A quieter week on the markets. Equities were essentially flat, while bond yields continued to decline along with oil. The winner, again, was Bitcoin which, though down from its high of $65,000 in 2021, is up $20,000 from its August low of $26,000. All good if you can stomach the volatility.
| Index | Close Dec. 1st 2023 | Close Dex 7th 2023 |
| S&P500 | 5,595 | 4,579 |
| TSX60 | 20,453 | 20,279 |
| Canada 10 yr. Bond Yield | 3.42% | 3.30% |
| US 10 yr. Treasury Yield | 4.22% | 4.15% |
| USD/CAD | $1.34970 | $1.35940 |
| Brent Crude | $78.88 | $74.48 |
| Gold | $2,071 | $2,027 |
| Bitcoin | $38,794 | $43,302 |
Source: Trading Economics
The Bank of Canada held rates steady this week. Citing a softening economy, a drop in headline CPI and a loosening labour market the Bank opted to hold rates where they are. They are continuing with their quantitative tightening (selling bonds from their inventory) and put out the usual warning that they will raise rates if needed. The problem areas (from their viewpoint) are wages still rising by 4-5% and core inflation still between 3.5% and 4%. Despite the Bank’s warnings and abundance of caution, markets are starting to price in a drop in rates in the spring of 2024.
The US labour market continues to loosen as well. This week’s Job Openings and Labour Turnover Survey (JOLTS) report showed 8.73 million job openings. The lowest since March 2021. The ratio of openings to available workers is now 1.3 to 1, down from a high of 2 to 1 a few months ago and close to its pre-pandemic level of 1.2 to 1. According to ADP 103,000 people were hired by private businesses in November. This is down from 106,000 on October and 455,000 in June. Expect the US Federal Reserve follow the Bank of Canada’s lead and hold rates steady.
There were 2 financial earthquakes in Asia this week. The Bank of Japan seems ready to end its decade long negative interest rate policy. Deflation has been a real issue in Japan for a long time and it is only in the past year they have had to deal with inflation reaching or exceeding their 2% target. The second, and potentially more far-reaching quake was Moody’s downgrade of China’s credit rating outlook. The downgrade shouldn’t surprise anyone. The sluggish recovery from Covid lockdowns, a troubled real-estate sector, and aging workforce are all drags on the economy. The downgrade also spilled over the Hong Kong and Macau. Anecdotally, in conversations with contacts in Singapore, the financial hub of Asia is shifting from Hong Kong to Singapore. Out of reach of the CCP.
It is a truism that the best cure for high prices is… high prices. Classic economic theory tells us that high prices will both lower demand and bring in new supply. This has been playing out in the oil market. High prices, thanks to supply cuts from OPEC+ drove prices (and inflation) up. The high prices brought on new supply in the form of US production, largely fracking. Concurrently, demand has dropped thanks to China’s sluggish economy and a slowdown in US manufacturing. North American benchmark price, West Texas Intermediate (WTI) dropped below $70 this week. The price is being reflected at the pumps, finally.
The Artificial Intelligence (AI) race is getting interesting. Google has released an updated version of its Gemini AI model which it will integrate to its Chatbot Bard. Early tests show it to be more powerful than first to market ChatGPT, which is integrated to Microsoft’s suite of products. Not to be left behind, Elon Musk is raising $1 billion to help fund development of his AI model, Grok. Amazon is also in the race, investing $4 billion in startup Anthropic. I’ll leave this with my usual caveat that none of these are true AI but are very advanced Large Language Models (LLMs) and Machine Learning (ML).
The Royal Bank of Canada was in the penalty box this week, receiving a C$7.5 million fine for failure to meet its anti-money laundering obligations. The fine comes after a compliance audit by Canada’s AML regulator FINTRAC. TD is currently under investigation in the US for AML infractions as well. Canada has been seen as an easy place to launder money, as was showcased by BC’s Cullen Commission into money laundering in our casinos.
Take a bow Christine Sinclair. After an amazing career and scoring more points than anyone in international soccer, this Canadian icon is hanging up her cleats on the international stage. Her final game was in Vancouver where Canada beat the US 1-0. She has scored more goals than anyone, male of female, in the sport and has 331 international caps.
On that note, we’ll sign off with the theme song from the 2010 FIFA World Cup…. Enjoy
Russ Lazaruk, RIAC, CIWM, CIM, FCSI
Managing Director & Portfolio Manager
Tel 250.999.3329.
www.ncpdfo.com