April 13, 2023
- Royal Bank of Canada topped JPMorgan Chase & Co. last year to become the world’s largest backer of fossil-fuel companies, providing more fodder to critics who say the lender isn’t living up to its climate commitments. Royal Bank provided $42.1 billion of funding to the industry, up 4.2% from a year earlier, surpassing the $39.2 billion provided by JPMorgan, according to the Rainforest Action Network’s 14th-annual “Banking on Climate Chaos” report. The figures include lending as well as debt and equity underwriting. While Canada’s largest lender by assets has committed to zeroing out the emissions associated with its financing activities, environmentalists have increasingly targeted its involvement with fossil-fuel companies. The Toronto-based lender has especially come under fire for working with Canada’s oil-sands firms, which produce one of the world’s most carbon-intensive grades of crude.
- European equities inched higher on Thursday after European Central Bank’s Governing Council member Francois Villeroy de Galhau said the bank has already finished most of the interest-rate increases, while luxury stocks got a boost from LVMH’s better-than-expected sales. The Stoxx Europe 600 Index was 0.2% higher by 12:43 p.m. in London. Among sectors, consumer products surged after LVMH results, while more defensive sectors, like utilities and food, which had outperformed in recent weeks, lagged. Europe’s main equities benchmark has resumed its advance in recent weeks, putting it on course to recapture February’s high amid hopes that peak central bank rates are near. However, the sentiment remains fragile as policymakers continue to insist that their hawkish stance is warranted as they shrug off recession warning signals and as investors brace for the start of the earnings season, which is expected to show margin and revenue pressure.
- Contracts for US stocks pointed to a recovery after the S&P 500 and tech-heavy Nasdaq 100 closed Wednesday near session lows. Treasury yields stayed in a narrow range, with the two-year at 3.96%. The latest US inflation report offered evidence for both bond bulls and bears. While the year-on-year headline figure fell, core prices edged higher. Swaps markets still favor a quarter-point hike by the Federal Reserve in May, even as traders added to wagers that the Fed will cut interest rates before the end of this year at a faster pace than anticipated earlier in the week. Minutes of the Fed’s March meeting published Wednesday showed policymakers scaled back expectations for rate hikes this year after a series of bank collapses roiled markets, and stressed they would remain vigilant for the potential of a credit crunch to further slow the economy. Officials forecast a “mild recession” starting later this year “given their assessment of the potential economic effects of the recent banking-sector developments.”
- Asian stocks edged higher, helped by a rebound in Chinese shares after surprisingly strong exports data. The MSCI Asia Pacific Index was 0.1% higher as of 5:02 p.m. in Hong Kong. A gauge of Chinese shares listed in Hong Kong rose after sliding as much as 2% as data showed the nation’s exports jumped 14.8% in US dollar terms last month, and as investors downplayed concerns over shareholder stake sales in tech firms. South Korea led gains among key national equity gauges, while stocks rose in Singapore as well as Hong Kong. Japanese benchmarks also rose during afternoon trading hours amid data showing foreign investors made their largest-ever net purchase of the nation’s stocks last week.
- Oil traded near a five-month high as falling US inventories and surging Chinese imports added to signs of a tightening global market. West Texas Intermediate futures held above $83 a barrel after gaining 4.4% over the past two days. Crude inventories declined again last week at the key American storage hub in Cushing, Oklahoma, while weaker Russian oil exports and interrupted flows from Iraqi Kurdistan are reining in supplies. China shipped in the most oil in almost three years in March, indicating robust demand as the world’s largest crude importer leaves Covid Zero behind, according to official figures released on Thursday. Record Russian flows drove the increase. Crude has rebounded strongly since hitting a 15-month low in March, with widely watched timespreads pointing to a tightening of conditions. Oil’s swift resurgence has also been supported by signs that US inflation is moderating, potentially enabling the Federal Reserve to pause its rate-hike campaign.
- Gold edged up for a third day amid lingering US dollar weakness, after softer inflation spurred hopes that the Federal Reserve’s monetary-tightening cycle is nearing an end. The precious metal has rallied 1% this week to hold above $2,000 an ounce, with prices helped by a weak US currency. While Fed officials appear on track to extend interest-rate hikes next month, softer-than-expected inflation data on Wednesday has boosted bets on lower rates by the end of this year. Spot gold rose 0.7% to $2,027.10 an ounce as of 10:41 a.m. in London. The Bloomberg Dollar Spot Index dipped 0.3%. Silver and platinum were little changed, while palladium fell.
- The UK economy stalled unexpectedly in February when strikes crippled the public services, leaving little hope for a significant improvement in the lead-up to the next general election. Gross domestic product was unchanged from January instead of eking out the 0.1% growth analysts had expected, the Office for National Statistics said Thursday. The figure for January was revised up to 0.4%. Together, the readings further reduce the risk of a recession this year but leave the UK on track for an extended period of sluggishness. With inflation lingering in double digits well above the Bank of England’s 2% target, consumers are tightening their belts to adapt to a cost-of-living squeeze.
- Donald Trump is returning to Manhattan Thursday to be deposed for a second time as part of New York state’s $250 million civil lawsuit accusing the former president of manipulating the value of his assets for years, according to a person familiar with the matter. Trump is expected to arrive at the offices of New York Attorney General Letitia James in Lower Manhattan sometime before noon, said the person, who declined to be identified discussing matters that aren’t public. The visit to James’s office near Wall Street will be Trump’s second excursion to New York in less than two weeks. He appeared in court less than a mile away on April 4 to plead not guilty in a criminal case brought by Manhattan District Attorney Alvin Bragg. Trump is accused in that case of falsifying business records to hide a hush-money payment to a porn star.
- Oil supply cuts agreed by OPEC+ nations last week are putting global markets on track for a hefty supply deficit that will widen as the year progresses, the latest data from the group indicate. World markets may be under supplied by about 2 million barrels a day in the fourth quarter as a result of cutbacks announced by Saudi Arabia and its partners, according to figures in a report from the Organization of Petroleum Exporting Countries. Riyadh and its partners shocked crude traders and sent prices rallying with the supply reductions announced on April 2. OPEC officials said the move was necessary to deter speculators from making unwarranted wagers against oil, but the International Energy Agency, which advises consuming nations, called the decision a “bad surprise.”
- Credit portfolio managers are forecasting a rise in corporate defaults in the coming year while more than four-out-of-five participants see a chance of a US recession in 2023, according to a survey by the International Association of Credit Portfolio Managers. The poll found that 81% of fund managers see defaults picking up in the next 12 months, compared with 80% in the survey last December, as reduced bank liquidity and credit risk concerns land on top of macroeconomic issues. For North American corporates, 86% of respondents see defaults rising, while 91% see defaults rising in Europe. “Our members have expected to see the impact of rising interest rates for some time and we’re beginning to see more credit stress and defaults in corporate borrowers now,” Som-lok Leung, IACPM’s executive director, wrote in a statement. “Unfortunately, this could take some time to work its way through the system.”
- Xi Jinping led a parade of officials this spring vowing to revive China’s economy, hoping to repair the damage wrought by years of Covid Zero and regulatory clampdowns. Some of the world’s biggest investors are selling anyway. Two pioneering financiers of China’s private sector — and hence the country’s economic miracle — have signaled in recent days their intentions to continue pulling back from marquee investments in the country. European internet powerhouse Prosus NV registered more than $4 billion of stock in Tencent Holdings Ltd. for potential sale in Hong Kong, while news emerged that SoftBank Group Corp. is preparing to hasten its exit from Alibaba Group Holding Ltd. — the e-commerce leader that made Masayoshi Son’s name. The moves accelerate the unwinding of some of the most lucrative bets in business history. While both Prosus and SoftBank declared their over-arching plans last year and are acting partly due to reasons outside their China outlook, the latest steps have dented investor optimism over a litany of recent promises from Beijing to welcome foreign capital and loosen its grip on the tech sector. Tencent slid the most in over two months Wednesday, while Alibaba wiped out as much as $13 billion of value on Thursday.
- The White House said Thursday that data does not indicate a US recession is on the horizon, rebuffing Federal Reserve staff economists who forecast a minor contraction starting later this year. White House Press Secretary Karine Jean-Pierre said job numbers and consumer spending are strong and chalked it up to President Joe Biden’s economic plans, waving off a recession risk. Federal Reserve minutes published Wednesday indicated that “the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years.”
- Apple Inc. assembled more than $7 billion of iPhones in India last fiscal year, tripling production in the world’s fastest-growing smartphone arena after accelerating a move beyond China. The US company now makes almost 7% of its iPhones in India through expanding partners from Foxconn Technology Group to Pegatron Corp., people familiar with the matter said. That’s a significant leap for India, which accounted for an estimated 1% of the world’s iPhones in 2021. Apple is exploring ways to reduce its reliance on China as tensions between Washington and Beijing continue to escalate. Its longtime partners, who make most of the world’s iPhones from sprawling factories in China, have added assembly lines at a rapid pace over the past year, the people said, declining to be named as the information isn’t public.
- Manhattan apartment landlords are testing renters’ limits even before the market’s busiest season arrives. The median monthly rate rose to a record-high $4,175 in March, according to a report Thursday by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. That’s up $25 from the previous peak, reached in July, and almost 13% more than a year ago. Apartment hunters haven’t been able to catch a break even as more units became available and the borough’s vacancy rate continued to tick up. And the busiest and most expensive period of the year for rentals — traditionally July and August — is still ahead, signaling more record highs to come. Only an economic downturn and major job losses would shift that upward trajectory, according to Miller.
- US purchases of machines to make computer chips from Taiwan rose to a record in March, as the Biden administration works to reinvigorate the domestic semiconductor industry. Taiwan, a global hub for silicon fabrication advances, saw its chipmaking machine exports to the US rise 42.6% in March from a year earlier, reaching a new high of $71.3 million, according to data from its Ministry of Finance. Exports to China, on the other hand, plummeted 33.7%, marking the ninth straight month of decline. Home to Taiwan Semiconductor Manufacturing Co. and several other major players in the chip sector, Taiwan plays a central role in the global supply chain. Concern about over-reliance on the island, which China claims as part of its territory, prompted steps by US officials to bring more advanced chipmaking within American borders. TSMC is setting up two fabrication plants in Arizona, promoted by subsidies and local government support.
- Delta Air Lines Inc. sees profit this quarter topping Wall Street’s estimates, buoyed by steady bookings heading into the crucial summer travel season, even as it posted weaker-than-expected results for the past quarter. Adjusted second-quarter earnings will be $2 to $2.25 a share, the Atlanta-based airline said in a statement Thursday. That compares with a $1.61 analyst consensus estimate compiled by Bloomberg. Revenue and average fares continue to grow, Chief Executive Officer Ed Bastian said, even if the pace of demand across the industry has moderated from a recent post-pandemic surge.
- The leaked trove of classified US documents on Ukraine is a mixture of true, false and outdated information, the country’s Defense Minister Oleksii Reznikov said. The leak would clearly appear to benefit Russia and its supporters, he said. The Washington Post reported that the alleged leaker worked on a military base and first shared the documents within an online platform popular with gamers. US senators will be briefed next week on the classified Pentagon documents, a trove of information that could complicate support for Ukraine shortly before an expected major offensive by Kyiv. Denys Shmyhal, Ukraine’s prime minister, will meet with US Treasury Secretary Janet Yellen on Thursday while in Washington for the World Bank/IMF spring meetings. Norway will expel more than a dozen Russians it said were engaged in spying while under diplomatic cover.
- European regulators want to tighten requirements for ESG funds to address concerns that asset managers may currently be under-reporting the potential negative effects of investments. The European Supervisory Authorities are pushing for fund managers to provide more information on social impacts, decarbonization targets and thresholds for excluding companies, according to a consultation paper. The proposal also targets derivatives. The guidance, which follows a 2021 request by the European Commission to review existing standards, comes after a wave of ESG fund downgrades led to fears that the industry is taking too liberal an approach in registering products under environmental, social and governance disclosure rules. The highest ESG fund designation under the EU’s Sustainable Finance Disclosure Requirement, known as Article 9, was stripped from 40% of the market at the end of last year, feeding calls for a reassessment of the framework.
- British banks expect to put the squeeze on the mortgage market in the coming months after signs emerged of business and household loan defaults picking up. The Bank of England’s quarterly credit conditions survey showed that the availability of home loans will be curtailed in the second quarter. Lenders said that default rates on mortgages, unsecured credit to households and loans to small and medium-sized businesses all rose in the first quarter and are expected to increase further. The figures underline the toll been taken by double-digit inflation and an unprecedented series of BOE interest-rate increases since the end of 2021, which have saddled millions of homeowners with additional mortgage payments.