Hike rates

The Daily Chase: Fed Could Hike Earlier Than Expected; Toronto home sales plummet

We are waiting to see if the tech debacle extends another day following yesterday’s reminder that the US Federal Reserve is preparing for what could be a faster than expected tightening of monetary policy. We learned in these minutes from the last Fed meeting that the takeoff could happen “sooner or at a faster pace” than central bankers had previously anticipated. We also learned that some attendees at the December meeting said the Fed’s balance sheet may need to be trimmed “relatively soon” after the first rate hike. However, the minutes also noted that views on balance sheet management were “diffuse”. Investors reacted by sending the Nasdaq Composite Index to its biggest single-day drop since last February. Futures are pointing to a muted open and I saw the 10-year US Treasury yield hit 1.742% this morning.

GOOD LUCK FINDING A HOME IN TORONTO

Just like in Vancouver yesterday, today we are seeing a moderation in the country’s other hot real estate market. But it may be an involuntary moderation as the tight inventory remains history. The Toronto Regional Real Estate Board reported a nearly 16% drop in home sales in December. The sequential fall was even more extreme, with sales falling by a third from November. It’s no surprise to see inventory dry up, with active listings plunging 59%. Add it all up and we end up with an average selling price just below the record set in November. We’ll speak with the local real estate board’s chief market analyst shortly after 8 a.m.

BULLISH ON BANKS

RBC analyst Darko Mihelic released a report on Canadian banks this morning, explaining why, even after the recent surge, valuations of major lenders are still attractive. Part of this thesis takes us back to the Fed and the prospect of higher rates increasing banks’ net interest margins.

OTHER NOTABLE STORIES

  • It looks like extremely difficult days for CannTrust Holdings. The previously scandal-ridden cookware producer today warned it ‘does not have sufficient cash to operate beyond the short term’. He also said he was in default of a covenant under his debtor-in-possession loan. CannTrust said it continues to explore options with potential investors and strategic partners as part of the CCAA process.
  • We still have uranium stockpiles on our radar amid unrest in Kazakhstan (the world’s leading producer of the commodity). Local banks were closed and police today said some protesters had been killed. Bloomberg News also reports a buildup of troops from Russia and its allies.
  • Bloomberg News reported late yesterday that TC Energy had resumed service on its Keystone pipeline system after being previously hampered by extreme cold conditions. Freezing temperatures have certainly also contributed to the recent rally in the price of Western Canada Select crude oil.
  • Electric company announcement a family-like deal last night which he says is another step in simplifying his structure. An organizational chart would help here: Mackenzie Investments, a subsidiary of IGM Financial (part of Power Corp.), is paying $1.15 billion to Power Corp. to acquire its 13.9% stake in China Asset Management. The transaction will increase Mackenzie’s stake in ChinaAMC to 27.8%. Mackenzie will cover part of the cost of the transaction by selling 15.2 million shares of Great-West Lifeco (part of the Power Corp. empire) to Power Corp.
  • Constellation Brands is set to share its alcohol expertise with Coca-Cola. The alcohol giant (which also has a big stake in Canopy Growth) announcement this morning, it will be teaming up with Goliath soft drinks on a range of Fresca-branded ready-to-drink cocktails.
  • Stelco Management Shares fell in early trading this morning after the steelmaker cut its fourth quarter shipment forecast and also warned of first quarter production. He blames various production challenges and the impact of Omicron.
  • Alcanna rallied at the opening bell after adjustments were made to its buyout pact with Sundial Growers. Revised terms of the deal now allow for shares and cash, rather than the initial all-stock offering.

NEWS RELEASES / NOTABLE EVENTS

  • Notable data: Canadian trade balance; US Trade Balance, ISM Services Index and Initial Unemployment Insurance Claims
  • Notable Benefits: Walgreens Boots Alliance, Constellation Brands
  • 1300ET – St. Louis Federal Reserve Chairman James Bullard delivers “U.S. Economics and Monetary Policy” speech