April 26, 2023

Daily Market Commentary

Canadian Headlines

  • Teck Resources Ltd. raised the cost of building its flagship copper mine in Chile once again as the Canadian company released results ahead of a crucial shareholder vote Wednesday. Teck said a delay in commissioning its Quebrada Blanca 2 project, as well as foreign-exchange impacts, meant the total cost of the venture could rise to as much as $8.2 billion. In its most recent update, the company said it would cost as much as $7.75 billion. Shareholders will vote later Wednesday on the company’s plan to separate its metals business from its coal mines. The vote has turned into a showdown after the miner rejected a $23 billion takeover proposal from Glencore Plc earlier this month. QB2 is at the center of Glencore’s attempts to buy the company and has long been seen as one of the best new copper mines in the world. Yet Teck has repeatedly increased its expected budget.
  • Rogers Communications Inc. beat analysts’ estimates for revenue and profit as Canada’s strong population growth gave another boost to its wireless division.  The country’s largest wireless provider earned C$1.09 a share on an adjusted basis in the first quarter, better than Wall Street and Bay Street forecasts of 95 Canadian cents.  The company added 95,000 postpaid wireless subscribers during the quarter, about 44% more than during the year-earlier period. Rogers said it also enjoyed growth in roaming revenue, as Covid-19 was less of a barrier to Canadians’ travel plans this year. Rogers, under Chief Executive Officer Tony Staffieri, is in the early stages of absorbing Shaw, which it bought for about C$20 billion ($14.7 billion) in one of the largest-ever acquisitions of a Canadian company.

World Headlines

  • European stocks fell for a third straight session following Tuesday’s dip on Wall Street as investors worried about the impact of sticky inflation and slowing economic growth on corporate earnings. The Stoxx 600 was down 1.1% by 8:55 a.m. in London, the steepest drop in a month. Luxury shares fell as Kering SA declined after Gucci sales barely grew in the first quarter as the conglomerate’s largest luxury brand struggled to win over more shoppers. Technology was also among the biggest laggards as ASM International NV slumped after the Dutch chip-tool maker offered a tepid outlook for rest of the year. After being roiled last month by turmoil in the banking sector, European shares have bounced back in April amid optimism that the risks of contagion are minimal. Still, the rally has stalled this week on concerns that elevated inflation could dent corporate profit margins at a time when recession fears are also growing.
  • S&P 500 futures wavered as First Republic Bank extended a slump amid lingering concerns about the health of US regional banks, even as a strong start to big-tech earnings helped support broader sentiment. Contracts on the S&P 500 erased early gains, while those on the Nasdaq 100 pared an advance. First Republic sank more than 20% in premarket trading after Bloomberg reported the lender is exploring divesting as much as $100 billion of assets as part of a rescue plan. The stock plunged 49% on Tuesday as the beleaguered lender attempts to rescue itself from the turmoil that engulfed the industry last month. Nasdaq 100 futures were up about 0.7%. Google parent Alphabet Inc. and Microsoft Corp. both beat first-quarter earnings expectations in results published after the market close. Microsoft gained in the premarket Wednesday, while Alphabet reversed an advance to move into the red. Meta Platforms Inc. is due to report after the bell today.
  • Asia stocks fell for a fourth straight day as weak US consumer confidence data sapped risk appetite, although the selloff in Chinese equities paused. The MSCI Asia Pacific Index slipped as much as 0.5%, trading near a one-month low, led by benchmarks in Japan and the Philippines. The moves come after declines in US markets overnight amid a drop in consumer confidence and a re-emergence of banking concerns.  Hong Kong shares outperformed with gains, while mainland China equities trimmed earlier losses as traders sought catalysts after the rout this month. China’s high frequency indicators show the economy continued to expand in April, though geopolitical concerns are keeping optimism in check.
  • Oil edged higher from the lowest closing level in over three weeks even as investors considered the outlook for global demand amid concerns over the health of the economy. West Texas Intermediate futures rose toward $78 a barrel after dropping 2.2% on Tuesday, while US equity futures advanced. Oil has this week struggled for direction with sentiment swinging with wider financial markets. An US industry group reported a large drop in nationwide crude stockpiles, adding some positivity.  Crude is now close to where it was before the Organization of Petroleum Exporting Countries and its allies announced a shock production cut earlier this month. A deterioration in oil-refining profits over the last few weeks has left companies considering lower processing rates, and key indicators in the Asian crude market have continued to weaken.
  • Gold was steady after two days of gains that were driven by falling Treasury yields and worries that the US economy is stalling. Fears that the economy is headed for a painful slowdown are driving the view that the Federal Reserve will cut rates later this year, a positive for non-interest bearing bullion. US consumer confidence this month dropped to the lowest since July, amid expectations that the labor market will soon begin to soften.  On the slate this week is a slew of economic data, including gauges of inflation and wage growth growth, which may influence the Fed’s next move. Investors are also closely watching corporate earnings in the banking sector, after weaker results reignited some concerns about credit stress, as well as a potential debt-limit fight in the US.
  • Chinese leader Xi Jinping spoke with Ukraine President Volodymyr Zelenskiy for the first time since Russia’s full-scale invasion more than a year ago. Xi told Zelenskiy that negotiations are the only solution for the war during a phone call, China’s state TV reported. The Chinese president said China would send a representative to Ukraine, according to the report. The talks between the two leaders underscore Beijing’s efforts to portray itself as a neutral mediator as Russian President Vladimir Putin’s war heads into its second year. China recently put forward a 12-point cease-fire proposal that was quickly dismissed by Kyiv’s allies as being a one-sided deal that would benefit the Kremlin. A cease-fire would freeze Russian troops in place on Ukrainian territory and is seen by Kyiv as a non-starter. Zelenskiy has vowed to continue fighting until they depart. Moscow has shown no sign of stopping its attacks, and continues to claim portions of eastern Ukraine and Crimea as its territory after holding illegal referendums on annexation.
  • Teleperformance offered to buy Luxembourg-based customer service company Majorel Group Luxemborg SA for €3 billion ($3.3 billion) in cash and shares. The Paris-based company, which provides content moderation and customer service to tech giants including TikTok and Amazon.com Inc., agreed to pay €30 per share for its smaller competitor, it said in a statement on Wednesday. That’s a 43% premium to Majorel’s previous closing price.  Majorel’s two largest shareholders — Bertelsmann SE and Africa’s Saham Group, which together own 79% of the company’s stock — agreed to the deal. The companies will receive Teleperformance shares and will hold as much as 7.2% of the combined company after it closes.
  • Microsoft Corp.’s $69 billion takeover of Activision Blizzard Inc. suffered a hammer blow after Britain’s antitrust watchdog vetoed the gaming industry’s biggest ever deal saying it would harm competition in cloud gaming, in a move that could set the tone for the world’s biggest regulators. The Competition and Markets Authority said its concerns couldn’t be solved by remedies such as the sale of blockbuster title Call of Duty or other solutions involving promises to permit rivals to offer the game on their platforms, according to a statement Wednesday. Microsoft said it will appeal the decision.  Pressure had been mounting on Microsoft as it lobbies at home and in Europe to convince watchdogs to clear the deal — one of the 30 biggest acquisitions of all time. Crucially, the CMA’s conclusions comes before decisions from the European Union and the US Federal Trade Commission, which is waiting on a hearing in the summer after formally suing to veto the transaction.
  • Boeing Co. said it plans to hike output of its cash-cow 737 jets later this year and reassured investors that a recently uncovered manufacturing defect wouldn’t dent its delivery and cash targets. The manufacturer stood by its full-year forecasts as it reported an improvement in free cash flow in the first quarter. Boeing generated negative $786 million in the period, according to a statement Wednesday detailing earnings results, topping analysts’ expectations for a $1.86 billion free cash outflow. Revenue of $17.9 billion also beat estimates. Still, Boeing notched its seventh straight money-losing quarter. An adjusted loss of $1.27 a share was worse than analysts’ average projection of a 97-cent loss, according to estimates compiled by Bloomberg.
  • The UK received a record £46 billion ($57 billion) of demand for an inflation-linked bond sale, with investors seizing the opportunity to buy government debt that acts as protection against price rises. The country’s debt management office offered £4.5 billion of notes due in 2045 with a coupon linked to the retail price index. It set a final spread of 3.75 basis points over an outstanding 2044 inflation-linked bond, according to a person familiar with the matter, who asked not to be identified as they are not authorized to speak about it. Data last week showed Britain’s inflation rate remained higher than economists expected in March. The Consumer Prices Index rose 10.1% from a year ago, driven by the strongest increase in food prices in more than four decades. Inflation has been in double digits for eight of the past nine months.
  • Netflix Inc. lost more than one million users in Spain in the first three months of 2023 according to market research group Kantar, a sign that the streaming giant’s crackdown on password-sharing could backfire. In early February, Spain became one of Netflix’s first markets to introduce a monthly fee for users who shared their log-in details with another household and technical measures to detect such sharing. The move was linked to a fall in users of more than a million, two thirds of whom were using someone else’s password, according to Kantar’s research, which is based on surveys of household streaming habits. “It’s clear this steep drop is due to the crackdown,” said Dominic Sunnebo, global insight director at Kantar’s Worldpanel Division, adding that the loss of a million users, even if most weren’t paid subscribers, would be a blow to Netflix in terms of word of mouth recommendation for its shows and service.
  • Speaker Kevin McCarthy decided overnight to make changes to his US debt limit bill, bowing to the demands of a small number of Republican lawmakers who had threatened to tank the measure when it comes up for a House floor vote this week. The move came just hours after McCarthy declared to reporters he was not entertaining any changes to the measure, which would raise the US debt limit by $1.5 trillion. The House Rules Committee amended the bill to restore three tax breaks for biofuels and for two others allows them to be claimed for investments made between August 2022 and April 19, 2023, a key demand of six or more Midwestern lawmakers who had declared opposition to the measure.
  • First Republic Bank is exploring divesting $50 billion to $100 billion of assets as the beleaguered lender attempts to rescue itself from the turmoil that engulfed the industry last month. The sales, which include long-dated mortgages and securities, are aimed at reducing the mismatch between the bank’s assets and liabilities — one of the factors that has left First Republic teetering after a run on deposits in March, according to people familiar with the matter.  Potential buyers, including large US banks, could receive warrants or preferred equity as an incentive to buy assets above their market value, one of the people said.
  • The US economy’s first-quarter report card and separate assessments of labor costs, spending and inflation in coming days are projected to keep the Federal Reserve tilted toward another interest-rate hike next week. The data are likely to present a picture of an economy that started the year strong — driven largely by a January surge in consumer spending — before losing momentum. Inflation, however, will still be roughly double the Fed’s target, underpinned by resilient demand for services and strong wage growth.  The reports surface less than a week before Fed policymakers meet on May 2-3 to consider another quarter percentage-point increase in their benchmark interest rate.
  • Private equity firm Great Hill Partners has reached an agreement to acquire software provider Fusion Risk Management Inc. from buyout firm Vista Equity Partners, according to a person familiar with the matter. The deal values the software provider for IT risk and incident management services at more than $500 million, said the person, who asked not to be identified because the information isn’t public yet. An announcement could come as soon Wednesday, the person said. Fusion was started in 2006 by a team of founders including David Nolan, Bob Sibik and Victor Fricas. The company offers a range of risk management tools such as emergency notification systems, critical data integration and disaster recovery.