Anticipated Federal Reserve Rate Cut Announced - Kitco News

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Today at the conclusion of this month’s FOMC meeting, the highly anticipated rate cut was announced and implemented. The Federal Reserve cut their Fed funds rates by a ¼% (25 basis points) to take the current spread to 175 bps. (1 ¾%) to 200 bps (2%). This action resulted in an increase of bullish sentiment in both stocks and gold.

As we spoke about over the last few days interest rate cuts by the Federal Reserve or global central banks typically create an exception to the inverse relationship between gold and stocks. It is one of the few occasions that creates bullish market sentiment for both asset groups.

Typically, money moves from risk on assets to safe haven assets on a perceived weakness in stocks as a safety play. However, during monetary stimulus and rate cuts the net result is both gold and stocks moving higher in tandem.

The difference between this most recent rate cut and the other two cuts which occurred this year is that Chairman Powell has signaled that they will probably pause cutting rates anymore this year. According to Chairman Powell it will take “material”

change in the outlook to justify a further rate cut.

The statement released at the conclusion of today’s meeting stated that, “The implications of global developments for the economic outlook as well as muted inflation pressures”, were a result of the Fed implementing this third rate cut of the year. In today’s press conference following the statement released, Powell said that is most likely that their current policy “Would remain steady as long as incoming information about the economy was probably consistent.”

According to the CME’s FedWatch tool which yesterday predicted a 97% probability that a rate cut would be announced today means today’s rate cut was highly anticipated. At the same time this probability algorithm now shows that the likelihood of a rate cut during December 2019 is extremely remote, with the probability of the federal reserve continuing to maintain current rates is at an 80.1% probability.

Now the focus will shift from the highly anticipated rate cut to Friday’s jobs report put out by the Labor Department. Currently estimates are tepid at best. Today’s U.S. private sector ADP report indicated that employers added approximately 125,000 jobs in October, which was slightly above economic forecasts which expected beginning of 120,000 new jobs being created. Estimates for Friday’s nonfarm payroll jobs report are tepid at best and will be highly influenced by the reduction of 46,000 jobs due to the General Motors strike. Forecasts have come in as low as 90,000, and as high as 125,000 new jobs being added in October.

If in fact nonfarm payroll report comes in tepid as predicted that should provide a second stage price boost in both gold and U.S. equities.

For those who would like more information, simply use this link.

Wishing you as always, good trading,

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October 31, 2019 at 05:58AM

Bank of Canada flags Alberta economic challenges in latest update - CBC.ca

The Bank of Canada opted to maintain interest rates on Wednesday, peering out at global uncertainty from a relatively healthy Canadian economy, but it warned Alberta is still adjusting to its new reality. 

The province still hasn't fully recovered from the steep drop in the price of oil and is losing ground to the rest of the country, where most markers show strength, according to the bank. 

"Even as the savings rate has been edging higher, high energy producing regions continue to struggle as the full adjustment to the decline in oil prices back in 2015 is not yet complete and transportation constraints are making the situation worse," Bank of Canada governor Stephen Poloz said. 

"The strong labour market points to sources of growth such as information technology and other professional services, tourism, education, health care, financial services."

Poloz did say Alberta is expected to rebound next year as the adjustments to the price crash take hold. 

Some positives

The bank warned that the recent Alberta budget could weigh on national economic growth due to the "lower spending profile."

Still, despite continued rates of high unemployment in energy dependent regions and a housing market in Alberta that's still adjusting to the new reality, there is hope from the central bank. 

"At the same time, there's also signs of stabilizing," said Carolyn Wilkins, senior deputy governor of the bank. 

"It's a pretty difficult adjustment, but we're happy to see that at least on the wage side that wage growth picked up overall in Canada and wage growth in those particular regions has has also picked up to kind of meet the Canadian average."

Wilkins said with new capacity coming online, including from Enbridge's Line 3 pipeline, energy investment is expected to stabilize after plummeting from 30 per cent of Canadian GDP to 15 per cent. 

The bank maintained its interest rate at 1.75 per cent.

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October 31, 2019 at 01:24AM

Encana sheds Canadian roots with name change and US domicile - BNNBloomberg.ca

Encana Corp. plans to establish its corporate domicile in the United States and change its name in the process, the company said Thursday, a move that takes the oil and gas company further away from its Canadian roots.

The changes – which require shareholder, stock exchange, and court approval – are expected to take effect early next year.

In parallel with the the re-domiciling process, Calgary-based Encana will change its name to Ovintiv Inc.

"We are excited about our strategic transformation,” CEO Doug Suttles said in a release. “A domicile in the United States will expose our company to increasingly larger pools of investment in U.S. index funds and passively managed accounts, as well as better align us with our U.S. peers.”

Suttles added the move would not change how the company runs its day-to-day activities.

“However, our actions show that we will leave no stone unturned to capture the value we deeply believe exists within our equity," he said.

SIA Wealth Management Chief Market Strategist Colin Cieszynski said the name change is a clear signal about where the company sees itself heading.

“The change in domicile itself … that’s more of a legal thing. To me, the bigger issue is the name change,” he said. “Encana, when it came out about 20 years ago, was a shortened term for energy in Canada. Well now you’re taking Canada right out of it. So that to me is a pretty big statement about where they think they’re going.”

The company said a preliminary prospectus is expected to be filed with Canadian and U.S. securities regulatory authorities in early November, and a special shareholder meeting will be held in early 2020 to vote on the changes, which will require two-thirds approval.

Once the new company is approved, it will trade on both the New York Stock Exchange and Toronto Stock Exchange under the ticker symbol “OVV.”

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October 31, 2019 at 06:46PM

These stocks are typically the best bets when the Fed jolts the economy with three rate cuts - CNBC

A trader laughs ahead of the closing bell on the floor of the New York Stock Exchange (NYSE) on February 1, 2019 in New York City.

Johannes Eisele | AFP | Getty Images

The stage appears to be set for stocks to shine after the Federal Reserve's third rate cut and its signal to stop from now. And certain groups of stocks stand to benefit the most, if history is any guide.

The Fed slashed interest rates for the third straight time this year on Wednesday while indicating it is going to pause easing. Powell made it clear in the press conference that the current monetary policy stance is "likely to remain appropriate."

The three-and-done approach was used on two occasions in history — between 1995 and 1996 and in 1998. The Alan Greenspan-led Fed slashed rates by a total of 75 basis points, during both periods to combat an economic downturn and successfully prolong the expansion.

The Fed's insurance easing episodes in the 1990s managed to drive the S&P 500 22% higher on average a year after the third cut, CNBC analysis found. The move was particularly beneficial for cyclical stocks including tech, energy and industrials as investors bet on economically sensitive pockets of the market after Fed rate cuts.

CNBC, using hedge fund analytics tool Kensho, found that information technology stood out as the best-performing sector after the central bank cut rates three times and paused, surging a whopping 66% a year after the third cut on average. Energy and industrial stocks both jumped about 24% on average during the same period.

It's not surprising that cyclical stocks have historically enjoyed the biggest boost from Fed's rate cuts. As monetary easing is designed to jolt the economy, investors tend to gravitate towards stocks traditionally correlated to economic growth.

To be sure, the tech sector's stunning pop in the 1990s happened when there was a rapid rise in U.S. tech stock valuations at the height of the dotcom bubble. So the Fed put should have less of an impact on the group this time.

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2019-10-31 11:41:22Z
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Fiat Chrysler and Peugeot owner announce $48 billion merger - CNN

Shareholders of each automaker would own 50% of the combined operation, the companies said in a joint statement on Thursday. A binding agreement could be finalized within weeks, the statement said.

The combined company would be based in the Netherlands, which is the current headquarters of Fiat Chrysler. John Elkann, the US-born scion of the Italian family that founded Fiat, would be chairman of the combined company, while PSA chief executive Carlos Tavares would be CEO.

The company would have roughly 410,000 employees and rank among the largest automakers in the world. Fiat Chrysler (FCAU) and PSA (PUGOY) sold a combined 8.7 million vehicles last year, just ahead of General Motors (GM), which sold 8.3 million, and not far behind Volkswagen (VLKAF) and Toyota (TM), which each sold over 10 million.

The merger comes amid a global auto sales slowdown. At the same time, carmakers are scrambling to invest in the electric and hybrid technologies needed to meet strict new emissions targets in China and Europe. The autonomous vehicles of the future also present a threat to traditional industry business models. The huge amount of capital needed to meet these new challenges has forced some automakers to find partners and turned others into acquisition targets.

Jessica Caldwell, Edmunds' executive director of industry analysis, said the planned merger of Fiat Chrysler and France's PSA "isn't really about product or expanding to new markets." Instead, it's about funding research into the vehicles of the future.

"The electrified, autonomous future everyone is waiting for just isn't feasible without automakers merging and forming strategic alliances to share research and development costs," she said. "This is a smart move by both Fiat Chrysler and PSA to ensure their companies continue to be viable and relevant as the industry evolves."

The carmaker with the most urgent need to combine in this case was PSA, which has fallen behind on developing clean cars. Electric vehicles account for less than 0.3% of its overall sales, and it had to pay Tesla (TSLA) for credits needed to comply with EU emissions standards. Fiat Chrysler has also trailed larger rivals in developing electric vehicles.

Even the biggest players in the industry are making changes. Volkswagen and Ford (F) are working together to develop electric and self-driving vehicles, while German carmakers BMW (BMWYY) and Daimler (DDAIF) have formed a joint venture that will develop driverless technology. Honda has invested in General Motors' self-driving car unit.

A history of mergers

It's not the first time that PSA has used a merger to bulk up. In 2017 it paid $2.3 billion to buy GM's European business, adding the Opel and Vauxhall brands as GM exited the continent. While GM lost about $22.4 billion in Europe over the 17 years before that deal, Opel and Vauxhall are now profitable for PSA.

Teaming up during times of adversity is also a familiar strategy for Fiat, which started the purchase of US rival Chrysler out of bankruptcy a decade ago. It completed the merger five years later. But even following that deal, Fiat Chrysler was still significantly smaller than many of its rivals, putting it at a disadvantage in purchasing muscle as well as spreading out the cost of research and development.

Sergio Marchionne, the late CEO who brought Fiat and Chrysler together, spoke publicly about his desire for a deal with GM. He also expressed interest in a combination with a tech company such as Google or Apple.

Earlier this year, Fiat Chrysler made a merger proposal to another French automaker, Renault, a company of comparable size to PSA. But it withdrew the offer, saying that "it has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully."

The French government owns 15% of Renault and is its largest shareholder; it also owns 12.2% of PSA. France has said it would approve the Renault deal only if there were protections for French jobs and factories.

New challenges

Fiat Chrysler and PSA will face huge challenges even if their merger is completed.

Both have struggled to break into China, the world's largest market for new cars. Automakers have sold 10% fewer cars there so far in 2019, but the joint ventures of Fiat Chrysler and PSA have been hit especially hard. Sales dropped by a third for Fiat Chrysler in the first half of the year, and more than 50% for PSA.

PSA also has no presence in the United States, the world's second largest car market. Miniscule US sales of Fiat branded cars show the difficulty in bringing mass market European brands, as opposed to luxury brands, to US showrooms.

"Both Fiat Chrysler and PSA have a lot of quirky city cars that couldn't be further from what US car shoppers want right now," said Caldwell.

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2019-10-31 11:19:24Z
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Fiat Chrysler and Peugeot owner agree to merge in mega auto deal - CNN

Shareholders of each automaker would own 50% of the combined operation, the companies said in a joint statement on Thursday. A binding agreement could be finalized within weeks, the statement said.

The combined company would be based in the Netherlands, which is the current headquarters of Fiat Chrysler. John Elkann, the current chairman of Fiat Chrysler (FCAU), would perform the same role at the combined company, while PSA Group chief executive Carlos Tavares would be CEO.

The company would rank among the largest automakers in the world. Fiat Chrysler and PSA (PUGOY) sold a combined 8.7 million vehicles last year, just ahead of GM (GM), which sold 8.3 million, and not far behind Volkswagen (VLKAF) and Toyota (TM), which each sold over 10 million.

The merger comes amid a global sales slowdown. At the same time, carmakers are scrambling to invest in the electric and hybrid technologies needed to meet strict new emissions targets in China and Europe. The autonomous vehicles of the future also present a threat to traditional industry business models.

The huge amount of capital needed to meet these new challenges has forced some automakers to find partners and turned others into acquisition targets.

"We view the combination of these two companies as reasonable given global competition, high capital intensity, and industry disruption from electrified powertrain as well as autonomous technologies," Richard Hilgert, a senior equity analyst at Morningstar, said in a research note on Wednesday.

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2019-10-31 08:47:00Z
52780422114346

Fiat Chrysler and Peugeot owner agree to merge in mega auto deal - CNN

Shareholders of each automaker would own 50% of the combined operation, the companies said in a joint statement on Thursday. A binding agreement could be finalized within weeks, the statement said.

The combined company would be based in the Netherlands, which is the current headquarters of Fiat Chrysler. John Elkann, the current chairman of Fiat Chrysler (FCAU), would perform the same role at the combined company, while PSA Group chief executive Carlos Tavares would be CEO.

The company would rank among the largest automakers in the world. Fiat Chrysler and PSA (PUGOY) sold a combined 8.7 million vehicles last year, just ahead of GM (GM), which sold 8.3 million, and not far behind Volkswagen (VLKAF) and Toyota (TM), which each sold over 10 million.

The merger comes amid a global sales slowdown. At the same time, carmakers are scrambling to invest in the electric and hybrid technologies needed to meet strict new emissions targets in China and Europe. The autonomous vehicles of the future also present a threat to traditional industry business models.

The huge amount of capital needed to meet these new challenges has forced some automakers to find partners and turned others into acquisition targets.

"We view the combination of these two companies as reasonable given global competition, high capital intensity, and industry disruption from electrified powertrain as well as autonomous technologies," Richard Hilgert, a senior equity analyst at Morningstar, said in a research note on Wednesday.

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2019-10-31 08:34:41Z
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