pilot in Alberta, exploring the redevelopment of an historic oil field into a potential new leading source of lithium for Canada’s growing critical minerals industry. The pilot will support E3 Lithium’s Clearwater project, which will draw lithium from under the Leduc oil field, Imperial’s historic discovery that first launched major oil and gas development in Western Canada.

And another one. Polestar shares (PSNY), are set to debut today making it the latest EV company to go public via a merger with a special purpose acquisition company, or SPAC. Polestar said its stock will begin trading on the NASDAQ exchange after it completed its merger with the SPAC Gores Guggenheim. Polestar CEO Thomas Ingenlath said the company will use the roughly $850 million raised from the deal to fund its three-year plan to build new vehicles and eventually become profitable.


Hopefully some food inflation relief on the horizon. Crop prices are back to down to where they were at the start of the war in Ukraine. Wheat, soybean oil and sugar are among farm commodities that have retreated in recent weeks, the Agriculture Spot Subindex is on track for its worst week since 2011. Grains and vegetable oils have suffered some of the largest losses, with corn down 11% this week in Chicago and soybean oil heading for its longest run of daily losses since 1973. Corn inventories are also piling up in Brazil as its top-producing region collects a bumper crop.

Germany is getting very concerned with the economy minister stating he can’t be sure that Russia will resume shipments through a key gas pipeline following planned maintenance next month, raising the prospect of a fresh surge in prices and rationing this winter - consumers could see natural gas prices triple, and urged households and businesses to put money aside and save energy wherever possible. Russian President Vladimir Putin has reduced flows to Europe in apparent retaliation over sanctions imposed following his invasion of Ukraine. The standoff escalated last week after Gazprom PJSC slashed shipments through Nord Stream, leaving it at only 40% capacity and putting Germany’s reserves for the winter at risk.

Fixed income and economics

Bond yields are higher across the curve with a risk-on mood today with hopes to go into the weekend with a winning week. High yield bond markets are participating in the rally with USD-denominated junk spreads opening this morning at +548.3 bps over Treasuries and their narrowest since June 10. For a while there were worries that the bottom had not yet been met in the asset class --- yields on the credit had surged to a more than two-year high of 8.58% and spreads reached a 20-month high of +587.0 bps amid mounting fears that the economy is headed toward a recession. CCC’s (the riskiest part of the rated junk bond market) were near distressed levels, with yields just shy of 13% as of this past Wednesday’s close as spreads neared +1,000.0 bps. Rapidly tightening financial conditions were sparking fears of companies losing access to refinancing markets with the absence of a primary new issue since June 16 marking the slowest June in more than a decade (month-to-date issuance at a modest $9.25 billion). Notably, JP Morgan analysts have revised their junk-bond supply forecast for 2022 to $175 billion from an estimated of $425 billion at the beginning of the year. Hopefully a couple risk-taking sessions leading into the month-end help turn the tape around.

Chart of the day


Quote of the day

Life is what happens while you are busy making other plans.
John Lennon

Contributors: A. Innis, A. Nguyen, D.Mak, J. Price, P.

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