Kyle Prevost, editor of Million Dollar Journey and founder of the Canadian Financial Summit, shares financial headlines and offers context for Canadian investors.
The inflation mountain: What the descent may squint like
It’s looking increasingly and increasingly like the 8.1% annualized inflation reading from June 2022 was the peak of post-pandemic price increases.
On Tuesday, Statistics Canada reported that Canada’s inflation rate cooled to 7% in August. Experts had been predicting a slight subtract to 7.3% (continuing the downward trend established by the subtract to 7.6% in July). The lower-inflation news was welcomed by several economists as proof that contractionary monetary policy by the Wall of Canada (BoC)was achieving its goal, and that the worst-case scenario of massive interest rate increases were now unlikely to be required.
The significant waif in inflation was quite unexpected without last week’s 0.1% CPI increase in the U.S.
Here are the major takeaways from Canada’s Consumer Price Alphabetize (CPI) report for August:
- Gasoline prices fell 9.6% and were the main impetus for the lower overall numbers.
- Shelter and transportation financing were moreover down.
- Durable goods inflation rates were still upper at 9%, but that’s lanugo from 11.5% in July. Squint for reduced demand and protruding inventories to bring this number lanugo quickly going forward.
- Core CPI, which seeks to strip out the increasingly volatile elements of CPI, was lanugo to 5.2% from 5.4% in July.
- Grocery prices, however, protract to escalate and are up 10.8% from a year ago.
While hourly Canadian wages have increased by 5.4% over the past year, you don’t have to be a math whiz to note that the stereotype pay cheque isn’t going to go as far as it did last summer.
Many investors are likely hoping this encouraging inflation data allows Canada’s inside wall to show patience and restraint when it comes to interest rate raises. Generally speaking, the lower that the eventual peak interest rate is capped—and the increasingly quickly we victorious at that point—the sooner riskier investments like equities are likely to protract their long-term climb upwards.
Meanwhile, the U.S. Federal Reserve spoken on Wednesday that as anticipated, it would be hiking interest rates by three-quarters of a percentage point to the 3.00%-to-3.25% range. The news unfurled to slide the downward momentum in market prices, as the main U.S. indices finished the day lanugo well-nigh 1.7% without stuff up prior to the Fed’s announcement.
Can the loonie remain afloat?
One of the spin-off effects of Canada’s disinflationary momentum is that it has lowered the worth of our currency when compared to the U.S. dollar. There are a few reasons for why this is the case, but most of the movement can be chalked up to expectations for future demand for the Canadian dollar, based on how upper we are forced to raise interest rates. The higher we are forecasted to raise rates, the increasingly incentive there will be to hold onto Canadian dollars.
As you can see from the orchestration below, the markets are now anticipating the U.S. inside wall will squatter increasingly pressure to raise interest rates going forward than the BoC.
Source: Google Finance
While the Canadian dollar had a rough year, when compared to the U.S. dollar, it’s important to remember it has unquestionably performed pretty well versus most of the other leading currencies in the world.
Here’s how the loonie has fared versus the euro, Japanese yen, Chinese renminbi and British pound:
Here are four of my takeaways in regards to the worth of the loonie at the moment:
- What a unconfined time to take that trip to Europe or Japan!
- The lower value versus the U.S. dollar is going to sting in unrepealable areas when it comes to inflation. Without all, roughly 50% of our imports are from the U.S. Specifically, we might finger the pinch in high-import areas, like vehicles and machinery.
- We export a ton of stuff to the U.S.—over 70% of all our exports! The lower Canadian dollar should unquestionably help many of our export-heavy industries, and should be a net positive for the Canadian markets.
- Our days as a “petrocurrency” might be overdue us to some degree. While our dollar has washed-up pretty well this year, it hasn’t responded to oil price movements to nearly the same stratum as it did seven-plus years ago.
Note to shareholders: Don’t relax, it’s FedEx
In earnings news, it was mostly quiet on the Canadian front. FedEx, on the other hand, may wish things were quieter.
Going when to Friday, September 16, FedEx (FDX/NYSE) announced some bad news superiority of its earnings undeniability this week. And share prices subsequently tabular to the tune of a 21% decrease. CEO Raj Subramaniam made headlines by telling CNBC’s Jim Cramer that he expected a worldwide recession given what FedEx’s marrow line looked like. Notably, UPS and DHL didn’t have nearly the same testatory view on things in their recent investor communications, so it’s quite possible that it’s just a well-compensated CEO looking to scapegoat poor performance on macroeconomic economic conditions.
On Thursday, FedEx spoken USD$2.7 billion in forfeit cuts and the shares rose slightly on the news. Earnings per share fell 21.3% (roughly in line with what the visitor had warned well-nigh last week) plane though revenues were up well-nigh 5.5%. Because of their guidance update last week, reviewer predictions were quite accurate.
General Mills (GIS/NYSE) put out a increasingly upbeat earnings call, as the supplies conglomerate posted an earnings per share write-up of USD$1.11 (versus $0.99 predicted). With shares up nearly 6% on the day, and 11% YTD, the experts who advocated playing it unscratched with consumer staples are looking pretty smart on this one.
Despite Costco’s (COST/NASDAQ) earnings and revenue beat, the stock was lanugo well-nigh 3% in without hours trading. This simply appears to be the result of very surly sentiment when it comes to retailers at the moment. With earnings per share coming in at USD$4.20 (versus $4.17 predicted) and total revenues up 15% from last year, to USD$72.10 billion (versus USD$72.04 predicted) Costco is unmistakably benefiting from folks looking to shop in zillion as they fight inflationary forfeit raises. That said, the fly in the ointment was that the big-box giant was holding on to 26% increasingly inventory than in past years.
Markets may not be as panicked as headlines would indicate
Our favourite market orchestration Tweeter Liz Ann Sonders, was when at it then this week with an interesting squint at investor behaviour.
By comparing the value of the S&P 500 alphabetize to the value of investments that people are selling off (a.k.a. “drawdowns”), you get a sense of how long stock-market panics have lasted in the past, and just how drastic the recent downturn has been in a historical sense.
I find this orchestration interesting in that I would’ve expected the recent drawdown to be substantially higher, given all the terrifying headlines out there at the moment, like “ugly recession” and comparing 2022 to 2008. Investor sentiment is down, the dominant phrases we hear from the talking heads on TV are “recession” and “stagflation.” You could think—given all the pessimism, as well as the newfound sexiness of GIC rates—that increasingly investors would be selling off their probity portfolios in order to get superiority of the worst-case scenario.
I suspect that increasingly and increasingly investors are rhadamanthine wise to how irrational market timing is for the stereotype investor. Vanguard and Fidelity data would support my hypothesis. The rise of passive investing via robo advisors, as well as all-in-one alphabetize ETFs (more ETFs here), will very likely reward buyers who automatically maintain their target windfall typecasting during these volatile times.
It has been said by those much smarter than me: “It’s not market timing that matters, it’s the time in the market.” And that’s for good reason.
Kyle Prevost is a financial educator, tragedian and speaker. When he’s not on a basketball magistrate or in a boxing ring trying to recapture his youth, you can find him helping Canadians with their finances over at MillionDollarJourney.com and the Canadian Financial Summit.
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