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Briefing highlights

  • Why Democrats may sweep
  • Stocks, loonie, oil at a glance
  • AltaGas sells pipeline interest
  • What analysts are saying today
  • InBev IPO scores on debut
  • Forever 21 files for protection
  • Required Reading

Why Democrats may sweep

David Rosenberg believes the Democrats "may well sweep next year" in the U.S. elections.

The chief economist at Toronto’s Gluskin Sheff + Associates Inc. took a decidedly un-Wall Street view of things in a recent note to clients, saying that what he hears about the “left-wing nutbar” nature of the Democratic Party comes from one source.

“Frankly, those comments come from the people on Wall Street I hang around with, and they (we) hardly represent the masses,” he wrote.

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Kudos here to Mr. Rosenberg, who frequently goes against the grain, for addressing the issue of inequality head on, and how that could affect next year's elections.

It's not a pretty picture, the economist warned.

"Through this entire cycle, and it didn’t matter if we had a [Federal Reserve] chairperson appointed by a Republican or Democratic president, the strategy was to nurture a positive wealth effect by promoting asset inflation," Mr. Rosenberg said.

"So, what we have on our hands today are unprecedented levels of income and wealth inequality – extreme levels of both that threaten social stability and, as we can see, is also putting capitalism at risk," he added.

"That’s the problem when there’s too much greed. Gordon Gekko said ‘greed is good’ but he never did say that it’s ‘good’ when it hits an extreme level."

Mr. Rosenberg cited several issues at play:

  • The US$1.7-trillion of student debt has "caused a range of other bottlenecks such as a record share of young people living at home, and associated record high median ages of first marriage and first births."
  • One measure of income disparity stands at a record level in the U.S., where the richest 20 per cent of the population account for 52 per cent of national income, and the 20 per cent at the bottom have only just about 3 per cent.
  • The Democrats are “salivating” over the fact that the top 1 per cent own almost US$33-trillion of assets, double that of 10 years ago. Said Mr. Rosenberg: “The top 1 per cent own 28 per cent of the total wealth in society, far above historic norms. The bottom 50 per cent own less than 6 per cent of all the country’s asset base, and it may be a mistake to tell them to eat cake when the recession hits.”

Americans voted for change in the last two U.S. elections, Mr. Rosenberg added. And what they got after the last time was a “dangerously wide” divide between the rich and the poor.

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"Despite what the stock market may be telling you, history shows that bonds tend to possess the correct narrative," Mr. Rosenberg said.

"Interest rates are super low across the world at the peak in economic activity, in the stock market and the lows in unemployment, which begs the question, where do yields go when the recession actually does commence?" he added.

“When it does, we won’t need an impeachment hearing to create the conditions where Donald Trump becomes the first one-term president since George H.W. Bush in 1992. Once again, even without the recession having started, Elizabeth Warren and others of her ilk are having their message heard – so the question will be one of turnout.”

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Markets at a glance

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AltaGas sells pipeline interest

AltaGas Ltd. is selling an indirect stake in the Central Penn Pipeline for about $870-million, topping what had been its plan to shed assets this year.

The sale of the pipeline, held by a subsidiary and which runs from Susquehanna County to Lancaster County, Penn., brings to about $2.2-billion the proceeds of asset sales so far this year.

“In 2019, we have increased our financial flexibility and delevered our balance sheet,” said chief executive officer Randy Crawford.

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“We are focused on achieving more timely recovery of investments at our utilities,” he added.

“As we enter 2020 in a stronger position, we remain firmly focused on the future and unlocking the significant organic growth potential of our midstream and utilities assets.”

What analysts are saying today

“China’s official and unofficial [purchasing managers indexes] rose in September, but we think this is unlikely to mark an economic turnaround, not least because global demand looks set to weaken further. What’s more, signs of slower construction activity have particularly negative implications for the prices of steel and the base metals. China’s Caixin manufacturing PMI increased to 51.4 in September, up from 50.4 a month earlier, with gains in the new orders and output components. The official PMI also nudged up, from 49.5 in August to 49.8 this month.” Caroline Bain, chief commodities economist, Capital Economics

“U.S. markets saw their second weekly fall in succession last week, over a combination of concerns about a presidential impeachment, and reports [denied by the U.S.] that the White House was considering delisting Chinese stocks on U.S. exchanges. This would seem a rather strange move given that Chinese officials are due to visit Washington next week to restart trade talks, however there has been very little predictability when it comes to the U.S., China playbook.” Michael Hewson, chief analyst, CMC Markets

“The [Reserve Bank of Australia] meets tonight with 80 per cent of those who care expecting another 25-basis-point rate cut. As ever, it's all about the guidance. I'm sticking to shorts in [the New Zealand and Australian dollars] against [the Canadian dollar], in [the British pound] against [the yen], and [the Swedish krona] against [Norways krone].” Kit Juckes, global fixed income strategist, Société Générale

“The Brexit process in the U.K. and Trump impeachment inquiry in the U.S. will hog the headlines for much of the week, but there are also important data due, topped by the September payrolls report in the U.S.. Our economists look for payrolls to come in at 160,000. Fundamentally, the tightening in the labour market looks nowhere near done. While the headcount numbers are poised to slow for demographic reasons, the wage numbers have already been picking up the slack.” Adam Cole, chief currency strategist, Royal Bank of Canada

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“Gold is heading south and US$1,480 may be in trouble. This isn’t the first time that this level has been tested and you don’t have to be a technical analyst to see that a break of it could be damaging. Gold bulls may be feeling a little nervous at this point, especially as investors may be doubting themselves about another [Federal Reserve] rate cut this year. It’s still backed but there doesn’t appear to be the same desire to force it, as there has been the last two meetings. It’s been a stunning summer for the yellow metal, as central banks have gone full easing once again.” Craig Erlam, senior market analyst, Oanda

Anti-government protesters are detained during a rally in Hong Kong, China, Sept. 29, 2019.

JORGE SILVA/Reuters

“Tear gas, rubber bullets, petrol bombs, violence and fire. Protests in Hong Kong overwhelmed the city’s streets for the 17th consecutive weekend. Hang Seng gained timidly as most investors had already trimmed their exposure to Hong Kong stocks before the weekend. But the week is not over. There is a mounting anxiety among investors as the Oct. 1 celebrations of the 70th anniversary of the Chinese Communist Party could further inflame protests in the city and shatter whatever is left of investor appetite.” Ipek Ozkardeskaya, senior market analyst, London Capital Group

Ticker

InBev IPO scores

From Reuters: AB InBev’s Asia-Pacific unit, which raised about US$- billion after relaunching its IPO this month, rose more than 6 per cent on its market debut in Hong Kong, easing concerns of the impact of ongoing anti-government protests on new share offerings.

Forever 21 files for protection

From The Associated Press: Low-price fashion chain Forever 21, a one-time hot destination for teen shoppers that fell victim to its own rapid expansion and changing consumer tastes, has filed for Chapter 11 bankruptcy protection.

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Sempra to sell Peru stakes

From Reuters: U.S.-based Sempra Energy said it would sell stakes in its Peruvian operations to a unit of China Yangtze Power Co for US$3.59-billion in cash, to focus on its core businesses in North America.

Euro bond yields rise

From Reuters: Euro zone bond yields rose to one-week highs after European Central Bank President Mario Draghi again emphasized the need for fiscal policy to support the bloc’s long-term growth prospects. In an interview with the Financial Times, Mr. Draghi said the need for fiscal policy as a complement to monetary policy was now more urgent than before.

Euro zone jobless rate eases

From Reuters: The unemployment rate in the euro zone dropped in August to its lowest level in more than a decade continuing its five-year-long downward trend, estimates from the European Union statistics office showed. The jobless rate in the 19-country currency bloc fell to 7.4 per cent in August, reaching its lowest level since May, 2008, when the euro zone’s economy began to feel the negative impact of the subprime mortgage crisis in the United States.

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German jobless, sales data better

From Reuters: German unemployment fell unexpectedly in September and retail sales rose in August, data showed, helping to allay concerns that a manufacturing slump is taking its toll on a consumption-driven growth cycle in Europe’s largest economy.

Required Reading

Liberals pledge to tax foreign tech giants

The Liberal Party promised to take a more forceful approach to taxing foreign tech giants than it did during its past four years in government, starting with a 3-per-cent tax on the income of large digital companies operating in Canada. Sean Silcoff reports.

Help mill towns, Pattison urges B.C.

B.C. billionaire Jim Pattison is calling on the province to provide more help to mill towns hurt by the downturn in the forestry industry, Brent Jang writes.

Growth at all costs?

Big investors are now shunning the growth-at-all-costs model, Tim Kiladze reports.

Related Election Topics

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