Mixed Markets, Gold Looks To Break 6 Week Winning Streak by Richardson GMP
Markets are mixed to close out the week. Shares in the A-Pac closed the overnight session mostly positive, but Europe is mostly lower at this stage of the session. We would guess that there is very little focus on the markets today after the horrific attack in Nice.
Qualivian Investment Partners Up 30% YTD; Long ORLY Thesis
Qualivian Investment Partners commentary for the second quarter ended July 30, 2020. Q2 2020 hedge fund letters, conferences and more “Short-term investors will accept a 20% gain because they didn’t spend the time to develop the conviction and foresight to see the next 500%.” - Ian Cassell Executive Summary Readers of investment letters fall into Read More
Pounds and C$ continue to strengthen this morning. Commodities are mixed, so we are going to point to US$ weakness as the reason for the loonie. With the difference between Canadian and US 2 year yields having dropped to just 11 basis points, we are near the lows for the year – which is positive for the C$. As US yields rise in relation to Canada’s we see weaker loonies.
Even though equities have come roaring back, Bloomberg points out that the Bond Market (yes, we capitalize Bond Market) still thinks Brexit is a bad thing. “People who invest in 10-year government bonds have to take a long view”. Perhaps the more global flows of capital in bonds are keeping yields low everywhere, but we still look at the level of yields with concern – both for the economy and investor returns!
Alliance Berstein’s Matthew Bass discusses cash flow and liquidity in private credit funds. We found this article insightful given the big rise in the popularity of these types of funds. “Private credit offers the potential for higher yields, and when cash flow is factored in, the liquidity is actually “wetter” than expected.”
Canadian new home prices seeing their largest jump since 2007, but don’t expect the Bank of Canada to hold back on rate cuts if an economic contraction should slip enough. Bloomberg has more. While some caution against putting too much weight on the recent comments, the truth of the matter is that the growing imbalances put the bank between a rock and a hard place. Full disclosure, I watched The Big Short again last night, so I might be more bearish than usual.
5 Fascinating, Unexpected Destinations for Wine Lovers
Ford is testing a new robot that will help human line workers to install shock absorbers. Normally, the humans would have to “juggle the shocks and tools to install them.” Now, they will have an assistant who will help them to install the parts. The robots should help to improve the assembly process in terms of speed and safety. More importantly, they can even be programmed to make coffee. More from engadget here.
Diversion: All reads actually do seem to lead to Rome. Interesting interactive map.
Switch your devices to airplane mode and store your tray tables. Freakonomics podcast asks: “Why Does Everyone Hate Flying?”
Was Demolition Man right? The Atlantic looks at Taco Bell’s new fast-casual plans.
Shaw Communications expects their capital investment to exceed $1.3bb with the majority being in WIND mobile. They also increased their guidance this morning up for revenue growth 13% higher this year. Wells Fargo saw profit fall 2.8% on debunked energy loans and higher expenses. They also noticed revenue from their mortgage lending business fall in the quarter. Citigroup topped estimates despite profit falling 17% on lower revenue from consumer banking. They did see a pick-up in fixed income trading and lower loan defaults.
Zinc has been one of the top performing asset classes this year, rallying 50% off the bottom from January. The gains have been fueled by drawdowns in mines causing a global deficit. Silver is making further gains on gold prices this morning as the global economic outlook continues to increase. Assets have been pouring into silver backed ETFs since the start of the year, the most in the past three years. Gains for silver have been almost double that of gold since the start of the year. Gold is set to close lower this week for the first weekly loss since May of this year but the precious metal is still up 26% for the year.
Fixed Income And Economics
A heavy data docket is upon us this today but we will focus on just two of them. Advance retail sales in the U.S. rose by +0.6% in June to handedly beat the consensus for a +0.1% rise. This also was three times better than the revised +0.2% print in the month prior. Core sales were up +0.7% to more than double the forecast and mark the third month in five that American consumers were spending at such a frenzied pace. Purchases were broad based with every category higher except for clothing (-1.0% ) and food (-0.3%). Building materials saw a +3.9% uptick to snap three consecutive months of falling sales and adjust in line with the seasonal trend. As the world’s biggest economy was spending more, their price tag steepened as well with core CPI rising by +0.2% over the same period (same pace as prior). Annualized core inflation is now running at a +2.3% clip — the fastest pace since February and marking eight straight periods where price acceleration has stayed at or above the FOMC’s 2% target. With inflation above target and the unemployment rate running below target, there is more than enough ammunition for the hawks to chirp at the July 27 Fed meeting.
The Japanese Yen is trading lower again this morning, down to 105.73 versus the USD to mark its fifth straight day of depreciation. From the 2016 high, that’s a 6% slide as the currency has seemed to find the 100.00 mark as near term resistance. On the year the Yen is still up nearly 14% and running counterintuitive to the BoJ’s desire for a weak currency to spur export demand. We’ve been watching this currency pair greatly over the past few months as the Yen is most often associated as being an anti-risk measure of safety. While Prime Minister Shinzo Abe was victorious in the upper house elections last weekend, it’s important to note that he has not secured a political majority in order to push through coordinated monetary and fiscal measures that the market is gravely expecting. Abe has already stated that he will undertake “broad, bold measures” to make Abenomics work with the combination of monetary and fiscal policy measures likely to be brought to a new level (helicopter money for instance). But with the market shrugging off their initiatives outright, one has to wonder how effective new initiatives will be.
Domestic primary markets were busy with a slew of new issues yesterday. First up was the province of Quebec re-opening their 2.50% 9/1/2026 bullet issue by another $500MM to bring the total size to $3 billion. The National Bank-led deal priced at +91.5 basis points over benchmarks compared to just a month ago when they raised a similar $500MM at +95.50 bps over. The province of Newfoundland followed them with a $300MM re-opening of their 3.30% 10/17/2046 notes that priced at +161.5 bps over the long bond. This brings total issuance to $2.05 billion outstanding for the RBC-led raise and marked the fifth time this year that the province has re-opened this note. On the corporate side, Toyota Credit Canada launched a $500MM dual tranche offering that comprised of a bullet (60%) and FRN (40%) structure. The former priced with a 1.75% coupon over five years (+115.0 bps over Canada’s) while the latter settled with an 18 month tenor at quarterly CDOR +47.0 bps. Both issues sold out well and are trading a nickel higher in secondary. Lastly, the Government of Canada re-opened their 1.75% 9/1/2019 unsecured benchmark by another $3.2 billion to bring the total issue size up to $13.4 billion outstanding.
Chart Of The Day
Quote Of The Day
Forget your mistakes, but remember what they taught you. ~Benjamin Franklin