Futures are lower this morning to close out another losing week for equity markets. Canadian and U.S. equities were again under pressure yesterday after the Fed’s rate decision a day earlier indicated more rate hikes, adding to fears that the aggressive hiking campaign will lead to an economic downturn. The TSX fell for the third day yesterday, while the S&P 500 slid to a two-month low during the session as Treasury yields climbed.
Global central banks continued raising interest rates yesterday, following the Fed’s decision on Wednesday. After the Fed's action, a half dozen central banks from Indonesia to Norway followed suit with their own rate increases with guidance that more would follow. Japan, the outlier among major developed economies, kept interest rates steady yesterday only to be punished as investors pushed the yen to a record low against the dollar, prompting the first intervention by Japanese authorities to support the currency since 1998.
The energy sector has been the lone bright spot for investors this year, with energy stocks outperforming every other group in the S&P and TSX. The strong returns have led to more new issues in the space, contrasting the rest of the market where the number of new filings has been trending down for most of 2022. Four companies from the sector have filed for U.S. IPOs this month, tying with July 2019 for the most in more than five years. This makes sense after looking at the numbers. Despite a drop in June, investors have bought oil and gas stocks, with the S&P 500 Energy Index up 39% YTD while the S&P 500 has lost 21%.
The Russian ruble strengthened to a one-month high against the euro yesterday and firmed past 60 to the dollar as Russian markets recovered ground. Russian stock markets have experienced high volatility in the previous two sessions, slumping as Putin announced earlier this week a partial military mobilization of 300,000 reservists, significantly escalating their fight against Ukraine. The mobilization efforts have left many residents frightened about the next conscription steps and the possibility that Russia would ban adult men from leaving the country.
If you have travelled recently, this will come as no surprise. A recent survey found that most major Canadian airports fell below the average level of customer satisfaction, with the Vancouver International Airport being the only airport to place above the North American average. Customer satisfaction at airports has been at all time lows for months now and there are few signs that things will get better. Airports were hoping that overcrowding and delays would improve after the summer, but demand for air travel remains high, crowding airports and adding to passenger frustrations.
Heads up Maritimes, Hurricane Fiona is not done yet. According to meteorologists, this could be the strongest storm to hit Atlantic Canada. Environment Canada made it official early this morning posting hurricane warnings for Cape Breton Island and P.E.I. of possible severe and damaging wind gusts and has asked residents of Atlantic Canada to prepare emergency kits and stock up on food and water. We hope these are simply extra precautionary measures. Stay safe everyone.
Brookfield Asset Management will be putting more than $2 billion into Indian renewable projects to tap the booming clean energy investment opportunity in the fossil fuel-driven economy. The Canadian investment giant has renewable projects of 4 gigawatts in the country and has already invested $1 billion to bring a quarter of that into operation, according to the company. CEO Connor Teskey said that Brookfield will add another $2 billion over the next 18-24 months to make the remaining capacity operational.
Amazon’s first regular-season NFL broadcast drew 13 million viewers to its streaming service. According to Nielsen, the total viewership was up 47% from last season’s week 2 Thursday night game, which aired only on the NFL Network, and it was more than the 12.6 million viewers Amazon is guaranteeing that advertisers will reach. However, it also fell short of the average of 16.4 million viewers who watched Thursday NFL games last year, which included coverage on the Fox broadcast network, and it was down from the nearly 22 million who saw the opening game of this NFL season on NBC and its streaming platforms.
We may see some more relief at the pumps this weekend with oil prices heading for a fourth straight weekly decline following a bunch of rate hikes this week darkened the outlook for energy demand. Crude remains on track for its first quarterly loss in more than two years as concerns about a global economic slowdown weigh on the demand outlook. A stronger greenback, which has been on a tear, is also adding to bearish headwinds this week, making commodities priced in the currency more expensive for investors.
According to consultant SovEcon, Russia’s wheat harvest could reach a historic 100 million, with the commodity piling up at home as the nation struggles to export large volumes. Farmers across the country are finishing up the bountiful harvest due to good growing conditions throughout the summer. The huge supply in the world’s top shipper would usually help to bring down world prices, but so far this season, government export taxes and logistical issues from its war in Ukraine are keeping more grain than usual at home. Wheat prices spiked globally after a Russian blockade of Ukraine’s ports strangled that country’s exports, pushing up food prices. While a deal to reopen the ports struck in July helped ease prices, the escalation of the war in Ukraine has sent wheat back to levels seen before the agreement. The International Grains Council also hiked its Russia wheat crop estimate by nearly 6 million tons on Thursday, but it doesn’t expect that extra supply to leave the country -- keeping the export outlook unchanged at 36.5 million tons.
Fixed income and economics
It’s a frenzied Friday with no shortage of headlines cascading on the financial market landscape this morning. The melting pot of updates has resulted in a decidedly risk-off tone to end the week, and here are some of the most interesting (in our eyes) developments to set you up ahead of a likely very volatile trading day:
Gilts and the British Pound are taking it on the chin are Liz Truss’ new government delivered a round of stimulus measures that included sweeping tax cuts in a bid to boost economic growth. Five-year Gilt yields are off 50 bps and have gapped up by 200 bps since August. The GBP/USD cross touched 1.1025 earlier this morning and the weakest level since 1985.
Canadian retail sales slumped by -2.5% during July, missing the -2.0% survey and marking the first decline in national aggregate sales receipts since last December. The advanced estimate for August from StatsCan however is indicating sales should rebound in the following month.
Give me more yield. Nominal rates on the two-year Treasury bond touched 4.27% this morning yet another fresh cycle and 15 year high. For those counting that’s a +40 bps increase in less than a week.
Our “favourite yield differential that no one is talking about” gapped out again this morning with the 12 month/30 year Canada benchmark spread eclipsing -103.0 bps to retest this week’s low. It’s the most inverted differential ever in history, dwarfing the depths of the tech bubble and financial crisis.
Credit Suisse Group AG saw their equity price hit a record low this morning on rumors that the European bank may exit the U.S. market entirely in a move to revamp their strategy. Speculation abounds that they may need to do a capital raise soon as street analysts suspect the firm faces a $4.1 billion capital gap needed to fund its restructuring and improve their financial strength.
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The best way to pay for a lovely moment is to enjoy it. Richard Bach