The Daily – September 20, 2022

September 20, 2022

Daily Market Commentary

Canadian Headlines

• Walmart Canada will build a fulfillment centre in Quebec as part of its $1 billion investment in infrastructure this year. Facility to open in 2024. Investment to provide more than 2,500 trade and construction jobs across Canada.

World Headlines

• European stocks fell as investors braced for interest-rate decisions by major central banks this week, which could give a pointer to the pace of monetary tightening as they battle inflation. The Stoxx 600 Index was down 0.8% at 10:57 a.m. in London. Swedish lenders fueled gains of 0.3% in the European banking index after the country’s central bank raised rates by a full percentage point in its most aggressive tightening in almost three decades of inflation targeting. Autos and food and beverage shares also outperformed, while real estate lagged. The yield on 10-year inflation-protected Treasury debt rose to the highest level since 2011. The European benchmark gauge has struggled to recover after posting its sharpest weekly drop since June following a hotter-than-expected US inflation report and amid a spiraling regional energy crisis.
• Stocks fell with US equity futures, giving up early gains, as traders braced for another supersized US rate hike amid rising anxiety the Federal Reserve could overtighten and raise the odds of a hard landing. The US central bank kicks off its meeting today and is expected to again hike rates by 75 basis points Wednesday, signal rates are heading above 4% and will then pause. The long hold strategy is rooted in the idea the central bank would avoid the disastrous stop-go policy of the 1970s that allowed inflation to get out of hand. Market participants have dialed back expectations of an even larger increase and only two of 96 economists in a Bloomberg survey now predict a full-point move. Treasury 10-year yields topped 3.5% while yields on the more policy-sensitive two-year rate hit the highest since 2007 and are poised to crack above 4%, reflecting hard-landing fears.
• Asian stocks advanced, on track to snap a five-day losing streak, amid signals that Hong Kong will move toward easing Covid restrictions. The MSCI Asia-Pacific Index gained as much as 1% as Tencent, Alibaba and TSMC provided the most support. Benchmarks across the region rose. Indexes in Hong Kong gained at least 1.2%, with one key gauge climbing from the edge of a bear market. Hong Kong’s chief executive said the city wants to relax Covid travel curbs after nearly three years of restrictions. The Hang Seng Tech Index added 2%.
• Brent oil edged higher toward $93 ahead of several global interest-rate decisions that are expected to see further monetary tightening. The Fed and other central banks from Europe to Asia are expected to deliver interest-rate hikes this week as they seek to tame rampant inflation that’s taken a toll on demand. Brent futures rose by almost 1% Tuesday and remain within the $10 band in which they have fluctuated this month. Crude has lost about a third of its value since early June, erasing all the gains made in the wake of Russia’s invasion of Ukraine, as concerns about a global slowdown weighed on demand. Liquidity also thinned, leading to volatile price swings, while a stronger dollar has added to headwinds.
• Gold steadied as investors remained uncertain over the size of the Federal Reserve’s looming interest rate hikes, which could put renewed pressure on the precious metal. Bullion, which hovered above $1,700 an ounce for the first half of September, plunged below that mark last week. While it has since steadied, a move by the Fed on Wednesday to bump up rates by as much as 100 basis points to counter rampant inflation could trigger another slide in the non-interest bearing precious metal. Gold is “demonstrating resilience” ahead of the Fed’s interest-rate decision, Yamana Gold Executive Chairman Peter Marrone said in a Bloomberg Television interview. He saw Asian buyers helping prices, including strong support from countries like India as well as China, where gold jewelry purchases have been crimped by Covid outbreaks.
• New York advocates are taking aim at a decades-old rule that they say is contributing to the city’s homelessness crisis. A coalition of 43 shelter providers and advocates are calling on Mayor Eric Adams to abolish a rule that requires families and individuals experiencing homelessness to stay in a city shelter for 90 days before they qualify for a rental assistance program known as CityFHEPS, according to a letter sent Monday to the mayor’s office. The rule was put in place during Rudy Giuliani’s administration, more than 20 years ago, as a way to triage who is staying temporarily in a shelter and who is in need of subsidized housing assistance. New York City has for years struggled with persistently high levels of homelessness, and the system is being further strained by agency delays and the recent arrivals of about 8,500 migrants, the majority of whom are families. The city counted 56,334 individuals in shelters on Sept. 15, including more than 18,000 single homeless adults — a number that has more than doubled over the past decade. A separate tally showed at least 3,400 individuals living unsheltered in the city as of January.
• Nasdaq Inc. is making its first major push into crypto, as the second-largest stock exchange prepares to capitalize on increasing appetite for digital currencies among big-money investors. A new group dedicated to digital assets will initially offer custody services for Bitcoin and Ether to institutional investors, according to Tal Cohen, the company’s executive vice president and head of North American markets. Nasdaq hired Ira Auerbach, who ran prime broker services at crypto exchange Gemini, to head up the new Nasdaq Digital Assets unit. Wall Street’s biggest firms are deepening their involvement as institutional investor interest persists despite a downturn that cost jobs and depressed prices. BlackRock Inc. partnered with Coinbase Global Inc. to make it easier for investors to trade Bitcoin and shortly after offered its first investment product directly in the token. EDX Markets, a new exchange backed by Charles Schwab Corp., Fidelity Digital Assets, Citadel Securities and Virtu Financial among others, will start trading some tokens this year.
• Federal Reserve officials are about to put numbers on the “pain” they’ve been warning of in recent weeks when they publish new projections for the economy, which could show a substantial rise in interest rates and unemployment ahead as the estimated price tag for reducing inflation. The US central bank will release its latest quarterly projections Wednesday following a two-day policy meeting in Washington, where officials are expected to raise their benchmark rate by three-quarters of a percentage point for the third time in a row. Such a move would lift rates to levels not seen since before the 2008 financial crisis. The next phase of the tightening cycle carries greater risks, which will probably be reflected in their revised projections.
• Ford Motor Co. said inflation is pushing supplier costs $1 billion higher than expected in the current quarter, joining the chorus of major corporations warning about macro challenges rippling through the economy. The automaker expects adjusted earnings before interest and taxes in the range of $1.4 billion to $1.7 billion when it reports results next month. The preliminary estimate is well below the $3.7 billion in adjusted EBIT Ford reported last quarter and the $3 billion it earned a year ago. Shortages of key parts will also keep its inventory of half-completed vehicles elevated, according to a statement Monday. The manufacturer is the latest household name to cite economic pressures weighing on operations. From FedEx Corp. to General Electric Co. to McDonald’s Corp., companies are pointing to flagging demand, stubborn supply-chain snags and the growing possibility of a recession.
• Volkswagen AG garnered more than enough investor orders to cover the 9.4 billion-euro ($9.4 billion) initial public offering of its sports-car maker Porsche AG just hours after it started taking requests for the share sale, according to terms seen by Bloomberg. The order book, which opened only Tuesday morning, has been covered multiple times throughout the price range of 76.50 euros to 82.50 euros on the full deal size, the terms showed. Indicated investor demand exceeds the total offering, according to the terms. The offer period for the German carmaker is likely to run until Sept. 28 and is open to investors in Germany, Austria, France, Italy, Spain and Switzerland. Four cornerstone investors — Qatar Investment Authority, Norway’s sovereign wealth fund, T. Rowe Price and ADQ — have together committed to take up as much as 3.7 billion euros of the IPO.
• Three times as president, Joe Biden has said the US would defend Taiwan if China invades the island, and each time his staff argued he wasn’t changing longstanding US policy to keep Beijing guessing about US intentions. His fourth time makes that much harder to do. In comments to “60 Minutes” on Sunday, Biden left no doubt where he stood, saying the US would commit military forces in the event of an “unprecedented attack” by China. Pressed if that would involve US men and women — unlike in Ukraine, where Biden has ruled out sending American forces — he said “yes.” A spokeswoman again insisted that policy toward the island hadn’t changed. But with the US stance toward China hardening more broadly, it was difficult to see Biden’s comments as anything other than a refutation of decades of so-called “strategic ambiguity” in which the US declined to make its intentions clear.
• Apple Inc. unveiled major increases to its price tiers on apps and in-app purchases from Europe to Asia, protecting its margins as major currencies tumble against the US dollar. Customers in nations that use the euro as well as those in Sweden, Japan, South Korea, Chile, Egypt, Malaysia, Pakistan and Vietnam will all see price hikes as early as Oct. 5, the company said in a message to developers. The move in Vietnam also reflects new local regulations around tax collection, Apple said, without elaborating on why it’s raising prices elsewhere. The strong dollar may be a key driver. In Japan, prices are rising by roughly 30%, a significant hike that follows the yen’s dramatic weakening this year. Apple earlier this summer raised prices across its Mac, iPhone and iPad ranges to account for the currency disparity. The euro has suffered a similar fate, now trading at near parity against the US dollar and showing signs of further weakness ahead.
• Peloton Interactive Inc. is launching its long-awaited rowing machine, a $3,195 product aimed at expanding the fitness company’s appeal and helping reverse a sales slide. The company will start taking orders for the Peloton Row on Tuesday and begin initial deliveries to US customers in December. Peloton has been working on the new machine for several years, with Bloomberg News first reporting on the project in 2019. The shares climbed as much as 2.9% in premarket trading Tuesday. The device marks Peloton’s first major new piece of exercise equipment since 2020, when it debuted a cheaper version of its treadmill. Like the company’s other products, the Row has a dark exterior design with a touch screen for viewing workout content and classes. The Row’s 23-inch (58-centimeter) display is designed to swivel, and customers can store the machine vertically on a wall when they’re not using it.
• FC Barcelona expects a sharp increase in revenue and profitability after a string of asset sales shored up its beleaguered finances. The storied Spanish football club is forecasting revenue of 1.26 billion euros ($1.3 billion), some 240 million more than in 2021/2022, it said in a statement published late Monday. Profit is expected to reach 274 million euros, a 180% jump over the previous season. An uncontrolled surge in costs of signing and paying players, paired with a steep drop in ticket and merchandising revenue during the pandemic, pushed the club’s debts and liabilities up to 1.35 billion euros. That prompted President Joan Laporta to divest part of the club’s assets to raise fresh funds in an attempt to strengthen its finances.
• The Kremlin is moving hastily to stage sham votes on annexing the regions of Ukraine its forces still control, after Kyiv’s military drove Russian troops from large areas of territory taken in their seven-month-old invasion. The so-called Donetsk and Luhansk People’s Republics may hold their votes as soon as this weekend, Interfax quoted officials as saying Tuesday. Ukraine and its allies have denounced the referendums as illegal and few countries are likely to recognize the results. Russian-backed officials in two other regions also announced plans to move quickly toward votes. In Moscow, officials said they’d grant the regions’ requests to be annexed if they made them. Former President Dmitry Medvedev, who’s now deputy head of the Security Council, said the annexation would be “irreversible” and enable Russia to use “all possible force in self-defense” in the newly-acquired territory.
• Hungary said it’s prepared to meet European Union demands that it take action to curb fraud and corruption after the bloc threatened to freeze 7.5 billion euros ($7.5 billion) of funds earmarked for the country. Prime Minister Viktor Orban’s government filed a bill to parliament late Monday that mandates stepping up cooperation with the EU’s anti-fraud office and expands the entities required to conduct public procurements. It also seeks to address conflict-of-interest concerns at public foundations, such as those controlling state universities, which Orban has stacked with loyalists, including his ministers. The forint jumped 1.5% against the euro on Monday, bolstered by the prospect that Brussels and Budapest may eventually reach an accord on disbursing the money. That pared the year-to-date decline to 7.6% against the European common currency. It continued to rise slightly on Tuesday.
• Tencent Holdings Ltd. denied a report it was considering selling down investments in companies from Meituan to KE Holdings Inc. to bankroll share buybacks and new businesses. The company has no need to raise funds nor a timeline for such divestments, a spokesperson said. Dow Jones had reported earlier on Tuesday that the WeChat operator recently completed a review of its worldwide portfolio, and identified companies such as Didi Global Inc. that it may sell down. Shares in real estate firm KE slid as much as 3.9% in pre-market trading in New York. Tencent Chief Strategy Officer James Mitchell said last month that a Reuters report it intends to sell all or much of its stake in food delivery giant Meituan was incorrect.
• Russia is likely to ship more fuel to Asia and the Middle East in the coming months as Europe tightens sanctions to step up its response to the invasion of Ukraine. The two regions have already been taking a greater share of Russian exports since the war broke out, according to data from S&P Global Commodities at Sea, highlighting the as-yet-unfinished reconfiguration of global energy flows. Now, the European Union is set to bar most imports of Russian crude from Dec. 5, followed by a prohibition on oil products that’ll kick in from February, ramping up the pressure on Moscow to redirect more of its energy output.

*All sources from Bloomberg unless otherwise specified