Hike rates

The Daily Chase: The Fed Could Raise Rates Earlier Than Expected; Toronto home sales drop

We wait to see if the tech rout continues into another day following yesterday’s reminder that the US Federal Reserve is bracing for what could be a faster-than-expected tightening of monetary policy. We learned in those minutes of the last Fed meeting that the take-off could happen “sooner or at a faster rate” than central bankers previously anticipated. We also learned that some attendees at the December meeting said the Fed’s balance sheet may have to be cut “relatively quickly” after the initial rate hike. However, the minutes also noted that opinions on balance sheet management were “diffuse”. Investors responded by sending the Nasdaq Composite Index to its steepest single-day decline since last February. Futures are pointing to a moderate open and I saw the 10-year US Treasury yield hit 1.742 percent this morning.

GOOD LUCK IN FINDING A HOME IN TORONTO

Just like in Vancouver yesterday, today we are witnessing a moderation in the country’s other hot real estate market. But it can be unintentional moderation as the tight inventory remains history. The Toronto Regional Real Estate Board reported a nearly 16 percent year-over-year drop in home sales in December. The sequential slide was even more extreme, with sales falling by a third compared to November. It’s not surprising to see stocks dry up, with active listings plunging 59%. Add it all up and we end up with an average sale price just below the record set in November. We will 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 this morning on Canadian banks, explaining why, even after the recent rise, valuations of major lenders are still attractive. Part of that thesis takes us back to the Fed and the prospect of a rate hike increasing banks’ net interest margins.

OTHER SIGNIFICANT STORIES

  • We still have uranium stocks on our radar amid the unrest in Kazakhstan (the world’s largest producer of the raw material). Local banks have been closed and police said today some protesters were killed. Bloomberg News also reports an accumulation of troops from Russia and its allies.
  • Bloomberg News reported last night that TC Energy had resumed service on its Keystone pipeline network after previously being hampered by extremely cold conditions. Freezing temperatures have certainly also contributed to the recent rally in the price of Western Canada Select crude oil.
  • Power Corporation announcement a family-type deal last night which she said is another step in simplifying its structure. An organizational chart would be helpful 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 transaction costs by selling 15.2 million shares of Great-West Lifeco (part of the Power Corp. empire) to Power Corp.
  • Constellation brands is about to share its alcohol expertise with Coca-Cola. The alcohol giant (which also has a significant stake in Canopy Growth) announcement this morning, it will team up with Goliath soft drinks on a line of ready-to-drink cocktails from the Fresca brand.

NOTABLE OUTPUTS / EVENTS

  • Notable data: Canadian trade balance; US trade balance, ISM services index and initial jobless claims
  • Notable wins: Walgreens Boots Alliance, Constellation Brands
  • 1:00 p.m. ET – Federal Reserve Chairman of St. Louis James Bullard delivers remarks on “US Economics and Monetary Policy”