May 21, 2022

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What every Canadian investor needs to know today

Canada’s main stock index opened higher Friday as stronger oil prices lifted energy stocks. At the opening of trade, the Toronto Stock Exchange’s S&P/TSX composite index was up 16.2 points, or 0.08{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0}, at 20,391.68, with energy stocks jumping 1{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0}.

The Dow and S&P 500 also opened higher, though the Nasdaq was struggling to get out of the red, in the wake of jobs numbers in the U.S. that were stronger than expected.

The major North American indexes appear poised to challenge record highs again today, even as concerns get even louder that rising cases of the Delta coronavirus variant could hurt the economic recovery.

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U.S. nonfarm payrolls increased by 943,000 jobs last month after rising 938,000 in June. Economists polled by Reuters had forecast payrolls increasing by 870,000 jobs. The unemployment rate fell to 5.4{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} from 5.9{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} in June.

“Labor market conditions appear to be healthy at the start of third quarter as labor-intensive service businesses continue to hire given strong pent-up demand,” said Sam Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina.

Capital Economics, in a note, said the strong U.S. jobs numbers today, which includes upwards revisions to previous months, “suggests economic growth may be holding up better than we had feared and leaves open the possibility of Fed Chair Jerome Powell dropping a stronger hint that tapering is on the way at Jackson Hole in three weeks’ time.”

Canada added 94,000 jobs in July, missing analyst expectations, and the unemployment rate fell to 7.5{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0}, Statistics Canada said on Friday. Analysts surveyed by Reuters had expected a gain of 177,500 jobs and the unemployment rate to fall to 7.4{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0}.

But Street forecasts for the Canadian jobs report varied widely, which may limit any market reaction to the domestic numbers.

Capital Economics, in a note, called the Canadian job gains “something of a disappointment given the lifting of coronavirus restrictions at the start of the month in many provinces,” But it was encouraged by a solid 1.3{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} month over month gain in total hours worked. “With employment in accommodation & food services still almost 20{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} below its pre-pandemic peak and indoor dining only reopening during the July survey week, there is plenty of scope for even stronger gains in employment over the coming months,” it said.

The much-awaited jobs numbers come on the heels of data Thursday that showed a further decline in U.S. unemployment claims last week and a spate of strong corporate earnings reports, which helped lift the Nasdaq and S&P 500 indexes to record closes on Thursday.

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The TSX Thursday also closed at a record, getting a boost from the gains on Wall Street but also a string of better-than-expected earnings reported from a broad range of Canadian companies during the day.

All of the North American main indexes are set to end the week with nominal gains as a stronger-than-expected earnings season overshadowed concerns about the pace of economic growth and higher inflation.

In corporate news this morning, Magna International shares are down 2.5{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} after it cut its full-year sales forecast, citing a slowdown in automobile production as a semiconductor shortage plagues the sector. Magna’s revenue for the year is now expected to be between $38 billion and $39.5 billion, compared with a previous forecast of $40.2 billion to $41.8 billion. Magna reported net income attributable of $424 million, or $1.40 per share, in the quarter ended June 30, compared to a loss of $647 million, or $2.17 per share, a year earlier. Analysts on average expected the company to earn $1.38 per share, according to Refinitv data. Total sales more than doubled to $9.03 billion, but missed estimates of $9.29 billion.

And in a further development concerning the company, chipmaker Qualcomm Inc said on Thursday it had offered to buy Swedish auto parts maker Veoneer Inc for $4.6 billion, an 18.4{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} premium to a bid in July by Magna International Inc that was accepted by Veoneer’s board.

Meanwhile, the cannabis sector, which enjoyed a strong rally on Thursday, should be buzzing again today. Pot producer Canopy Growth Corp reported a smaller adjusted core loss in its first quarter on Friday, as it benefited from cost cuts and a rise in cannabis use during the coronavirus pandemic. Its adjusted core loss narrowed to C$63.6 million from C$92.2 million a year earlier. Revenue rose 23{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} to C$136.2 million. The company’s shares were down 2{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} in early trading.

Equities

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Commodities

Oil prices rose on Friday but remained on track for their biggest weekly decline since March on concerns over the impact on fuel demand from travel restrictions to curb the spread of the Delta variant of COVID-19.

Brent crude oil futures were up 95 cents at $72.24 a barrel in morning trade and U.S. West Texas Intermediate (WTI) crude futures rose 92 cents to $70.01, though both contracts have given up more than 5{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} this week.

“The price action we see now is really a function of the macro picture,” said Howie Lee, an economist at Singapore bank OCBC. “The Delta variant is now really starting to hit home and you see risk aversion in many markets, not just oil.”

Japan is poised to expand emergency restrictions to more prefectures while China, the world’s second-largest oil consumer, has imposed curbs in some cities and cancelled flights.

“At least 46 cities have advised against travelling and authorities have suspended flights and stopped public transport. This could impact oil demand as it comes towards the end of the summer travel season,” ANZ said in a report.

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Daily new COVID-19 cases in the United States have climbed to a six-month high.

However, oil prices gained support from rising tensions between Israel and Iran.

“OPEC+ supply hikes should still leave the market in deficit in 2021,” Bank of America analysts said.

Gold prices slid to their lowest in more than a month on Friday after the strong U.S. jobs report boosted expectations the Federal Reserve could begin tapering its economic support sooner than previously anticipated.

Spot gold had fallen 1.8{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} to $1,772.42 per ounce by 9:08 a.m. EDT and was on course for its worst week since mid-June. U.S. gold futures shed 1.9{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} to $1,774.10 per ounce.

“The job numbers are hitting gold because they blew away expectations, so the market is anticipating that the Fed’s taper date could be brought forward with an announcement in September, a plan outlined in December and the actually tapering in early January most likely,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

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Fears over the central bank cutting back on its stimulus program have been brewing in recent days after Fed Vice Chair Richard Clarida and Fed Governor Christopher Waller suggested asset purchase tapering may come sooner.

The U.S. dollar and benchmark 10-year Treasury yields also rose after the data, dealing a further blow to bullion’s appeal.

Higher interest rates raise the opportunity cost of holding non-interest bearing gold.

But Streible said gold buyers could step in on dips, limiting losses.

“Employment had snapped back today, but we’ve already seen peak GDP, peak corporate earnings and the economic data is going to be mixed at best going forward, so gold is still pretty good value.”

Silver fell 2.4{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} to $24.52 per ounce and was down more than 3{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} for the week.

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Currencies and bonds

The Canadian dollar fell from the 80 cents U.S. level in the aftermath of the better-than-expected U.S. jobs numbers and the weaker-than-expected Canadian employment report.

Other corporate news

Zynga Inc tumbled 14.5{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} in premarket trading on a disappointing full-year bookings forecast and announcement of a potential acquisition worth over half a billion dollars.

U.S.-listed shares of ride-hailing service Didi Global Inc added 6.4{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0} as Bloomberg News reported it is considering giving up control of its valuable data as part of efforts to resolve a Chinese regulatory probe.

Other earnings include: Brookfield Business Partners LP; Boralex Inc.; Fiera Capital Corp.; Lassonde Industries Inc.; Orla Mining Ltd.; Power Corporation of Canada; Sprott Inc.

Economic news

Canada added 94,000 jobs in July, missing analyst expectations, and the unemployment rate fell to 7.5{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0}, Statistics Canada said on Friday. Analysts surveyed by Reuters had expected a gain of 177,500 jobs and the unemployment rate to fall to 7.4{1c85f339815b3f699ae0fdee90a747b715d9a8e52ec31221581a933b2596fac0}.

U.S. job growth rose solidly in July amid demand for workers in the labour-intensive services industry, suggesting the economy maintained its strong momentum at the start of the second half. Nonfarm payrolls increased by 943,000 jobs last month after rising 938,000 in June, the Labor Department said in its closely watched employment report on Friday. Economists polled by Reuters had forecast payrolls increasing by 870,000 jobs.

(10 a.m. ET) Canadian Ivey PMI for July.

(10 a.m. ET) U.S. wholesale inventories for June.

With files from Reuters