The Daily – April 11, 2023

April 11, 2023

Daily Market Commentary

Canadian Headlines

• US gold giant Newmont Corp. has made a fresh bid for Australian rival Newcrest Mining Ltd., sweetening its record offer to A$29.4 billion ($19.5 billion) to bring closer the prospect of a precious metal behemoth. The revised proposal, which comes two months after Newcrest rejected Newmont’s earlier $17 billion all-stock offer, would give Newcrest holders 0.4 shares in the world’s largest gold miner for each held. The deal also allows Newcrest to pay a franked special dividend of up to $1.10 per share. That adds up to a combined implied value of A$32.87 per share, representing a more than 46% premium to Newcrest’s undisturbed price before February’s bid.  The deal — the largest gold mining takeover, if completed — is key to Newmont’s effort to increase output and extend its lead over other bullion mining rivals like Barrick Gold Corp., increasing its appeal to generalist investors. It will also increase Newmont’s exposure to copper, a key material in the clean energy transition, at a time when analysts are predicting major shortages of the wiring metal over the coming decade. Newcrest wants copper to make up more than 50% of revenue by the end of the decade, up from around a quarter now.
• Softchoice Corp. on Tuesday said it appointed as chief financial officer Jonathan Roiter, the former finance chief of Canadian online meal kit delivery company GoodFood Market Corp. Effective June 1, Mr. Roiter would succeed Yota Skederidis, who has been interim chief financial officer of the Canadian information technology software company since the departure of Bryan Rocco in September. GoodFood Market said in late March that it would promote Roslane Aouameur to succeed Mr. Roiter as chief financial officer. In January, Softchoice promoted then-Chief Operating Officer Andrew Caprara to the role of chief executive succeeding Vince De Palma, who transitioned to executive chairman of the board.

World Headlines

• European stocks rose to the highest level in over a month after the Easter holiday as traders assessed the path of Federal Reserve monetary policy, with growing bets that most global central banks may be either close to a peak or already done with interest-rate hikes. The Stoxx Europe 600 climbed 0.6% by 11:09 a.m. in London to the highest since March 7. Miners and automakers led gains today, while more defensive sectors, like healthcare and food, lagged after outperforming in recent weeks. Glencore Plc advanced, giving miners a boost, as copper rose, with investors weighing the possibility of more stimulus in Chin and Teck Resources Ltd. stepped up efforts to fend off a $23 billion takeover attempt from the company. European shares are reopening following a long Easter holiday weekend, with investors embracing optimism that the rate-hiking cycle may be nearing an end. Any pause by the Federal Reserve after at least one more increase in May could cement a turn in what has been the most aggressive tightening the world has seen in decades.
• US equity futures struggled for direction as investors braced for inflation data and corporate results that could confirm fears about the health of the financial system. Contracts on the tech-heavy Nasdaq 100 flipped to a loss while those on the S&P 500 gave up early gains to trade flat. The yield on policy-sensitive two-year Treasuries slipped below 4%, backtracking some of its climb Monday as traders positioned for another interest-rate hike. The Federal Reserve appears on track to keep raising rates despite recent bank strains, with resilient labor markets and higher oil prices holding sway for policymakers focused on their price-stability mandate. Markets are pricing for a strong likelihood the Fed will raise borrowing by a quarter-point May 3 to contain inflation, after US payrolls rose at a firm pace last month and the unemployment rate dropped. Wednesday’s report on consumer prices, expected to show a 0.4% monthly increase in the core consumer price index, could cement the Fed’s rate path.
• Asian stocks rose, on track for a third day of gains, amid a report Warren Buffett plans to boost investment in Japan while the Bank of Korea kept interest rates on hold. The MSCI Asia Pacific Index climbed as much as 1.1%, with Alibaba Group and South Korea’s LG Chem among the biggest contributors. Japanese stocks gained after the Nikkei reported Buffett is weighing investment beyond his stakes in trading houses, which he recently increased. South Korean shares advanced as the central bank held policy, though it said it intends to remain in “restrictive” territory to combat inflation. Australian equities were also among the biggest regional gainers as data showed strong consumer confidence and business sentiment.
• Oil rose as appetite for risk assets pushed broader markets higher, ahead of key data this week that will shed light on supply-demand trends following the surprise OPEC+ production cuts. West Texas Intermediate advanced above $80 a barrel, recouping some of Monday’s decline. The dollar slipped, helping make commodities that are priced in the currency more attractive. The halt of almost half a million barrels a day of crude supply from Iraq’s semi-autonomous Kurdistan region is into its third week, and there are signs more negotiations are needed with Turkey before exports can resume.  Any delay in these flows returning to the market will add to supply concerns with the Organization of Petroleum Exporting Countries and its allies kicking off production cuts next month. It has already helped drive oil higher from a 15-month low in March, while a key pricing spread for benchmark Brent crude has jumped in recent days to signal a bullish market.
• Gold advanced as the dollar weakened, with investors awaiting fresh economic data for clues on the Federal Reserve’s next interest-rate move. A strong US jobs report on Friday showed resilient labor demand, increasing the likelihood the central bank will implement another rate hike. That boosted pressure on non-interest bearing gold. Data on inflation and retail sales due this week will give more hints on whether the Fed will continue monetary tightening. Spot gold rose 0.6% to $2,002.94 an ounce as of 12:06 p.m. in London after dropping almost 1.5% over the previous two trading sessions. The Bloomberg Dollar Spot Index dipped 0.3%. Silver, palladium and platinum also gained.
• Bitcoin climbed above $30,000 for the first time since June 2022, bolstered by bets on easier monetary policies that have made cryptocurrencies standout performers this year. Bitcoin is now up 82% since Dec. 31, handily beating the Nasdaq 100 tech index’s 19% gain. Gold, another investor favorite this year, has climbed 9.6%. Crypto’s rapid ascent has seen Bitcoin vault past where it stood when hedge fund Three Arrows Capital imploded last summer — yet it remains more than 50% below its all-time high in November 2021. Underpinning Bitcoin’s partial comeback are expectations that the banking crisis that erupted in the US in March will force the Federal Reserve to hit pause on rate increases. That’s boosted the view among Bitcoin bulls that the token stands to gain from lower real interest rates, and that it offers shelter from turmoil in traditional finance.
• More US small businesses reported having greater difficulty getting a loan in March after multiple bank failures led to a further tightening of credit conditions. A net 9% of owners who borrow frequently said financing was harder to get compared to three months earlier, the most since December 2012, according to a survey from the National Federation of Independent Business out Tuesday. The same share expects tougher credit conditions in the next three months, matching the highest level in a decade. The collapse of four banks in March, most notably Silicon Valley Bank and Signature Bank, prompted many lenders to tighten standards on business loans. That’s made it even more difficult for smaller firms to borrow, compounding what was already a tough financing environment after a year’s worth of interest-rate hikes from the Federal Reserve.
• KKR & Co. agreed to buy a minority stake in FGS Global, continuing a trend of private equity funds betting on communications advisers amid rising demand for their services from companies, governments and financial institutions.  KKR is purchasing the stake from WPP Plc, as well as exiting investor Golden Gate Capital and some employees, according to a release on Tuesday, which confirmed an earlier Bloomberg News report. The deal values the communications specialist at $1.43 billion.  FGS was formed through the 2021 merger of Finsbury Glover Hering and US rival Sard Verbinnen & Co. The company is led by Chief Executive Officer Alex Geiser and co-chaired by Finsbury founder Roland Rudd, Carter Eskew and George Sard.
• Britain’s money-supply economists, who emerged from obscurity in the pandemic by correctly anticipating sky-high inflation before anyone else, are sounding the alarm again.  Money supply growth is collapsing in the UK, eurozone and US, and they read that as a warning of recession and deflation. Central bankers have raised interest rates too far and, if the so-called monetarists are proved right again, they say there should be a “clear out” of officials. Those views are held by British economists Simon Ward, economic adviser to Janus Henderson, and Tim Congdon, the UK’s leading voice on the subject and once an adviser to Margaret Thatcher when she was prime minister.
• Blackstone Inc. has closed on its largest global property drawdown fund, targeting opportunistic deals across sectors such as rental housing, hospitality and data centers. The company secured $30.4 billion of total capital commitments for its latest global real estate fund, called Blackstone Real Estate Partners X, according to a statement Tuesday. The real estate market has come under pressure over the past year due to a pullback across commercial-property lending, as borrowing costs skyrocketed. At the same time, the stocks of public real estate investment trusts have also suffered amid uncertainty in the market and increasing concerns about certain property types such as offices. The firm started to raise money for the fund last year. Three of its strategies — global, Asia and Europe — now have a total of $50 billion in capital commitments, the firm said. Blackstone Real Estate’s portfolio is about 80% concentrated in properties such as logistics, rental housing, hospitality, lab offices and data centers.
• Apple Inc. Chief Executive Officer Tim Cook has scheduled a trip to open the iPhone maker’s first stores in India next week, underscoring the company’s ambitions for the country as a growth market and manufacturing base. Cook is likely to preside over the opening of the twin outlets in India’s financial and political capital, people familiar with the matter said, asking to remain anonymous discussing private plans. Apple said Tuesday it’ll open a store in Mumbai on April 18 and another in New Delhi on April 20. The trip comes seven years after the CEO’s maiden visit in 2016 and coincides with the world’s most valuable company hitting important markers: India sales of iPhones reaching an all-time high and annual iPhone exports from the country reaching billions of dollars. Apple is betting on India to diversify its assembly operations beyond China amid strained Beijing-Washington relations.
• Airbus SE delivered 127 jetliners in the first quarter, a 9% drop from a year earlier, as parts shortages spilled into 2023. Deliveries totaled 61 aircraft in March, the world’s biggest planemaker said Tuesday. The first-quarter drop will make it harder for Airbus to reach its goal of increasing shipments to 720 this year. Meeting output targets is crucial for cash flow at Airbus and Boeing Co. because the bulk of payments are due upon delivery. Airbus got off to a slow start in January, delivering just 20 aircraft after supply chain constraints held up production. The company will need to make up the shortfall with higher output over the rest of the year, Jefferies analyst Chloe Lemarie said in a research note last week.
• Group of Seven nations are butting heads over the timeline for phasing out coal-fired power ahead of next weekend’s summit of top energy and environmental ministers. Draft communique documents circulated before negotiations resume Tuesday and seen by Bloomberg News show the European Union, the US and Japan expressed reservations about a UK proposal to set a 2030 deadline for phasing out unabated domestic coal power generation. The language, which won France’s backing, also would have recognized the need to “cancel the pipeline of new global coal power generation projects,” and therefore have the G-7 countries committing to end construction of new domestic coal-fired power plants and work with international partners to end similar efforts globally. While Japan, the US and EU indicated reservations, Germany offered alternative language that would have emphasized the goal of phasing out domestic unabated coal power generation “ideally by 2030” or “in the 2030s.” Japan, which hosts the G-7 this year, has proposed reaffirming the commitment in last year’s G-7 leaders’ statement  “to achieving a fully or predominantly decarbonized power sector by 2035.”
• Warren Buffett is turning his focus back to Japan, with the billionaire investor telling Nikkei that he’s mulling a boost to his stock investments in the country shortly after Berkshire Hathaway Inc. kicked off a yen bond sale. Shares of Japan’s major trading houses jumped after Buffett said he has raised his holdings in them to 7.4% from about 5% in 2020 and is looking to increase his exposure to the country’s stocks, according to the Nikkei report. The 92-year-old Buffett is currently in Japan and plans to meet with different company leaders and “just have a discussion around their businesses and emphasize our support,” he told Nikkei, without naming the companies.
• CarMax Inc. beat Wall Street’s earnings estimates as the auto retailer squeezed more profit from each vehicle, countering a sales drop and softening used-car prices. The Richmond, Virginia-based dealer chain reported adjusted profit of 44 cents a share in the fiscal fourth quarter, well above the 20-cent average of analysts’ estimates compiled by Bloomberg but down from 98 cents a share a year ago. Gross profit per retail used unit came to $2,277 in the period ended Feb. 28, up $82 from a year ago, the retailer said in a statement. Shares of CarMax jumped 7.3% as of 7:15 a.m. in New York before the start of regular trading. The stock had climbed 8.2% this year as of the close on Monday.
• Shares of Alibaba Group Holding Ltd.’s units that may soon become public are expected to be in high demand as the breakup unleashes value in the wake of regulatory woes, investors said. China’s online commerce leader last month announced plans to split its $220 billion empire into six business units, a move seen potentially boosting Hong Kong’s IPO market. The shares have since climbed at least 17%. Interest in the units is expected to be high despite the slump in shares of famed Chinese tech firms like Didi Global Inc. and Kuaishou Technology, given the timing and the difference in their assets, investors said. Didi has lost more than 70% since its June 2021 New York debut, just before a crackdown by Beijing snared large firms seeking funds abroad. Kuaishou has dropped some 50% since its Hong Kong debut two years ago.