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Msg  70402 of 70523  at  9/23/2021 9:40:37 AM  by

carswell


The Launch Pad

Richardson Wealth - Connected Wealth
Daily market commentary
The Launch Pad
September 23, 2021
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Today

Futures have risen this morning, as the market tries to get back on its feet after a rough month so far. The Fed’s upbeat tone on the economic recovery yesterday suggested that the timing of the tapering process of its asset purchase program would come largely in-line with market expectations, which helped push risky assets higher. Powell laid the groundwork to begin tapering as soon as November and indicated the process could end by the "middle of next year”. Markets have been nervously eyeing the start to tapering for months, but some economists estimate that it is likely to have a minimal market impact at this stage.

Investors continue to keep an eye on China Evergrande, which faces an $84 million interest payment for foreign bondholders today, in one of a string of liabilities coming due, as it tries to avert a default. The stock rallied 17% on the Hong Kong Stock Exchange after the company said it agreed to settle interest payments for an onshore note yesterday, even as the fate of its offshore payments hang in balance.

Aussie dollars continue to be weak as a fallout from the continuing Evergrande collapse. With considerable economic exposure to China (Australia's #1 trading partner, by a factor of 2.5x with the next one being Japan), Aussie exports are the most logical point of "contagion", should there be any, into the G12 countries. Aus Iron Ore exports alone would be tied for #1, and a property driven decline in China would certainly hit Iron Ore demand. While Loonies and A$ are highly correlated, and both have been declining steadily against the US$ since the spring, the A$ slide has outpaced. Pandemic aside, could this be the end of the Australian economic miracle of 28 years without a technical recession?

Move over best sellers list, say hello to #Booktok. For those of us living under a rock, TikTok is more than just a platform for viral dance moves. It shapes consumer behaviour by influencing what we read, cook (remember the feta cheese craze), and eat (Starbucks’ secret menu anyone) to name a few. With 21 billion views, #BookTok has become a powerful influencing source that companies cannot ignore. Barnes and Noble now has a dedicated a portion of its website to “discover the most popular TikTok books” (Yahoo).


Diversion: Sometimes we all space out for a second. Hopefully he eventually tossed the fish back too.
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Company news

Aurora Cannabis Inc. is closing one of its Alberta facilities laying off 8% of its workforce as it strives to streamline its operations. The cannabis company says its Aurora Polaris property in Edmonton will be shut down as part of a plan to create a leaner and more agile firm. Blackberry shares have risen 8.7% in premarket after their 2Q adjusted revenue beat the average analysts’ estimates. U.S.-listed Chinese stocks like Alibaba, Baidu, and Tencent have risen in premarket trading as fears of contagion from China Evergrande Group’s debt crisis ease. Ontario Teachers Pension plan has purchased HomeEquity Bank in a move to get into the reverse mortgage market. With a 90% market share in the market for property-backed loans that do not need to be paid back until the owner moves or dies, HomeEquity is the dominant player in what is clearly a move with strong demographic tailwinds.

Commodities

Colder months may spell a surge in oil prices. Jeff Currie, global head of commodities research at Goldman Sachs sees a possible surge in oil prices to $90 a barrel should this winter be colder than normal. This alongside higher natural gas prices could mean an expensive upcoming winter season. We have already seen the disastrous aftermath of higher demand and a supply crunch in the UK where gas prices have soared.

Oil has eased this morning after riding higher yesterday on growing fuel demand and a bigger-than-expected draw in U.S. crude inventories as production remains hampered in the Gulf of Mexico after two hurricanes. With Gulf production returning slowly, and natural gas prices remaining sky high, the structural outlook for oil remains promising as OPEC+ struggles to meet even its current production quotas. At the time of writing, NYM WTI Crude futures are down -0.44% to US$71.91/bbl and ICE Brent Crude futures are down -0.45% to US$75.85/bbl.

Gold steadied on Thursday as the dollar gave up some gains that were driven by the U.S. central bank’s hints at faster-than-expected interest rate hikes, but positive news on China’s Evergrande limited interest for safe-haven bullion. Gold Spot is up +0.27% to US$1,772.61/oz this morning.





Fixed income and economics

The FOMC concluded their two-day meeting yesterday afternoon and provided a wide-ranging monetary policy that was short on surprises and long in reminders. No changes were made to the policy rate nor the pace of asset purchases while officials tweaked guidance in a few areas that were either minor or so far out in the future that nobody views it as iron clad. Yes, tapering is on the horizon. Voting was unanimous and we got a quarterly update to the Summary of Economic Projections that was highlighted by 2021 GDP growth being revised down from 7.0% in June to 5.9% by year-end. Additionally, the unemployment rate was revised up from 4.5% to 4.8%. Quick as they were to paint a negative picture however, the Fed views this weakness as temporary and is more optimistic beyond this year with 2022 and 2023 GDP forecasts both revised upward and joblessness remaining flat. Bouts of positivity need to be met with a measure of temperance too though, and we got that in the form of a revised dot plot that reveals a greater number of FOMC participants now support a 2022 rate hike. The median Fed Funds rate projection rose from 0.1% to 0.3% in 2022 (yes, we now live in a world where even twenty basis points gets us going) while the 2023 forecast increased more sharply to 1.0% from June’s 0.6% update. Chair Powell took the virtual podium post-release (anyone else realizing he still hasn’t been confirmed for a new term with just three months left in his current one?) and reiterated that the FOMC’s plan is to complete the wind down from $120 billion per month of Treasury and MBS purchases to net zero by “around the middle of next year”. He also did not remark on the composition of purchase reductions and specifically whether or not to reduce Treasury and MBS purchases in proportional terms or favoring one or the other. All told, we saw a Treasury curve flatten in response with risk assets ignoring the pseudo-hawkish rhetoric and instead deciding to continue buying the dip following Monday’s sell-off.

Chart of the day

Markets

Quote of the day

Life is really simple, but we insist on making it complicated.
Confucius



 


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