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Msg  71559 of 72289  at  5/11/2022 11:09:22 AM  by


The following message was updated on 5/11/2022 11:09:22 AM.

The Launch Pad

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The Launch Pad
May 11, 2022
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The TSX fell yesterday, extending its decline for a fourth day after central bankers in the U.S. said 75 basis-point rate hikes cannot be ruled out. The selloff puts the TSX on pace to fall more than 10% from its record price with commodities, financials, and tech stocks having the biggest drags on the index in recent days. Futures fell this morning after a key U.S. inflation report was released showing inflation rose again last month, continuing a climb that has pushed consumers to the brink. CPI increased 8.3% year over year, higher than the estimates. Removing volatile food and energy prices, core CPI rose 6.2%, against expectations for a 6% gain. The knee-jerk reaction has been selling in bonds, sending yields higher with the benchmark US 10 year Treasury climbing north of 3% once again.

Speaking of inflation, rate hikes are coming to the ECB. It looks like the European Central Bank is ready to follow suit with ECB President Christine Lagarde saying they are ready to raise the policy rate for the first time in over a decade in July as surging energy prices and its side effects have led to record-high euro zone inflation. Earlier this morning, Lagarde said, the ECB is likely to end its bond-buying stimulus program early in the third quarter of this year, followed by a rate hike that could come just “a few weeks” later. Inflation hit 7.5% in the euro zone last month and even measures that strip out food and energy prices rose above the ECB’s 2% target.

As Asian equities continue its four-month slump, there are signs indicating that the bleeding may continue. China’s Covid curbs and rising U.S. interest rates are set to put further pressure on the MSCI Asia Pacific Index, which has fallen almost 20% from its high reached earlier this year. Investors are pricing in more than 175bps of increases in the Fed’s policy rate this year, making borrowing and refinancing more expensive for Asian companies. China doubled down on its Covid strategy last week, despite the backlash, even as it continues to weigh on economic growth. China’s deep trade and tourism ties with Asia mean that the lockdowns in major cities are likely to worsen price pressures.

Global banks have been retreating from the SPAC market as risks begin to leave some banks jittery. The recent retreat follows a boom in SPACs which saw banks, politicians and celebrities pile into new deals, however, recent guidelines from the SEC have left banks looking for an out as markets continue to sour. Recent concerns center around liability risks stemming from the new rules, which are aimed at tightening oversight on a market after it set back-to-back yearly records. The proposals would require SPACs to disclose more information about potential conflicts of interest and make it easier for investors to sue over false projections.

Unions are having a comeback after years of declining influence, thanks in part to the pandemic. Employees across the U.S. and Canada are increasingly organizing as a means of asking for more benefits, pay, and safety from their employers. Between October 2021 and March of this year, union representation petitions increased 57% from the same period a year ago. A Gallup poll conducted last September showed 68% percent of Americans approve of labour unions, the highest rate since 71% in 1965. This resurgence came as governments and employers imposed new restrictions to slow the spread of the pandemic leaving however many essential workers were left worried that they were not equipped properly with the right safety gear, even as buying patterns drove record profits at companies such as Amazon.

Looks can be deceiving. It may look like certain products have not been getting more expensive, but look again, and you may notice that you are getting less than you used to – welcome to shrinkflation. This is happening across the board, whether it’s less pasta per box, a smaller roll of toilet paper, or even Gatorade, which has changed to a smaller 28 ounces comes in a redesigned bottle to be “more aerodynamic” and “easier to grab.” You might not notice shrinkflation at first, but reality is that you’re paying the same price for less of an item.

Diversion: What a thoughtful guy.

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Company news

Apollo Global Management Group is looking to lead preferred financing for Elon Musk’s buyout of Twitter. It is not completely clear how the preferred equity will change the existing financing proposal – currently the deal has Musk and his partners contributing $27.25 billion in equity to fund the $44 billion purchase, with the rest coming from junk-rated debt and a margin loan tied to Musk’s Tesla stock. In other news, Musk said that Twitter Inc. was “foolish in the extreme” in kicking former US President Donald Trump off its service and said that he would reverse the permanent ban. He following by stating “Perma bans just fundamentally undermine trust in Twitter as a town square where everyone can voice their opinion.”

It’s not the first time for Brookfield. Brookfield Asset Management Inc. is planning to spin off its asset-management business in a move to simplify the organizational structure at one of the world’s largest alternative investment firms. The new spun off public company will control Brookfield’s fee-generating assets, such as real estate, infrastructure, credit, private equity and renewable energy. Brookfield does have a history of building businesses and then spinning them off. Last year, it spun off its reinsurance arm, Brookfield Asset Management Reinsurance Partners Ltd., and did the same with its private equity unit, Brookfield Business Partners, and its renewable energy operations, Brookfield Renewable Partners. More on BAM, they are nearing a takeover of emergency household repairs provider HomeServe Plc, in what would be one of the UK’s largest take-private transactions this year.


After going down nearly –10% over the past two days, oil prices are up significantly with the EU nearing its proposed embargo on Russian oil which would further tighten the market and shift trade flows. The sanction requires a vote with unanimous support and has been delayed with Hungary opposing the proposal.

Fixed income and economics

Bonds are better bid to start the day, adding to yesterday’s gains, despite higher equity markets and oil prices overnight. Focus for today’s session is US CPI data for April, with markets expecting a 0.2% rise for the month to put the annual rate of inflation at 8.1%, down from the 8.5% registered last month.

Following the release of inflation data, which we do expect to be market moving, focus should then turn to supply. The US Treasury auction cycle resumes today, with a $36 billion 10-year auction, following yesterday’s well received 3-year auction where dealers took down less than the auction average, possibly suggesting good demand today. The Bank of Canada will also be auctioning 5-year bonds. This follows a busy day for US corporate supply yesterday, and with yields lower again today we could see another busy day on the corporate new issue front.

Finally, we may get further commentary on future Fed policy as Federal Reserve of Atlanta President Bostic speaks today at noon today.

Chart of the day


Quote of the day

It is far better to be alone, than to be in bad company.
George Washington

Contributors: A. Innis, A. Nguyen, D.Mak, J. Price, P. Kwon


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