The Daily – November 8, 2022

November 8, 2022

 

Daily Market Commentary

Canadian Headlines

• Enbridge Inc., Bank of Nova Scotia and Bell Canada are among five issuers selling debt in the Canadian dollar corporate bond market, joining the US and European companies in unleashing a crush of new sales. The energy pipeline company raised C$2 billion ($1.48 billion) by selling securities in three portions while Scotiabank sold C$1.5 billion of senior bail-in bonds and Bell placed C$1 billion of 10-year securities, according to people with knowledge of the transactions. Brookfield Renewable Partners LP issued C$400 million of debt while retirement manager Ontario Teachers’ Finance Trust kicked off a bond sale that may price Tuesday. The spread on the Markit CDX North American Investment Grade Index, which declines as credit risk drops, tightened 1.4 basis points to 88.6 as of 2:46 pm New York time. Morgan Stanley’s Michael Wilson said polls pointing to Republicans winning at least one chamber of Congress provide a potential catalyst for lower bond yields and higher equity prices. The US is Canada’s largest trade and investment partner, so its financial markets are closely linked.

World Headlines

• European stocks edged higher as investors held off on making big bets ahead of US midterm elections Tuesday and inflation data due this week. The Stoxx 600 Index was up 0.2% by 12:00 p.m. in London after closing yesterday at its highest level in almost two months. Technology stocks led gains, with semiconductor firms outperforming as Morgan Stanley initiated coverage with overweight ratings on ASML Holding NV and BE Semiconductor Industries NV, saying the group was entering the “last innings” of a downturn. The benchmark index is on track to extend its longest weekly gaining streak in a year as focus remains on the trajectory of inflation and its impact on central bank policy decisions. The next signal will come on Thursday, when the US consumer price index for October is expected to show a slight cooling in inflation compared with the previous month.
• US stock-index futures rose as investors bet the outcome of midterm elections will support a nascent rally. Treasuries were steady before Thursday’s inflation print that may offer clues on Federal Reserve policy. Contracts on the S&P 500 and Nasdaq 100 indexes rose at least 0.2% each, after US stocks posted a second-day advance on Monday. The two-year Treasury yield was little changed at 4.73%. The dollar gained after a two-day slide. NVidia Corp. climbed in early New York trading as it began producing a processor for China. Take-Two Interactive Software Inc. fell after reducing its forecast for net bookings. Bitcoin tumbled as part of a crypto selloff. Bulls have charged back into equity markets over the past two days, taking comfort from a history of robust performance following midterm results. While polls suggest Republicans could make gains, thereby placing a check on Democratic policies, investors are busy examining multiple scenarios. The best outcome for Treasuries could be a Republican control of both the House of Representatives and Senate, while the dollar could find support should Democrats keep both chambers.
• Asian stocks rose amid investor optimism that the potential outcome of the US midterm elections could be good for equities. Chinese shares, meanwhile, pulled back after a two-day rally as pandemic concerns flared once again. The MSCI Asia Pacific Index advanced as much as 0.8%, poised for a third day of gains, driven by technology stocks. Benchmarks in Japan, South Korea and Taiwan led gains, while Indian markets were closed for a holiday. China’s Covid cases surged by the most since April, halting a recent rally in the Hong Kong and mainland markets. Chinese shares had been rising on growing hopes for an eventual reopening even as health officials reiterated a strict adherence to Covid Zero policy.
• Oil slid as investors weighed China’s renewed commitment to strict anti-Covid policies. Brent crude dropped near $97 a barrel, after losing ground in the week’s opening session as China reaffirmed its commitment to its Covid Zero strategy, including demand-sapping movement curbs and lockdowns. On Monday, more than 7,000 local cases were reported in the world’s largest crude importer, the highest daily number in more than six months. As risks to China’s demand grow, the Middle Eastern Dubai benchmark has come under pressure. Brent was heading for its biggest closing premium versus Dubai since June on Tuesday.
• Gold eased and copper rose as the dollar treaded water, with attention turning to upcoming US inflation readings which may provide fresh direction for metals markets. Aggressive Federal Reserve monetary tightening aimed at cooling inflation has weighed on metal prices this year by driving up the greenback and hurting demand prospects. Higher interest rates tend to diminish the investor appeal of commodities, which bear no interest. The October US inflation reading due Thursday will be watched carefully after the core consumer price index rose more than forecast to a 40-year high in September. Another hot print could further curb hopes of an impending slowdown in the Fed’s monetary tightening.
• A deeply divided US electorate delivers its verdict Tuesday on whether Democrats or Republicans have the right prescription to guide the nation through a bout of inflation, a looming recession and bitter splits on cultural and social issues. Voters will decide control of Congress as well as state capitals across the country, but two politicians with the most at stake aren’t even on the ballot: President Joe Biden and his predecessor, Donald Trump, who suggested at a rally on Monday that he would announce his third presidential run next week. With worries about the economy at the top of voters’ minds, Biden confronts daunting odds of staving off a Republican takeover of one or both chambers of Congress. That would stymie the rest of his unfinished agenda. For Trump, the election opens an opportunity to solidify his nativist ideology and election denialism in the GOP and pave the way for a comeback.
• Job cuts in the technology industry are accelerating, nearing levels seen in the early stages of the Covid-19 pandemic, as companies both large and small curtail ambitions and brace for tough times ahead. In recent weeks, a spate of tech companies have said they will pause hiring or cut jobs outright in the face of sluggish consumer spending, spiraling inflation and a strong dollar undercutting sales overseas. Leaders in the industry, a major driver of the global economy for the last decade, sense that they’re in a higher-risk environment, making them less willing to spend to grow their businesses like in years past. Meta Platforms Inc., the owner of Facebook and Instagram, is poised to cut thousands of workers this week, the Wall Street Journal reported. That follows Elon Musk’s decision to halve Twitter Inc.’s staff last week after acquiring the social network. Apple Inc., Amazon.com Inc. and Alphabet Inc. have all slowed or paused hiring.
• As the London Metal Exchange wades through the fallout of this year’s nickel crisis, its American rival is gaining ground. Chicago-based CME Group Inc. has successful copper and precious-metals contracts but has never managed to challenge the LME’s dominance in other industrial metals. This year, it has seen strong growth in both its aluminum and cobalt contracts — aggregate open interest in CME’s Comex aluminum futures contract is up more than 400% since the start of 2022, while open interest in the Comex cobalt contract has risen more than 500%. CME has been working to capitalize on the LME’s stumbles, offering incentives to traders to boost its aluminum contract, and in July it adjusted the timing of the daily settlement to increase arbitrage opportunities with the LME. At LME Week in London last month, it hosted a drinks party at the same time as the LME chairman’s reception and unveiled a tie-up with LME broker Marex Group to promote its aluminum contract. CME has also hinted at its plans to launch a nickel contract.
• Lordstown Motors Corp. agreed to sell a substantial stake and give two board seats to manufacturing partner Foxconn Technology Group, replacing a previous arrangement for electric-vehicle production with a new deal. Foxconn will invest as much as $170 million in the company through the purchase of preferred stock and 18.3% of common shares, according to a statement late Monday. The transaction will require a review by the Committee on Foreign Investment in the United States. The move deepens ties between the two companies, giving Foxconn a sizeable voting interest over the next two years as they pursue a newly announced EV development program together. Lordstown has sought to build its Endurance electric pickup with capital from Foxconn, which has had ambitions to grow in the EV market.
• Big C Supercenter Pcl, which runs supermarkets and convenience stores in Southeast Asia, is considering going public again in Bangkok through an initial public offering that could raise more than $500 million, according to people familiar with the matter. The Bangkok-based company is sounding out investment banks for proposals for the share sale, which could happen as soon as next year, the people said, asking not to be identified as the information is private. Discussions are ongoing and details of the potential offering such as fundraising size and timing could still change, the people said. An investor relations representative for Berli Jucker Pcl, the owner of Big C, said they have no information on the IPO plans so far.
• After a few months of calm, crypto markets are again facing fears of the kind of turmoil that ravaged digital assets in May and June. Bitcoin and other cryptocurrencies suddenly tumbled on Tuesday in Asia, driven by questions surrounding the balance sheet of Alameda Research, billionaire Sam Bankman Fried’s crypto trading house. Investors kept pulling assets from FTX, the exchange Bankman-Fried also runs, and sent its native token FTT diving as much as 32%. The turbulence, triggered by rival Zhao “CZ” Changpeng’s decision to sell a roughly $530 million holding of FTT coins, brought back memories of the contagion that ripped through crypto markets after the TerraUSD stablecoin collapsed in early May. That upheaval then gave way to months of unusual stability in cryptocurrencies.
• Carlyle Group Inc.’s profit sank in the third quarter after the exit of its top boss and market tumult rippled through the private equity firm. Distributable earnings fell about 12% to $644 million in the quarter ended September from a year ago, Carlyle reported Tuesday. Profit available to shareholders was $1.42 a share, beating the $1.07 average estimate of analysts surveyed by Bloomberg. After generating windfalls on the back of cheap debt and surging markets, the private equity industry is being tested by the consequences of rapid rate hikes by the Federal Reserve. Volatile markets are hampering buyout firms’ efforts to take companies public or sell them at big gains.
• Coty Inc. reported stronger-than-expected revenue in the most recent quarter, fueled by faster growth in its mass-market division. The mass-market business, which includes Max Factor and Covergirl brands, grew 12% on a comparable basis from a year earlier in the quarter ended Sept. 30. That outpaced the 7% comparable growth among its prestige brands such as Gucci fragrances and Kylie Cosmetics and represented a change from the previous quarter, when the higher-priced segment posted the faster expansion. Revenue in the company’s fiscal first quarter was $1.39 billion, slightly better than the $1.38 billion average of estimates from analysts surveyed by Bloomberg.
• Donald Trump said on the eve of US midterm elections that he would be making a “big announcement” next week, all but confirming his widely anticipated third White House bid that he’s been teasing for weeks. “I’m going to be making a very big announcement on Tuesday, Nov. 15 at Mar-a-Lago,” he said at a Monday night rally ostensibly for Republican US Senate candidate JD Vance in Dayton, Ohio. “We want nothing to distract from the importance of tomorrow.” The former president’s appearance Monday night played into heightened attention around a possible declaration of his 2024 plans. Much of that intrigue has been stoked by Trump himself, who urged his followers on Sunday to “stay tuned” to his appearance on behalf of Vance — one of dozens of GOP midterm candidates who has received his endorsement.
• Over the last decade, as rock-bottom interest rates depressed returns on fixed-income assets, the alchemists of Wall Street came up with a solution for investors who needed fatter yields: a whole series of complex products that spun extra basis points out of comatose markets. Now, amid the worst bond rout in at least five decades, firms have been scrambling to hedge their positions, piling into derivatives that benefit from higher volatility as they seek to limit the damage. In the process, they’re adding fuel to a fire that’s already sent one measure of rates volatility to near the highest level since the global financial crisis — outpacing the violent swings in both stocks and currencies. At a minimum, it’s raising the stakes for bond traders, multiplying their chances to both make quick scores and take losses in a market that’s been whipsawed all year by the most aggressive Federal Reserve interest-rate hikes in a generation.
• Saudi Arabia’s Public Investment Fund is among suitors weighing a final bid for network towers being sold by Qatari telecom firm Ooredoo QPSC, people familiar with the matter said. Ooredoo shares jumped in Doha trading. American Tower Corp., IHS Holding Ltd. and Helios Towers Plc are also considering binding offers for all or part of the portfolio, according to people, who asked not to be identified as the matter is private. Ooredoo’s tower assets, which span the Persian Gulf region, as well as countries including Algeria, could be valued at $3 billion to $5 billion in any deal, they said. Bids are due in the coming days, the people said. Deliberations are ongoing and there’s no certainty any of the suitors will decide to submit offers.
• Toshiba Corp. fell after the Nikkei reported that a consortium led by Japan Industrial Partners Inc. submitted a 2.2 trillion yen ($15 billion) offer for the Japanese conglomerate, a level in line with its market value. Shares dropped as much as 2% in early Tokyo trading Tuesday even as the benchmark Topix index gained. The JIP-led group, the preferred bidder for Toshiba, will get around 1 trillion yen of the funds from Japanese firms, more than 10 of which have expressed an interest in participating in the buyout, the newspaper said. JIP itself will invest 100 billion yen, it said.

*All sources from Bloomberg unless otherwise specified