Market update

Canada’s retail sales decreased by 0.5% in September from August. The decrease was led by sales of gasoline and food and beverages.

The Canadian economy grew at an annualized rate of 2.9% versus the expected rate of 1.5% in the third quarter. A second report showed real domestic product in Q3 increased by 0.7%, beating the forecast of 0.4%. Economic growth was led by an increase in exports, non-residential structures and business investment in inventories.

Canada added 10,100 jobs in November versus the expected 5,000. Employment rose in finance, insurance, real estate, rental and manufacturing. The unemployment rate in Canada decreased to 5.1% from 5.2% versus the expected 5.3%.

Canada's current account balance recorded a deficit in the third quarter, versus the forecast of a surplus of a slight surplus. This deficit mainly reflected a substantially lower goods surplus and a higher investment income deficit.

U.S. manufacturing activity shrank for the first time in 2-1/2 years to 49.0 versus a forecasted 49.8 as higher borrowing costs weighed on demand for goods and proved to be a trigger for investors to book profits following a rally in the previous session.

The U.S. economy created 63,000 new jobs in November, above the 200,000 forecast and in despite the Fed's rate hikes. The current U.S. unemployment rate is unchanged at 3.7%.

U.S. personal income rose by 0.7% in October from a month earlier, and above the market expectation of 0.4%. U.S. personal spending increased by 0.8% month-over-month in October, matching the market forecast.

The U.S. weekly jobless claims fell to 225,000 versus the expectation of 235,000.

Euro zone inflation dropped by more than expected in November. The consumer price index grew by 10% year over year, down from October and below expectations Inflation in five key German states eased this month to 10.4% from 11.0% in October, offering reassurance that the worst of the region's consumer price pressures may soon be over. Meanwhile, a preliminary reading of Spanish consumer inflation came in at 6.8% in November, below forecasts.

The European Central Bank indicated it will likely increase interest rates by smaller increments next year, if further hikes are needed.

Chinese health authorities reported a boost in senior vaccination rates, which is regarded by experts as crucial to reopening the economy that has been facing lockdowns. China has been following and closely watching the virus as it evolves and mutates.

The People’s Bank of China announced a cut to the reserve requirement ratio for banks by 25 basis points and injected around 500 billion yuan in long-term liquidity.

China factory activity contracted in November at the fastest pace since April, reflecting the impact of lockdowns and slowing global demand.

Oil prices rose on falling U.S. crude inventories with signs of tighter supply, and optimism over a Chinese demand recovery through easing of COVID restrictions. Investors are also focused on a potential output adjustment from OPEC+ at a meeting this week.

Gold prices climbed as a pullback in the dollar outweighed pressure from remarks by the U.S. Federal Reserve on interest rate hikes. 

Weekly change: TSX: 0.7%; DOW: FLAT; S&P 500: 1.1%; NASDAQ: 2.1%; GOLD: 2.6%; WTI: 4.7%;

 

Bloomberg Market Updates - https://www.bnnbloomberg.ca/markets

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Delayed gratification by Avery Shenfeld Link to Article

The central banks are looking for a slower pace for employment and a higher unemployment rate as keys to getting inflation under wraps. Investors would also like to see this, because a cooling in growth is now preferable to the longer boom and deeper bust that would be the result if inflation stays hotter for longer.

Fresh labour market data for November will not likely show results that Central Bankers and Investors alike could hope for. While rate hikes and shifting spending habits are moving the employment market, we still need to look at things from a net hiring perspective. Every employer who successfully fills a vacant post will offset another that is reducing their workforce.

We still have ways to go to get either the drop in vacancies or the climb in unemployment needed to quell inflation. But that doesn’t mean that they’re not on the way if we’re patient enough, even if the Bank of Canada pauses after only another half point rate hike, and the Fed doesn’t take rates through 5%.

Home sales have dried up this year, impacting the GDP of real estate agents and moving companies. But homebuilders are still busy working on houses and condos they sold before sales dried up in the summer. Today’s weak sales for new houses and condos will translate into a significant drop-in construction activity in years to come.

And it is because of this, it is reasonable to expect North American labour markets will remain somewhat resilient for a little while longer.

 

 

 

THIS WEEK WITH SADIQ - What to Expect from Q4 Bank Earnings by Sadiq S. Adatia Link to Article

Economic Shocks

A railroad strike now appears possible in the U.S., joining COVID-related supply chain issues as potential areas of concern. Sadiq and his team’s evaluation is that it won’t have much of an impact. Even a recent uptick in COVID numbers in China isn’t a major concern, because supply chains have been improving elsewhere, and the country’s zero-COVID policy appears to be somewhat less strict than previously.

On the consumer side, the big difference between last year and this year is that in 2021, consumers were willing to spend because they were worried about product scarcity. This year, that’s not the case—there’s not the same pressure to shop in October because what you want may be gone by December. As a result, it’s likely we’ll see sales spread out a bit more across the latter part of the year.

Bottom Line: Expect major retailers like Walmart and Target to remain dominant this holiday season.

 

Fed Minutes

Fed released minutes from their latest meeting and investors are closely examining them for insights into the pace of future rate hikes. Sadiq and his team’s evaluation is that they don’t indicate anything significantly different than what we’ve been hearing from the Fed for a while.

They’ve said that it’s time to moderate the pace of rate increases—but that doesn’t mean that they think inflation is under control. It merely means that they want to see the rate hikes that they’ve already implemented have time to take effect. Some investors seem to be taking the optimistic view that once rate increases stop, the Fed will begin to cut rates. Thus far, there is no messaging to support that position. Unless we see a harder-than-expected recession, interest rates are unlikely to decline until 2024.

Bottom Line: Fed messaging indicates that we’re likely past peak inflation, but it’s unclear how sticky inflation will remain on the way down.

 

Global Insights

China is set to announce an easing of its COVID-19 quarantine protocols in the coming days and a reduction in mass testing, sources told Reuters, a marked shift in policy after anger over the world's toughest curbs fueled widespread protests.

Health authorities announcing the easing in their areas have not mentioned the protests - the biggest show of civil disobedience in China for years - which ranged from candle-lit vigils in Beijing to street clashes with police in Guangzhou.

Reuters

The U.S. Inflation Reduction Act is more efficient than European Union aid to support domestic production of energy sector components, the CEO of Europe's biggest utility Enel (ENEI.MI) said in an interview during the Reuters Next conference.

The United States approved a $430-billion new green energy subsidy package in the summer labelled Inflation Reduction Act that offers tax breaks for components used in renewable energy technologies on condition they are made in North America.

Reuters

Hawaii's Mauna Loa, the world's largest active volcano, began erupting on Sunday for the first time since 1984, ending its longest quiet period in recorded history.

The night sky above Hawaii's largest island glowed a hellish red as bright, hot lava sprang forth at the volcano's summit at around 11:30 p.m. local time on Sunday. The lava is contained within the summit and does not threaten Hawaiians living downslope for now, the U.S. Geological Service (USGS) said.

Reuters

Online shopping fatigue set in across the United States and China as retailers in both countries posted mostly lackluster results during both Cyber Week and Singles Day, two of the world’s biggest promotional events, according to the latest data.

Reuters

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