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Volumes will be light as the U.S. observes Martin Luther King today, closing financial markets. Canada might be light as well, given a good chunk of Ontario, finally sending their kids back to school, will be hampered by a snow day for one more day. Stocks are mixed this morning as traders weigh a global advance in sovereign bond yields and corporate developments. Europe’s Stoxx 600 Index rose, while Asian shares fell. Perhaps a breather is what the market needs, with the S&P off 2.1% for the year. Halfway through the month, we are starting to anticipate the “January effect” headlines we will be reading in 10 days. Bond yields rose around the world after U.S. Treasuries tumbled Friday on concerns about more hawkish U.S. Fed policy to fight inflation. The advance of the Omicron variant, the start of the earnings season, and a boom in M&A are also colouring sentiment. Investors are now looking for signs that companies can sustain profit growth despite rising risks.
A new study from the Bank of Canada found investors accounted for nearly 20% of home purchases dating back to 2014, a figure that has rapidly outpaced other types of buyers during the pandemic. The study is among the first official policymaker-backed reports that demonstrate the significant role investors play in Canada's housing market. The report found the share of residential investors surged in 2017, when home prices in cities like Vancouver and Toronto were skyrocketing and surged by an even bigger pace in 2021. Despite government intervention, home prices have hit new all-time highs in many markets across the country, bringing the conversation on housing affordability and financial stability back to the forefront. OK BoC, now do supply bottlenecks.
U.S. retail sales slumped in December by the most in 10 months, suggesting the fastest inflation in decades is taking a greater toll on consumers. Falling price-adjusted wages, dwindling savings and the end of the government’s pandemic-related financial programs suggest a more moderate pace of spending. The value of overall purchases decreased 1.9% after a revised 0.2% gain a month earlier. The figures aren’t adjusted for inflation, suggesting price-adjusted receipts were even weaker than the headline number. December is traditionally a solid month for retail sales, however, concerns about shipping delays prompted many consumers to shop earlier than usual to ensure gifts arrived on time. Due to the figures being adjusted for seasonal variations, the earlier shopping may have contributed to the weaker-than-expected figures.
Alexa McDonough, the first woman to lead a major political party in Canada passed away on Saturday at the age of 77. Ms. McDonough was elected leader of the Nova Scotia New Democrat party in 1980 and became leader of the federal NDP party in 1995, a role she held until 2002. Ms. McDonough advocated for social programs and gender equality and was known for her amiable ways to find a middle ground with her colleagues and adversaries. Even after she stepped away from politics in 2008, Ms. McDonough’s political legacy was never far from memory for many politicians especially women for whom she trailblazed a searing path. We thank her for her service.
Widely (and rightly) criticized "pharma bro", Martin Shkreli, has been banned for life from the pharmaceutical industry. On Friday, a Federal court found Shkreli guilty of engaging in illegal and monopolistic behaviour. The court found Shkreli personally liable as he carried out his control of Vyera Pharmaceuticals even after going to prison by using a contraband phone. He has been ordered to pay nearly $64 million in profits from egregiously increasing the price of the Daraprim drug from $17.50 to $750 a tablet. This is in addition to the $40 million Vyera Pharmaceuticals has been required to pay as part of a settlement with the Federal Trade Commission. While Shkrelli is still in jail, we note that the cost of Daraprim hasn’t come down.
Running out of things to watch on Netflix? Netflix is raising prices for its video streaming customers in the U.S. and Canada, less than a year and a half since its last price increase, as the company looks to add content and invest in video games. 74 million of Netflix's 213.5 million subscribers are in the U.S. and Canada. The latest increase comes amid increased competition among streaming platforms and rising programming costs. Netflix is spending more on content to attract and keep subscribers as viewers have more content than ever to choose from thanks to Walt Disney Co.'s Disney+, AT&T Inc.'s HBOMax and Amazon.com Inc.'s Prime Video.
Elon Musk announced that Tesla will roll out Full Self-Driving (FSD) beta in Canada 'cautiously' within the next month – having been delayed as FSD needed to be tweaked for different road system in Canada. He first predicted in 2020 that it would be out 'very soon.' In other news, at least five Indian states are looking to woo Tesla into setting up shop in their provinces. Tesla and the Indian government have been in talks for years, but disagreements over factory and import duties have led to a stalemate - Prime Minister Modi’s administration wants Tesla to set up a factory to sell locally and export, but Musk has insisted on slashing import duties of as much as 100% so that Tesla can first establish a market.
TD Bank will be the latest entrant into the free stock trading game, providing 50 free trades per year to “Easy Trade” customers. TD joins Wealthsimple, National Direct Investing and the soon-to-be launched MogoTrade in the free model. Strangely, TD spokesperson claimed this was not a response to its competitors’ zero-cost trade platforms.
Commodities
Crude oil is taking a pause with the Americans this morning, after ripping out of the gate in 2022. WTI has risen 11% so far this year, outpacing most commodities except nat gas and lumber. Speaking of, while Lumber was making headlines for its rally in 2021, it is getting no respect in 2022, despite surging 130% since November.
Gold prices are little changed traders balanced the global economic policy outlook, with inflation-based demand for bullion countered hawkish comments from U.S. Federal Reserve officials, supporting the U.S. dollar and Treasury yields. Markets are now awaiting speeches from Fed officials this week ahead of the central bank’s Jan. 25-26 policy meeting – there have been more hawkish comments as of late with the first interest rate hike for March priced in and rates at 1.0% by the year-end. Gold Spot is up +0.14% to US$1,820.47/oz this morning.
Fixed income and economics
Canadian markets will be in focus this week with a bounty of economic headlines that will likely help set the tone for the upcoming quarter. The fun starts with a pair of sentiment surveys this morning with the Bank of Canada consumer and business outlook reports from Q4 2021 out that will help shed some light on capacity pressures, sales growth expectations, labour shortages, hiring, investment and consumer spending plans. What will matter most to the BoC will probably be the forward-looking measures of expectations for inflation, wage growth and house price growth. Note that all results of the surveys will be absent the effects of the Omicron virus and its impact. Fresh inflation readings for the month of December are out on Wednesday with pundits calling for a -0.1% reading into the headline number. Annualized CPI is forecast to clock in at +4.8% a smidge higher than prior. Base effects should be negligible. The BoC goes into communications blackout after Tuesday ahead of its policy update on January 26 so this is really the last bit of information we’ll be able to throw into the black box in determining whether a surprise rate hike will come this month.
Chart of the day
Markets
Quote of the day
Our lives begin to end the day we become silent about the things that matter Martin Luther King Jr.
Contributors: A. Innis, A. Nguyen, D.Mak, J. Price, P. Kwon