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Today’s top headlines

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3:21 p.m.

B.C. pension fund joins AAA bond club at expensive time

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British Columbia Investment Management Corp., which manages $233 billion of assets mostly for public sector pensioners in the western province, is issuing its debut bond sale in Canadian dollars even as borrowing costs hover near historic highs.

The asset manager plans to raise $1.25 billion by selling 10-year bonds at a spread of 90.5 basis points over similar tenor government securities, according to people with knowledge of the matter. The notes are expected to garner the highest investment-grade designation by three ratings companies, including Moody’s Investors Service.

Canada’s 10-year government bond yields are at 4.05 per cent — or just about 19 basis points from their highest since 2007, Bloomberg-compiled data show at 12:13 p.m. in Toronto. Central banks may be forced to keep interest rates at the highest level in decades for longer than expected as inflation remains above target levels. A representative at BCI declined to comment.

BCI is following other pension plans in adding bond programs to their arsenal for more flexibility to implement investment strategies.

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Canada Pension Plan Investment Board, a regular issuer whose debt is also top rated, sold $1 billion of 10-year bonds on Sept. 26 at a spread of 78 basis points over the benchmark, Bloomberg-compiled data show. The 4.75 per cent CPPIB notes were quoted at a spread of about 78.7 basis points on Monday, according to Bloomberg indicative bid prices.

Bloomberg

2:15 p.m.

More housing measures coming in federal budget update, minister says

Housing Minister Sean Fraser says the federal government will reveal more housing measures in the fall budget update and in the coming months.

In a news conference on Monday, he also weighed in on how the federal government can address the strain short-term rentals are putting on housing affordability.

“You should expect to see additional measures on housing in the fall economic statement. You should expect to see additional measures more broadly in the months ahead as they are ready. I’m not going to wait and hold them for some magic date, where we suddenly release all of the policies at once,” Fraser said.

Some of the measures that are expected include tying federal infrastructure spending to housing outcomes in local communities. Fraser also said there will be more policies geared toward increasing the stock of social housing, and increasing workers’ skills and innovation in the construction industry.

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“There’ll be a series of other measures that we seek to address around the financialization of housing as well,” Fraser said.

Last week, Finance Minister Chrystia Freeland applauded the B.C. government for going after short-term rentals and said the federal government was looking at what it can do to help make more of these units available as long-term rentals.

Fraser said the federal government could use taxation to discourage short-term rentals and attach conditions to federal funding for other levels of government.

“We could potentially leverage federal programs, include taxation, include the federal spending power to incentivize other kinds of behaviour,” he said, but added that no decisions have been made yet.

Freeland has not announced the date for this year’s fall economic statement yet but it is expected in the coming weeks.

The federal government is under pressure to address the housing crisis and has created policies aimed at building more housing, including removing the GST on purpose-built rentals and unlocking more low-cost financing for home construction.

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It has also reached deals with municipalities in recent weeks as part of the housing accelerator fund, a federal program that awards funding to cities based on their plans to boost their housing stock.

The Canadian Press

1:56 p.m.

Tech group calls on Ottawa to boost semiconductor industry or risk talent moving elsewhere

A group of technology organizations is calling on the federal government to bolster Canada’s semiconductor industry or risk talent and companies moving elsewhere.

With the rapid growth of artificial intelligence and advancements in quantum computing, the group known as the Semiconductor Industry Leadership and Innovation Canada Action Network (SILICAN) said Monday that Canada has a “once-in-a-lifetime opportunity” to set up the country for success in the semiconductor field.

“This is not something that you can kind of sit out or wait,” said Benjamin Bergen, president of the Council of Canadian Innovators, a group supporting the country’s tech industry through advocacy work. “It’s a train that is leaving the station and either you’re on it or you’re not, and being smart and strategic is really going to matter here.”

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Bergen’s council, along with CMC Microsystems, Deep Tech Canada, Canada’s Semiconductor Council, Alliance for Semiconductor Innovation Canada and Optonique are SILICAN members. Rounding out SILICAN are the U15 Group of Research Universities, Canadian Innovation Network and the Semiconductor Ecosystem and Centre for Talent and Research.

The Canadian Press

1:21 p.m.

Report calls for national water management plan for Canada’s agri-food sector

The Canadian Agri-Food Policy Institute is recommending that governments across the country develop a national plan to sustainably manage and use water for the agri-food sector.

In a report released Monday, the institute called for ambitious commitments from governments and partnerships with stakeholders to prioritize the critical natural resource.

“Water is a strategic asset for Canada, and an increasingly critical and important one,” said Tyler McCann, CAPI managing director and report co-author.

“We need to do a better job understanding its value, understanding that it’s an asset that can and should be leveraged, but an asset that also needs to be conserved and managed.”

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The report calls water “the challenge of the 21st century.”

“The urgency of the need to produce more food, more sustainably, while adapting the food system to extreme weather and climate change should be felt by governments, farmers, food processors and everyone that is involved in the food system from field to fork,” the report said.

Immediate action is required to lay the groundwork for effective water management, the institute said in a press release, including to develop uniformity in data collection regarding groundwater and surface water, and investment in research. It also recommends launching an expert panel next year and releasing a national action plan by July 2025.

The Canadian Press

12:34 p.m.

Midday markets: TSX rises as Wall Street tracks volatile bond yields

Wall Street is drifting Monday, continuing a months-long run where it’s slavishly followed the cue of the bond market.

The S&P 500 shook off a weak start and was up 0.3 per cent in midday trading. The benchmark index is coming off its worst week in a month. The Dow Jones Industrial Average was down 12 points, less than 0.1 per cent, at 33,114 as of 11:47 a.m. Eastern time, and the Nasdaq composite was 0.5 per cent higher.

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In Toronto, the S&P/TSX composite index was up 0.3 per cent at 19,173.69.

Rapidly rising yields in the bond market have been knocking stock prices lower since the summer, and Treasury yields were swinging. Early Monday morning, the yield on the 10-year Treasury briefly topped 5.02 per cent to touch its highest level since 2007.

That helped drive the S&P 500 to an early loss of 0.8 per cent.

But the 10-year yield then eased back to 4.87 per cent, compared with 4.91 per cent late Friday, which helped stocks to recover their early losses and turn higher.

The Associated Press

11:41 a.m.

Cocoa price soars to highest in 44 years

Cocoa surged to the highest level in 44 years as global shortages boost costs for chocolate makers.

Futures traded in New York jumped as much as 2.5 per cent to the highest for a most-active contract since 1979. Behind the gains are forecasts for poor crops in top growers Ivory Coast and Ghana just as demand is signalling an improvement.

“The supply and demand situation remains bullish,” Jack Scoville, a vice-president for Price Futures Group in Chicago, said in a report.

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Cocoa for December delivery surged to US$3,786 a metric ton in New York, the highest since January 1979. The price exceeded an earlier peak reached in March 2011, when civil war in Ivory Coast resulted in a cocoa export ban.

Bean deliveries to ports in Ivory Coast are about 16 per cent behind this season, according to a person familiar with government data. Analysts are expecting a third consecutive deficit for the key chocolate ingredient.

All of that is happening as a strong El Niño threatens to bring dryness to West Africa, further hurting crops. Demand is also improving, with bean processing in Europe turning out better than expected. Ivory Coast and Brazil are also boosting grindings.

Previously, supply shortages drove up cocoa prices back in the 1970s, with the commodity reaching a peak of US$5,379 a ton in July 1977, according to data compiled by Bloomberg.

Bloomberg

11:11 a.m.

Canada leaning on ‘dormant’ treaty in Line 5 pipeline dispute, rights groups say

Human rights and environmental groups say Canada is trying to exploit a “dormant” cross-border treaty to prevent the shutdown of the Line 5 pipeline.

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The argument is in new court documents in the ongoing dispute between Calgary-based energy giant Enbridge Inc. and an Indigenous band in Wisconsin.

The groups, including the U.S. Center for International Environmental Law, say Line 5 deserves no special treatment just because it crosses an international border.

Enbridge and Canada’s federal government are using the 1977 treaty to argue that the economic and geopolitical stakes are too high to shut down the pipeline.

Both the company and the Bad River Band of the Lake Superior Chippewa are appealing a district court ruling that gave Enbridge three years to move the line off band territory.

Enbridge says that may not be enough time to prevent the shutdown of what it calls a vital energy supply line for Ontario, Quebec and the U.S. Midwest.

The Canadian Press

10:54 a.m.

Canada will narrowly avoid a recession: economists

Canada will dodge a recession by a narrow margin, economists say, but elevated interest rates will keep economic growth near zero for a while.

Gross domestic product will be flat this quarter and grow at an annualized pace of just 0.3 per cent in the first quarter of next year, according to the median response in a Bloomberg survey of economists. Both figures are a downgrade from the previous month’s survey, and project growth that’s well below the rate at which Canada’s population is increasing.

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The gloomier outlook comes ahead of a Bank of Canada interest rate decision on Wednesday, when governor Tiff Macklem and the bank’s decision-making council are expected to hold the policy rate at five per cent.

Economists still see the central bank beginning to cut rates in the second quarter of 2024, but they don’t expect them to drop quickly. The median prediction is for a four per cent Bank of Canada overnight rate at the end of next year, compared with previous expectations for 3.75 per cent.

Inflation is expected to be 3.3 per cent in the first quarter before cooling to 2.1 per cent in the second half of 2024.

There are also fresh signs of Canadian consumers feeling pinched by inflation and higher costs for mortgages and other loans. Household consumption is expected to shrink by 0.4 per cent in the first quarter of 2024, according to economists’ estimates. That would mean an even sharper decline in consumption per capita, in a country that’s seeing immigration drive the fastest population growth since the 1950s.

The Bloomberg survey took place from Oct. 13 to 18.

Bloomberg

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10 a.m.

Markets are open: Stocks drop as Treasury yields climb

Stocks kicked off the week with losses as Treasury yields marched higher, with traders awaiting earnings from a handful of big tech companies. Oil and gold retreated as Israel appeared to hold off on a broader ground invasion in Gaza.

In Canada, the S&P/TSX composite index fell 0.62 per cent.

The S&P 500 dropped for a fifth straight session, heading toward its longest losing streak this year. The gauge breached its key 4,200 mark — which represents a 50 per cent retracement of the rally off the lows seen in the banking turmoil in March. Wall Street’s so-called fear gauge — the VIX — remained at a seven-month high. Treasury 10-year yields touched five per cent for the first time since 2007 — before pulling back from that threshold. The dollar wavered.

“With the peak level for the 10-year yield still anyone’s guess, the U.S. equity market should remain under pressure since breadth and relative strength readings have yet to hit extremes,” said Sam Stovall, chief investment strategist at CFRA. “As a result, one thing is certain: October will add to its reputation as the most volatile month of the year.”

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The odds of a year-end rally in United States stocks are fading as investors face a multitude of risks from elevated profit estimates to the United Sates Federal Reserve’s policy tightening, according to Morgan Stanley’s Michael Wilson. The strategist said he “would not be surprised” to see further declines in the S&P 500 with “earnings expectations likely too high for the fourth quarter and 2024, and policy tightening likely to be felt from both a monetary and fiscal standpoint.”

Bloomberg

8:45 a.m.

Canadians turn sour on economy as personal finances worsen

Consumer confidence slipped into negative territory for the first time in more than six months, as a growing number of Canadians say their own financial circumstances are worsening.

The Bloomberg Nanos Canadian Confidence Index, a measure of sentiment based on weekly polling, dropped to 49.5. A level below 50 suggests net negative views about the economy. It’s the lowest reading since April and compares with 53.1 in early June, this year’s peak.

The number suggests Canadians are becoming less optimistic about their financial health and their wealth, which is closely tied to housing. Canadian home sales fell for a third straight month in September as the Bank of Canada’s aggressive interest-rate hikes continue to keep buyers off the market.

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In the survey, 50.3 per cent of respondents said their personal finances were worse off over the past year, versus 48.9 per cent a week ago. And 16.7 per cent said they believed that the value of real estate in their neighbourhood will decrease in the next six months, the highest percentage since late April.

“Real estate has been a significant influencer on consumer confidence. Canadians are positive but less bullish on the future value of real estate,” said Nik Nanos, chief data scientist of Nanos Research. “Factoring the long-term index trend and how it correlates to future gross domestic product, the tracking suggests an economic softening.”

Over the past few months, evidence has mounted that the Canadian economy is cooling. GDP growth was flat in July after a contraction a month earlier. Consumer spending is showing signs of weakness as more households face mortgage renewals. The central bank’s latest surveys showed both firms and consumers are bracing for more impacts of previous rate increases.

Bank of Canada policymakers led by governor Tiff Macklem are counting on a period of slowing demand to allow supply to catch up, rebalancing the economy and helping tame price pressures. They’re widely expected to hold their overnight rate at five per cent for the second straight meeting on Oct. 23.

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Bloomberg

8:15 a.m.

Via Rail CEO calls for rail passenger bill of rights

The head of Via Rail Canada Inc. says the federal government should consider a passenger bill of rights comparable to the one now in place for air travellers.

Chief executive Mario Peloquin says the federal government should move toward a charter that would ensure train passengers receive compensation for long delays.

If the reason for the disruption stems from one of Canada’s two main freight railways — whose tracks Via runs on — he says they would be the ones to pay up, further incentivizing smooth operations along the line.

Peloquin, who stepped into the top job at Via in June, is also calling for rules that would give the Crown corporation’s trains formal right of way over freight trains, a privilege Amtrak passenger cars enjoy in the United Sates.

Former transport minister Omar Alghabra said over the summer he was looking into measures to improve travellers’ experience amid Via’s shaky performance, including through a bill of rights.

In the quarter ended June 30, Via saw 62 per cent of its trains arrive on time, an improvement from 53 per cent a year earlier.

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The Canadian Press

7:30 a.m.

Chevron to buy Hess for $53 billion

Chevron Corp. agreed to buy Hess Corp. for US$53 billion, a deal aimed at boosting production growth as the United States oil industry bets on an enduring future for fossil fuels.

In an all-stock transaction, Chevron will pay US$171 per share for Hess, a premium of about 10 per cent to the 20-day average price, according to a statement from the companies on Oct. 23. Hess shareholders will receive 1.025 shares of Chevron for each Hess share, giving the company a total enterprise value of US$60 billion, including debt.

The acquisition will give Chevron a significant foothold in Guyana, the South American country that is one of the world’s newest oil producers. It will enable faster production growth and more generous returns to investors, according to the statement.

“The prize here is Guyana,” said Peter McNally, an analyst at Third Bridge Group. “And it’s only got bigger” since oil was first discovered in the country less than a decade ago, he said.

This is the second major deal in the U.S. oil industry in just a few weeks. ExxonMobil Corp. has agreed to buy shale-oil producer Pioneer Natural Resources Co. for US$58 billion, underpinning a bet that oil and gas will remain central to the world’s energy mix for decades to come.

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The acquisition will solidify the position of the U.S. majors at the very top of the international oil and gas industry. While their European peers have won back some favour from investors by shifting their emphasis from low-carbon energy back to fossil fuels since Russia’s invasion of Ukraine, the valuations of Exxon and Chevron remain far higher.

“This combination positions Chevron to strengthen our long-term performance and further enhance our advantaged portfolio by adding world-class assets,” chairman and chief executive Mike Wirth said in the statement.

Among independent U.S. oil companies, Hess has a long and storied history compared with the shale upstarts that have come to dominate the scene in recent years. It was founded in 1933 by 19 year-old Leon Hess, who started out running a single fuel-delivery truck and gradually expanded into a fleet of vehicles and a New Jersey oil terminal, according to the company’s website.

Bloomberg

Read the full story here.

Before the opening bell: Stocks slump as Treasury yield hits 5%

Stocks staged a broad retreat after the 10-year Treasury yield topped five per cent, fuelling concern that soaring borrowing costs will erode economic growth.

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The yield on the 10-year jumped nine basis points to 5.01 per cent, the highest since 2007. Europe’s Stoxx 600 index sank 0.8 per cent, reaching the lowest intraday level since March. S&P 500 equity futures fell 0.6 per cent. Copper, viewed as a benchmark for the global economy, tumbled to the lowest in nearly 11 months.

The speed and severity of the bond sell-off is capturing Wall Street’s attention, just as earnings season gets underway. With United States data continuing to show a strong economy and United States Federal Reserve speakers reinforcing the need to keep interest rates high until inflation abates, many investors are turning more bearish on risk assets.

“Five per cent is purely a psychological level,” said Peter Chatwell, head of global macro strategies trading at Mizuho International. “All moves higher in yield pose the same difficulties for the markets — a higher ‘risk-free’ rate will encourage investors to reduce riskier asset holdings like equities, credit and emerging market assets, and allocate more into Treasuries.”

Bloomberg

What to watch today

The Coal Association of Canada’s annual conference occurs in Vancouver, Oct. 23 to 25.

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