Today
Markets today should be quiet as investors in the U.S. take a break to celebrate Independence Day. Canadian equity futures, however, nudged higher this morning along with European and Asian stocks. It has been a tough start for investors in 2022, with the year only half over. Both the S&P 500 and Nasdaq officially hit bear market territory (decline of 20% or more from its high), while fixed incomed markets did not provide the typical respite, also declining double-digits. Canadian markets could not escape the market’s wrath, down 9% in June alone, despite holding up relatively well the previous months. In the months ahead, investors face more potential headwinds of sticky inflation, recession risks, and the threat to corporate profits from sinking consumer confidence.
Driven by a drop in oil production, Canada’s economic expansion suffered a minor setback last month after a strong start to the year. Preliminary data shows GDP contracted by 0.2% in May as output slid in oil and gas, due to maintenance shutdowns at oil production facilities. The decline in GDP comes after a strong gain of 0.3% in April and 0.7% in March. While the drop in GDP surprised many economists, it is unlikely to deter the BoC from its aggressive interest rate hike plan. Still, the economy is on track to post second-quarter growth of nearly 4% annualized even with a poor reading in June leaving us well ahead of the U.S. and large European economies that are struggling to eke out any growth.
Equities certainly have had a difficult start to the year, but they are still outperforming crypto. Bitcoin just recorded its worst quarter since 2011 and its worst month on record, losing 58% of its value in the second quarter of 2022. Macroeconomic pressure is certainly at play, with aggressive rate hikes weighing on investors and pushing them to flee risky assets. On top of that, crypto exchanges and other coins have had some bad press, from refusing withdrawals to coins completely collapsing, which has put downward pressure on the asset class as a whole. Amid the chaos, crypto firms have announced layoffs and the industry is moving toward consolidation via acquisitions.
Inflation in Europe hit a fresh record, strengthening support for aggressive interest-rate increases. Driven by soaring food and energy costs, consumer prices jumped 8.6% from a year earlier in June, up from 8.1% in May. The ECB is now on the brink of its first rate increase in more than a decade, but has faced criticism for letting inflation get so out of control. Quick to point fingers, the ECB blamed the problem on a post-lockdown spike in energy costs that snowballed when Russia attacked Ukraine. With inflation at these levels, the ECB is all but expected to raise its deposit rate by 25bps in July.
China’s economy showed further signs of improvement in June as Covid outbreaks and restrictions ease. Shanghai lifted its two-month lockdown at the start of June, allowing shops to reopen, factories to resume production, and for port operation to pick up. The easing of restrictions helped the manufacturing purchasing managers index rise to 50.2 from 49.6 in May (the first time since February that the index was above 50). The non-manufacturing gauge, which measures activity in the construction and services sectors, climbed to 54.7, the highest in more than a year and well above the consensus forecast of 50.5. On top of this, Chinese stocks have been boosted by news of further easing of virus-related travel curbs.
Can you imagine a source of protein that requires less food, water, and land to produce, and is only a fraction of the cost of traditional meats? A new processing plant in London, Ontario will welcome its first batch of what will eventually be 4 billion of these little power packed sources of food. What are they? Crickets. The federal government announced an investment of up to $8.5 million into Aspire Food Group's London facility, with a goal of producing 13 million kilograms of the insect each year. Most of this production will go towards the pet-food market in hopes of alleviating the high consumption of protein by animals. Ultimately, Aspire Food Group aspires to provide crickets as a sustainable food source to humans. Although a foreign concepts to North Americans, insect consumption is widely accepted as an affordable source of food in many countries around the world. The next time you’re craving a crunchy snack...too soon?
Diversion: Happy Fourth of July!