• Lumber prices continued their descent on Wednesday, August 3, 2022, falling as much as 5% to a new 2022 low of $495 per thousand board feet. The essential building commodity has seen a wild ride since the start of the COVID-19 pandemic, with prices peaking at a record high of $1,733 per thousand board feet as demand for homes picked up and supply chain woes plagued sawmills across Canada.
• Since lumber's May 2021 peak, it's been nothing but downhill for the commodity, with a peak-to-trough decline of 71%. The weakness accelerated in 2022 as higher mortgage rates helped cool down the booming housing market, which fueled demand for lumber as homebuilders sought to cash in on the demand spike.
• Lumber prices continuing to downtrend remain good news for up-and-coming home buyers that have been boxed out of the market due to rising home prices and a limited supply of homes for sale. The recent surge in mortgage rates hasn't helped with affordability, but the average 30-year fixed mortgage rate has fallen more than 50 basis points from its peak in June, offering some relief.
• Ultimately, the housing market is on its way back to normal, and that means lumber prices are likely to remain back in the normal trading range before 2020 of $200-$600 per thousand board feet.

(Source: Insider)

• Federal Reserve officials voiced their determination again on Wednesday, August 3, 2022, to rein in high inflation. However, one noted a half-percentage-point hike in the U.S. central bank's key interest rate next month might be enough to march on toward that goal.
• San Francisco Fed President Mary Daly said in an interview with Reuters, "if we just see inflation roaring ahead undauntedly, the labour market showing no signs of slowing, then we'll be in a different position where a 75-basis-point increase might be more appropriate. But I go in with the 50 in mind as I look at the data coming in."
• Whether the Fed will plough ahead with a third straight 75-basis-point rate hike at its Sept. 20-21 policy meeting - a pace unmatched in more than a generation - or dial back a bit is of central interest to investors, businesses, and consumers who are increasingly fearful that the central bank's inflation fight may trigger a recession.
• Several policymakers, including Daly, have shown stiffening resolve this week to continue the aggressive monetary tightening, with nearly all of them uniformly flagging that the central bank remains determined to press ahead with rate hikes until it sees strong and long-lasting evidence that inflation is on track back down to the Fed's 2% goal.

(Source: Reuters)

• Mayberry Investments Limited (MIL) and Victoria Mutual Investments Limited (VMIL), both reported improvements in their financial performances for the 6 months ended June 2022. Net profit improved for Q2 for both companies but VMIL saw a decline in its YTD performance owing to the very low net profit recorded in Q1.
• MIL and VMIL recorded net profit attributable to shareholders of J$3.21Bn (EPS $2.67) and J$250.71Mn (EPS$0.17), respectively, for the six months ending June 30, 2022. These were 101.6% and 5.2% above and below, respectively, the outturns in 2021.
• MIL’s H1 result was driven by a 280.2% increase in net unrealized gains on investments from the Group’s investment in associates and financial instruments, reflecting capital appreciation on equities. The overall decline in VMIL’s bottom line was tempered by an 86.1% increase in income from net fees and commissions. This was attributable to the strong execution of both debt and equity-related transactions in the review period.
• Both MIL (25.7%) and VMIL (31.4%) saw double-digit increases in interest income. The improvement in interest income for MIL outpaced the noticeable increase in interest expense which jumped by 22.9% evidenced by a higher net interest margin (moved from 30.4% to 31.9%). VMIL, on the other hand, saw a 61.9% increase in interest expense which lowered its net interest margin (moved from 35.8% to 20.9%). Operating expenses also increased by 60.6% and 20.0% for MIL and VMIL, respectively.
• The investment companies will look to build on their Q2 performances in the recovering economy; however, the high inflationary environment will continue to pose challenges. MIL expects the strong performance of stocks in its portfolio to be sustained through capital appreciation and dividend income. Revenues could also be driven by higher net fees and commission income which grew by 15.9% in H1 due to significant growth in equity commission and loan processing fees, as well as higher selling fees for IPO transactions.
• Partnerships formed and investments made by VMIL in Q2 should help to influence improvements in profitability in coming months. This includes its private equity investment in Home Choice Enterprise Limited during Q2, as well as its partnership with London-based Actus Partners (Actus) to successfully close a new Caribbean private equity fund focused on Small and Medium Enterprises (SMEs). Carilend Caribbean Holdings Company Limited, (Carilend), a leading Caribbean fintech in which VMIL acquired a 30% stake in 2019, has also partnered with Massy Finance to offer 100% web-based personal loans in Trinidad and Tobago. These partnerships and investments are expected to boost profits in the coming quarters.
• MIL’s stock price has increased by 23.7% since the start of the calendar year while VMIL has decreased by 15.5%. MIL and VMIL closed Tuesday's trading session at $9.71 and $5.18, respectively. MIL currently trades below the Main Market Financial Sector Average of 10.7x at a P/E of 3.2x while VMIL trades above at 14.0x.

(Sources: JSE & NCBCM Research)

• Jamaica’s second city has been ranked the top summer travel recovery city of 2022 based on the Summer Travel Outlook Report that was produced for the World Travel Market (WTM) by ForwardKeys (provider of travel trends and analysis).
• The report showed a comparison between international tourist arrivals for Q3 2022 and Q3 2019, noting Montego Bay to be among the most resilient destination cities with a positive growth of 23%.
• The report also shared that Punta Cana, Dominican Republic, and Cancun, Mexico, placed second and third, with 19% and 14% increases, respectively. Twenty cities were listed in the report, with Cairo, Egypt, and Dehli in India rounding out the top 5, cities.
• Meanwhile, Tourism Minister, Edmund Bartlett who recently shared that a part of the sector’s recovery strategy was meeting with long-standing tourism partners to get a feel of market sentiment and projections, has expressed delight with the news.
• The country has seen vastly improving figures for arrivals and earnings over the last year; the country welcomed more than 1.5Mn visitors in 2021 and raked in over US2.095Bn in earnings. The Tourism Minister noted also that the industry is “now more than before, poised for a full recovery”.  The news is expected to support tourists’ arrival to the city and Jamaica at large which will be an added boost for local shops and businesses.

(Source: JIS News)

• Guyana’s promising business openings with its newfound oil wealth have resulted in an influx of foreign investors scoping opportunities to make a big investment in the country. Those breaks have mostly been seized by investors from the United States of America, Canada, the United Kingdom, China and other big countries across Europe with new interest from Africa, Asia and the Middle East.
• However, the tiny European nation of Austria has its sights set on the opportunities in Guyana. Dr Andreas Schmid, the Austrian Trade Commissioner to Guyana, has announced his plans to organize a trade trip for Austrian businesses to visit Guyana in 2023, saying that "Guyana is a high potential commercial partner for Austrian enterprises.”
• Dr Schmid stated that Austria is not keen on the opportunities in the oil and gas sector, but noted that Guyana "is truly on a growth path with sustainable development. As a result, Austria serves as a capable partner in assisting the expanding economy because the nation has a dependable market and technological partners in a variety of industries”, the Trade Commissioner stated.
• Although bilateral trade exchanges between the two states have been small in the past and further setback by the COVID-19 pandemic, the Trade Commissioner believes that projects such as the hospital and the first-time import of Guyanese oil to Austria in 2021 were a positive outlook for improved bilateral trade.
• Guyana’s bilateral trade has also increased in recent years with other countries such as the USA, Canada, China, and India. There have been other trade missions, including one from Canada earlier this year, and the establishment of several joint business chambers with the support of governments to increase business activities.

(Source: Newsroom)

• The Central Bank of the Dominican Republic (BCRD) continues to tighten its monetary policy to combat inflation. At its monetary policy meeting in July 2022, it decided to increase the monetary policy interest rate by 50 basis points from 7.25% to 7.75% per year.
• In this way, the rate of the permanent liquidity expansion facility (1-day Repos) went from 7.75% to 8.25% per year and the rate of remunerated deposits (Overnight), from 6.75% to 7.25% per year.
• The BCRD said that this decision is based on an exhaustive evaluation of the recent behaviour of the world economy and its impact on inflation, influenced by geopolitical conflicts and the global cost shock.

(Source: Dominican Today)

• Russian-sourced diesel to Europe outpaced non-Russian-sourced diesel by nearly 200,000 barrels a day, according to a report published on August 2, 2022, from Vortexa, which tracks energy commodities. Overall, Europe's imports of Russian diesel increased a staggering 23% from July 2021.
• The uptick in Europe's appetite for Russian diesel underscores the complexity of choking Moscow's energy flows as its war in Ukraine rages on. The European Union pledged earlier this year to be 90% rid of Russian crude imports by the end of 2022 but has since struggled with skyrocketing prices and production constraints on alternative sources.
• Because of the rising diesel prices, as well as refineries struggling to keep pace with demand, "it appears questionable whether Europeans will manage to carry through on the announced diesel import ban fully" Vortexa's chief economist, David Welch, said.
• Europe's supply of diesel comes from the transformation of crude into fuel at European refineries. The continent is struggling to keep pace because of cuts to refining capacity made during the height of the COVID-19 pandemic when travel plummeted. Europe is simultaneously racing to shore up energy stores ahead of winter amid concerns of a full Russian shutoff while condemning the Kremlin for its invasion of Ukraine.

(Source: Insider)

• Oil futures edged up less than 1% on Tuesday, August 2, 2022, ahead of a meeting of OPEC+ producers this week that may not lead to a further boost in crude supply amid concerns a possible global recession could limit energy demand.
• Brent futures rose 51 cents, or 0.5%, to settle at $100.54 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 53 cents, or 0.6%, to settle at $94.42.
• Also giving oil prices a slight lift were analyst expectations that U.S. crude inventories declined by around 600,000 barrels the previous week.
• The Organization of the Petroleum Exporting Countries and allies including Russia, known as OPEC+, previously met and two of eight sources said a modest output hike would be discussed.
• Russia's invasion of Ukraine in February fed worries about global oil supply and sent prices soaring to near record highs. However, with central banks raising interest rates to fight inflation, worries about slowing growth have eclipsed tight supply.

     (Source: Reuters)

• Paramount Trading Limited (PTL) and Lumber Depot (Lumber) which are a part of the local distribution sector, both reported higher net profit in their most recent twelve months. PTL reported a net profit of J$174.57Mn (EPS$0.113) for the year ended May 31, 2022, a 174.3% improvement over 2021. Lumber Depot Limited (LUMBER) recorded a net profit of J$183.89Mn (EPS $0.26) for its financial year ending April 2022 versus J$144.99 (+26.8%) in 2021.
• Both PTL (19.4%) and Lumber (10.1%) saw double-digit increases in revenues driven by increased business activity as the economy reopened following lockdowns in 2021. The improvement in revenues for both companies outpaced the noticeable increase in cost of sales which jumped by 17.4% and 8.6% for PTL and LUMBER, respectively, as evidenced by higher gross margins.
• The distribution companies experienced commodity price increases and logistics challenges that were made worse by the outbreak of war in Europe, which weighed on their cost of sales. Despite this, gross margins increased slightly for both companies, with PTL moving from 31.6% to 32.8% while LUMBER moved from 20.5% to 21.6%. This means that both companies were able to retain more of each dollar of revenue generated after covering input costs.
• Operating expenses also increased by 11.8% and 7.2% for both companies respectively.
• The distribution companies will look to build on their FY2022 improvement as the economy continues to recover. It is expected that both companies will continue to push revenue generation and cost containment measures to limit the effects of the high inflationary environment on the company’s bottom line. Lumber’s management plans to sustain competitive pricing, and manage cash flow and inventory availability to drive profitability this year. It also plans to seize opportunities for investment and growth that are expected to arise in Jamaica when economic normalcy returns.
• PTL’s stock price has increased by 44.3% since the start of the calendar year while LUMBER decreased by 5.8%. PTL and Lumber closed Friday’s trading session at $1.80 and $2.85, respectively. Both stocks currently trade below the Junior Market Distribution Sector Average of 18.8x at a P/E of 15.9x (PTL) and 11.0x (Lumber).

(Sources: JSE & NCBCM Research)

• The Barbados Labour Party (BLP), led by Prime Minister Mia Mottley, will maintain high expenditure levels in the short term to ensure social stability while the tourist industry, which contributes around 40.0% of GDP, continues to recover from the effects of the pandemic.
• As stimulus measures from the pandemic era are still in place with the ongoing economic recovery, spending is expected to remain high in 2022 at 35.1% of GDP, higher than the 31.3% observed during FY2015/16 - FY2019/20. Notably, the most recent budget still includes the stimulus payments from the COVID era to improve household earnings in Barbados and raise pension contributions for public sector employees. Additionally, as the government continues to finance research into renewable energy sources, capital expenditures will also continue to rise.
• In the near future, Fitch anticipates that the government of Barbados will be able to finance increased expenditure initiatives thanks to the Extended Fund Facility (EFF) agreement with the IMF. The four-year, USD290.0Mn deal was approved in 2018 and revised following the pandemic and Hurricane Elsa, which made landfall in July 2021, lowering the primary balance target from 6.0% of GDP to -1.0% currently. This will allow the government to keep countercyclical spending initiatives in place for longer, maintaining social stability even as multiple variants have delayed the rebound of the tourism sector.
• However, amidst the Russia-Ukraine conflict, which has driven up global energy prices, the government has opted not to implement substantial fuel subsidies, though it has capped the value-added tax on fuel. This has resulted in isolated demonstrations as Barbadians feel the direct impact of higher fuel costs. Further, as global growth slows, there is an increasing risk that demand for international travel in Barbados’ key source markets, the US, UK and Canada, will wane, slowing the country’s rebound. This would likely increase unemployment and the risk of social unrest, particularly if the government also removes income support measures.

(Source: Fitch Solutions)