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Msg  67715 of 67939  at  7/10/2020 9:24:01 AM  by

carswell


The Launch Pad


Daily market commentary
The Launch Pad
July 10, 2020
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Today

Markets are set to open the last trading day of the week a little lower, though European markets have managed to buck that trend. Asia is all in the red including China which just broke an eight-day winning streak that saw the CSI 300 index which had risen an astonishing 17.5% over that time period.

The NASDAQ continues to dominate, even managing a positive day yesterday and we’re seeing the same pattern today with both the S&P 500 and DOW lower. The risk-off trade is persistent, with gold holding above $1800/oz and it will likely continue until we see further evidence virus cases have peaked or big vaccine developments.

The labour market data this week tells a story of a continuing economic rebound, but maintaining the labor market recovery is challenging when over fifty thousand new COVID infections are reported daily. Initial jobless claims also don’t revel the whole picture. The total number of Americans receiving unemployment benefits hit a new record when you include ALL PROGRAMS, not just normal UI. The chart below is from the Economic Policy Institute and tells a different story, and highlights the deep recession the U.S. is facing. With some of the benefits from the new programs expiring in a little more than two weeks, congress is faced with a difficult decision.


The U.S. set a one-day record with more than 60,500 COVID cases. Leaders may want to dismiss the rising case count, stating that its only due to more testing. Calculated Risk reveals in a great chart that shows this isn’t the sole reason why case numbers are sky rocketing, the ratio of positive tests is also increasing in the U.S. The number of positive tests needs to be well under 5% to really push down new infections.

Next week begins the fundamental reckoning. Second-quarter earnings season begins in earnest with the big U.S. banks. First up: banks. Citigroup and JPMorgan Chase report Tuesday, followed by Bank of America and Morgan Stanley on Thursday. We already know this round of profit statements will be brutal: S&P 500 profits likely contracted 44% overall, according to FactSet. More important than the actual results will be the outlooks and how many companies will reinstate formal guidance for the year.

Canada housing starts climbed 8.3% in June to 211.7k units, up from 195.4k units in May. Montreal and Toronto led the way with new builds recording increases of 69% and 68% respectively – in total, five of ten provinces saw higher starts in June, a surge that was largely driven by the multi-family segment. Looking across a longer-term horizon, construction of apartments has kept starts activity healthy in recent years, offsetting the downtrend in single-detached starts. Despite this recent uptick, Canada Mortgage and Housing Corp. expects starts to remain weak in 2020 before fully recovering next year.


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Company news

Muji USA joined the long list of retailers filing for Chapter 11 bankruptcy protection this morning. The Japanese retailer, known for its minimalist home goods, cited the pandemic and listed assets and liabilities in the range of US$50mm to US$100mm; the number of creditors estimated to fall within the range of 200 to 999. In other deal news, Siemens AG’s spinoff of its energy business was approved yesterday, with a staggering 99% shareholder approval for the motion. Siemens Energy AG is expected to begin trading on September 28.

After months of tariffs from the French government on US tech companies such as Google and Facebook, the US is now imposing their own tariffs on French wine and cheese. JP Morgan, Citigroup and Goldman Sachs are taking threats from both the US and China because of their operations in Hong Kong. All these banks are at risk if increased fines and possible license restrictions.

Commodities

Oil prices are falling this morning, at the time of writing, NYM WTI futures are down -1.54% to US$39.01/bbl. ICE Brent Crude futures are following suit as they are down -1.2% to US$41.84/bbl. Oversupply of oil and record breaking United States coronavirus cases are the two reasons for the reduction in oil price this morning. A new daily record for coronavirus cases in a single day was set by the USA yesterday at over 60,500 cases. It is safe to say that these staggering numbers are a reminder that the pandemic is nowhere near under control. Further job losses are a possibility for the U.S. which is negative for the demand for oil. Prices may have been affected by Libya National Oil Corporation lifting its force majeure and allowing the first tanker in almost 6 months to export oil.

Spot gold is climbing this morning, at the time of writing the metal is up +0.25% to US$1,807.30/oz. Gold continue to hold strong in the face of surging coronavirus cases. The safe haven looks to finish off it’s fifth positive week in a row. Inflows in Gold ETF’s continue to be on the rise, investors do not believe this pandemic is even close to over. Not only have cases been surging in the USA, but Melbourne, Tokyo and Hong Kong as well. In other commodity news, Dr. Copper continues to surge. Typically, the performance of Copper is based on the health of the economy, but in the case, the reason for the surge is simply worry of a weak supply. Chile is the world’s largest exporter of Copper and thousands of workers have fallen sick in Chile.


Fixed income and economics

It’s jobs day in Canada and it appears on the surface that our nation’s labor situation is quickly recovering from the pandemic low. StatsCan is reporting that +952.9K new hires were made in the month of June which easily surpassed the +700.0K consensus and +289.6K print from prior. Both full (+488.1K) and part (+464.8K) time hiring saw equal strength with pleasant gains in both the goods (+158.6K) and services (+794.4K) groups. Within the details we saw recoveries in the bellwethers of construction (+83.2K), manufacturing (+81.3K), finance (+17.0K), education (+34.6K) and business support (+70.9K) segments. Three areas that were adversely affected during shutdowns also posted healthy bounce backs --- accommodation gained +163.7K for a two month total of +205K (over -600K workers were shed in the previous two months), retail hires rose by +222.1K (March and April combined with -575K layoffs), and transportation workers rose by +43.9K for its first uptick since February (this segment suffers when people are forced to work from home). Regionally, Ontario (+377.9K), Quebec (+247.5K) and B.C. (+118.1K) accounted for 78% of all hiring in the nation last month. The national jobless rate declined to 12.3% after surpassing 13% in the previous two months. The report on the whole is a step in the right direction for our labor market but we are still ways off from sounding the all clear. Nearly 3MM Canadians lost work in March and April so we haven’t climbed out of the hole by even half-way yet and one wonders what will happen when the federal government stops their CERB program (which has already been extended once). Perhaps this is why loonies are shrugging off the report entirely and actually trading lower post-release.

Chart of the day

Markets

Quote of the day

Start where you are. Use what you have. Do what you can.

- Arthur Ashe



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