Markets open: ‘We’ve had the great rally and now it’s just kind of a chillax’
Wall Street kicked off the week with losses, with both stocks and bonds down in a signal that traders’ aggressive pricing of United States Federal Reserve rate cuts may have gone too far.
A raft of key jobs readings over the next few days will be closely watched for clues on the Fed’s next steps, with the potential to rekindle volatility that has recently shown signs of anemia. Technically “overbought” conditions and long positioning have left markets in a more fragile state after the impressive rallies in both Treasuries and equities last month.
“We’ve had the great rally and now it’s just kind of a chillax,” Tony Dwyer, chief market strategist at Canaccord Genuity, told Bloomberg Television. “Inflation is not the problem,” he noted, adding that he still expects to see a recession.
U.S. stocks are headed for a rocky end to the year, according to Morgan Stanley’s Michael Wilson. The strategist said December could bring “near-term volatility in both rates and equities” before more constructive seasonal trends as well as the so-called “January effect” support stocks next month. JPMorgan Chase & Co.’s Mislav Matejka said markets expecting a soft landing leave no room for error.
“Perhaps one should be contrarian yet again,” Matejka said.
On Wall Street, the S&P 500 was down 0.56 per cent at 4,568.52. The Dow Jones Industrial Average was down 0.29 per cent at 36,140.30 while the Nasdaq composite was down 1.04 per cent at 14,157.62.
In Toronto, the S&P/TSX composite index was down 0.01 per cent at 20,450.05.
Canadian banks job cut ‘carnage’ unprecedented: David Rosenberg
The Canadian economy added 25,000 jobs in November, Statistics Canada reported Dec. 1. But the unemployment rate ticked up to 5.8 per cent as jobs created couldn’t keep up with the rate of population growth.
Here’s what Rosenberg, president of Rosenberg Research & Associates, had to say about the report in this morning’s Breakfast with Dave newsletter:
“A real red flag is coming out of the banks: the financial sector has now chopped its headcount for four months in a row and by a combined 63,000, which is unprecedented. Going back to 1976 and spanning six recessions, we have never seen carnage like this before in the Canadian financial industry from a job-reduction perspective. And this sector is a leading indicator.
“There is something else. The workweek was cut the most since April 2022 and down to a nine-month low. Something like this rarely happens and is equivalent to having reduced the national head count by over 150,000. In other words, when counting not just the bodies but the hours spent working, it’s as if Canada shed 125,000 jobs last month.
“In a period when a country is experiencing an epic immigration boom like Canada has been in recent years, the most relevant labour market data point arguably is the employment-to-population ratio. And this metric has eroded from 62 per cent in September to 61.9 per cent in October to 61.8 per cent in November — nearly a two-year low. In other words, there was quite a bit of hair on a report that showed a false glow at the top-line level.”
Brookfield’s $12.8-billion Origin bid rejected by investors
Origin Energy Ltd. rejected a A$19.1 billion (US$12.8 billion) Brookfield Asset Management Ltd.-led takeover, after the fund’s yearlong pursuit of a utility that’s vital to Australia’s energy transition.
About 69 per cent of ballots cast by investors were in support of the deal, below the required threshold of three-quarters of the votes, Origin said Dec. 4 in a statement, following a shareholder meeting.
Origin’s largest investor AustralianSuper, which holds about 17 per cent of the company, had opposed the offer as too low, effectively blocking the prospects for an acquisition. The intervention by Australia’s largest pension fund showcased an increasingly assertive approach from managers of the country’s A$3.5-trillion retirement savings pool.
Brookfield and EIG Global Energy Partners, which made a first offer in November last year, revised their proposal last month and the deal value was A$9.39 a share, based on Wednesday’s exchange rate, Origin said last week.
Origin’s board had supported the proposal, though last week rebuffed a suggested alternative transaction under which Brookfield would pay A$12.3 billion for the company’s energy generation and retailing business in the event of an unsuccessful takeover vote.
“Brookfield will evaluate its next steps, if any, with respect to Origin,” the Canada-based investment fund said in a statement. Executives have flagged Brookfield, which planned to acquire Origin using its Global Transition Fund, won’t return with any immediate new offer and intends to review the implications from new Australian energy policy.
Harry Brumpton and David Stringer, Bloomberg
Stock markets before the opening bell
Stocks and bonds retreated as traders pause after November’s blockbuster rally and debate the case for interest rate cuts. Bitcoin surged past US$41,000, while gold briefly touched an all time high.
The 10-year Treasury yield added five basis points to 4.25 per cent while United States futures posted modest losses.
The S&P/TSX composite index closed up 216.58 points at 20,452.87 on Friday.
What to watch today
The Institute for Peace & Diplomacy (IPD) and the Canada West Foundation (CWF) co-host the third annual Indo-Pacific Strategy Forum (IPSF 2023) in Ottawa.
Michael Medline, chief executive of Empire Co. Ltd., which owns Sobeys Inc., will appear before the House of Commons agriculture committee studying efforts to stabilize the price of groceries.
Federal Environment Minister Steven Guilbeault will make an announcement regarding Canada’s next steps to address methane emissions from the oil and gas sector while he is at the COP28 summit in Dubai.
United States factory orders for October will be out at 10 a.m. ET.
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Additional reporting by The Canadian Press, Associated Press and Bloomberg