April 12, 2022
Daily Market Commentary
- Canadian stocks fell as real estate slumped and energy stocks dropped the most in one month. The S&P/TSX Composite slid 0.4% to 21,790.49 in Toronto. The move follows the previous session’s increase of 0.2%. Brookfield Asset Management Inc. contributed the most to the index decline, decreasing 2.3%. MTY Food Group Inc. had the largest drop, falling 6.7%.
- Canada’s dollar has scope to make up ground against some of its biggest commodity-related peers if the country’s central bank provides an appropriate shot of hawkishness this week. While the currency has received some support from higher oil and resource prices in the wake of the Russia-Ukraine war, it has lagged the likes of the Australian dollar and the Norwegian krone, and some analysts reckon that the so-called loonie remains unduly weak. This Wednesday’s Bank of Canada meeting, which is widely expected to deliver a half-point interest rate hike, could well prove a catalyst for fresh moves higher.
- A consortium led by HRL Morrison & Co. and Brookfield Infrastructure Partners is nearing a A$3.4 billion ($2.5 billion) agreement to take Australian fiber cabling firm Uniti Group Ltd. private, according to people familiar with the matter. The Adelaide-based residential broadband provider could announce a deal as soon as this week, said the people, who asked not to be identified as the discussions are confidential. The companies have been in exclusive negotiations since the consortium improved its offer to A$5 per share, from A$4.50 each that it first tabled in March. While talks are at an advanced stage, they could still be delayed or fall apart, the people said. Representatives for Uniti and Morrison declined to comment. A spokesperson for Brookfield did not immediately respond to a request for comment.
- European stocks dropped after the yield on the 10-year U.S. Treasury soared to its highest since 2018, fueled by fears of surging inflation and tighter monetary policy. The Stoxx Europe 600 Index was down 0.5% at 12:07 p.m. in London after earlier slumping 1.4% in its biggest intraday slide in nearly a week. Healthcare and personal care stocks were among the biggest decliners. Energy shares surged as oil rebounded, while technology stocks tracked a rebound in U.S. Nasdaq 100 futures. The European equity benchmark has been under pressure this year from concerns about slowing growth due to the war in Ukraine, soaring inflation and a hawkish tilt in central bank policies. U.S. consumer price data will be a key test for traders later in the day, with figures expected to show prices rising 8.4%, the fastest annual rate since early 1982.
- U.S. equity futures and Treasuries stabilized on Tuesday after the 10-year yield jumped to the highest since 2018 ahead of an inflation print that’s set to bolster the case for aggressive Federal Reserve policy tightening. Contracts on U.S. benchmarks erased declines to trade little changed, with major technology and internet stocks slightly higher in premarket trading. Tech also outperformed in Europe, where the Stoxx 600 eased a drop of as much as 1.4%. Asian stocks fell for a second day, while China rebounded. U.S. Treasuries pared a decline that took the 10-year yield to 2.83%, as the global bond rout continued. A dollar gauge paused its longest winning streak since 2020. Both trends reflect expectations that the Fed will implement its fastest monetary tightening since 1994. The euro weakened.
- Asia’s stock benchmark pared much of its early drop on Tuesday, with Chinese shares bouncing back on speculation that policy makers will step in to support the economy. The MSCI Asia Pacific Index was down 0.6% as of 6:00 p.m. in Singapore after falling as much as 1%. The CSI 300 Index advanced by the most this month as traders bet that authorities may step up monetary-policy easing or relax some of the most severe Covid-19 restrictions. The broader risk-off sentiment remained, however, as lockdowns in China and higher U.S. interest rates dim the region’s growth prospects. Industrial firms were among the biggest drags on the MSCI measure, while chipmakers and electronic-hardware stocks followed U.S. tech peers lower as the 10-year Treasury yield climbed above 2.8%.
- Oil staged a partial recovery, after dropping 4% on Monday, as traders weighed China’s demand outlook following the easing of some virus restrictions in the financial hub of Shanghai. West Texas Intermediate futures rose more than 3% to trade above $97 a barrel. Shanghai has eased lockdowns for some housing complexes, but most people remained confined to their homes, and authorities have indicated they will reimpose restrictions if virus cases climb. Oil has now given up almost all its gains since Russia’s invasion of Ukraine in late February. The oil market’s structure has softened markedly in recent weeks, as the spike in the price of physical barrels that emerged after war broke out gives way to calmer conditions. Differentials for supplies from the Middle East to West Africa have declined.
- Gold steadied after four straight days of gains ahead of the release of U.S. inflation data that may impact the outlook for the Federal Reserve’s monetary policy. Expectations for rapid policy tightening have weighed on gold in recent weeks, even as bullion has been buoyed by demand for safe havens following Russia’s invasion of Ukraine. Benchmark 10-year treasury yields rose to the highest since 2018 on Tuesday, diminishing the appeal of non-interest bearing gold. While the U.S. consumer price index may peak in March, according to Bloomberg Economics, inflationary pressures will remain stubbornly high, keeping the Fed firmly committed to rate hikes. Spot gold was little changed at $1,953.34 an ounce at 9:41 a.m. in London, after rising 0.3% Monday. The Bloomberg Dollar Spot Index rose for a ninth day. Palladium and platinum dropped, while silver was steady.
- Russia’s war with Ukraine will slow the world economy’s nascent rebound from the pandemic, reduce goods trade and potentially lead to a broader splintering of global commerce, the World Trade Organization said. The Geneva-based trade body lowered its projection for growth in merchandise trade this year to 3%, down from its previous projection of 4.7%. The WTO also said Tuesday it expects trade growth of 3.4% in 2023 and cited a number of downside risks to its assessment, including food insecurity and a possible resurgence of the virus. The WTO expects world gross domestic product to expand by 2.8% this year, down 1.3 percentage points from the previous forecast of 4.1%. GDP growth should pick up to 3.2% in 2023, close to the average rate of 3% in the decade before the pandemic, the WTO said.
- President Joe Biden plans to allow expanded sales of higher-ethanol gasoline in an effort to lower fuel prices and counter the political blowback from them. Biden is set to unveil the initiative during a Tuesday visit to a Poet LLC ethanol mill in Iowa — the top U.S. corn state. The change, which would apply on a temporary basis over the summer months, would waive anti-pollution restrictions that effectively block warm-weather sales of E15 gasoline in areas where smog is a problem. The shift could yield a modest effect on pump prices given that in areas where’s it already available, E15 sells at a 5- to 10-cent per gallon discount to regular gasoline, said Patrick DeHaan, head of petroleum analysis at retail tracker Gas Buddy. E15 is gasoline comprised of 15% ethanol.
- For years, Apple Inc. has been at the forefront of multi-billion dollar stock repurchases among technology mega-caps. According to Citigroup Inc. analyst Jim Suva, it may be about to raise its game. In a note published Tuesday, Suva estimated that the iPhone maker might announce a buyback of $80 billion to $90 billion, while also increasing its dividend by 5% to 10%. All eyes will be on its second-quarter results due after the closing bell on April 28. With their coffers filling fast, companies including Alphabet Inc. and Microsoft Corp. have been looking for ways to employ excess cash. Apple’s repurchases have totalled $274.5 billion, including $20.4 billion in the December quarter alone. Yet the company still has cash of more than $200 billion on the balance sheet, and with authorization to purchase up to $315 billion of stock, has scope to do a lot more.
- A husband-and-wife founding team is in discussions with banks about raising as much as $2 billion in an initial public offering for one of their startups, aiming for India’s biggest tech debut since fintech giant Paytm. OfBusiness, a startup founded by entrepreneurs Ruchi Kalra and Asish Mohapatra to help Indian enterprises buy bulk raw materials, could file initial listing documents around October, people familiar with the matter said. The startup is in talks now to raise about $400 million of pre-IPO financing in coming months, one of the people said. It’s in discussions with potential IPO arrangers including Goldman Sachs Group Inc. and Morgan Stanley and India’s Kotak, Avendus and ICICI Securities. At $2 billion, OfBusiness is aiming to pull off India’s largest tech IPO after Paytm’s. That’s despite the fintech startup’s disastrous early performance, and waning global appetite for riskier assets as the war in Ukraine and rising inflation stoke macroeconomic uncertainty.
- Global growth optimism has sunk to an all-time low, with recession fears surging in the world’s investment community, according to the latest Bank of America Corp. fund manager survey. The share of investors expecting the economy to deteriorate is the highest ever, according to the April survey. Stagflation expectations jumped to the highest since August 2008, while monetary risk increased to a historic high, BofA strategists said, after surveying 292 panelists with $833 billion in assets under management in the first week of April. The results highlight how gloom is taking hold among investors as the Federal Reserve turns more aggressive in its attempt to tame soaring inflation. The bearishness has been extreme enough to trigger BofA’s own buy signal, a contrarian indicator for detecting entry points into equities. Global stocks have been under pressure this month after rallying from lows in March as bond yields have soared.
- U.S. investment firm Capital Group sold its stakes in two of Germany’s biggest banks, depriving the industry of a shareholder that has been seen as a stabilizing force. Capital Group is divesting from Deutsche Bank AG and Commerzbank AG just weeks after it sold 900 million pounds ($1.2 billion) of Barclays Plc shares, according to people familiar with the matter. The investment firm was previously among the largest shareholders in each of the three companies, Bloomberg data show. The move by Capital Group comes as the European banking industry faces the twin challenge of rapid inflation and potential recession in the wake of sanctions imposed on Russia for its war in Ukraine. The announcement on late Monday that an undisclosed investor was selling shares in Deutsche Bank and Commerzbank hit both stocks, which were down as much as 10.8% and 9.6% respectively.
- India is planning to boost shipments to Russia by an additional $2 billion as the two nations work out a payment system in local currencies to continue bilateral trade amid sweeping international sanctions on Russia for invading Ukraine, people with the knowledge of the matter said. To do this, Prime Minister Narendra Modi’s administration is in talks with Moscow to liberalize market access for several Indian-made products, the people said, asking not to be identified as the talks are private. This comes as the two governments work toward a proposal to settle trade in rupees and rubles and look for ways to balance the trade given that India is a net importer of Russian goods. India has come under severe criticism for lifting imports of oil to take advantage of a dip in prices after U.S., Europe, Australia and Japan piled economic sanctions onto Russia in response to its war against Ukraine. President Joe Biden met with Modi on Monday and conveyed that the U.S. stands ready to help India diversify its energy imports, which would make it less reliant on Russia.
- U.K. living standards fell at the fastest pace in more than eight years in February as wages lagged further behind the rate of inflation. Average earnings excluding bonuses rose 4.1% from a year earlier, the Office for National Statistics said Tuesday. Adjusted for prices over the same period, however, they dropped 1.3%, the most since late 2013. The figures show how the soaring cost of living is depriving Britons of the benefits of a strong labor market. Unemployment fell to 3.8% in the three months through February, the lowest since the end of 2019 and matching levels not seen since the 1970s. Meanwhile, job vacancies rose to a new record of almost 1.28 million in March, reflecting an acute shortage of workers.
- Germany is debating whether to invite Prime Minister Narendra Modi to the Group of Seven summit it’s hosting in June, given India’s reluctance to condemn Russia for invading Ukraine, according to people familiar with the matter. Germany is set to include Senegal, South Africa and Indonesia as guests at the meeting in Bavaria, but India remains under consideration, the people said, asking not to be identified discussing confidential matters. One of the people said India had been on a list drawn up before the war in Ukraine started, and a final decision hadn’t been taken. India was among the more than 50 countries that abstained from a United Nations vote to suspend Russia from the UN Human Rights Council, and has not imposed sanctions on Moscow. It is a significant buyer of Russian weapons, which it says it needs to deter its neighbors China and Pakistan.
- Chinese developer Sunac China Holdings Ltd. has missed its first payment on a dollar bond since worries about the firm’s financial health emerged late last year. Bondholders hadn’t received payment for a coupon initially due Monday, according to people familiar with the matter who asked not to be identified because they’re not authorized to speak about it. Sunac has a 30-day grace period to make payment and avoid triggering an event of default, according to the bond’s offering circular. The note on which payment hasn’t occurred fell 5.1 cents on the dollar to 26.1 cents Tuesday, on pace for the biggest drop in four weeks, according to data compiled by Bloomberg. Once viewed as one of the survivors of Beijing’s sweeping clampdown on the embattled real estate sector, Sunac is at a debt-payment crossroads. China’s fourth-largest developer by sales in the first quarter of this year faces $1.6 billion of other offshore and local bond payments due through June, according to Bloomberg-compiled data. That includes three more interest payments due this month on dollar notes.
- Sri Lanka warned of an unprecedented default and halted payments on foreign debt, an extraordinary step taken to preserve its dwindling dollar stockpile for essential food and fuel imports. All outstanding payments to bond holders, bilateral creditors and institutional lenders will be suspended until a debt restructure, the finance ministry said in a statement Tuesday. The newly appointed central bank governor, Nandalal Weerasinghe, said in a briefing that authorities are seeking to negotiate with creditors and warning of a possible default.
- Bitcoin recovered to above $40,000 on Tuesday, gaining back some ground after dropping for seven days out of the past eight. The largest cryptocurrency rose 0.8% to $40,160 at 5:30 p.m. in Hong Kong, gaining steam around midday in Hong Kong after dropping earlier in the session. Ether also strengthened at around the same time, rising to just above $3,000. Some smaller coins posted larger gains, with Avalance rising 3.8% and Polkadot advancing 2.3%. Bitcoin and the broader crypto market have struggled in recent weeks as the Federal Reserve began hiking rates to combat stubbornly high inflation and geopolitical turmoil hurt risk appetite. U.S. inflation likely accelerated to 8.4% in March, the fastest pace since early 1982, data due later Thursday is likely to show, according to a survey of economists
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*All sources from Bloomberg unless otherwise specified