Futures are lower as investors prepare for the final trading days of what’s shaping up to be a weak month and quarter. The decline in equities comes after data showed real GDP of the U.S. expanded at an annual rate of 2.1% in Q2, coming in just short of the 2.2% estimate. Although there was a downward revision to consumer spending, that was partly offset by upward revisions to nonresidential fixed investment, exports, and inventory investment. The GDP number shows that personal consumption, a key driver of the U.S. economy, increased at an annualized rate of 0.8% in the April-to-June period, down from the previous estimate of 1.7%. This marks the slowest growth in over a year, with the weaker growth in consumer spending being attributed to reduced spending on services.
After a quiet year for new issuances, there is renewed optimism about the 2024 IPO market as September shapes up to be the biggest month for U.S. IPO fundraising since the start of 2022. Despite challenges, stability in recent IPOs like Arm Holdings and Instacart is bolstering confidence. A stable rate environment and increasing confidence in the economy are contributing to this optimism. The initial momentum in this late-2023 IPO activity is expected to continue into 2024. However, the global IPO market is displaying mixed results, with Europe showing signs of life, while Asia, especially China, faces geopolitical tensions and a slowing economy.
Canada experienced its fastest population growth since 1957, up 2.9% for the year ending July 1st. This surge was primarily driven by the largest recorded increase in temporary residents, such as foreign students and temporary workers, who now make up over 5% of Canada's population. The growth is part of the federal government’s strategy to address labour gaps and support universities and colleges by welcoming record-breaking numbers of newcomers. However, this rapid growth has raised concerns about housing and rent pressures. While this approach aims to stave off economic decline, there are calls to rethink permanent resident targets or cap international student numbers. The population growth comes as fertility rates in Canada reached a record low, further emphasizing the importance of immigration for population growth.
A survey by Eckler consulting firm suggests that Canadian pay increases in 2024 are expected to be slightly lower than those in the current year, with a projected national average base salary increase of 3.9%, down from the 4.4% increase observed this year. Despite increases expected to come in slightly lower amid economic uncertainty and a tight labour market, projected salary increases remain near recent highs. Readers in Alberta, BC, and PEI will be happy to read that these provinces are expected to have the highest average salary increases for 2024. Industries with the highest projected average salary increases for next year include mining at 7.3%, tech at 4.7%, and professional, scientific, and technical services at 4.4%. The report also indicates that compensation continues to be crucial for attracting and retaining staff, with very few companies reporting planned salary freezes.
A new voluntary code of conduct for advanced generative AI has been introduced by the federal government which includes commitments to transparency and avoiding bias. Generative AI would include products like ChatGPT and other systems that can create things like text, images, music or video. Speaking at the All In conference on AI in Montreal yesterday, the Industry Minister François-Philippe Champagne said the code will complement legislation making its way through Parliament, Bill C-27, and promote the safe development of AI systems in Canada. Among the dozen companies and groups that have agreed to sign the voluntary code of conduct are BlackBerry, OpenText, Telus and the Canadian Council of Innovators, which represents more than 100 start-up companies across Canada.
Have you seen the movie ‘The Terminal’? This story is like that, except cuter. A dog named Maia, who escaped from her crate while being loaded onto a flight at Hartsfield-Jackson Atlanta International Airport, the world's busiest, was found after three weeks. She had vanished after her owner's flight to the Dominican Republic was canceled. Delta Air Lines informed her that Maia escaped when her crate was opened to board the flight. It took a collective effort involving volunteers and airport staff to locate Maia. She was eventually spotted and safely captured, reuniting with her owner. We wonder what Maia’s favourite airport food of choice was.
Air Canada is set to experience an informational picket at Pearson International Airport conducted by its pilots, who are demanding higher salaries and better scheduling. Canadian pilots are pressing for improved terms after their U.S. counterparts at airlines like Delta and American Airlines achieved substantial gains in recent labor agreements. The pilot strike comes amid broader labor unrest across North America where workers from various sectors are demanding better pay and benefits in a tight labor market with persistently high inflation.
Shopify is making an investment in Faire, a wholesale platform valued at $12.59 billion. As part of the partnership, Faire will become the recommended wholesale marketplace for Shopify merchants, with the deal including the adoption of Shopify technology by Faire. Although the financial terms of the deal and the size of Shopify's stake in Faire have not been disclosed, it's seen as a move to help Shopify merchants easily find wholesale buyers and enable retailers to source products from Faire's network of brands. Faire focuses on independent businesses and is experiencing significant growth, particularly in Europe.
It’s better to workout with somebody else. Peloton shares are looking to open higher after agreeing to a deal with Lululemon to tap its online workouts and team up on apparel. As part of the deal, Lululemon will make co-branded clothing that Peloton will sell on its website and at retail stores. Peloton’s fitness content, meanwhile, will be offered to users of the Lululemon Studio Mirror, a $995 device that lets people work out in front of a 43-inch screen, and the apparel maker’s free digital app. Lululemon is bringing Peloton content to its Mirror device, but ultimately plans to phase out the product.
GameStop is back in the spotlight, and not just because the new movie about the company’s incredible rise in 2021 titled ‘Dumb Money’ comes out today. The company has appointed Ryan Cohen, the billionaire founder of online pet food retailer Chewy, as its new CEO. Cohen, who was already chairman of GameStop, will immediately take over the CEO role without receiving compensation. GameStop, known for being a "meme stock" on Reddit's WallStreetBets forum, has struggled with management turnover and changes in the gaming industry, with customers shifting away from buying games in physical stores. GameStop shares rose about 9% in premarket trading following the announcement.
Oil prices are taking a breather after reaching 2023 highs yesterday due to falling inventories at the largest U.S. storage hub, Cushing, Oklahoma - WTI at one point hit $95, while Brent rose above $97. This has prompted speculation of oil hitting $100 per barrel in the coming months. Supply concerns, including production cuts by Saudi Arabia and fuel export bans by Russia, have driven a more than 35% jump in crude futures since the end of June. Goldman Sachs recently raised its price target to $100 for the next year, and even more conservative forecasts suggest crude might temporarily reach that level.
Zinc is rallying the most in more than two weeks in London after a sharp rise in requests for metal stored in exchange warehouses in Asia. Orders for metal in warehouses tracked by the LME rose by 15,875 tons to 48,150 tons, the biggest increase in two months, driven by requests for the metal in Singapore. Like other industrial metals, zinc has suffered from the sharp slowdown in global manufacturing, leading to a 14% decline in prices this year. Yet available inventories on the LME and China’s Shanghai Futures Exchange remain at critically low levels, creating a risk that spot prices could surge if demand rebounds or producers face unexpected outages.
Fixed income and economics
The recent surge in long-term interest rates to their highest levels in 16 years is adding to the list of challenges facing the U.S. economy (by the way, the U.S. 10-year is now trading north of 4.6%). Rising borrowing costs could threaten the recent recovery in the housing market and make it harder for companies to fund investments. It's also causing concern in the equity markets. While the Fed may not view the increase in rates as a major issue, it could help cool the economy, particularly if it doesn't lead to a significant increase in inflation expectations. However, not everyone is optimistic, and some analysts see this rise in yields as a downside risk to the economy, particularly in sectors like housing and autos.
Junk borrowers are capitalizing on robust investor interest to bring riskier offerings to the U.S. leveraged loan market this week, making it the busiest since early August. These companies include Aramsco Inc., The Knot Worldwide Inc., and MedImpact Holdings Inc., which are looking to borrow funds for various purposes. Investor demand for leveraged loans has remained high in September, but potential concerns arise from the Fed's indication that it intends to maintain higher interest rates. Nevertheless, the revival of the collateralized loan obligations market and opportunistic approaches such as refinancing and add-ons are currently supporting demand.
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The secret of success is to be ready when your opportunity comes. Benjamin Disraeli