Launch Pad

Daily market commentary

Friday, December 3, 2021
  
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Today

Futures are up this morning despite disappointing jobs numbers coming out of the U.S. To say that this has been a volatile week would be an understatement, as the market nears the end of a roller-coaster week driven by omicron variant concerns. The major indexes rebounded in yesterday’s regular trading session but despite the rally, the averages are on pace for a losing week. On the jobs front, investors were disappointed this morning after the Non-Farm Payroll numbers from the U.S. came out. The U.S. economy created far fewer jobs than expected in November increasing just 210,000 for the month (the estimate was 573,000). Canada on the other hand fared much better, adding 153,700 jobs last month. The outlook going forward is mixed with rising cases of the virus, a less accommodative Fed, and tougher growth comps in the year ahead.  

It’s been a year for records, in this case for Toronto real estate.  The average home price in Toronto was $1.16 million, representing an increase of 22% compared to last year.  Low interest rates and the desire for more space (a separate home office is always nice) has buyers bidding up the homes that are available for sale.  A decline in supply has exacerbated the pricing pressure.  High demand and constrained supply is a familiar account we’ve heard over the last year. According to data provided by the Toronto Real Estate Board, the number of new listings declined by 13% month over month and a whopping 34% compared to last year.   

The spread of the omicron variant across the world could further delay the travel industry’s recovery, a fresh challenge just as international trips were on the upswing after a 20-month slump. The variant, first reported by South African scientists last week with the first Canadian cases confirmed a few days ago, has sparked a new host of travel restrictions that took many travelers by surprise, leaving some stranded as several countries temporarily barred flights or arriving passengers from the region. 

Just when Canada got our team back to play north of the border, it has been taken away. The collective bargaining agreement between Major League Baseball and the Major League Baseball Players Association expired and yesterday the league informed the players that it had locked them out, beginning the game's first work stoppage in more than 25 years. The lockout threatens plans for spring training and opening day on March 31 and also stifles what has been an intriguing off-season so far with big-ticket free-agent signings for The Blue Jays. So what do players want? In general, they would like to be paid more at younger ages because that's when they are in their prime. The system now also favours keeping players in the minor leagues for several weeks extra to slow down their major league service time, which players hate. 

You may have seen more and more footage online of brazen “smash and grab” robberies. Retail theft is soaring across the U.S., with large chains like Best Buy and Walgreens falling victim to increasingly brazen and widespread instances of shoplifting. In recent days, reports of "smash and grab" robberies in major cities featuring crowds of thieves making it off with electronics, clothing and footwear, have flooded social media. Security experts cite a litany of reasons including fallout from the pandemic, overwhelmed law enforcement, and deteriorating public safety. In response retailers are investing millions of dollars this holiday season upgrade their security, adding a lot of physical security technology, resources, manpower and off-duty police. Unfortunately, this has led to many mom and pop stores to become the targets of thefts as they cannot afford the extra security needed. Another potential cost to pass on to customers. 


Diversion: Apparently bulls don’t attack if they’re not threatened. Either way, I wouldn’t try this.  

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Company news

That’s six for six in dividend raises and share buybacks. The last of the big 6 Canadian banks reported today with Bank of Montreal beating consensus estimates as the ramp up in commercial lending in the Canada and the U.S. proved to pay off.  BMO generates a larger portion of its earnings from commercial lending than its peers, business loans advanced 2.2% in Canada from the previous three months, while in the U.S. they climbed 1.8%. BMO boosted its dividend by 25% and announced a buyback of 22.5 million shares.  

DocuSign shares plunged over 30% in premarket trading after their revenue forecast for the current period missed analysts’ estimates, stoking concerns about slowing growth after the Covid-19 pandemic fueled a surge in demand in 2020. The company also reported billings for the fiscal third quarter that fell short of analysts’ projections. 

Elon Musk is well on his way to reaching the “sell 10% of his Tesla stake” he tweeted about on Nov. 6. According to regulatory filings dated Thursday, Musk unloaded more than 934,000 shares worth about $1.01 billion, making it the fourth consecutive week. The purpose of the sales is to help Musk offset taxes on the exercise of about 2.1 million options. The latest sells bring the total shares sold to 10.1 million (worth about $10.9 billion), he would need to sell 17 million shares to reach the 10% mark.  

Didi Global Inc. will withdraw from U.S. exchanges after listing only five-months ago following pressure from Chinese regulators who opposed the listing in the first place.  Instead, Didi plans to list in Hong Kong.  Shares in Didi initially advanced +8% following the announcement.  


Commodities

Oil prices climbed this morning after OPEC+ said it could review its production hike policy at short notice if oil demand collapsed due to a rising number of lockdowns, while Brent was on course for a sixth week of declines. OPEC+, surprised the market yesterday when it stuck to plans to add 400,000 barrels per day (bpd) supply in January. At the time of writing, NYM WTI Crude futures are up +2.77% to US$68.34/bbl and ICE Brent Crude futures are up +2.96% to US$71.73/bbl.      

Gold prices were set for their third straight weekly loss despite being steady this morning, as Jerome Powell’s comments that pandemic-era asset purchases could end sooner than previously anticipated dented bullion’s appeal. An incredibly hawkish tone of the Fed chair, coupled with the prevailing U.S. dollar strength are two things combining to take the shine off the gold market. Gold Spot is up +0.21% to US$1,772.41/oz this morning. 

Loonies are testing an important level at U$0.78.  This is almost a 52 week low and an important technical level that has shown support over the past year.  The selling comes alongside that of the Aussie dollar, which is in much worse shape.  Given these are the “risk on” currencies, we would argue they are painting a worse picture than the headline equity indexes would suggest. 


Fixed income and economics

StatsCan unveiled that our nation added +153.7K jobs last month, blowing the consensus of +37.5K out of the water and quintupling the +31.2K October print. We have been many a cynic previously when seeing such significant differences between the street and actual print (owing to the fact that this data point stopped providing revisions years ago), but will give the benefit of the doubt that our nation’s labour market is in actuality absolutely crushing it right now. The national jobless rate fell by seven ticks to 6.0% (lowest since pre-pandemic) while participation remained flat at 65.3%. The split was fairly even with +79.9K full-time and +73.8K part-time positions created while the service sector (+127.2K) accounted for the majority of the adds. The details were strong as most of the individual categories reported increases led by healthcare (+43.8K), manufacturing (+34.9K), retail (+28.3K) and professional services (+28.3K). Regionally, every province reported a decline in their unemployment rate except Alberta which stayed flat at 7.6%. Overall a very strong report that will give seeing the rate hawks come out in droves. 

 To taper or not to taper. U.S. nonfarm payrolls disappointed with a +210K increase to nonfarm payrolls in November, missing the estimate of +550K and far fewer than the +546K prior. The big letdown in the headline print is making many an expert wonder about the seasonality factor here (surveys were counted right before Thanksgiving in addition to overall bad weather) and how Wednesday’s ADP didn’t forecast such a large letdown. Private sector hiring saw a +235K increase and the fewest since April as public sector payrolls shed -25K (the fourth straight month of net layoffs). The unemployment rate managed to tick down from 4.6% to 4.2% while the more accurate U6 measure managed to dip by half a percent to 7.8%. All told, markets are using the “bad news is good news” mantra once again and bidding up risk markets in expectation that hawkish rhetoric from the Fed is cast aside for the time being. 


Chart of the day
 

Markets

Quote of the day
 

I intend to live forever. So far, so good.
Steven Wright

Contributors: A. Innis, A. Nguyen, D.Mak, J. Price, P. Kwon

Charts are sourced to Bloomberg unless otherwise noted.

The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson Wealth Limited or its affiliates. Assumptions, opinions and estimates constitute the author's judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. Richardson Wealth Limited, Member Canadian Investor Protection Fund. Richardson Wealth is a trademark of James Richardson & Sons, Limited used under license.