October 15, 2021

Daily Market Commentary

Canadian Headlines

  • Bank of Canada’s Tiff Macklem doesn’t see an ongoing inflation crisis arising from supply concerns. “These supply disruptions, they continue to be viewed as transitory, but they are likely to be more persistent than most of us thought around the table.” Inflation expectations in near-term have moved higher due to actual higher readings of inflation but that expectations in medium and long term remain well-anchored. He said the Bank of Canada will “take action” if price increases create ongoing inflation. In regards to excess savings, Macklem noted that the bank assumed in its last forecast that about 20% of those extra savings get spent over a period and the remainder gets saved.
  • The head of Toronto-Dominion Bank’s U.S. operations says the lender is looking at ways to expand beyond its East Coast retail network. The bank looks at every opportunity to expand in the U.S. through organic growth or acquisition and will consider them all as they become available, Greg Braca said in an interview on Bloomberg Television. Braca is chief executive officer of TD Bank, the U.S. arm of Canada’s Toronto-Dominion. He said that lending growth from U.S. businesses may remain challenged as loans from government stimulus programs are forgiven.
  • Ontario will announce a plan to move beyond the current reopening framework late next week, the Canadian Press reported, citing a senior government source.  Plan will include ending capacity limits in venues such as restaurants and gyms where vaccination proof is required.
  • Justin Trudeau’s top deputy said a fourth wave of Covid-19 is complicating Canada’s economic recovery as the prime minister prepares to unveil a new front bench after winning re-election. Her remarks come as the prime minister puts the finishing touches on a new cabinet after his re-election to a third term last month. Trudeau, who announced on Sept. 28 he would keep Freeland in her post as finance chief and second in command, will unveil a full ministerial slate on Oct. 25, according to the Canadian Broadcasting Corp.

World Headlines

  • European stocks gained, poised for their best week since March, as early earnings reports boosted investor confidence that the recovery continues. The Stoxx 600 Europe Index was 0.3% higher at 10:30 a.m. in London, led by banking, travel and retail stocks. The U.K.’s FTSE 100 Index climbed as much as 0.5% to its highest since February 2020, buoyed by oil and banking shares. Equities in the region are rebounding in October as worries ease over risks including China’s real estate sector and inflation. Investors, flush with cash and struggling to find alternatives to stocks, are now turning their focus to what’s expected to be a strong earnings season, despite rising energy prices and supply constraints.
  • U.S. stock-index futures extended this week’s gains, helped by a solid roster of corporate results as oil futures spiked to their highest since October 2018. Goldman Sachs is scheduled to report on Friday. “After a choppy start to the week, equity markets appear to be leaning towards a narrative that companies can continue to grow profits, despite the combined pressures of higher energy prices and supply chain disruptions,” said Michael Hewson, chief market analyst at CMC Markets in London.
  • Fresh off its worst month since the early days of the pandemic, the Nasdaq 100 index is back on form. After falling 8% from September’s record peak, the benchmark that includes the likes of Apple Inc., Amazon.com Inc. and Microsoft Corp. has rallied and is now just 4% away from another record. With last month’s spike in bond yields having cooled, investors are returning to many of the big names they briefly shunned. Technology stock funds gained $2.7 billion in the week through Wednesday, by far the best sector, Bank of America Corp.’s crunching of fund flows showed on Friday.
  • Gold is entering a period of seasonally strong demand in bullish fashion. The run-up to Diwali — the Hindu festival of lights which also ushers in the Indian wedding season and Western Christmas purchases — usually sees an uptick in demand for physical metal. Spot bullion is on course for the first monthly gain in three, testing the $1,800/oz level that’s proven magnetic in a troublesome year. The tide of outflows from ETFs, which piled pressure on the metal, also appeared to slow.
  •  Oil in London rose past $85 a barrel for the first time since 2018, the latest milestone in a global energy crunch that has seen prices soar. Brent futures briefly passed that level, before paring gains. A shortage of gas and coal is triggering extra demand for oil products from the power market, and some banks expect the switch to boost prices further with winter approaching in the northern hemisphere. It’s starting to deplete stockpiles, with the U.S. crude storage hub of Cushing recording an unusually large drop for the time of year.  China also issued a long-awaited new batch of quotas for its refiners to buy more crude, further pushing up demand.
  • China is loosening restrictions on home loans at some of its largest banks, according to people familiar with the matter, adding to signs of growing concern by authorities about contagion from the debt crisis at China Evergrande Group. Financial regulators told some major banks late last month to accelerate approval of mortgages in the last quarter, said the people, asking not to be identified discussing a private matter. Lenders were also permitted to apply to sell securities backed by residential mortgages to free up loan quotas, easing a ban imposed early this year, the people said. The moves come amid growing alarm that the liquidity crisis at Evergrande is spilling over to other developers as President Xi Jinping maintains harsh measures to cool the property market. Fears of contagion risks intensified over the past two weeks after a surprise default by Fantasia Holdings Group Co. and a warning from Sinic Holdings Group Co. that its default was imminent.
  • Bitcoin-to-the-moon traders are back with a vengeance as demand jumps for bullish contracts across crypto exchanges. The world’s largest digital currency rose about 3% to more than $59,000 on Friday — taking this month’s rally to over 35% — after Bloomberg News reported the U.S. Securities and Exchange Commission looks poised to allow the country’s first futures-based cryptocurrency ETF. As institutional and retail demand grows for the $1.1 trillion asset, speculators are eying a return to April’s $64,870 record peak while premiums are rising for derivatives betting on higher prices.
  • Italy’s public and private sector workers will be required to show proof of vaccination as of Friday. Despite a high national vaccination rate, the move has stoked tensions and protests. Elsewhere in Europe, fully vaccinated travelers returning to England will be allowed to take lateral-flow coronavirus tests instead of more expensive PCR tests from Oct. 24. Separately, thousands of people in the country may have been given incorrect test results, according to reports. South Africa will begin vaccinating children aged 12 to 17 from next week, Health Minister Joe Phaahla said.
  • The BOJ is likely to consider lowering its growth forecast for this fiscal year and raising it for the following year in a quarterly outlook report this month
  • The PBOC injected 500 billion yuan ($77.6 billion) via its medium-term lending facility as expected, matching the amount maturing today. The MLF rate was left at 2.95%.
  • EU leaders are poised to authorize emergency measures by member states to blunt the impact of the energy crisis. The bloc is pushing for steps such as income support and tax breaks but continues to resist calls to overhaul pricing rules. The communique will be discussed by representatives today.
  • Olaf Scholz reached a milestone in his bid to succeed Angela Merkel as German chancellor by getting his potential partners close enough to enter formal negotiations for a coalition government.
  • Rio Tinto downgraded its expectations for annual iron ore shipments to 320-325 million tons from the previous forecast of 325-340 million after labor shortages in Western Australia led to delays in starting new mines. Its iron operations in the Pilbara shipped 83.4 million tons in the third quarter, up 9% on the previous quarter.
  • Matalco is warning customers that it may curtail aluminum output and ration deliveries as soon as next year amid a magnesium shortage. Difficult-to-source supplies of other raw materials and soaring natural gas prices are adding to the challenges.
  • European Gas Prices Fall as Russia Signals Potential New Volumes. Spot sales from Gazprom PJSC, Europe’s biggest supplier, could possibly resume at the company’s electronic platform in November-December, once domestic storage is filled, Deputy Prime Minister Alexander Novak said Friday. “It will be decided specifically by the company, based on requests, needs, emerging balances,” he said. A warmer weather outlook for Europe is also weighing on prices, as forecasts of an autumn heatwave from London to Paris next week should halt any immediate spikes in demand across the continent.
  • U.S. natural gas drillers could increase supplies by about 20% if not for pipeline and export constraints, EQT CEO Toby Rice said. He renewed a call for more investment in infrastructure. Copper Warehouse Stocks Hit Critical Level in Global Squeeze. Copper inventories available on the London Metal Exchange hit the lowest level since 1974, in a dramatic escalation of a squeeze on global supplies that sent spreads spiking and helped drive prices back above $10,000 a ton Copper tracked by LME warehouses that’s not already earmarked for withdrawal has plunged 89% this month after a surge in orders for metal from warehouses in Europe. Stockpiles have also been falling fast on rival bourses and in private storage, and LME spreads have entered historic levels of backwardation, with near-term contracts trading at huge premiums
  • Glencore Cuts Zinc Output at Europe Plants on Power Costs. Metal supply cuts are spreading from China to Europe, as energy shortages drive up costs for electricity and natural gas, threatening more inflationary pressure from rising commodity prices. Other heavy industries across Europe from paper to fertilizer are also coming under pressure
  • Alcoa sees more inflationary pressure on raw materials and energy, and the shortages of magnesium and silicon “are a concern.” The strong aluminum rally will last longer, with global demand growing 10% this year versus 2020, said the producer, which kept its shipments outlook unchanged at 2.9-3 million tons.
  • Fertilizer Woes Paint Bleak Outlook for the Pantry. Warnings about the fertilizer crisis’s threat to global food security are coming thick and fast. In Europe, the high nutrient prices have farmers questioning whether to curb plantings. Canadian authorities cautioned that growers may cut back on usage, while in corn powerhouse Brazil, there’s a risk that soaring fertilizer costs and less supply will limit crop yields. The global fertilizer market had already been tightening before plants were forced to cut production on the back of the recent spike in the cost of gas, a key feedstock. That’s sent prices of nutrients crucial for growing staples soaring — to a record in some cases — risking smaller harvests or even more expensive food down the line.

“The bottom line is to have fun and enjoy life.” – Rekha

*All sources from Bloomberg unless otherwise specified