Market update

Canada’s merchandise trade surplus rose more than expected in October. Total exports rose 1.5%, while total imports increased 0.6% for the month, led by passenger cars and light trucks which saw higher import values.

The U.S. trade deficit widened in October as the value of imports increased by 0.6% while exports declined 0.7%. The trade gap grew by 5.4% from last month, versus expectations of a widening.

The U.S. Producer Price Index rose in November from October, above the market forecast. It was the smallest increase since May 2021, but slightly higher than the forecast.

U.S. services industry activity unexpectedly picked up in November, with employment rebounding, offering more evidence of underlying momentum in the economy as it braces for an anticipated recession next year.

The number of Americans filing new claims for jobless benefits increased moderately last week, while unemployment rolls hit a 10-month high towards the end of November, suggesting the labor market was gradually slowing down. The U.S. weekly jobless claims increased by 4,000 to 230,000.

The United States and the European Union on Monday cited progress addressing EU concerns about a U.S. climate law that would cut off the bloc's electric vehicles from U.S. tax credits, but failed to resolve the matter.

Having raised interest rates by a record 200 basis points since July, the ECB has already taken a giant step towards taming inflation which hit 10.6% in October before easing last month to 10.0% - still five times the target level.

Euro zone GDP grew by 0.3% in the third quarter for a 2.3% annual climb while data showed industrial production not as weak as forecasts in Oct in Germany, and in Sweden.

The Bank of England looks set to raise interest rates to 3.5% or more next week, but policymakers appear increasingly split on how much tightening is needed to tame double-digit inflation as the economy heads into recession.

The U.K. construction industry growth slowed in November as rising interest rates drag on building projects.

German factory orders rose in October from the previous month, while German inflation slowed to 11.3% in November.

China's exports in November contracted by 8.7% from a year earlier, while imports tumbled 10.6%, both missing expectations.

China’s consumer price index rose 1.6% year-over-year in November matching expectations, while its producer price index fell 1.3%.

West Texas Intermediate crude oil prices is down sharply for the week as with uncertainty about how a Western cap on Russian oil prices would play out and concerns on Chinese demand continuing to weigh in.

Gold prices are unchanged near a five-month high as the dollar weakened.  and traders wait for more cues on the outlook for interest rates.

Weekly change: TSX: -2.7%; DOW: -2.8%; S&P 500: -3.3%; NASDAQ: -4.0%; GOLD: FLAT; WTI: -10.8%;

 

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

Schwab Market Updates Podcasts - https://www.schwab.com/resource-center/insights/section/schwab-market-update

 

MacroMemo - December 6 - December 19, 2022 by Eric Lascelles Link to Article

Pandemic Developments

Between the new variants, hints of rising infections and the onset of winter in the Northern Hemisphere, it is increasingly prudent to expect a pandemic wave of some significance over the coming months. China remains the exception to the global pandemic trend. It is suffering a large (by its standards) COVID-19 outbreak, with approximately 35,000 new infections per day on a 7-day moving average basis.  Versus other countries, this is a low rate of infection per capita though extremely high for China given a zero-tolerance policy.

Recent Economic Data

The U.S. payroll survey for November yielded yet another surprisingly robust month of job creation. However, RBC Economics continue to believe the U.S. labour market isn’t quite as strong as it looks. The less closely watched household employment survey argues that U.S. employment instead fell in November. This survey has been weaker than the payroll survey in seven of the last eight months.

the Manufacturing Purchasing Managers’ Index (PMI) has now descended to a reading of 49.0, below the critical 50 threshold that separates growth from contraction. This is still higher than the point at which an economy-wide recession usually transpires (around 43). However, the downward trend is relentless and so such levels could be achieved in the coming months.

In contrast, the Institute for Supply Management Services PMI defied expectations, rising outright from in November. The U.S. economy is most certainly not in a recession just yet. The economic data continues to rattle around in all directions.

 

Inflation update

Chinese deflation begins – China’s  producer price index has now fallen into outright deflation on a year-over-year basis. Some of this is a domestic affair that reflects anemic consumer demand within China. But it nevertheless has consequences for the world.

Eurozone inflation turns – The relative softness of the Euro and Pound caused inflation to stubbornly continue to higher levels beyond that in North America as the currency’s weakness increased the costs of imports and exposure to skyrocketing natural gas prices as Russia cut off Europe’s supplies.

The good news is that Eurozone inflation finally declined in November, from 10.6% year-over-year to 10.0%. A big part of the reason is that natural gas prices have fallen in Europe as inventory levels have swelled.

Black Friday discounts arrive – We return to the subject of Black Friday, but this time with an eye on the discounts offered by retailers. It is thus highly interesting that Black Friday brought generous discounts. Companies are apparently losing their pricing power.

 

New oil rules

Two significant changes were made to the global oil market on December 5.

• The European Union (EU) has finalized the plan announced last summer to ban the import of most oil products via tanker into the EU from Russia.
• More significant, the EU, alongside the G7 and Australia, have now implemented an agreement to force Russian oil exports via tanker to be priced at $60 per barrel or less.

Russia has set up a “shadow fleet” of over 100 tankers that can in theory operate either without insurance or with cobbled-together non-western insurance. China and India will probably find ways to procure Russian oil despite the ban.

In the short run, one could imagine higher oil prices as Europe scrambles for new sources of oil, displacing others who must then scramble for Russian oil while trying to navigate the new restrictions. Frictions are already emerging in the form of a backlog of tankers waiting to transit through Turkish waters.

 

 

Careful what you wish for: Scrapping China’s zero-COVID restrictions could be inflationary by Todd Mattina & Jules Boudreau Link to Article

Highlights:

• Xi Jinping has cemented his status as China’s paramount leader for the next five years, including by replacing more than half of the 24-member Politburo with loyalists.
• With little opposition, Xi appears set to continue economic policies that have been unpopular with financial markets.
• While “zero-COVID” policy is often seen as contributing to global inflation by disrupting supply chains, a reopening could be a new driver of inflation for the world economy.

 

Global Insights

BP chief executive Bernard Looney is betting on hydrogen to power future low-carbon businesses as the governments of major economies stump up cash to develop the fuel to decarbonise.

Low-carbon hydrogen already has a big fan-base and is forecast to play a major role in reducing greenhouse gas emissions from heavy industries and some forms of transport.

Reuters

The European Union reached a deal in the early hours of Wednesday on a law to increase the price that airlines have to pay when they emit planet-heating carbon dioxide emissions, adding pressure to the sector to shift away from fossil fuels.

Reuters

Saudi Arabia and China showcased deepening ties with a series of strategic deals on Thursday during a visit by President Xi Jinping, including one with tech giant Huawei, whose growing foray into the Gulf region has raised U.S. security concerns.

Reuters

Exxon Mobil Corp on Thursday said it will lift spending next year to $23 billion-$25 billion, the top end of its guidance, and expand investments to curb carbon emissions.

Exxon led record profits among oil majors in the second and third quarters this year, aided by its highly criticized decision during the COVID-19 pandemic to double down on fossil fuels as European competitors shifted to renewables.

Reuters

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