The Week That Was
Equity and bond markets retreated this week. Some mixed earnings reports coupled with a cut in the US credit rating had investors hitting the pause button. To put this week’s retreat in perspective, the S&P500 has been in a steady uptrend since March 13th rising over 16% between then and yesterday’s close.
A surprise / not surprising cut in the US’ credit rating by Fitch has Treasury yields climbing. Citing a deteriorating fiscal situation AND congressional dysfunction, Fitch is the second rating agency to downgrade US debt. Standard & Poor’s did the same in 2011. Congress’ ongoing brinksmanship over the debt ceiling is not making the situation any better. That said, the US national debt is $32.3 trillion and climbing.
Inflation continues to retreat. Even the UK posting better results in June with both the headline rate and core inflation dropping. Inflation was still too high for the Bank of England though. The “Old Lady of Threadneedle Street” raised interest rates by another 25-bps and will undoubtedly raise them again. The Eurozone also saw another drop in headline inflation to 5.3% in July, though core inflation remained stuck at 5.5%. Adding to the continents good news was an acceleration in GDP growth, posting 0.3% for the 2nd quarter. The ECB is also likely to continue its rate hikes as inflation is still well above target.
The US Labour market showed some signs of loosening. The latest Job Opening & Labour Turnover (JOLTS) survey showed fewer job openings but also a much-reduced quit rate. The softening of the labour market should take the pressure off wage inflation. Also reducing the inflationary pressure were recent Purchasing Managers Index (PMI) readings still well below 50, which indicates contraction.
The price of oil has been rising lately with production cuts by Saudi Arabia and Russia being extended to September. The summer driving / travelling season has ramped up demand and inventories have dropped adding to the pressure. The rise in prices has resulted in a pause in US government buying to replenish its strategic reserve.
While Laurentian Bank searches for a buyer, National Bank is buying the Canadian loan portfolio of failed US lender Silicon Valley Bank (SVB). The assets will be folded into NA’s Technology and Innovation Group. While the assets will not have a material impact on the Banks results, it is still a nice win.
Since I am writing this in the middle of a Montreal thunder & lightening storm, we’ll make the next few items all about energy. Chinese electric car maker Nio has announced they will be using solid state batteries in their ES6 SUV. The expected range is ~600 miles although later versions may have up to a 1,000-mile range. Nio will beat industry heavyweights such as Toyota to market with solid state technology.
In a move to meet rising power demand, Ontario has announced it will build 3 more small modular nuclear reactors. The new plants will produce enough energy to supply 1.2 million homes. Nuclear power currently provides about 50% of Ontario’s electricity.
File this next item under world changing if true. Researchers in Korea claim to have produced a super-conductor that works at ambient (room) temperature. The news is pre-liminary and still subject to peer review and replication. Super-conductors, as the name suggests, conduct energy with no loss. The first to be discovered was mercury, but only at temperatures close to absolute zero (minus 273 C).
On that note we’ll leave you with this piece from Garth Brooks… enjoy
Russ Lazaruk, RIAC, CIWM, CIM, FCSI
Managing Director & Portfolio Manager
Tel 250.999.3329.
