Making Cents of the Markets

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August 26, 2022

Listen now to the most recent Making Cents of the Markets on CKNW, where we gave a market update in anticipation of Jerome Powell’s speech today.

We also discussed the importance of teaching your kids or grandkids money management skills. Lori explains the key lessons to teach your family to guarantee financial confidence for generations to come!

Click to listen here.

Beyond the Markets

New Westminster Farewell to Summer Fireworks Festival

The Hyack festival association is sending summer off in style at the New Westminster Quay this Saturday, August 27^th. Starting at 1pm, there will be artisan market vendors & exhibitors, live entertainment & a variety of food options to choose from!

This family-friendly day out will end with a firework display extraordinaire!

Find more information here.

Be in the Know

“When you reach the end of your rope, tie a knot in it and hang on.” – Franklin D. Roosevelt

The business of oil is greasy

While the world is struggling to bring down inflation, the Saudis’ oil minister this week said OPEC+ may need to cut oil production so as to “stabilize” oil at $100. Meanwhile, natural gas is approaching $10 per mcf (million cubic feet) for the first time since 2008. Europe has been desperately filling up reserves to stave off winter shortages, but that’s not a primary driver for North American gas prices. For us, abnormally high temperatures saw natural gas demand for electricity (used for air conditioning) hit a weekly record in the week ending August 10^th.

And what of the prospect of Canada sending liquified natural gas to Europe? Trudeau expressed doubt of a business case, as LNG facilities have yet to be built. “One of the challenges around LNG is the amount of investment required to build infrastructure for that,” he said. “There has never been a strong business case because of the distance from the gas fields, because of the need to transport that gas over long distances before liquefaction.”

Meanwhile, European and American negotiations with Iran over a nuclear deal appear still on track, with Iran most recently dropping its requirement for America to remove the Islamic Revolutionary Guard from being designated a foreign terrorist organization. This is not a list America wants to be adding to and subtracting from purely based on politics. A potential deal would stand to see more Iranian oil hit markets and ease pressures.

China’s oil imports have slopped to 8.33 million barrels a day in August vs. a 2022 daily average of 9.98 million barrels, so their economic weakness has helped oil fall below $100. They have also helped reorient global flows, taking more oil from Russia directly and Venezuela and Iran indirectly via Malaysia. This has freed up the non-sanctioned oil supply to Europe. Russian oil is discounted on account of sanctions, but that is Russia’s problem and China’s and India’s gain.

The heart of the global supply disruptions is Russia’s war, which is now 6 months old this week. Unexpected rocket fire deep into Russian territory continues to hurt Russia’s war footing. According to a recent poll, two-thirds of Ukrainians believe they will take back Crimea.

The bottom line? Continued war means continued inflation.

A small point of optimism for European supplies? A couple of oil & gas industry engineer professors penned an op-ed in the Wall Street Journal (“Russia’s gas threat is a bluff”) pointing out a couple of important facts. First, unlike oil, Russia does not have alternative buyers for European natural gas sales. Either they sell it to Europe, or they curb or shut down production, or just burn it off (essentially, burning money and throwing it away with much environmental damage). Shutting down production will inflict major damage to the system that would be expensive to fix and turn back on. Curbing flows also risks damaging expensive equipment.

American onshoring stands to benefit Canada

The war in Russia has woken up the West to recognize the unreliability of some autocratic/dictator-based nations. More than 90% of Apple’s products is made in China and it’s clearly a concentration risk the company is no longer willing to stomach. Next month’s iPhone 14 model release is expected to be made as soon as November. This is the earliest a newly released model will be made in India and mark a diversification push should China/U.S./Taiwan relations heat up. China’s dramatic Covid lockdown policies also factor into Apple’s push to do more outside of China. Apple remains a global leader, as it continues to build a reliable infrastructure that will sustain its future growth.

Similarly, we know America is dramatically ramping its onshore chip-making capabilities. This initiative was bolstered by a US$30 billion partnership between Intel and Brookfield Infrastructure Partners to build a new chip factory in Arizona. Brookfield will shoulder half the cost for a 49% stake, plus manage the construction. This is a new industry for the Canadian asset manager, but they have a history of building large, complex projects.

Better yet, the onshoring of such a critical industry proves Canada stands to benefit as well. Not just financially like the deal above, but with friendlier and more steady supplies of critical equipment. Brookfield would not have done this deal if they didn’t believe in the sector.

Our Strategy

Short and not so sweet

After a couple of days of economic debates at Kansas City’s Jackson Hole Symposium, Fed Chair Jerome Powell delivered a speech today which sent markets lower. In what seems to be one of the shortest speeches since Jackson Hole’s inception, the eight-minute briefing from Chair Powell was nothing newsworthy as he essentially reiterated the Fed’s commitment to restore price stability (no surprise there). Despite that and some clear signs including headline inflation, that are showing prices are coming down from their peak, markets were looking for direction.

Despite this week’s weakness in North American indices, our strategy has once again done its part. We are pleased that our Legacy portfolios closed the week lower by a fraction against what markets were down and outperformed their relative benchmark. Investments in the materials sector offset declines from other areas, as strength in commodity prices over the past week fueled these gains with copper, steel, and agriculture being the main areas that benefited.

There will be no weekly commentary next week, however, it will resume after the long weekend in September! We hope that everyone enjoys the sunny weather ahead!

Visual of the Week

The comments and opinions expressed in this newsletter are solely the work of Pinkowski Wealth Management, not an official publication of Canaccord Genuity Corp., and may differ from the opinion of Canaccord Genuity Corp’s. Research Department. Accordingly, they should not be considered as representative of Canaccord Genuity Corp’s. beliefs, opinions, or recommendations. All information is given as of the date appearing in this newsletter, is for general information only, does not constitute legal or tax advice, and the author Pinkowski Wealth Management does not assume any obligation to update it or to advise on further developments related. All information included herein has been compiled from sources believed to be reliable, but its accuracy and completeness is not guaranteed, nor in providing it do the author or Canaccord Genuity Corp. assume any liability.

CANACCORD GENUITY WEALTH MANAGEMENT IS A DIVISION OF CANACCORD GENUITY CORP., MEMBER-CANADIAN INVESTOR PROTECTION FUND AND THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA