The Daily – September 29, 2022

September 29, 2022

Daily Market Commentary

Canadian Headlines

• Brookfield Asset Management’s renewable-power unit is buying wind and solar firm Scout Clean Energy LLC for $1b and Standard Solar Inc. for $530m, Dow Jones reports citing company officials.
• The Bank of Canada will begin publishing a minutes-like summary of deliberations by officials after each policy decision in an effort to enhance transparency as it faces one of the most severe tests of its credibility. The move comes in response to a review by the International Monetary Fund, released on Wednesday, of the central bank’s transparency practices. The Bank of Canada said it will produce summaries roughly two weeks after each policy meeting, starting with the Jan. 25 decision.
• Cineplex Inc. said the US Bankruptcy Court for the Southern District of Texas has denied its attempt to continue with a claim against Cineworld Group Plc in Canadian courts while Cineworld goes through bankruptcy proceedings.

World Headlines

• US stock futures fell, signaling fresh declines in the underlying indexes as bond yields ticked higher amid concerns around the economic impact of a hawkish Federal Reserve. Contracts on the technology heavy Nasdaq 100 were down 1.2% at 7 a.m. in New York, while S&P 500 futures fell 0.9%. The benchmark index on Wednesday snapped its longest losing streak since February 2020 as surprise intervention by the Bank of England kicked off a rally in global financial markets..
• European equities slumped anew as concerns over the health of the region’s economy resurfaced during a day with a mammoth lineup of European Central Bank speakers. The Stoxx Europe 600 dropped 1.8% as of 9:38 a.m. in London, while yields resumed their advance. An index of retailers plunged to the lowest in a decade after Hennes & Mauritz AB and Next Plc missed estimates, the latter also slashing its guidance.
• Asian stocks pared earlier gains spurred by the Bank of England’s unlimited bond-buying plan, as sentiment again turned cautious with fears over a global recession. The MSCI Asia Pacific Index was up 0.2%, having earlier gained as much as 1.2%.
• Oil traded near $82 a barrel as traders weighed a clouded outlook for global economic growth against the potential for output cuts from the OPEC+ producer group. West Texas Intermediate futures pared an earlier decline to trade little changed. The Organization of Petroleum Exporting Countries and its allies are discussing cutting output at a meeting next week, a delegate said, a move that could serve to stem a recent slump in prices.
• Gold edged lower on renewed strength in the US dollar, after a rally triggered by the Bank of England’s decision to unveil a bond-buying program to boost UK bonds. Bullion has come under pressure in the past two weeks as the greenback strengthened to record levels, with the metal hitting its lowest level in more than two years earlier on Wednesday.
• Euro-area economic confidence dropped to the lowest since 2020 this month as record inflation and the prospect of the first winter in a generation without Russian gas cast a shadow over the region. A measure of sentiment compiled by the European Commission fell to 93.7 in September. That’s less than the median forecast in a Bloomberg survey of economists and the lowest since November 2020. The outcome marks the seventh consecutive monthly decline.
• As global central banks hike interest rates, forward-looking real yields are finally coming out of sub-zero levels. And that’s good news for the fight against runaway inflation. From Germany to Italy and the UK, 10-year yields adjusted for so-called breakeven rates — a market expectation of inflation over the long term — are surging to multi-year highs. That’s a signal monetary conditions are tightening, potentially weighing on consumer prices.
• The London Metal Exchange is launching a discussion paper that marks the first step toward a potential ban on new supplies of Russian metal, according to people familiar with the matter. Any move by the LME to block Russian supplies could have significant ramifications for the global metals markets, as the country is a major producer of aluminum, nickel and copper. Fears that sanctions could disrupt Russian nickel exports helped trigger a massive short squeeze on the LME in March.
• The pound snapped a two-day gain and most UK government bonds dropped as Prime Minister Liz Truss defended her package of sweeping tax cuts, reinforcing investor concerns over the country’s finances and inflation outlook.  The 10-year bond yield surged as much as 21 basis points to 4.22%. The pound traded 1% lower after Truss spoke, before paring some of the decline. The currency is on track for its worst month since the UK voted to leave the European Union in June 2016.
• China’s fiscal stimulus this year now tops the amount issued in 2020, according to Barclays Plc., as the government boosts spending, especially on infrastructure, to bolster a faltering economy.  Barclays estimates the shortfall on the broadest measure of the budget — known as the augmented fiscal deficit — amounts to 9.2% of gross domestic product this year, compared with 8.4% in 2020.
• Japanese Prime Minister Fumio Kishida said he will instruct the government on Friday to come up with an economic stimulus package by the end of October to help mitigate the impact of inflation and aid growth. The measures will tackle price rises and the weak yen, encourage structural pay increases, and promote investment and reform for growth, he said, speaking to reporters in Tokyo Thursday evening.
• Porsche AG attracted so much demand for its landmark 9.4 billion-euro ($9.1 billion) initial public offering that almost half the investors that put in orders were not allocated shares in the deal, according to people familiar with the matter. The IPO, Europe’s largest in over a decade, received orders from about 650 investors, but half of them were “zeroed” out — parlance for requests for shares that aren’t fulfilled, the people said, asking not to be identified discussing confidential information. A spokesperson for Porsche declined to comment.
• Another leak on the Nord Stream 1 and 2 natural gas pipelines in the Baltic Sea has been disclosed, bringing the total number of ruptures to four, according to the Swedish Coast Guard’s Command Center. Sweden’s Coast Guard became aware of two leaks in the pipelines in the country’s exclusive economic zone on Monday, at the same time they learned of two in Denmark, a spokesman said by phone.
•  Ian was downgraded to a tropical storm as it continued to move northeastward across central Florida, with a massive and deadly surge of water and catastrophic winds that are poised to make it one of the costliest storms in US history. The storm hurricane made landfall west of Fort Myers near Cayo Costa shortly after 3 p.m. Wednesday local time as a Category 4 hurricane. Nearly all of Florida, home to 21 million people, braced for widespread blackouts and floods. More than 2 million people have been ordered or urged to flee. The storm is expected to cause more than $67 billion in damages and losses and global shipping is already diverting from its path.
• Congressional Democrats are urging the Treasury Department to ignore appeals by lobbyists to weaken the 15% minimum levy on domestic corporations. Senators Elizabeth Warren, Angus King, Michael Bennett, and Representative Don Beyer, asked Treasury Secretary Janet Yellen and her staff to take an aggressive stance against companies that seek carve-outs or other modifications to the minimum levy.
• Jefferies Financial Group Inc. said profit dropped 52% in its latest quarter as Wall Street contends with the persistent slump in dealmaking and capital markets activity. Total investment banking revenue dipped 44% to $681.8 million, the New York-based firm said Wednesday in a statement. While the results topped the $672 million average of analyst estimates compiled by Bloomberg, the firm warned its investment-banking pipelines remain similar to last quarter’s levels and noted “realization remains dependent on market conditions.”
• SoftBank Group Corp. has started laying off employees at its loss-making Vision Fund and is expected to cut at least 30% of its staff, according to people familiar with the matter. The Tokyo-based company began telling some workers of the reductions Thursday with at least 150 likely to be affected, said the people, asking not to be named as the information is not public. The Vision Fund unit, headquartered in London, had about 500 employees including staff at the Latin America fund.
• There’s yet another ominous sign for markets — the S&P 500 Index is headed for its third straight quarter of losses for the first time since 2008-09, when global markets were roiled by a financial crisis.  Though there isn’t necessarily a full-blown crisis yet, the big reversal in gains from the summer months has prompted financial market gurus at Morgan Stanley to Blackrock to flag one coming. Back in 2009, the global financial crisis saw the S&P 500 fall for six consecutive quarters, erasing 48% of its value.
• The Biden administration’s top energy official said the US will redouble its efforts to break free from its reliance on Russian nuclear fuel. Secretary of Energy Jennifer Granholm said the White House is prioritizing development of domestic uranium-enrichment capacity and predicted key legislators will fall in line, so that a fuel-manufacturing plan can be in train by 2025.

*All sources from Bloomberg unless otherwise specified