April 14, 2022
Daily Market Commentary
- Hours after delivering the biggest interest-rate hike in 22 years in Canada, Tiff Macklem had a message for investors: There’s no reason to worry about inflation getting out of hand. While there is plenty of uncertainty in the global economy, the Bank of Canada governor told Bloomberg News he’s quite certain that policy makers will be able to avoid a return of 1970s-style stagflation. Macklem said the world’s central bankers have learned the hard lessons from letting inflation get too high. They’re adjusting policy quickly to avoid a scenario where price pressures remains elevated and the global economy sinks into a recession, he said in an interview.
- Australian fiber cabling firm Uniti Group Ltd. has agreed to a A$3.62 billion ($2.7 billion) takeover by a consortium led by HRL Morrison & Co. and Brookfield Infrastructure Partners. The Adelaide-based residential broadband provider said Thursday it had agreed to a deal at A$5 per share, which represents a 58.7% premium to its undisturbed trading price on March 14. That’s an improvement from an earlier A$4.50 per share offer from the consortium first tabled in March. The group, MBC BidCo Pty Ltd, also includes pension fund Commonwealth Superannuation Corporation, Uniti said. The deal marks the second-largest transaction targeting an Australian company so far this year, behind Blackstone Inc.’s A$8.9 billion acquisition of casino operator Crown Resorts Ltd. It is also the largest deal for an Australian infrastructure company in 2022 at a time when real-asset sectors are undergoing a wave of takeovers led by yield-hungry pension and sovereign funds.
- European stocks were little changed as investors focused on the corporate earnings season as well as the European Central Bank’s meeting for cues on the path of monetary policy. The Stoxx Europe 600 Index was up less than 0.1% by 9:27 a.m. in London, and was set to end the holiday-shortened week slightly lower. Travel and leisure shares were the biggest gainers as Wizz Air Holdings Plc jumped on a narrower-than-expected loss, while consumer shares outperformed following better-than-expected sales at Hermes International. Technology shares got a boost as Treasury yields retreated. The benchmark equity gauge has been under pressure this week as the first-quarter earnings season gets underway amid concerns around high inflation and supply chain disruptions from the war in Ukraine crimping profit margins. All eyes are now on the ECB’s policy meeting today, where the central bank is expected to maintain its speedier withdrawal of stimulus to quell record inflation and will probably hold off from major decisions.
- Stocks and government bonds were mixed as investors focus on corporate earnings and the European Central Bank’s meeting later on Thursday for cues on the path of monetary policy. U.S. equity futures and Europe’s Stoxx 600 fluctuated, while travel and technology shares gained. Treasuries were steady as traders dialed back aggressive bets on Federal Reserve interest-rate hikes. Some moderation in the core U.S. consumer-price measure has spurred speculation inflation is peaking, though a record producer-price print cautions against quick judgments.
- Asian stocks headed for a two-day gain amid growing expectations that China’s central bank will ease policy to support growth in the region’s biggest economy. The MSCI Asia Pacific Index climbed as much as 0.8% as all sectors rose, with shares in mainland China leading the region on hopes that the People’s Bank of China will cut its key policy rate soon. A 50-basis point, broad-based reduction in the reserve requirement ratio could also be confirmed as early as Friday, injecting 1.2 trillion yuan ($188 billion) of liquidity into the economy, Citigroup said. Asia’s cyclical and defensive shares climbed with SoftBank Group hauling up the gauge, as Mizuho Securities said the technology giant may sell some of its assets to improve its finances.
- Oil declined after a two-day rally that pushed prices back above $100 a barrel as investors digested a raft of factors including the continuing fallout from Russia’s invasion of Ukraine and China’s latest round of virus lockdowns. West Texas Intermediate futures slipped 0.6% but are still on course for a weekly gain after advancing almost 11% over the previous two sessions. The International Energy Agency said in a report this week that OPEC+ members provided only 10% of their promised supply increases last month. The IEA also cut its demand forecasts due to China’s Covid-19 restrictions. U.S. crude stockpiles jumped last week, mostly due to strategic oil reserves moving to commercial inventories. At the same time, most inventories of refined products fell, prompting a spike in so-called crack spreads — the rough profit from turning crude into fuel.
- Gold held near a one-month high as concerns over the war in Ukraine and accelerating inflation buoyed demand for the haven asset. The metal edged lower after rising for a sixth straight session on Wednesday, the longest stretch of gains since November. The war shows few signs of ending, with Ukraine bracing for renewed Russian attacks in the eastern Donbas region, and the U.S. sending $800 million of weapons. Bullion-backed exchange traded funds had inflows of about 14 tons on Wednesday, the most in more than five weeks, according to initial data compiled by Bloomberg. Holdings are now at the highest since February 2021, reflecting ongoing demand for safe havens.
- Bitcoin climbed above $41,000, advancing along with equities after China indicated it’s about to loosen monetary policy. The largest cryptocurrency rose as much as 0.6% to $41,500 on Thursday, gaining for a second day. Katie Stockton, co-founder of Fairlead Strategies LLC, said technical indicators she follows suggest Bitcoin could be due for a short-term bounce to as high as $51,000, assuming it can break through its 200-day moving average, which stands at just above $48,000. Bitcoin has been largely stuck in a range of about $35,000 to $45,000 this year. A brief breakout to touch the 200-day moving average in late March was followed by a drop of as much as 19%, as concerns about monetary tightening triggered declines across risk assets. During that period, the token’s correlation with large technology stocks rose to a record.
- Chinese battery maker Gotion High-Tech Co. is considering raising about 10 billion yuan ($1.6 billion) from a sale of global depositary receipts in Switzerland, according to people familiar with the matter. The Shenzhen-listed company picked China International Capital Corp.and Haitong Securities Co. to arrange the offering, said the people, who asked not to be identified as the information is private. A listing could happen as soon as in the second half of this year, the people said. Deliberations are ongoing and details of the GDR sale including size and timeline could change, the people said. A representative for CICC declined to comment, while representatives for Gotion and Haitong Securities didn’t immediately respond to requests for comment.
- Elon Musk has made a “best and final” offer to buy Twitter Inc., saying the company has extraordinary potential and he will unlock it. The world’s richest person will offer $54.20 per share in cash, representing a 54% premium over the Jan. 28 closing price and a value of about $43 billion. The social media company’s shares soared 18%. Musk, 50, announced the offer in a filing with the U.S. Securities and Exchange Commission on Thursday. The billionaire, who also controls Tesla Inc., first disclosed a stake of about 9% on April 4. Tesla shares fell about 1.5% in pre-market trading on the news.
- The Benetton family and Blackstone Inc. offered to buy out Atlantia SpA in a deal valuing the Italian highway operator at 19 billion euros ($20.7 billion). Atlantia investors will receive 23 euros a share in cash, the U.S. buyout giant and the billionaire clan said Thursday. That’s 24% higher than Atlantia’s close on April 5, the day before Bloomberg News first reported on approaches to the company. The deal values Atlantia at about 65 billion euros ($71 billion) including total debt, according to Bloomberg data. On that basis, it would be the largest takeover this year, surpassing Microsoft Corp.’s acquisition of Activision Blizzard Inc.
- Porsche deliveries fell during the first quarter after outbreaks of coronavirus in China shut dealerships and a number of vehicles were lost at sea when a cargo ship caught fire and sank. The Volkswagen AG brand’s shipments dropped 5% to 68,426 vehicles globally during the first three months of the year after significant declines in the U.S. and China outweighed a surge in Europe, the sports-car maker said Thursday. Last year, Porsche delivered a record number of vehicles even as the global chip shortage roiled carmakers. Carmakers continue to battle significant strains from stretched supply chains, chief among them shortages of semiconductors that have idled production lines. While manufacturers have outlined hopes for improved supplies during the second half of the year, Mercedes-Benz AG reported a 15% slump in deliveries during the first quarter. In addition, renewed lockdowns in China to combat coronavirus and Russia’s war in Ukraine is straining global business.
- Strategists from the world’s biggest asset manager are challenging traders betting that the Federal Reserve will raise rates to around 3% next year, saying that policy makers will raise borrowing costs to 2%, but not go much further. An overly aggressive path of hikes to combat the spiraling cost of living may backfire, according to the BlackRock Investment Institute, which estimates that bringing inflation down to the Fed’s target of 2% could push unemployment to nearly 10%, based on the historical relationship between inflation and employment. That’s unlikely to be a scenario that the Fed wants, and means it will eventually “choose to live with inflation,” said Alex Brazier, the deputy head of the institute, noting that inflation is currently being driven more by supply constraints than demand.
- Manhattan apartment rents hit a record high for a second straight month as the city roars back from the depths of the pandemic. Tenants paid a median of $3,644 on new leases signed in March, the most in three decades of data-keeping by appraiser Miller Samuel Inc.and brokerage Douglas Elliman Real Estate. Rents jumped 23% from a year earlier and are up $14 from the previous record, set in February. Mirroring the competitive sales market, nearly a fifth of leases were signed at rates above their asking prices — on average 9.7% more. The numbers were similar for February, the first month the firms tracked rental bidding wars.
- Meta Platforms Inc. and Netflix Inc. may have a hard time turning around the slumps that have wiped more than a third off their market value this year, as ongoing business headwinds and a weak macroeconomic backdrop keep investors at bay despite historically cheap multiples. The two internet giants were among the most high-profile disappointments of the last earnings season, with slowing growth at both companies sparking selloffs that erased hundreds of billions of dollars in value. With fresh results around the corner, analysts are showing they remain skeptical by trimming their price estimates. The average target for both has fallen to their lowest since 2020, according Bloomberg-compiled data. This reporting season comes at a time when inflation and rising bond yields have underlined concerns that the economy could be headed toward a recession.
- British banks plan a sharp cut in mortgage lending over the next three months amid fears that borrowers will start to default on their debts. The Bank of England’s quarterly credit conditions survey showed lenders plan to reduce the supply of mortgages at the fastest rate since the start of the pandemic in early 2020. Excluding the Covid crisis, the rate of contraction expected was only steeper in one three-month period in 2014 and in the immediate aftermath of the 2008 financial crisis. The BOE survey, which was conducted in the three weeks shortly after Russia’s invasion of Ukraine, provided no explanation for plans to tighten lending on property. Banks have warned that they expect defaults to rise in the coming three months.
- The European Union has warned member states that President Vladimir Putin’s demand that “unfriendly countries” effectively pay for Russian gas in rubles would violate sanctions imposed on Moscow following its invasion of Ukraine. The European Commission, the EU’s executive arm, has presented its analysis of Putin’s decree, according to a person familiar with the matter. The assessment raises the stakes for Europe’s energy security since Putin threatened to halt gas supplies to buyers that don’t comply with the edict. Putin’s March 31 demand stipulates that European gas buyers open two accounts, one in a foreign currency and one in rubles, with Gazprombank responsible for converting the foreign currency into rubles and transferring the ruble payment to Gazprom.
- Indonesia, which holds the rotating Group of 20 presidency, said Russian delegates have been invited to join a meeting of global finance chiefs in Washington next week, holding firm despite growing pressure to exclude the country over its war in Ukraine. Russian Finance Minister Anton Siluanov and central bank Governor Elvira Nabiullina have the right to attend the meeting virtually or physically, since Indonesia is in no position to disinvite any member without consensus, said Wempi Saputra, an expert staff at Indonesia’s Finance Ministry. Indonesia is also in discussions over whether to invite representatives from Ukraine who will address G-20 countries on the impact of the war on the world’s economic outlook, Saputra added.
- Russia threatened to deploy nuclear weapons in and around the Baltic Sea region if Finland and Sweden join the North Atlantic Treaty Organization as tensions fueled by President Vladimir Putin’s invasion of Ukraine spread. “In this case, there can be no talk of non-nuclear status for the Baltic,” Dmitry Medvedev, deputy chief of Russia’s Security Council and former president, said in a Telegram post Thursday, suggesting Russia may deploy Iskander missiles, hypersonic weapons and nuclear-armed ships in the region. Medvedev’s comments are among the most detailed threats Russia has issued over the prospect that its northwestern neighbors might join the alliance after decades of staying out. But both Finland and Sweden this week said they’re stepping up consideration of the issue in the wake of Russia’s invasion of Ukraine.
- Fast Retailing Co. is doubling down on the North American market, targeting 200 Uniqlo stores selling casual, functional clothing from the current 57 in five years. The loss-making U.S. and Canada business is on track to post an operating profit for the first time this fiscal year, which ends in August, and achieve annual revenue of 300 billion yen ($2.4 billion) in 2027, with an operating margin of 20%, Takeshi Okazaki, Fast Retailing’s chief financial officer, said during a results briefing Thursday. Ever since opening its first store in New Jersey in 2005, Uniqlo has struggled to reach the same scale of success seen in Japan and China. Now, with the war in Ukraine and resurgence of Covid in China fueling uncertainty in clothing sales across the world, Fast Retailing is shifting its focus to a market where the outlook is relatively stable. To do so, the retailer said it will focus on opening stores on coastal cities and upscale shopping malls.
- Pfizer Inc. and BioNTech SE said a third dose of their Covid vaccine increased antibodies against the omicron strain by 36-fold in a clinical trial. The companies plan to file for emergency-use authorization in the U.S. in the coming days based on these results, they said in a statement Thursday. They will also submit the data to other regulators around the world. In the trial, 140 kids ages 5 to 11 were given a third shot of a 10 microgram dose of the vaccine about six months after their second dose. A month later, antibodies against the original Covid virus were roughly 6 fold higher compared to what they had been one month after the second dose.
- Wells Fargo & Co. missed analysts’ expectations on first-quarter revenue and expenses as Chief Executive Officer Charlie Scharf continues to face challenges as he works to turn around the bank. Non-interest expenses were $13.9 billion in the first three months of the year, higher than what analysts had forecast, according to a statement Thursday. Revenue declined, bringing net income down to $3.7 billion. Reducing costs has been a key part of Scharf’s plan to boost profitability at the bank. Investors are also watching closely for signs of loan growth, which has been absent for much of the pandemic as massive government stimulus programs kept consumers and businesses flush with cash and without the need to borrow. As policymakers raise interest rates, the biggest U.S. firms stand to benefit from a boost in revenue from loans.
“The opposite of love is not hate; it’s indifference.” – Elie Wiesel
*All sources from Bloomberg unless otherwise specified