Thursday, June 21, 2018
Contributors: J.Price, C.Basinger, D.Benedet, C.Kerlow, D.Mak, S.Obata


Through half the week and results are mixed around the globe.  Loonies continuing their slide is probably the most notable market to be watching.  That may be partly because of increased trade tensions, but we are also seeing US rate expectations move forward in the wake of the last FOMC meeting. 

Odds of an August hike from the Fed have moved from 0% to 25% in the past month, and with it, 2 year yields have stayed flat, as opposed to Canada’s which have declined (as we noted yesterday).  This has widened the gap between our respective bonds to a pre-crisis level… the biggest in 11 years. Please see our Chart of the Day to see the long-term spread between U.S. and Canadian 2 year bond yields.
BCA Research is out with a relatively big call, shifting their equity stance to neutral – which has long been overweight.  Citing the 3 “macro policy puts” of Fed, Chinese, and Euro stimulative policies being gone, their view is that volatility will resume, prompting this quote: “Buckle Up: One of BCA’s key ongoing themes is that policy and markets are on a collision course. We are starting to see this impending crash play out across the world.”
Quietly the TSX hit a new all-time high of 16,444 yesterday. We say quietly as it seemed to happen with not much fanfare amid the hoopla of trade wars and legalized pot. Maybe it’s also because the index is up just 1.3% so far this year, trailing the S&P 500 (3.5%) and the NASDAQ which is up an impressive 12.7% YTD. Add onto that the currency gains of U.S. dollar holdings and the achievement of the TSX just fails to excite at the moment.

We’re also keeping an eye on Argentina, as MSCI has granted the country emerging market status for the first time in nearly a decade. It’s expected that the move should give the countries stock market a little boost amid credit uncertainty and a currency that continues to crater. The Argentine peso hit a new all-time low just a couple of days ago. Time will tell if the billion of dollars of passive flow can do much to for their market which has been doing relatively decent. It’s down for the year at present but did hit new all-time highs in January.  
Cboe plans to tweak the structure of the VIX amid manipulation concerns. Specifically, it plans more changes the monthly auction that sets the final price of VIX futures. Cboe is eager to engage more participants and to rectify problems with the auction, which has come under scrutiny in recent months and has roused suspicions of manipulation.
The Bank of England’s Chief Economist voted alongside the minority of policymakers calling for a rate hike at its next meeting in August. Following the global bond market, it appears they will be more likely to raise rates, and further set out guidance that they’ll be unwinding their balance sheet sooner than expected. The sudden shift comes with concerns that recent pay deals and labor could push wages up faster than expected.
Diversion: Nerd Alert: Star Wars ships tested for Aerodynamic efficiency.  “A TIE fighter is literally as aerodynamic as a brick”


RBC is losing its luster to rival TD as investors favor the latter’s bigger U.S. exposure. Over the past 12 months, RBC shares have gained 7.1% versus TD’s at 18%. Marijuana will become legal on October 17; however, not all provinces are ready, according to Canopy Growth CEO, Bruce Linton. He believes that New Brunswick, Ontario and Newfoundland are the most prepared while “there’s [been] a little pullback in a couple of the other ones.” Escalating trade tensions are starting to flow into corporate forecasts. Daimler AG recently cut its profit estimates for the year, “citing an expectation that Chinese consumers will buy fewer Mercedes-Benz sport utility vehicles because of tariffs.” Kroger shares are rallying after the company tightened its profit forecast for the year. It appears its investments in delivery and online services are starting to pay off in its competition with rivals Walmart and Amazon’s Whole Foods. Martin Sorrel, the founder of WPP, is hitting out at his former company after allegations of personal misconduct led to him quitting as CEO back in April. He has denied the claims; however, his exit has prompted speculation as to why he left the world’s most famous advertising company.


Oil is down -1.10% to $64.99 . Prices are moving lower as OPEC works towards a potential agreement. Negotiations have improved, with delegates “increasingly positive that a deal [to raise output] would be reached at Friday’s meeting.” Even so, it remains unclear how much output might increase. Saudi Arabia apparently put forward a plan that would add ~600,000 bpd, which is too much for some and too little for others such as Russia. Another factor complicating matters is that most countries, such as Iran and Venezuela, do not have the capacity to increase output.

Gold is down -0.62% to $1,266.60 . Precious metals have continued to trend lower. USD strength has overwhelmed any potential safe having buying in response to fears about escalating trade wars. The DXY, for example, is trading at the highest levels in a year. In addition, rates are near the highs for the week with 10s sitting at ~2.92%. Further increases would probably bode ill for precious metals.

In other commodities news…

Focus on returns now will hurt long-term U.S. shale oil investment: Hess” – RTS

Nexen announces $400M Alberta oil sands project expansion” – BNN BBG

Vitol kicks off A$5bn IPO of Viva Energy business” – $FT

Noble wins over Goldilocks for $3.5bn restructuring plan” – $FT


Treasury markets are modestly higher across the curve with the 10 year U.S. benchmark yield down to 2.91%. No real reason for the stronger bids save for continued worries festering in the China-U.S. trade spat as well as further discontentment within the Italian government and the EU. Economic data releases today are highlighted by a pair of 2nd tier prints led by the Philly Fed Business Index falling to +19.9 ticks in June. That was off from the expected +29.0 reading and less than the +34.4 gauge from May. Most importantly however, it was the lowest reported level of reported sentiment in the Pennsylvania region since November 2016. General business conditions were weaker on the unfilled orders category that dropped to -2.7 points. New orders (+17.9), prices received (+33.2) and the average workweek (+24.2) all reported declines from the prior month as well as manufacturing activity was generally weaker. Still, the overall reading remains in “expansionary” territory so markets will likely look past the release. Simultaneously out were weekly jobless claims numbers that showed +218K filings for first-time unemployment assistance were ticketed ending June 16. While not quite at the all-time low of +209K reported in late April, the weekly average of new filings continues to grind toward unprecedented lows. Continuing claims (the aggregate number of Americans seeking government labor assistance) rose modestly to 1.723K ending June 9 and also within a whisker of being the fewest ever number of total claimants since figures were made available in the mid-70’s.



Life can only be understood backwards; but it must be lived forwards.

- Soren Kierkegaard

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