(Kitco News)
The gold market extended its weekly losses ahead of the Federal Reserve’s interest rate decision as markets re-priced expectations for a rate skip on Wednesday, followed by a rate hike in July.
The highly anticipated inflation report revealed a contradictory outlook for the U.S. On the surface, inflation cooled to a 4% annual rate, marking the lowest level in more than two years. However, the core CPI number, which the Fed pays closer attention to because it strips out volatile food and energy prices, ran at a pace of 5.3%, down from 5.5% but slightly hotter than market consensus calls.
Analysts remain cautious despite cooling inflation, which unlocks a pause option for the Fed.
“Today’s data should lock in a pause at the June FOMC meeting, i.e. no rate hike,” said Wells Fargo’s economists Sarah House and Michael Pugliese. “However, we expect Chair Powell’s press conference and the latest Summary of Economic Projections to signal that one more rate hike is still in the cards.”
And if the Fed is still dealing with core inflation between 3% and 3.5% at the end of the year, markets won’t be expecting rate cuts any time soon either.
“Directional progress should not be confused with mission accomplished,” House and Pugliese added. “There is a lot of ground to cover between the 5.0% run rate of core inflation today and the FOMC’s 2% goal.”
After the CPI data on Tuesday, markets were projecting a 92% chance of a pause on Wednesday and a 60% chance of a 25-basis-point hike in July, according to the CME FedWatch Tool.
“A June hold is done deal, and the July FOMC decision should be a coin flip as the disinflation process will likely continue, but signs of stickiness remain,” said OANDA senior market analyst Edward Moya.
The focus for the gold market will be the updated economic forecasts, the dot plot, and Fed Chair Jerome Powell’s press conference.
“For gold to rally, it needs Wall Street to become confident that the Fed is done raising rates. This inflation report was in-line, but some Fed members might be concerned that core pricing pressures are looking sticky,” added Moya. “The Fed will remain data-driven, but optimism should be high that the end of tightening is near.”
Tuesday, gold saw double-digit losses, with August Comex gold futures last trading at $1,956.30 an ounce, down $13.40.
Analysts warn that if there is a surprise rate hike on Wednesday, gold is at risk of an extensive selloff.
“A surprise rate hike has the potential to trigger an aggressive selloff towards levels not touched since mid-March at $1,900,” said FXTM senior market analyst Lukman Otunuga. “In the meantime, prices remain trapped within a range with support at $1,935 and resistance at $1,983.”
The outlook for the Fed depends on how much the economy cools from here, said Comerica Bank chief economist Bill Adams.
“The most likely path for the economy is further softening of activity and the job market, passing through to lower inflation and eventually lower interest rates,” said Adams. “But economic growth and the job market have been more resilient than expected; if that trend holds up, inflation could surprise to the upside too, forcing the Fed to keep rates high for longer than expected.”
The updated dot plot, which will be released along with the rate decision on Wednesday, will clarify how high the Fed is willing to raise rates in this tightening cycle.
At the May meeting, the Fed raised rates for the tenth consecutive time, bringing the federal funds rate to a 5-5.25% range – the highest since mid-2007. But the statement included a “meaningful” change — a decision to take out the reference to “some additional policy firming may be appropriate.”
Risk of a July hike
The Fed is likely to describe its June decision as a ‘pause’ rather than a ‘hold’ to appease the more hawkish members of the FOMC, Adams added. “Reflecting the FOMC’s lean toward more hikes, financial markets price in greater than 50-50 odds that the Fed raises its policy rate by a quarter percentage point at either the July or September decision after holding rates steady next week,” he said.
Markets are keeping a close eye on the scenario where the Fed pauses in June only to hike again in July, a similar path taken by other central banks, including Canada and Australia.
“The core debate is between 1) a hawkish pause based on guidance from top Fed officials & market expectations that the Fed will ‘skip’ (the new term) with an inclination to resume hikes at the July meeting, similar to what Canada & Australia did (EG: RBA was a hike/hike/pause/hike/hike cycle) vs 2) a dovish 25bp hike (recent U.S. labor & inflation data favors a hike for the Fed who has repeatedly insist they’re ‘data dependent’),” said MKS PAMP head of metals strategy Nicky Shiels.
At the June meeting, the Bank of Canada raised its key interest rate by 25 basis points to 4.75% — the highest since 2001 — after pausing for two consecutive meetings. The move was a surprise as market consensus calls projected for rates to remain on hold.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
Dollarama Inc.’s food aisles may have expanded far beyond sweet treats or piles of gum by the checkout counter in recent years, but its chief executive maintains his company is “not in the grocery business,” even if it’s keeping an eye on the sector.
“It’s just one small part of our store,” Neil Rossy told analysts on a Wednesday call, where he was questioned about the company’s food merchandise and rivals playing in the same space.
“We will keep an eye on all retailers — like all retailers keep an eye on us — to make sure that we’re competitive and we understand what’s out there.”
Over the last decade and as consumers have more recently sought deals, Dollarama’s food merchandise has expanded to include bread and pantry staples like cereal, rice and pasta sold at prices on par or below supermarkets.
However, the competition in the discount segment of the market Dollarama operates in intensified recently when the country’s biggest grocery chain began piloting a new ultra-discount store.
The No Name stores being tested by Loblaw Cos. Ltd. in Windsor, St. Catharines and Brockville, Ont., are billed as 20 per cent cheaper than discount retail competitors including No Frills. The grocery giant is able to offer such cost savings by relying on a smaller store footprint, fewer chilled products and a hearty range of No Name merchandise.
Though Rossy brushed off notions that his company is a supermarket challenger, grocers aren’t off his radar.
“All retailers in Canada are realistic about the fact that everyone is everyone’s competition on any given item or category,” he said.
Rossy declined to reveal how much of the chain’s sales would overlap with Loblaw or the food category, arguing the vast variety of items Dollarama sells is its strength rather than its grocery products alone.
“What makes Dollarama Dollarama is a very wide assortment of different departments that somewhat represent the old five-and-dime local convenience store,” he said.
The breadth of Dollarama’s offerings helped carry the company to a second-quarter profit of $285.9 million, up from $245.8 million in the same quarter last year as its sales rose 7.4 per cent.
The retailer said Wednesday the profit amounted to $1.02 per diluted share for the 13-week period ended July 28, up from 86 cents per diluted share a year earlier.
The period the quarter covers includes the start of summer, when Rossy said the weather was “terrible.”
“The weather got slightly better towards the end of the summer and our sales certainly increased, but not enough to make up for the season’s horrible start,” he said.
Sales totalled $1.56 billion for the quarter, up from $1.46 billion in the same quarter last year.
Comparable store sales, a key metric for retailers, increased 4.7 per cent, while the average transaction was down2.2 per cent and traffic was up seven per cent, RBC analyst Irene Nattel pointed out.
She told investors in a note that the numbers reflect “solid demand as cautious consumers focus on core consumables and everyday essentials.”
Analysts have attributed such behaviour to interest rates that have been slow to drop and high prices of key consumer goods, which are weighing on household budgets.
To cope, many Canadians have spent more time seeking deals, trading down to more affordable brands and forgoing small luxuries they would treat themselves to in better economic times.
“When people feel squeezed, they tend to shy away from discretionary, focus on the basics,” Rossy said. “When people are feeling good about their wallet, they tend to be more lax about the basics and more willing to spend on discretionary.”
The current economic situation has drawn in not just the average Canadian looking to save a buck or two, but also wealthier consumers.
“When the entire economy is feeling slightly squeezed, we get more consumers who might not have to or want to shop at a Dollarama generally or who enjoy shopping at a Dollarama but have the luxury of not having to worry about the price in some other store that they happen to be standing in that has those goods,” Rossy said.
“Well, when times are tougher, they’ll consider the extra five minutes to go to the store next door.”
This report by The Canadian Press was first published Sept. 11, 2024.
TORONTO – The U.S. Consumer Financial Protection Bureau has ordered TD Bank Group to pay US$28 million for repeatedly sharing inaccurate, negative information about its customers to consumer reporting companies.
The agency says TD has to pay US$7.76 million in total to tens of thousands of victims of its illegal actions, along with a US$20 million civil penalty.
It says TD shared information that contained systemic errors about credit card and bank deposit accounts to consumer reporting companies, which can include credit reports as well as screening reports for tenants and employees and other background checks.
CFPB director Rohit Chopra says in a statement that TD threatened the consumer reports of customers with fraudulent information then “barely lifted a finger to fix it,” and that regulators will need to “focus major attention” on TD Bank to change its course.
TD says in a statement it self-identified these issues and proactively worked to improve its practices, and that it is committed to delivering on its responsibilities to its customers.
The bank also faces scrutiny in the U.S. over its anti-money laundering program where it expects to pay more than US$3 billion in monetary penalties to resolve.
This report by The Canadian Press was first published Sept. 11, 2024.
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