April 18, 2023
Daily Market Commentary
Canadian Headlines
- George Weston Limited and Loblaw Companies Limited jointly announced today the appointment of Mr. Per Bank as President and Chief Executive Officer of Loblaw. Mr. Bank will formally join the company by Q1 2024. The appointment follows a global talent search initiated in August 2022 in anticipation of Robert Sawyer’s planned retirement as Loblaw’s Chief Operating Officer at the end of 2023. It comes after two years of superb performance at the company as it executed against a strategy anchored in retail excellence. Mr. Bank is a 30-year career retailer with deep expertise in retail operations and supply chain. He is the outgoing Chief Executive Officer of Salling Group A/S, the largest retailer in Denmark, with 1,700 multi-banner supermarkets across three countries, supported by strong e-commerce, loyalty, and private-brand programs, and having one of Denmark’s largest private-sector workforces.
- One of Justin Trudeau’s senior cabinet ministers said the Canadian government is monitoring Glencore Plc’s attempted takeover of Teck Resources Ltd., pointing out that the country benefits from having the headquarters of major companies. “We are following it very closely,” Natural Resources Minister Jonathan Wilkinson said Monday in a phone interview. But he added that his cabinet colleagues won’t pre-judge the “commercial conversations” that are taking place. Wilkinson said Teck is an important player in Canada’s mining sector not just because of critical minerals projects, but also as a contributor to the economy of his home province of British Columbia, including its coal business. Teck is racing to secure investor support for its plan to separate its coal and metals assets — on which shareholders are scheduled to vote next week — while fending off an unsolicited $23 billion takeover offer from Swiss commodities giant Glencore for the whole company.
- Brookfield Corp. funds have defaulted on a $161.4 million mortgage for a dozen office buildings, mostly around Washington, DC, as rising vacancies hit property values. The loan transferred to a special servicer who is working with “the borrower to execute a pre-negotiation agreement and to determine the path forward,” according to a filing on the commercial mortgage-backed security. Some landlords are defaulting on debt as borrowing costs surge and the prospects of filling up office towers wanes given the rise in remote and hybrid work. Those trends have weighed on values, with prices on office properties falling about 25% in the past year, according to Green Street.
World Headlines
- European stocks gained as focus turned to the first-quarter corporate earnings season, while investors assessed the outlook for economic growth as data from China showed a recovery was well on track. The Stoxx 600 Index added 0.4% by 10:51 a.m. in London. Mining and banking shares outperformed along with tech, while telecoms and utilities lagged. European equities have recovered to the highest level in over a year after being roiled by the banking turmoil last month. They’ve also resumed an outperformance over US equities in April, with banks and energy buoyant, but a retreat by investors into reliable sectors like health care and telecoms shows no sign of abating. Now investors’ attention is turning toward the earnings reporting season, which will show how companies navigated high inflation, lower consumer demand and economic headwinds.
- US equity futures pointed to gains for Wall Street as signs of a Chinese economic bounceback helped markets look past patchy company earnings and the possibility of more central bank policy tightening. Contracts on the S&P 500 gained 0.4% on Tuesday, while those on the tech-heavy Nasdaq 100 climbed as much as 0.6%. Investors are preparing for more first-quarter earnings, including from Goldman Sachs Group Inc and Bank of America Corp. Both rose in premarket trading, with Goldman advancing more than 1% as it joined forces with Apple Inc. to introduce a new high-yield savings account.
- Asian stocks were mixed as investors digested an uneven set of Chinese economic data, which showed further signs of recovery with some patches of weakness. The MSCI Asia Pacific Index was up 0.1% as of 5 p.m. in Hong Kong, with gains in industrial and financial shares offsetting losses in technology stocks. Benchmarks in Japan advanced, while those in Hong Kong, Taiwan and South Korea fell. Chinese shares eked out small gains as the economy grew at a faster pace than expected in the first quarter. The overall market reaction was muted as tepid property investment figures suggested the housing market remains a drag on the economy. A wave of insider selling of shares also weighed on sentiment.
- Oil fell for a second day as bullish impetus from OPEC+ production cuts faded against a weaker-than-expected demand picture. West Texas Intermediate dropped below $80.50 per barrel after weakening 2% on Monday, the biggest daily fall in four weeks. Near-term spreads, recently inverted, have returned to a very small contango, an indication that market tightness has eased. In addition, crack spreads for diesel are at their lowest levels in a year, underscoring a weaker demand outlook.
- Gold edged higher after falling more than 2% in two days on signs that the Federal Reserve’s interest-rate-hiking cycle will extend later into the year. The metal traded around $2,000 an ounce on Tuesday, drawing support from dollar snapping a two-day rally. Traders are positioning for further monetary tightening this year, keeping bullion contained after a sharp rally since March. Spot gold rose 0.4% to $2,002.74 an ounce by 10:09 a.m. in London. The Bloomberg Dollar Spot Index weakened 0.3%. Silver and platinum edged higher, while palladium rose 3.4%.
- UK wage growth accelerated unexpectedly, adding to inflationary pressures that are concerning the Bank of England. Average earnings excluding bonuses rose 6.6% in the three months through February compared with a year ago, the Office for National Statistics said Tuesday. That was quicker than the 6.2% pace economists had expected. The previous month’s reading was also revised up, dashing hopes for a slowdown. Policy makers led by BOE Governor Andrew Bailey are expecting both pay growth and inflation to cool. A report due tomorrow on consumer prices will be crucial to determine whether the central bank can afford to let up on its most aggressive series of rate rises in four decades.
- Bank of America Corp. first-quarter profit beat estimates after its fixed-income traders delivered a windfall large enough to cover the rising cost of the bank’s souring loans. Revenue from fixed-income, currencies and commodities trading unexpectedly rose almost 30% to $3.4 billion in the first quarter, as clients reacted to changing interest rates, the bank said. That helped the bank top analysts’ estimates for earnings per share. Net interest income, a key source of revenue for the bank, rose 25% to $14.4 billion in the first three months of the year. Analysts had expected a 24% increase for NII, the revenue collected from loan payments minus what depositors are paid.
- Crypto exchange Coinbase Global Inc. may consider moving its headquarters outside the US unless the country changes its approach to regulation, Chief Executive Officer Brian Armstrong said. “Anything is on the table,” Armstrong said when asked by former UK Chancellor of the Exchequer George Osborne at a fintech conference in London on Tuesday whether San Fransisco-based Coinbase would consider moving to Britain. “Including, you know, relocating or whatever is necessary.” While Armstrong has been vocal about his opposition to current US crypto regulation, raising the possibility of relocating marks an escalation of the rhetoric. In late March, Coinbase was notified by the US Securities and Exchange Commission that the regulator plans to bring an enforcement action against the exchange.
- The Group of Seven nations vowed to support Ukraine for “as long as it takes” in its fight against Russian forces, while also calling for greater engagement with China to stabilize relations with the world’s second-biggest economy. In a communique released Tuesday after top G-7 diplomats met in Japan, the bloc condemned Russia’s war against Ukraine “in the strongest possible terms.” The nations reiterated support for Ukrainian leader Volodymyr Zelenskiy’s peace plan, while slamming Russia’s “irresponsible nuclear rhetoric.” The G-7 ministers also said they recognized the importance of “engaging candidly” with China and the need to work together on common interests, while calling for a “peaceful resolution” of Taiwan-related issues. It also expressed concern about China’s growing nuclear arsenal and called for talks with the US on arms control.
- BlackRock Inc. said it expects institutional investors to increase allocations to private equity and private credit funds this year even amid recession fears and rising interest rates. Investors including pension funds, family offices and insurers currently allocate 24% of their portfolios, on average, to private markets, according to a newly released BlackRock survey of senior executives and allocators at more than 200 firms managing a total of $15 trillion. Of those surveyed, 72% said they plan to increase allocations to private equity funds, while 52% aim to boost private-credit holdings. The survey ran from October 2022 through January 2023, before the collapse of three regional banks spurred the biggest industry crisis since 2008.
- Russian President Vladimir Putin visited troops in two occupied regions of Ukraine, according to video released Tuesday by the Kremlin, marking the second time in a month he’s toured territory seized in the more than year-old invasion. Putin was shown meeting officers of the Vostok National Guard in the eastern Ukrainian region of Luhansk and at the headquarters of the Dnepr grouping of troops in the southern Kherson region, where he heard reports on military developments. Putin’s appearance in occupied Ukraine came as Ukrainian forces prepare to mount a counter-offensive that the government in Kyiv hopes will provide a decisive breakthrough, despite doubts among its US and European allies that this is achievable this year. Russia has shelved plans for an offensive of its own after failing to gain much ground.
- SpaceX is aiming to launch its next-generation Starship rocket on April 20, the second attempt for the groundbreaking flight after a pressurization issue upended the company’s initial test. Elon Musk’s closely held company announced the new date in a tweet on Monday, hours after postponing a planned inaugural test flight for the fully assembled vehicle. Minutes before scheduled liftoff on Monday, SpaceX scrubbed the flight, citing a “pressurization issue.” Officials had said they would need at least 48 hours before trying again. Musk had flagged a “frozen” pressure valve as an issue that might delay the launch in a tweet earlier in the day. But SpaceX made no reference to the issue in a statement about the new target date for sending Starship aloft.
- GSK Plc agreed to buy Canadian biotech Bellus Health Inc. for about $2 billion to bolster its pipeline of experimental medicines. The UK drugmaker will pay $14.75 per share in cash for Bellus, a 103% premium to the stock’s Monday close, it said in a statement Tuesday. The deal is expected to yield multi-billion-dollar annual sales in the single digits, Luke Miels, GSK’s chief commercial officer, said on a call with reporters. The takeover will bring GSK a cough medicine that’s shown promising results in clinical trials and has advanced through much of the research process. GSK has been trying to replenish its product pipeline as the company faces pressure to improve shareholder returns and keep up with UK rival AstraZeneca Plc.
- Chief Executive Officer Tim Cook officially opened Apple Inc.’s first store in India, betting the iPhone maker’s own retail outlets will help accelerate sales growth in the lucrative market. The CEO inaugurated the shop at an upscale business district in the financial hub of Mumbai on Tuesday, wearing gray pants and a blue half-sleeve shirt. Dozens of staff applauded, while a horde of customers lined up outside. Apple is targeting the country of 1.4 billion to revive global revenue growth and diversify its manufacturing footprint beyond China. The company’s sales in India hit a new high of almost $6 billion in the year through March, highlighting the market’s increasing importance.
- Deutsche Bank AG aims to double private-banking revenue from Asia in five years by ramping up efforts to attract the region’s ultra-wealthy, joining other firms seeking to pounce on opportunities created by the near-collapse of Credit Suisse Group AG. The bank is targeting entrepreneurs with investible assets of at least 50 million euros ($55 million), Young Jin Yee, the lender’s international private bank head for Asia-Pacific said in her first interview since joining from the Swiss rival in January. Marking her first 100 days at the Frankfurt-based bank, Young hosted an internal townhall to launch the strategy Tuesday in Hong Kong, while hundreds of employees across the region dialed in from Greater China, Singapore, India and Dubai. The lender has been hiring senior wealth executives in Asia, given it’s one of the fastest-growing markets.
- Goldman Sachs Group Inc.’s traders failed to capitalize on the fixed-income bonanza the rest of Wall Street generated last quarter, contributing to firmwide revenue that fell short of analysts’ estimates. Fixed-income revenue fell 17%, the firm said in a statement Tuesday, leaving Goldman the only Wall Street bank so far to have posted a drop for that business. Equities trading beat expectations with a revenue beat for the period, helping to soften the blow. The bank also offloaded a chunk of its roughly $4 billion Marcus loan book, which led to a $440 million reserve release. That helped boost profit more than analysts expected, but earnings were still down 19% from a year earlier. Net revenue included a loss of approximately $470 million related to the partial sale of the portfolio and the transfer of the remainder of the portfolio to held-for-sale status.
- Bank of New York Mellon Corp. reported total deposits for the end of the first quarter that beat analyst estimates, in a sign the bank weathered the turmoil that’s engulfed some smaller lenders. Deposits stood at $281.3 billion, versus the average $277 billion forecast by analysts tracked by Bloomberg. That’s higher than the $279 billion at the end of December, but lower than the $345.6 billion a year ago. The report from the financial services firm follows an earnings miss by rival State Street Corp., whose stock plunged the most in three years on Monday. The Boston-based company revealed net outflows of $26 billion from its investment products, shocking analysts who predicted $8 billion in inflows.
- Johnson & Johnson raised its 2023 earnings guidance forecast on strong growth in the consumer unit that it’s divesting. The company expects adjusted earnings of $10.60 to $10.70 a share for the year now, up from prior outlook of $10.45 to $10.65. Sales for the year will be in the range of $97.9 billion to $98.9 billion, $1 billion higher than the company’s original forecast on both the low and high end. Consumer health, which is being spun out of the broader company, was the fastest-growing segment. The company attributed that to strong demand for its over-the-counter pain relievers Tylenol and Motrin. Consumer product sales increased 7.4% to $3.85 billion, above expectations. Revenue from the medical technology business rose 7.3% to $7.48 billion, also beating estimates, buoyed by sales from a newly acquired business.