Market Insights: Natural Gas Spikes Again

Macroeconomic and Market Developments:

• North American markets were down slightly this week. In Canada, the S&P/TSX Composite Index was down 0.34%. In the U.S., the Dow Jones Industrial Average decreased 0.16% and the S&P 500 Index fell 1.21% this week.
• The Canadian dollar was down this week, closing at 76.96 cents vs 78.26 cents last week.
• Oil prices were also lower this week. U.S. West Texas crude closed at $90.02 vs $91.85 USD, and the Western Canadian Select price closed at $69.94 vs $72.47 last Friday.
• The price of gold declined this week as well, closing at $1,747 vs $1,800 USD last Friday.
• Canadian inflation numbers came out this week, with the Consumer Price Index (CPI) rising 7.6% year over year in July, which was right in line with forecasts and down from the 8.1% annual pace set in June. On a monthly basis, the CPI rose 0.1% in July, the seventh consecutive monthly increase. The core CPI, excluding volatile food and energy, rose to 5.3% year over year.
• Retail stocks were in focus this week. On Tuesday, Walmart (WMT) reported earnings that were better than expected at $1.77/share vs $1.62/share expected. Then on Wednesday, Target (TGT) surprised investors with disappointing quarterly earnings as they continue to deal with excess inventory after customers quickly shifted from buying goods during the pandemic, to spending on services and travel. Target’s earnings came in at $0.39/share vs $0.72/share expected, representing almost a 90% decline in earnings from the same quarter last year.
• Canadian company Home Capital Group (HCG) announced that it has received an unsolicited purchase offer from an unnamed arm's-length third party. The board of the company has reviewed the offer and determined that it is not in the best interests of the company or its shareholders.
• Hudson’s Bay Company made two major announcements this week. First off, certain Bay stores will now begin selling products from Mountain Equipment Co-op. And secondly, the company will be resurrecting its discount brand Zellers in the form of an online store as well as a sub-store located within some existing Bay locations.
• In economic news, U.S. Retail Sales were unchanged in July compared with the expected gain of 0.1%, and are up 10.3% versus a year ago. Sales excluding autos rose 0.4% in July, beating the expected decline of 0.1%. Sales excluding gasoline rose 0.2% in July and are up 7.8% from a year ago.
• Also, U.S. Industrial Production increased 0.6% in July, beating the expected gain of 0.3%. Auto production rose 6.7% and is up 13.2% in the past year. Non-auto manufacturing increased 0.3% and is up 2.5% year over year.
• Here is a link to a short video from Canaccord’s chief U.S. Strategist Tony Dwyer entitled The Fight Continues - A Quick Take on Market Strength and FOMC Minutes: DWYER VLOG

Weekly Diversion:

Check out this video of a high school basketball game with several back-to back half court baskets.

Charts of the Week:

This week, we’d like to draw your attention to the price of North American natural gas. We last showed a chart like this in the spring when natural gas first spiked to around the $9.00/MCF level. Subsequent to that, the price dropped quickly, but has since been surging once again. Whereas this doesn’t bode well for your winter heating bill, it should be a very bullish sign for Alberta’s natural gas-weighted companies like Tourmaline (TOU) and Peyto (PEY). In addition, if the commodity price stays elevated, this should significantly help the Alberta government’s budget projections.

Source: CNBC.com

Whereas the natural gas price in North America has gone up significantly in the past few years, it pales in comparison to the natural gas prices being seen in Europe which were recently over $50/MCF. Being that most of the world has been trying to move away from using coal to generate electricity, towards the cleaner burning natural gas, this is causing massive financial hardship throughout Europe and could get worse this winter. This has led to demand actually beginning to shift back towards coal. The following chart shows that the rise in the coal price over the past two years has been quite remarkable.

Sources: CNBC.com, Globe and Mail, Financial Post, Connected Wealth, BNN Bloomberg, Tony Dwyer, Canaccord Genuity, First Trust