The U.S. added 528,000 jobs in July, more than double the estimates, showing the continued strength of the jobs market. The numbers are seen as ammo for further interest rate hikes from the Fed which has pushed U.S. futures down this morning. Canadian employment levels did not fare as well, falling for a second straight month. Workers continued to drop out of the labour force last month with the economy shedding 30,600 jobs, compared to an estimate of a 15k gain. This morning's moves follows a day with little change in the equity markets as investors parsed various corporate earnings against a backdrop of aggressive interest-rate hikes by global central banks.
As Canada’s oil producers ramped up shipments, the country’s merchandise trade surplus widened to the largest in 14 years in June. Exports rose 2% to a record $69.9 billion during the month, outpacing a 1.7% increase in imports, leading to the surplus rising to $5 billion. While Canada has benefited from rising prices for energy and other commodities, the export gain in June reflects increased volumes of energy shipments. The increase in volume has been a welcome sign for the sector which has struggled to ramp up production this year. In total, exports of energy products increased 3.2% to $21 billion in June, and now represent 30% of total shipments.
As consumers face higher prices, carmakers are now feeling the pain. Although some luxury brands like Ferrari and Mercedes have raised sales forecasts due to continued high demand for top end models, the outlook for most of the industry is bleaker with waiting times on new orders becoming shorter as order books thin out. That's even with production slower than usual and deliveries well below last year. Carmakers have until now, protected margins by bumping up prices, but the steep rise in inflation has made it more difficult to pass on rising costs.
Gas prices continue to fall but that hasn’t been enough to lure drivers back to the roads. With inflation constraining consumer budgets, new data suggests that drivers in the U.S. are now driving less than they did in the summer of 2020, when pandemic travel restrictions all but halted movement. The four-week average of U.S. gasoline consumption is now more than 1 million barrels a day, suggesting the glimmer of demand recovery seen last week was fleeting. While gas prices are falling, the relief at the pump may come too late as the summer driving season nears its end.
The Toronto Raptors now top the list as the highest valued Canadian franchise, with a worth of $2.2 billion. With a little help from their Championship success in 2019, the Raptors have seen their value grow over 400% since 2012. Meanwhile, the Toronto Maple Leafs take second place and are one of the NHL’s most valuable franchises, with a valuation of $1.8 billion. Despite having the longest Stanley Cup drought in the league since 1967, the team continues to enjoy financial success. Toronto Blue Jays follow closely behind with a value of $1.7 billion and Montréal Canadiens take fourth place with $1.6 billion. Important to note, the Edmonton Oilers have achieved a 389% increase in their franchise valuation over the last decade making them the fastest growing team within the NHL and are now valued at $1.1 billion.
BCE reported adjusted earnings that beat analysts’ estimates, while operating revenue was marginally below forecasts. BCE maintained all FY22 financial guidance targets. The company attributed the performance to a 3.8% increase in service revenue to C$5.23 billion, reflecting robust wireless, residential Internet, and media growth.
Suncor Energy beat estimates reporting $3.99 billion in the second quarter of 2022, more than four and a half times the $868 million it earned in the same period of 2021. Suncor’s adjusted funds from operations hit $5.35 billion in the quarter, the highest in the company's history by 33%. In separate news, Suncor Energy reached an agreement for the sale of its assets in Norway for C$410 million, with the transaction expected to be completed in the fourth quarter.
BlackRock announced they will be partnering with Coinbase Global to make it easier for institutional investors to manage and trade Bitcoin, marking a major push into cryptocurrencies for the world’s largest asset manager. Top clients will be able to use BlackRock’s Aladdin investment-management system to oversee their exposure to Bitcoin along with other portfolio assets such as stocks and bonds, and to facilitate financing and trading on Coinbase’s exchange.
Meta Platforms Inc., one of the few S&P 500 companies without debt, made its U.S. bond market debut yesterday. The social media giant that includes Facebook and Instagram is selling bonds in as many as four parts. The longest portion of the offering, a 40-year security, may yield up to 1.8 percentage points above Treasuries. Meta may sell $8 billion to $10 billion of debt depending on demand, with proceeds used for general corporate purposes, including capital expenditures, the repurchase of stock as well as acquisitions or investments.
AMC Entertainment Holdings declared a special preferred stock dividend as a “reward” to its investors, however the market doesn’t see it that way with shares down before the open. AMC is planning to issue a dividend to all common shareholders in the form of preferred shares under the symbol “APE,” a nod to the retail investors who helped rescue the largest movie theater chain in the world from the brink of bankruptcy in early 2021, dubbed “apes.”
According to a UN index of food costs, global food prices fell 9% in July, the most since 2008 after concerns over supplies of grains and vegetable oils eased as Ukraine moved toward restarting exports. The index fell to the lowest since January and is down for a fourth month, offering some relief to consumers facing a deepening cost-of-living crisis that spans everything from energy to transport. Wheat and corn prices eased last month after Moscow and Kyiv reached a deal to reopen Ukraine’s ports and the first ship sailed from Odesa. However, only two weeks after the deal, a slew of challenges still need to be solved before exports can ramp up. Three more grain ships left the country’s ports today.
More relief at the gas pumps are coming your way. Oil prices are heading for the biggest weekly decline since early April on increasing evidence that a global economic slowdown is destroying demand, with prices near the lowest level in six months. U.S. gasoline consumption has softened while crude inventories have increased and supply from Libya has picked up, helping shrink key oil futures time-spreads and ease the tightness in the market. Oil differentials have narrowed and Brent’s prompt spread, gap between the nearest two contracts is in backwardation at $1.79 a barrel, down from more than $6 a week ago.
Nothing worse than flat beer. There is a shortage of carbon dioxide in the U.S. after a Mississippi supplier of the vital gas shut down in July and is threatening beer-makers around the country. The gas contributes to beer foam, shelf stability and it’s used throughout the production and packaging process, according to experts. Big breweries, like Budweiser, have technology to siphon off the gas during the fermentation process, but smaller craft brewers don’t produce enough product to get their gas from fermentation. Brewers have been facing a series of supply chain issues, including aluminum can and barley shortages over the past two years, but the gas is critical to every aspect of their operations.
Fixed income and economics
Following in the footsteps of Apple Inc. ($5.5 billion in four tranches on Monday) and Intel Corp. (a $6 billion five part offering on Tuesday), the U.S. primary debt market welcomed a third mega bond deal yesterday in the technology space. Meta Platforms Inc. (or the artist formerly known as Facebook) raised $10 billion in a four issue sale that marked the social media firm’s first ever foray into the debt space. The tenors of the financing comprise of 5, 10, 30 and 40 years with initial pricing targets ranging from +90.0 bps to +180.0 bps over Treasuries. Early reports indicate an order book 3X oversubscribed. Meta’s move to issue corporate bonds comes after the company reported its first-ever quarterly revenue drop with guidance from their earnings expecting sales to decline in Q3 as well. Proceeds from the bond deals (as per regulatory filings) will be used for share repurchases and general corporate purposes including potential capital expenditures. S&P Global Ratings and Moody’s Investors Service have already affirmed AA- and A1 investment grade ratings to Meta, respectively.
“Repo by the minute”? In the wake of Blackrock Inc. announcing a team up with Coinbase Global Inc. yesterday, several banks have purportedly begun to explore using blockchain technology to create contracts that enable users to trade repo contracts over periods of a few hours, rather than days. And instead of paying daily interest on an overnight loan (the current minimum acceptable term in the market), participants can instead seek funding by the minute and close out positions intraday. The service is already available on a handful of platforms hosted by J.P. Morgan and Broadridge and seeks to tap into the prowess of blockchains on a trading process that has long been seen as clunky and inefficient. The U.S. repo market alone turns over more than $4 trillion in volume every day with more than half of that recently ballooning at the Fed’s reverse repurchase facility in the wake of higher interest rates and weak risk markets. Recall that repo settlement is traditionally not time-specific and relies on potentially error-prone bilateral communications; a blockchain-facilitated repo instrument would give users certainty that the cash or security would arrive in their accounts at a specified time and to match their needs.
Chart of the day
Quote of the day
The most satisfying thing in life is to have been able to give a large part of one's self to others. Pierre Teilhard de Chardin