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Msg  72322 of 72963  at  10/7/2022 9:12:58 AM  by

carswell

The following message was updated on 10/7/2022 9:12:58 AM.

The Launch Pad

 
Richardson Wealth - Connected Wealth
Daily market commentary
The Launch Pad
October 7, 2022
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Today

Markets are looking to open lower as investors head into a long weekend. Jobs data out for both Canada and the U.S. showed hiring continued to be solid, with employment numbers better than expected and unemployment falling. So why are markets so negative? The numbers indicate the labour market remains tight and has so far proven resilient to steep interest-rate hikes leading to more hawkish central banks. More details below in fixed income.

Striking a familiar tone, Bank of Canada Governor Tiff Macklem said he remains firmly on an interest-rate hiking path, in a speech made yesterday. The BoC reiterated its worries about elevated domestic price pressures and inflation expectations becoming entrenched as excess demand, a tight labour market, and underlying inflation pressures show few signs of easing. After the comments, markets firmed up their bets on a 50-bps rate increase at the central bank’s the next policy decision while Canada two-year benchmark yields hit their highest level since 2007.

After hitting records levels earlier this year, Canada’s merchandise trade surplus came in below estimates in August due in part to falling oil prices. Total export shipments were down 2.9% in August after a 3.7% decline in July, representing the largest two-month drop since the beginning of the pandemic. Economists were anticipating exports to exceed imports by $3.5 billion in August, however the surplus instead fell to $1.52 billion, which was the smallest monthly trade surplus this year. Amid slowing global growth and rising interest rates, some see the recent trade numbers as a sign the country’s economy will struggle to grow in the second half of this year.

As Canadians face surging prices at grocery stores, the country’s three big supermarket chains will face a parliamentary inquiry into whether they have been exploiting inflation to boost their profits. The House of Commons agriculture committee voted unanimously in favour of a motion to summon executives from Loblaw Cos. Ltd., Sobeys’ parent Empire Co. Ltd., and Metro Inc. to Parliament Hill to explain why large chains are making profits while shoppers face the worst food retail inflation in four decades. Grocers claim their higher profits are coming from other factors and have nothing to do with the broader inflation story, so it’s unlikely that anything meaningful will come out of the inquest.

After a sharp slowdown due to the pandemic, immigration to the U.S. has rebounded, however, many say not at the pace needed to address the labour shortage. The labour deficit has left employers struggling to hire and keep employees over the past two years. Sectors such as construction, hospitality, and services, which historically have historically relied on strong immigration have been the most affected. As of June, there were about 1.7 million fewer working-age immigrants living in the U.S. than there would have been if immigration had continued at its pre-2020 pace. Non-American workers are flowing into the U.S. at a pace just under that last seen in 2019, however experts are saying the pickup is unlikely to plug the gap in the labour market.

Danielle Smith will become Alberta's next premier after winning the United Conservative Party leadership race last night, succeeding Jason Kenney in the role he held for three years. Smith spoke after her win saying, marking a new beginning in the Alberta story, saying that "no longer will Alberta ask permission from Ottawa to be prosperous and free, we will not have our resources landlocked or our energy phased out of existence by a virtue-signalling prime minister."

Let’s go Blue Jays! Jays' fans have a lot to be thankful for this Thanksgiving Day long weekend. Canada’s baseball team begins its wildcard best-of-three playoff series vs. the Seattle Mariners today. Attendance for Jays games has been strong this year, averaging nearly 33,000 fans per game, a +50% jump compared to pre-covid 2019 attendance. With home field advantage, there is no doubt Jays’ fans will show up in droves to pack the “dome” to cheer for their team. Start your Thanksgiving Day long-weekend a little early to make sure you catch the first pitch. Alek Manoah takes the mound at 4:07 pm EST.


Diversion: Get this guy to the majors.

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Company news

Green Pepsi? Not quite, but Pepsi is going green. The company will be the first to received Tesla's semi electric commercial truck, with deliveries scheduled for December 1st. Although it comes with a $180,000 price tag, it will qualify for a tax break of up to $40,000 through a U.S. subsidy program approved by the senate. When it was unveiled in 2017, Pepsi reserved 100 trucks aiming to reduce its fuel costs and emissions. The company had previously stated transportation accounts for 10% of its gas emissions. The trucks will be used to ship its soft drink and snack products between manufacturing and distribution centres as well as retailers. Now you can feel less guilty while enjoying your guilty pleasures (just to be clear, we're referring to chips and pop).

Cannabis companies (like Tilray and Canopy Growth) are "higher” after the Biden administration’s plan to order a sweeping review of the drug’s treatment by law enforcement authorities. He also issued blanket pardons for all prior federal offenses involving simple possession of marijuana. He will also urge governors to issue similar pardons for state offenses involving marijuana. The decision is sparking hopes that decriminalization, and a friendlier regulatory environment for pot-related firms, could be nearer. Nearly 40 US states have legalized marijuana use in some form, but it remains completely illegal in some states and at the federal level. An interesting announcement just weeks before midterm elections.

Mickey Mouse and gambling...well sort of. Headlines are surfacing that Walt Disney Co.’s ESPN is nearing a large new partnership with sports-betting firm DraftKings Inc. The agreement would pave the way for the media giant to capitalize on the growing wave of legalized sports betting. The structure and details of the partnership couldn’t be immediately learned. Media companies are looking for ways to cash in as more states legalize sports betting. Many TV networks have seen a flood of ad dollars from sportsbooks that are competing to sign up bettors.


Commodities

Commodities across the board have started the fourth quarter with a bump higher, with prices set for the best weekly gains since March after OPEC+ agreed to chop oil supply. The coming week brings a host of signals on the outlook over the rest of the year and into 2023 before earnings season hits full flood. In energy, the biggest worry on the demand side is the outlook for global growth as central banks tighten policy, hurting energy consumption. On the supply side, the market will be looking for any numbers on how big the hit to Russian supply could be when EU sanctions on flows come into force in December. The International Energy Agency and Organization of Petroleum Exporting Countries will be releasing its outlook today as investors gauge prospects for demand, Europe’s energy crisis, and the impact of sanctions on Russia flows.

Gold is also heading for the largest weekly gain since March. The yellow metal surged past the $1,700 mark earlier this week, after disappointing U.S. data on manufacturing and job openings fueled expectations that the Fed may slow its aggressive rate hikes. Though bullion has dipped since peaking on Tuesday, it remains on track for a weekly gain of about 3% as data paint a conflicted picture of the US economy.


Fixed income and economics

It’s the first Friday of the month and that means a dual North American labour report is gracing markets ahead of the long weekend (Columbus Day and Canadian Thanksgiving). Nonfarm payrolls in the U.S. came in at +263K for the month of September and slightly ahead of the +255K estimate and slightly fewer than +315K prior. As alluded by Wednesday’s ADP report, private sector hiring accounted for +288K of the overall gains, meaning the public sector posted a net decline in workers. The two key categories of focus however are in the wage inflation and the unemployment rate. Average hourly earnings for workers saw a +5.0% annualized increase last month that was on the screws and a shade slower than the +5.2% pace in August. This is good for the Fed. Overall joblessness unfortunately ticked back down from 3.7% to 3.5% with participation largely unchanged. This is bad for the Fed. Combining all this serves us a hawkish outcome that adds credence for a 75 bps hike to Fed Funds on November 2. Treasuries are falling across the curve as the impetus for higher yields continues in earnest.

The story is similar north of the border with StatsCan unveiling that our nation added +21.1K new jobs last month that was slightly higher than the +20.0 survey and helps to reverse the disastrous -39.7K chop in August. Both full (+5.7K) and part-time (+15.4K) labour contributed to the headline gain and similar to our American neighbours, we are seeing further undercurrents for a continued tight labor market. The unemployment rate ticked down two notches to 5.2% with participation again mostly flat to underscore a robust environment for workers. Wage inflation posted a +5.2% increase year-over-year that while slightly slower than prior, still marks near two-decade highs in income growth. And all of this sees Canada bond benchmarks cheapening across the spectrum with two year yields pushing up to 4.05% and the highest since 2007. Combine this with Governor Macklem’s uber hawkish speech yesterday and OIS spreads now expect to see another 100 bps of BoC tightening by March 2023.


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