AIMSTAR FINANCIAL INSIGHTS – March 8, 2024

Your Weekly Guide to Financial Insights and Market Trends

Vikki Zhao and Olena Li

PUBLISHED FRI, March 8, 2024, 11:30 AM EST. 10 min read.

WEEKLY MARKET ANALYSIS

The S&P 500 has been on a notable upward trajectory, achieving a 25% gain over the last four months. The index has consistently stayed above its 20-day moving average since October, showcasing strong momentum. This positive market trend could persist under several conditions:

  1. Stability in the economy is crucial, particularly in the labor market. With the labor market still tight and jobless claims remaining low, as long as employment remains robust, consumer spending will likely continue. The upcoming February jobs report is significant, with investors keenly awaiting details on wage growth. Solid employment figures have been recorded, but the key issue is whether the economy’s strength will sustain high wage growth, potentially influencing inflation.
  2. Managing inflation expectations is also vital. January saw higher-than-anticipated inflation rates, causing initial concerns as bond yields surged. However, yields have since adjusted, supporting the stock market as investors seem to afford some leniency towards inflationary pressures. The upcoming February CPI and PPI data will be crucial in determining whether January’s inflation surge was an anomaly or the start of a worrying trend.
  3. The continued enthusiasm for AI plays a significant role, especially since technology is the S&P 500’s most significant sector. Recent technology sector earnings have underscored its fundamental dominance, propelling market trends.

Over the next two weeks, economic data releases focused on employment and inflation will be closely monitored, alongside the bond market’s response and its implications for stocks. A rise in bond yields, similar to the reaction to the January CPI report, could pose challenges for equities.

While the market’s robust rally suggests that a consolidation of gains might be due, there are several support levels nearby, including the 20-day moving average at 5043, followed by the 50-day moving average at 4909, then 4800 and 4600. These figures suggest a potential 6-10% correction, which is typical historically and could present opportunities to acquire quality stocks.

Beneath the surface, the market shows signs of wider participation and improving trends in many sectors. Although technology continues to lead, the increased market breadth is a positive sign for diversification and opportunities beyond the technology sector.

Good news for TC Energy Corp. shareholders: The Calgary-based pipeline company has signed a deal to sell its stake in the Portland Natural Gas Transmission System for US$1.14 billion, including the assumption of US$250 million in debt, to BlackRock Inc. and Morgan Stanley Infrastructure Partners. Chief executive Francois Poirier says he expects to announce further asset sales during the year to reduce the company’s debt.

Good news for energy patch investors: Enbridge Inc. now believes Canadian oil production will grow by more than half a million barrels per day before 2030, but output could exceed the country’s pipeline export capacity as early as 2026.

Good/bad news for investors down south: The frothy valuations of the S&P 500 are either forming a bubble, according to JPMorgan Chase & Co. or supported by the fundamentals, says Goldman Sachs Group Inc. ——– Ah well, you get to decide.

Bad news for those wanting a rate cut sooner rather than later: The Bank of Canada on Wednesday held its rate at five percent due to persistent inflation above its two percent target. That same day, United States Federal Reserve chair Jerome Powell told lawmakers he won’t cut rates until he had “greater confidence that inflation is moving sustainably toward two percent.”

Bad news for Apple Inc. shareholders: The iEverything maker’s stock took a hit this week after the European Union on Monday levied a US$2-billion fine over allegations it shut out music-streaming rivals. By comparison, the $14.4-million settlement approved by the British Columbia Supreme Court as a result of a lawsuit over software updates that allegedly slowed down older iPhones are a drop in the bucket.

Bad news for SRG Mining Inc. shareholders:  A Day after Industry Minister François-Philippe Champagne said “it’s never smart to try to circumvent the rules” when it comes to miners selling out to Chinese interests, the junior miner on Tuesday canceled its planned sale to China’s Carbon One New Energy Group Co. Ltd. SRG’s shares fell as much as 18.5 percent that day.

                                                      This report by The PF Investor was first published March 8. 16, 2024.

WEEKLY BUSINESS NEWS

Focus On Canada

Spring Housing Market Resurgence Could Give Bank Of Canada Pause On Rate Cuts

Economists anticipate the Bank of Canada might delay interest rate cuts to the fall due to a potential surge in the spring housing market and stimulative federal budget. Derek Holt of Bank of Nova Scotia advises against a spring cut, predicting it could exacerbate an already heating housing market. He forecasts the first rate cut in September, citing temporary softness in January’s core inflation. Concerns about shelter price inflation and its exclusion from the central bank’s considerations add to the complexity, with some experts warning against overlooking significant household expenses. The Bank of Canada’s March 6 announcement is expected to adopt a more dovish tone, acknowledging improved inflation figures but unlikely to signal imminent rate cuts. The bank is poised to wait for April’s report before making significant policy shifts, benefiting from a lower policy rate and undervalued currency compared to the U.S.

Mining Sector Faces Challenges Amid Battery Metal Price Drop

At the recent Prospectors & Developers Association of Canada conference in Toronto, the mining sector was highlighted for its struggles amidst falling prices for key battery metals like lithium, nickel, cobalt, and manganese. These declines, amounting to 82.3%, 29.1%, 38.5%, and 23.3% respectively in 2023, have been attributed to increased supply, decreased demand from China, and a sluggish electric vehicle market. This downturn is affecting investment in the sector, with the S&P/TSX global mining index down by about 7% this year. In contrast, gold saw a notable rise to a record high of US$2,141.79 an ounce, driven by market correction fears and geopolitical tensions. However, this surge in gold prices has not translated into significant gains for gold miners, with major companies like Barrick Gold Corp. and Newmont Corp. experiencing stock declines. The mining industry remains hopeful for a rebound, underscoring the cyclical nature of commodity markets.

Canadian Services PMI Hits Four-Month High in February

Canada’s February services PMI rose to a four-month high. Despite remaining in contraction, the sector’s decline slowed as prospects of interest rate cuts boosted business optimism. The headline business activity index climbed from January’s 45.8 to 46.6 in February, marking the longest contraction period since June last year. The new business index slightly fell, but the measure of future activity reached a ten-month peak. Investors expect the Bank of Canada to maintain its benchmark interest rate at 5% on Wednesday, with a potential easing cycle starting in April or June.

Canada on Track for Board Gender Parity by 2030 with Women Comprising 36% of Directors

According to CIBC analysis, over one-third of board members in S&P/TSX Composite-listed companies are women, accounting for 36%, positioning Canada to achieve gender parity in boardrooms before the end of this decade. This marks a significant increase from a decade ago when women represented less than 10% of board members in Canadian companies, slightly surpassing the 33% in the S&P 500 index. CIBC projects that at the current rate of progress, gender parity at the board level in Canada is expected before 2030. Despite this progress, women still face significant barriers in attaining management positions, with equality not anticipated until 2129 based on current trends. CIBC’s research also indicates that companies with higher gender representation on boards tend to outperform in total returns, highlighting the positive impact of diversity.

Bank of Canada Announces Decision to Keep Interest Rate at 5%, Anticipates Slow Pace of Rate Cuts

The Bank of Canada declared on March 6th its decision to maintain the key overnight interest rate at 5%, marking the fifth consecutive meeting without a change. Governor Tiff Macklem indicated it’s “still too early” to consider lowering the policy rate, citing the current economic challenges including weak growth and easing inflation. Despite inflation nearing 3%, the Bank remains committed to its target of achieving low, stable inflation at 2%, emphasizing the need for more time for high rates to take effect.

Macklem noted that although progress has been made in combating high inflation, loosening the restrictive policy prematurely is unadvised. He also mentioned that a strong spring housing market and increased government spending could delay rate reductions. Furthermore, Macklem highlighted that the pace at which rates will be lowered is likely to be slower compared to the rapid rate increases previously experienced.

The central bank’s decision reflects a cautious evaluation of the current economic landscape, suggesting that the path to policy adjustment might be more complex and non-linear going forward.

Canada’s Year-Long IPO Dry Spell Shows No Signs of Ending

Canada’s primary market for Initial Public Offerings (IPOs) has hit a dismal milestone with a full year passing without any new corporate listings. Senior bankers anticipate no improvement until the second half of 2024. The Toronto Stock Exchange, which last saw Lithium Royalty Corp raise C$150 million in March last year, is experiencing an unprecedented drought of IPOs. This absence of new listings raises concerns about the vitality of Canada’s equity markets as avenues for capital raising. Despite Canada’s struggle with market diversification, especially in sectors like technology where investor interest is concentrated, the lack of IPOs is notable. Global IPO volumes hit a decade low in 2023 due to high interest rates, although signs of a rebound are emerging in the US and Europe. Bankers do not foresee any IPOs in the first half of the year, with hopes pinned on a slow return to normalcy in the latter half.

AutoCanada Reports Q4 Loss Despite Revenue Increase

AutoCanada Inc. experienced a fourth-quarter loss of $22.6 million, or 81 cents per share, a shift from the prior year’s profit of $14.8 million. Despite the loss, revenue rose nearly 7% to $1.48 billion, attributed to strong new vehicle sales and significant contributions from parts, service, and collision repair. However, declines in used vehicle sales, especially in the U.S., alongside rising interest rates and shifting consumer preferences, impacted overall performance.

FOCUS ON INTERNATIONAL

Bitcoin Surges Past $70,000 in Record High Amid ETF Boom

Bitcoin reached a new peak of over $70,000 on Friday (March 8th), fueled by the crypto frenzy and anticipation of global interest rate declines. The spike comes as billions flow into U.S. spot exchange-traded crypto funds, with significant market support from an upcoming Ethereum upgrade and a bitcoin halving event expected in April. The SEC’s approval of 11 bitcoin ETFs in late January was a pivotal moment, attracting even institutional investors to the crypto market. Net inflows into major U.S. bitcoin funds hit $2.2 billion in the last week, with BlackRock’s iShares Bitcoin Trust receiving over $2 billion. The surge in bitcoin has boosted other cryptocurrencies, especially ether, which has seen a 60% increase this year. However, bitcoin’s volatility was highlighted by a more than 10% drop after reaching its record high.

Memecoins and Ether Outperform Bitcoin in a Record-Breaking Week

Memecoins such as Dogecoin and Pepe were up more than 10% and 30%, respectively on Friday, adding to the eye-popping gains seen through the week. Ether, the second-largest cryptocurrency by market value, is up about 16% so far this week, or more than double its larger peer. After reaching a record high of $69,191 on Tuesday, Bitcoin has settled in at around $68,240 on Friday. Ether was approaching $4,000 for the first time since December 2021.

Oil Prices Rise, Gold Surpasses $2,170, And U.S. Natural Gas Prices Plummet

Boosted by increased demand from the world’s two largest economies, China and the United States, oil prices have risen. Data released earlier this week by the U.S. Energy Information Administration (EIA) showed a decrease of 4.5 million barrels in U.S. gasoline inventories last week, indicating healthy demand in the United States. Additionally, China’s crude oil imports in the first two months of 2024 increased by 5.1% year-on-year.

Meanwhile, gold prices reached new highs, with gold futures breaking the $2,170 mark, peaking at $2,175.45, setting a new record. Spot gold, although not surpassing $2,170, also hit a historic high of $2,168.77. According to the World Gold Council, global official gold reserves increased by 39 tons in January 2024, with Turkey and China once again being the largest official buyers of gold, and no significant sales were seen from other central banks. The State Administration of Foreign Exchange of China also reported a 12.2-ton increase in gold reserves in February, totaling 2257.5 tons.

On the other hand, U.S. natural gas prices fell below $1.8 per million British thermal units, partly due to increased exports from Norway leading to an oversupplied market.

Uranium Prices Soar, Sprott Predicts Further Rise to $120 Per Pound

Uranium prices have surged to as high as $106 per pound, with Sprott Asset Management optimistic about reaching $120. The rally, fueled by a 250% increase over five years, is driven by global nuclear power demand and a supply-demand shortfall of 25-30 million pounds. The Sprott Physical Uranium Trust Fund’s assets have grown from $630 million to $5.9 billion since July 2021, and its Uranium Miners ETF has seen a nearly 270% increase. Despite current prices near $95, the market faces production challenges and shortages, with significant impacts from Kazatomprom’s recent production warnings, highlighting a persistent supply deficit.

China’s Exports and Imports Surge Beyond Expectations in First Two Months

China’s trade data for January and February significantly exceeded expectations, with both exports and imports growing more than anticipated, resulting in a trade surplus higher than expected. According to the General Administration of Customs of China, exports increased by 7.1% year-on-year, far surpassing the market’s forecast of 1.9% and the previous value of 2.3%. Import growth expanded from 0.2% to 3.5%, well above the expected 1.5%. The trade surplus rose from $75.34 billion to $125.16 billion, exceeding the forecast of $110.3 billion.

Exports to ASEAN, the United States, and the European Union saw growth. Exports to ASEAN increased by 9.2%, reaching 587.9 billion yuan; to the United States by 8.1%, amounting to 521.99 billion yuan; and to the European Union by 1.6%, totaling 555.88 billion yuan. However, exports to South Korea fell by 6.8%, to 150.45 billion yuan. Exports of mechanical and electrical products amounted to 2.22 trillion yuan, growing by 11.8% and accounting for nearly 60% of total exports, including notable increases in automatic data processing equipment, integrated circuits, and car exports. Car exports rose by 15.8% to 111.89 billion yuan.

Japanese Stock Market Falls Below 40,000 Points, Yen Soars to a One-Month High

On Thursday, the Japanese stock market breached the 40,000-point mark, and the yen surged to a one-month high against the dollar, following hawkish comments from the Bank of Japan’s Governor hinting at a possible shift in the current loose monetary policy. Governor Kazuo Ueda indicated to the national parliament the rising likelihood of achieving the price target, suggesting a reconsideration of the easing policy, including the prospect of abandoning negative interest rates. Additionally, Bank of Japan Monetary Policy Board member Junko Nakagawa expressed a hawkish view, affirming the economy’s steady progress towards the central bank’s 2% inflation target. The USD/JPY pair fell 0.77%, and the Nikkei 225 index dropped 1.31%, reflecting market reactions to potential policy changes.

France Constitutionalizes Abortion Rights, Signaling Global Women’s Rights Support

On International Women’s Day, France became the first nation to embed abortion rights into its constitution, a move overwhelmingly passed by French lawmakers. This historic amendment, which legalizes abortion across the nation, underscores France’s commitment to women’s rights amidst global observances and discussions on gender equality. Despite legal abortion in much of Europe, France’s action, amid varying global stances on women’s reproductive rights, marks a significant step in advocating for women’s health and autonomy. President Macron’s call for broader European Union adoption of similar rights highlights ongoing debates within the EU, contrasting with countries like Poland with stringent abortion laws.

“The freedom of women to have recourse to an abortion, which is guaranteed.”

NIO Reports Larger-Than-Expected Q4 Loss, Q1 Delivery Forecast Falls Short

Tuesday, Chinese EV manufacturer NIO Inc. (NIO) reported a Q4 adjusted loss of $0.39 per share, surpassing Wall Street’s expectations for losses. The company forecasts Q1 deliveries between 31,000 and 33,000 vehicles, significantly below the anticipated 44,000. This outlook reflects a sequential decline in deliveries and pressures on margins amid a competitive pricing environment. NIO, still unprofitable, reported a yearly loss of $2.9 billion and is taking steps to improve business efficiency, including a 10% workforce reduction. The company faces challenges from decreased demand and increased competition globally.

Target Beats Q4 Forecasts, Plans New Membership Program

Target’s shares surged as the retailer surpassed Wall Street forecasts in its Q4 earnings, with adjusted net earnings soaring 57.8% to $1.38 billion. CFO Michael Fiddelke highlighted consumer resilience in the face of inflation and hinted at a potential membership program to deepen customer loyalty. Despite inflationary pressures, Target noted significant foot traffic increases, crediting robust consumer spending, especially in discretionary categories during Q4.

Pet Valu Boosts Dividend as Q4 Profit and Sales Climb

Pet Valu Holdings Ltd. announced a 10% increase in its quarterly dividend following a rise in Q4 profit and sales from the previous year. The company will now distribute an 11 cents per share dividend, up from 10 cents, after reporting a profit of $28.8 million, or 40 cents per diluted share, and revenue of $286.9 million. Same-store sales grew by 1.9%, with an increase in average spend per transaction partly offset by fewer transactions. Adjusted earnings were 54 cents per diluted share, up from 43 cents a year ago.

Costco Revenue Misses Expectations, Shares Drop 4%

Costco (NASDAQ:COST) reported its second-quarter earnings after the market closed on Thursday (March 7th, 2024), with revenue falling short of market expectations due to increased cost-consciousness among consumers leading to reduced demand for high-priced items. Amidst high inflation and rising interest rates, shoppers have recently begun to cut back on spending for large-ticket items like electronics and furniture. While Costco was not greatly affected by this trend, the company noted that declining gasoline prices impacted its revenue. For the three months ending February 19, the company’s total quarterly revenue grew by a modest 6% to $58.44 billion, but fell short of the expected $59.16 billion. Ahead of Friday’s market open, Costco’s stock price fell by 4.3%.

Hellofresh Experienced A Dramatic 48% Fall

HelloFresh SE experienced a dramatic 48% fall, leaving analysts astonished, especially after issuing disappointing profit forecasts and abandoning its 2025 objectives. Despite prior optimism, particularly regarding its burgeoning ready-to-eat meal segment, the company’s admission of needing more investment for this sector contributed to a decrease in profitability. Additionally, efforts to revitalize its core meal-kit business through heavy promotions were unsuccessful. The stock, once buoyed by pandemic-induced demand, has plummeted 93% from its 2021 peak. Now, HelloFresh’s valuation significantly trails behind its food delivery counterparts, trading at roughly 0.2 times its projected sales for the next twelve months.HelloFresh SE experienced a dramatic 48% fall, leaving analysts astonished, especially after issuing disappointing profit forecasts and abandoning its 2025 objectives. Despite prior optimism, particularly regarding its burgeoning ready-to-eat meal segment, the company’s admission of needing more investment for this sector contributed to a decrease in profitability. Additionally, efforts to revitalize its core meal-kit business through heavy promotions were unsuccessful. The stock, once buoyed by pandemic-induced demand, has plummeted 93% from its 2021 peak. Now, HelloFresh’s valuation significantly trails behind its food delivery counterparts, trading at roughly 0.2 times its projected sales for the next twelve months.

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