October 18, 2022

Daily Market Commentary

Canadian Headlines

  • One of Canadian Prime Minister Justin Trudeau’s longest-serving economic advisers said progressive governments need to reckon with the unequal impact of inflation, arguing it requires carefully-targeted spending. Tyler Meredith, who left government last month after nearly seven years, warned that Canada’s 40-year-high inflation rate “hurts, most importantly, the people at the bottom end of the income distribution.” It therefore risks undermining Trudeau policies that have sought to reduce wealth inequality. “As a progressive, I care about those things,” Meredith said during an hour-long interview last week at Bloomberg’s Ottawa bureau. He discussed Trudeau’s record, the Liberal government’s extraordinary pandemic spending, and where Canada’s economy is headed now.
  • CIBC will name Bill Morneau to its board of directors effective November 1, according to a statement. Morneau previously served as Canada’s Minister of Finance and a Member of Parliament from 2015-2020.
  • The loonie weakened ahead of a Canadian housing report while the US currency struggled against most other G-10 currencies following gains in global stock prices that detracted from the greenback’s safe haven appeal. US equity futures climbed, signaling an extension of Monday’s gains on Wall Street.

World Headlines

  • European equities extended gains for a fourth day amid a broader recovery in risk sentiment after the S&P 500 Index closed above a key technical level and UK markets were soothed by Prime Minister Liz Truss’s U-turn on much of the economic program she announced only last month. The Stoxx Europe 600 climbed 0.2% at 10:40 a.m. in London. Automotive and industrial stocks outperformed, while basic resources and personal care sectors lagged behind. The UK’s more domestically focused FTSE 250 Index erased some of its earlier gains after the Bank of England denied a Financial Times report saying the central bank is delaying the start of its program of gilt sales. Investors have offloaded stocks this year amid fears of a recession over hawkish central banks, soaring prices and an energy crisis. Risk assets recovered in recent days as investors focused on earnings, cheaper valuations enticed buyers and concerns about UK markets eased after new Chancellor of the Exchequer Jeremy Hunt dismantled much of Truss’s economic program that had fueled a massive selloff.
  • US equity futures climbed, signaling an extension of gains on Wall Street. The pound and UK gilts weakened after the Bank of England said a report about it delaying the sale of government bonds until the market has calmed was “inaccurate.” Contracts on the S&P 500 rose more than 1.5% after the underlying gauge closed above a key technical support level on Monday. Those on the Nasdaq 100 were up 1.8%. Goldman Sachs Group Inc. gained in premarket trading after third-quarter trading revenue beat expectations. European stocks were higher for a fourth day. A Bloomberg gauge of the greenback steadied, while the pound weakened by 0.5% after the BOE denied the Financial Times report that the central bank is pushing back the start of its quantitative tightening. The yield on the UK 10-year bond rose seven basis points to 4.05%. Treasury yields edged lower.
  • Asian equities rebounded, led by advances in tech stocks following a rally on Wall Street, as possible delays in bond sales by the Bank of England bolstered investor sentiment. The MSCI Asia Pacific Index rose as much as 1.5%, buoyed by TSMC, Tencent and Alibaba. All sub-gauges except real estate climbed. Most benchmarks advanced, with notable gains in Australia, Japan, Hong Kong, and South Korea. Concerns that China is delaying the release of its 3Q GDP report amid the on-going party congress failed to quell the mood.
  • Oil switched between gains and losses as investors continued to weigh a tight market against concerns over a global economic slowdown. West Texas Intermediate surrendered earlier gains to trade near $85 a barrel. Crude remains within the wide range it has been trading in for the last month, and turned lower on Tuesday as the dollar pared an earlier decline. The US is moving toward releasing further barrels from its strategic oil reserve in order to bolster supply. Crude’s choppy trading in October has seen the market caught between two divergent factors. Key time spreads are signaling tightness before OPEC+ output cuts from November, but bearish drivers such weak Chinese demand and aggressive monetary policy from central banks continue to drag on the market.
  • Gold fluctuated between gains and losses as investors weighed the increasing risk of a global recession against the Federal Reserve’s tightening path. Bullion has had a wild ride this year, tumbling almost 20% since a March peak as the Federal Reserve aggressively tightened monetary policy, prompting investors to seek shelter in the US dollar. The non-yielding metal, which typically has a negative correlation with the dollar and rates, has been pressured by the stronger greenback.
  • Mobileye Global Inc., the self-driving technology company owned by Intel Corp., is targeting a valuation of about $16 billion, far below its previous target. Intel had expected the initial public offering to value Mobileye at as much as $50 billion before trimming that to around $30 billion, Bloomberg News previously reported. The company plans to sell 41 million shares for $18 to $20 each, raising $820 million according to a filing on Tuesday with the US Securities and Exchange Commission. Despite the drop in valuation, the listing is set to be one of the year’s biggest IPOs. Amid heightened volatility and disappointing debut performances of last year’s listings. IPO volume in the US has plummeted to $22.3 billion this year, compared with $277 billion at this point in 2021, according to data compiled by Bloomberg.
  • Renault SA is in the final stages of concluding a deal this week to reduce its stake in Japanese partner Nissan Motor Co. and reshape their two-decades-old alliance, a person familiar with the negotiations said. The pact would allow the French carmaker to proceed with a planned carve-out of its electric-vehicle business. Both sides are set to sign a non-binding agreement after details were largely finalized late last week, said the person, who asked not to be identified because the plans aren’t public. Although an event is being planned in Tokyo on Nov. 15 to announce the deal, discussions are ongoing and a final agreement could still be delayed, people familiar with the talks said. Shares of Renault rose as much as 3.2% in morning trading on Euronext.
  • Hyundai Motor Co. and affiliate Kia Corp. will reflect provisions totaling 2.9 trillion won ($2 billion) in their third-quarter earnings as problems relating to their Theta GDI engine continue to weigh on the South Korean automakers. Hyundai will set aside 1.3 trillion won and Kia’s cost provision will be 1.54 trillion won, the companies said. That accounts for 44% and 66% of their estimated operating profits for the third quarter, respectively, according to data compiled by Bloomberg. Hyundai and Kia recalled as many as 1.2 million vehicles in the US in 2017 due to engine issues, setting aside 3.36 trillion won in provisions in 2020 because of costs related to a 2019 settlement of a class-action lawsuit brought by American drivers over an alleged defect that caused certain engines to catch fire.
  • The sentiment on stocks and global growth among fund managers surveyed by Bank of America Corp. shows full capitulation, opening the way to an equities rally in 2023. The bank’s monthly global fund manager survey “screams macro capitulation, investor capitulation, start of policy capitulation,” strategists led by Michael Hartnett wrote in a note on Tuesday. They expect stocks to bottom in the first half of 2023 after the Federal Reserve finally pivots away from raising interest rates. “Market liquidity has deteriorated significantly,” the strategists said, noting that investors have 6.3% of their portfolios in cash, the highest since April 2001, and that a net 49% of participants are underweight equities.
  • Johnson & Johnson reported third-quarter earnings that beat analyst estimates as revenue grew in its drugs and medical-device businesses despite pressure from the stronger dollar. The diversified health-care company, which is in the process of separating out its consumer division, reported sales results on Tuesday that were roughly in line with Wall Street’s estimates for the pharmaceutical and medical-device businesses that it is retaining. The company cut its sales forecast for the year and narrowed its adjusted earnings outlook. J&J said sales were negatively impacted by 6.2% due to the strong dollar in the quarter. The profit forecast was previously cut in both April and July due to currency fluctuations.
  • A section of Nord Stream spanning at least 50 meters (160 feet) seems to be missing in the area of the Baltic Sea where detonations caused a rupture in the gas pipeline last month, Swedish newspaper Expressen reported. Expressen filmed the underwater pipeline using a submersible drone operated by Norwegian company Blueye Robotics. The drone focused on the damage to Nord Stream 1 just outside Sweden’s territorial waters where an explosion measuring 2.3 on the Richter scale occurred three weeks ago. The drone discovered “major impact” on the seabed surrounding the damaged pipeline, which crosses the Baltic Sea to Germany from Russia and has been the focus of probes by authorities in Germany, Sweden and Denmark. The pipeline’s operator, Nord Stream AG, didn’t immediately respond to a request for comment on the video.
  • Foxconn Technology Group took the wraps off two new electric vehicles on Tuesday, prototypes that embody the iPhone maker’s ambitions of carving out a slice of a market led by the likes of Tesla Inc. The company, whose main listed arm is Hon Hai Precision Industry Co., unveiled the Model B crossover SUV and Model V pickup truck at its event in Taipei. Foxconn founder Terry Gou, 72, introduced the Model B by driving it onto the stage. The pickup will be produced in Taiwan, Thailand and the US, Hon Hai Chairman Young Liu said. Foxconn is hoping to replicate the way it muscled into electronics assembly to become the biggest manufacturing partner for Apple Inc. and other global brands. It’s aiming to build clients’ electric vehicles from the chassis up, with no plans to sell vehicles under its own brand.
  • The Bank of England denied a Financial Times report saying the central bank is delaying the start of its program of gilt sales, prompting a selloff in UK bonds. The newspaper reported earlier Tuesday the central bank was set to push back the start of its planned sales of government bonds beyond the current date of Oct. 31 because gilt markets have been “very distressed.”  The statement doesn’t rule out the prospect of the BOE announcing a delay at a later time. Policymakers led by Governor Andrew Bailey have always said they would be willing to change tack in times of market stress.
  • Credit Suisse Group AG is exploring a sale of its US asset-management operations and moving closer to securing financing for other businesses, as it nears a strategy revamp that’s likely to fundamentally reshape it. The Swiss bank has recently begun a sales process for the US operations of Credit Suisse Asset Management, or CSAM, according to people familiar with the matter. No final decision has been made and Credit Suisse could opt to hold onto the unit, the people said, asking for anonymity to discuss internal considerations. Abu Dhabi and Saudi Arabia, meanwhile, are separately weighing whether to put money into Credit Suisse’s investment bank and other businesses to take advantage of depressed values, other people said. Deliberations are at an early stage and it isn’t clear if they’ll lead to firm offers.
  • Hasbro Inc., the maker of Transformers toys and Peppa Pig entertainment, reported earnings that missed estimates despite providing a business update just a couple of weeks ago. Third-quarter profit came to $1.42 a share, excluding some items. Analysts expected earnings per share of $1.64, according to a Bloomberg consensus. Sales fell to $1.68 billion, slightly less than the $1.69 billion average of analysts’ estimates, as the toy sector pulls back from a pandemic boom driven by parents seeking entertainment for homebound children. Hasbro says advanced shipments of products in anticipation of supply chain problems and a Magic:The Gathering release in the fourth-quarter this year versus third-quarter last year hurt results.
  • AT&T Inc. Chief Executive Officer John Stankey doesn’t usually fire up the company jet for a mere $39 million network expansion project. But there he was, in Evansville, Ind., sporting a blue vest with an AT&T Fiber logo as he shook hands with local politicians and posed for photos with residents and employees. Skipping a day’s worth of meetings at the Dallas headquarters to hobnob at a local groundbreaking indicates just how important Stankey considers the expansion of AT&T’s fiber network; it’s part of his strategy to refocus the company around offering greater telecommunications connectivity now that it’s left behind its dream of being a media powerhouse. Stankey’s sights are now set on a pool of almost $100 billion in federal funds allocated for broadband deployment.

 

 

*All sources from Bloomberg unless otherwise specified