ON DECK FOR MONDAY, SEPTEMBER 14th
KEY POINTS:
- Stocks and bonds under pressure…
- …as oil prices continue to rise…
- …AI-warnings are hitting tech stocks…
- …and the aftermath of US CPI spills into European, Asian markets
- Canadian CPI update due, but does it even matter?
- Here is Canada’s Investment Summit “prospectus”
- China’s financing activity continues to slow to a quarter-century low
- Treat Trump’s remark on a CUSMA deal with scepticism
- What could Carney’s pining for a stronger affiliation with the EU entail?
- Global Week Ahead — Shouldn’t But Probably Will (reminder here)
Another day, another gain for oil prices. A shut Saudi pipeline late on Friday, a postponed meeting of Middle Eastern countries with Iran, and general tensions in the Middle East are behind about a 2–3% rise in oil prices to start the week. US Treasury yields are flat after Friday’s post-CPI sell off. Canadian yields are slightly higher. EGBs and gilts are catching up to higher oil and US CPI with bear flatteners marked by 4–6bp increases in short-term yields. US Treasury yields are little changed, having repriced expectations for Wednesday’s FOMC meeting after CPI (+22bps at present).
Equities are broadly lower with losses between less than ¼% (TSX futures), -¾% (S&Ps) and -1½% (Nasdaq) and with European exchanges trading in between this range except for a gain in London. Hitting the brakes on AI-related investment is contributed to the negative tone.
The dollar is broadly stronger again all major crosses on safe haven seeking. CAD is outperforming on oil and weekend headlines from Trump’s remark that a CUSMA/USMCA deal could arrive “fairly soon.” Treat with high scepticism given a) his erratic behaviour, b) he’s promising a lot on the lead up to midterms, and c) maybe he’s starting the read the room as Canada embraces and investment-led agenda and is perhaps turning toward a partnership with the EU in some form. We should learn more this week when Carney attends the EU Parliament as a guess of honour at EU Commission President von der Leyen’s annual speech on Wednesday and then addresses parliament himself the next day.
WHAT COULD CLOSER CANADA-EU TIES ENTAIL?
What exactly would EU associate membership entail? We don’t know is the short answer. There is speculation it might entail the free movement of goods and services between Canada and Europe, allow Canadians to live and work in Europe sans visas, promote investment such as underwater cables, joint data centers, and new satellite networks to compete against American offerings, and sign long-term deals for providing resources such as energy. It’s all speculation and frankly don’t get your hopes too high; the dysfunctional EU still hasn’t fully approved the Canada-EU Comprehensive Economic and Trade Agreement (CETA) of 2017; many provisions are in force, but not all. The list of 10 countries that are holding it up (17 have ratified) and the parts that are not yet in force are listed here.
CANADA’S INVESTMENT PROSPECTUS
Canada’s Investment Summit is swinging into high gear. Here is a copy of the 66 page “prospectus” with project details. Expect announcements this week on individual projects.
WILL CANADIAN CPI EVEN MATTER?
Canada will refresh CPI for the month of August this morning. It’s one of two CPI prints before the next Bank of Canada decision on October 28th and it’s unclear that backward inflation will carry the day on that decision as oil rips, fiscal stimulus is charging ahead, and Canada is on the path toward shutting spare capacity probably by early next year.
Consensus expects CPI to slip -0.1% m/m in seasonally unadjusted terms with most estimates in the -0.1% to +0.1% range (Scotia +0.1%). That would mean the year-over-year rate could land between 3% and 3.2% (Scotia 3.2%).
And those figures don’t matter. If anything does, then it would be the core measures in m/m seasonally adjusted at an annualized rate terms (SAAR). See charts 1 and 2. Traditional core (ex-food and energy) has been over 3% m/m SAAR for three straight months. Trimmed mean and weighted median have been close to 2% y/y but more importantly were warmed in July in SAAR terms. See my weekly for a fuller preview.
CHINA’S FINANCING ACTIVITY CONTINUES TO EBB
China refreshed monthly financing figures for August this morning (charts 3–6). They are a soup to nuts take on every form of financing in China’s economy including domestic yuan-denominated loans, FX loans, bond and equity financing, and various shadow financing products.
Chart 3 shows that the deceleration in domestic currency loan growth continues in terms of y/y growth in balances outstanding; it’s at its weakest since just after the Asian financial crisis and dot-com bust. Chart 4 shows the flow of new loans that is also decelerating.
Chart 5 shows that the flow of aggregate financing activity summed across all products is relatively stable in recent years, but relative to the expanding total pie of such activity the growth rate continues to dwindle (chart 6). As shares of ytd total financing, yuan-denominated loans equal 43%, corporate bond issuance accounts for 12% and government bond issuance equals 37% with the remaining small amounts spread across equity issuance, short-term paper, and shadow banking products.
DISCLAIMER
This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.
These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.
Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations.
Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment.
This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank.
™ Trademark of The Bank of Nova Scotia. Used under license, where applicable.
Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Casa de Bolsa, S.A. de C.V., Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorized by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorized by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.
Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V, Grupo Financiero Scotiabank Inverlat, and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.
Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.