Equity futures are up this morning as North American indexes attempt to finish the month in the green, despite concerns that restrictive monetary policy will harm the global economy. Fresh data pointing to resilience in household and labour demand is affirming the Fed’s plan to continue to be aggressive in its fight against inflation, pushing the S&P 500 and Nasdaq to their lowest levels in a month yesterday. On the economic front, Stats Canada is expected to release its latest reading on economic growth this morning, releasing GDP figures for the month of June and the second quarter of this year. More below in fixed income.
The ECB who was late to the rate hiking party will have a big decision to make next Thursday at their policy announcement as eurozone inflation hit a new record high in August of 9.1%. The rate was above expectations and is the ninth consecutive record for consumer price rises in the region, with the climb starting back in November 2021. It is quite likely that a jumbo 0.75% rate hike is in the cards for the ECB.
Consumer confidence in the U.S. rose by more than forecast this month following three consecutive monthly declines. The data suggests that Americans are growing more optimistic about the economy amid signs inflation may be easing. The Conference Board’s index increased to 103.2, matching May 2022 numbers and up from 95.3 in July. Helping consumer confidence the most has been the fall in gas prices which continued to drop in August.
The labour market remains tight as the JOLTS numbers showed us yesterday. The number of available positions exceeded estimates with 11.2 million in July, from a revised 11 million in June. Vacancies have exceeded 11 million since late last year and the unemployment rate remains historically low, underscoring the strength of the U.S. jobs market. There were about two jobs for every unemployed person in July, up from 1.9 in June. Some of the largest increases in vacancies were in retail trade, transportation, warehousing, and utilities.
For the first time in 18 months, the average price of a used vehicle in Canada declined month-over-month. The average cost of a pre-owned vehicle fell 0.4% between June and July to $37,928, the first decline since Feb. 2021 when prices made a slight decline. Car buyers are celebrating just yet, with the average price of a used vehicle still up 32% YoY, while new vehicles are up 18% YoY to a record average price of $55,469. The rise in prices was triggered by an unprecedented global shortage in microchips, however, the bottlenecks appear to be easing in recent months.
U.S. business sentiment hit a new low in China due largely to the country’s stringent Covid-19 lockdown policies. A poll of member companies of the U.S.-China Business Council found American multinationals losing confidence in China with 21% of respondents saying they were pessimistic or somewhat pessimistic about their five-year outlook, compared with 9% last year. To spur growth, China has lowered two key interest rates and announced a $146 billion stimulus package largely targeting infrastructure spending. While promising, the U.S.-China Business Council will watch closely to see the potential impact the government’s stimulus will have, concerned the Chinese consumer will continue to build their savings for fear of further lockdowns.
Bed Bath & Beyond shares plunged in premarket trading announcing in a filing that it may offer, issue and sell shares of its common stock from time to time. The company said it plans to use proceeds from any sales of its common stock to, among other things, pay down its outstanding debts. The announcement comes as investors geared up for a strategic update from the home-goods retailer, due before the opening bell. While the focus of the “business and strategic update” is unknown, it will be watched closely following last week’s report that the company was said to be looking to mortgage its prized Buybuy Baby brand. The roller coaster ride on this stock will likely continue for awhile.
Alimentation Couche-Tard beat earnings estimates and attributed the increase in revenue to higher selling costs of fuel, as well as merchandise and service revenue growth and the impact of acquisitions. The retailer said its revenue growth was partially offset by lower fuel demand, which it said is the result of higher retail fuel prices, the work-from-home trend and the impact of its fuel rebranding project. In other news, the Competition Bureau announced that it reached an agreement with Alimentation Couche-Tard Inc. and its affiliates related to their proposed acquisition of Wilsons – which operates and supplies Esso, Wilsons Gas Stops and Go! Store retail gas locations in Nova Scotia, New Brunswick, PEI, as well as Newfoundland and Labrador. The Bureau concluded that the proposed transaction would likely substantially lessen or prevent competition in the supply of retail gasoline in some markets within these provinces. To resolve concerns, Couche-Tard has agreed to sell 46 Wilsons sites and supply agreements, and one Couche-Tard gas station to a buyer (or buyers) to be approved by the Commissioner of Competition.
Gold is lower and heading for a fifth straight monthly drop, the longest losing run in four years, as hawkish speeches by Federal Reserve officials indicate the central bank will keep monetary policy tight for some time. The yellow metal is now down more than 6% in 2022, having come close to a record high when Russia’s invasion of Ukraine stoked demand for haven assets. Also not helping is the surge in the U.S. dollar throughout the month of August, which makes almost all commodities, including gold, more expensive to buy.
Oil is looking to post a third monthly decrease, the longest losing run in more than two years, on concern that tighter monetary policy will hit growth and China presses on with its Covid Zero strategy. However, traders are tracking an array of supply-related issues that have the potential to increase prices. While there has been significant unrest in both Libya and Iraq in recent days, oil output in both OPEC members appears to be unaffected so far. Also, talks to revive an Iranian nuclear deal that may unlock greater crude exports have dragged on, and Russian output has been maintained at levels higher than prior expectations.
Fixed income and economics
Three sets of economic data updates have been released in the past 24 hours that the dreaded “stagflation” creeping into markets over the past week are becoming a legitimate concern:
Case-Shiller home prices reported yesterday disappointed at +0.44% month-over-month in June versus the +0.9% consensus. May was revised to +1.22% and below the +1.32% previous reading. The yearly pace printed at +18.65% compared to +20.51% prior and +19.2% forecast to add to the theme of weak housing markets. Overall, this is consistent with the Fed's objective of reversing the asset price inflation that has defined the post-pandemic recovery as the slowing of gains in home prices is consistent with a soft landing (for now)
Private sector hiring in the U.S. as measured by the ADP survey saw just +132K new jobs created in August. That was more then 50% fewer than July and well off the +300K expectation. It also marked the fewest pace of non-government job creation since a decline in January 2021, putting added pressure on this Friday’s nonfarm payroll release that is likely to disappoint.
Economic output in Canada rose by +4.7% annualized ending Q2, slower than the +4.9% survey and nearly 1/6th below May’s pace. While the quarter as a whole saw a +3.3% expansion StatsCan’s advance reading is calling for a -0.1% contraction in July to follow the +0.1% read in June and flat print in May. Pundits have already forecast our nation’s GDP to shrink by -1.5% in the back half of 2022.
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No matter how far a person can go the horizon is still way beyond you. Zora Neale Hurston