April 6, 2022

Daily Market Commentary

Canadian Headlines

  • West Fraser Timber said it will permanently reduce capacity at its pulp mill in Hinton, Alberta by the end of this year. The capacity reduction will see staffing levels transition to 270 positions from 345. Sees impairment charge of about $13 million in 1Q associated with the write-down of equipment that will be decommissioned permanently
  • Sun Life Financial Indonesia and Bank CIMB Niaga have reached a new agreement that will allow the insurer to expand its offering, according to a joint statement. Under the new deal, Sun Life will be able to offer products to CIMB Niaga’s customers through all channels for 15 years, starting January 2025. The insurer currently markets the products through digital and out-of-branch channels.


World Headlines

  • European stocks dropped as a renewed surge in bond yields amid worries of a faster-than-expected pace of monetary tightening by the U.S. Federal Reserve hit investor sentiment, with tech shares among the biggest laggards. The Stoxx Europe 600 Index was down 1% at 9:23 a.m. in London. Contracts tracking the U.S. technology-heavy Nasdaq 100 were down 0.6%, hurt by the fresh rise in Treasury yields.
  • Asian stocks declined as concerns over the potential pace of U.S. monetary tightening and a worsening pandemic in China damped risk appetite. The MSCI Asia Pacific Index lost as much as 1.6%, dragged lower by technology and consumer-related shares. The Hang Seng Tech Index plunged as much as 4.2% as trading resumed in Hong Kong after a holiday while Japan’s Nikkei index lost 1.6%.
  • A global bond selloff deepened on Wednesday and U.S. futures declined along with stocks in Europe as investors positioned for a stepped-up campaign of monetary tightening by the Federal Reserve to tackle high inflation. The 10-year Treasury yield rose above 2.6%, taking it back into the ranges traded in 2018 and 2019. Futures on the Nasdaq 100 were down about 1% and contracts on the S&P 500 also slid following a drop in Wall Street shares led by the technology sector. Tech heavyweights including Twitter Inc., Microsoft Corp. and Tesla Inc. were among the worst performers in premarket trading.
  • The Federal Reserve will unveil details of its likely plans to shrink its massive balance sheet with the release of minutes of the U.S. central bank’s March meeting, as policy makers confront the highest inflation in four decades. Fed Chair Jerome Powell promised “a more detailed discussion” of the $8.9 trillion balance sheet laying out “pretty much the parameters of what we’re looking at,” in his comments during a press conference following the March 15-16 Federal Open Market Committee meeting. The minutes, published at 2 p.m. Washington time Wednesday, will probably show a much faster pace of reduction than the last time it conducted this exercise between 2017 and 2019. Governor Lael Brainard said Tuesday that the process could start as soon as May and go considerably faster than in 2017, when they rose over the course of a year to a maximum monthly roll off of $50 billion combined.
  • U.S. Treasury Secretary Janet Yellen will warn on Wednesday that the war in Ukraine threatens to inflict “enormous economic repercussions” globally, just as governments impose fresh sanctions on Russia and economists cut growth forecasts. U.S., European Union and Group of Seven officials are coordinating new sanctions on Russia, including a U.S. ban on investment in the country and an EU ban on coal imports, following the discovery of civilian murders and other atrocities in Ukrainian towns abandoned by Russian forces.
  • Oil reversed earlier losses as traders assessed the talk of fresh sanctions following Russia’s invasion of Ukraine. West Texas Intermediate edged above $103 after trading in a choppy range of more than $7 so far this week. The U.S. and its allies are coordinating on a new round of sanctions to punish the Kremlin for the alleged murder of civilians by its troops in Ukraine. The European Union won’t yet sanction oil, but European Commission President Ursula von der Leyen said the bloc will push ahead with a debate among members on tackling Russian oil.
  • Gold is trading above $1,900 an ounce as investors seek a store of value amid the economic fallout from the conflict and decades-high inflation, although further interest rate hikes could weigh on demand. Benchmark 10-year Treasury yields have surged to the highest since 2019, denting gold’s appeal as it bears no interest.
  • Zinc wiped out early losses as orders to withdraw metal from exchange warehouses spiked to the highest in more than four years, setting the stage for a further tightening in the global market for the critical industrial metal. Prices rose 0.4% to $4,308 a ton after requests for metal in warehouses tracked by the London Metal Exchange surged for a fourth day, rapidly reducing the amount of freely available metal at a time when supply from smelters is under strain. The threat of shortages is particularly acute in Europe, where there is virtually no zinc left in LME depots and producers are struggling with a surge in power prices.
  • Having weathered a surge in the price of a key input to record highs, China’s stainless steel mills are now facing a fresh set of problems as the government tightens curbs to contain the spread of the virus. The industry may be forced to cut production by about 30,000 tons this month, from 2.86 million tons in March, after the rise in nickel prices lifted costs, and China’s widening Covid restrictions hamper domestic transport of the raw material, according to a forecast from researcher Mysteel Global. Producers are making losses at current nickel prices, said an official at a mill in eastern China, who declined to be named because of company policy.
  •  JetBlue Airways Corp. offered to buy budget carrier Spirit Airlines Inc. for $3.6 billion, potentially spoiling a competing bid by rival Frontier Group Holdings Inc. and reshaping the landscape for ultra-low-cost air travel. Spirit said Tuesday it received an unsolicited proposal from JetBlue to buy outstanding shares for $33 apiece in cash. Spirit will work with financial and legal advisers to evaluate the offer, according to a statement.
  • BNP Paribas SA reached one of the most comprehensive work-from-home deals among major banks, with as many as 132,000 employees given the option of doing their jobs from home for up to half the week. The push for more flexibility contrasts with Wall Street, where firms increasingly push for a full return to office. Bank of America Corp. plans to bring all its U.S. workers, both vaccinated and unvaccinated, back to the office by June, Bloomberg reported Tuesday.
  • Pfizer is slated to get $5 billion — as much as half the planned pandemic funding bill — for Covid pills the government’s already ordered, people familiar said. The bill is still in Congress.
  • BlackRock and other investors in China’s junk property bonds lowered their exposure for the first time in months. The firm cut $370 million last month to bring its holdings to just under $5 billion.
  • French air-safety officials launched an investigation into the cause of an Air France flight-control incident that led pilots of a 777 to abort a landing in Paris yesterday. The BEA cited “instability of flight controls” in the final stages of the flight, as well as “hard controls” and “flight-path oscillations.”
  • Rivian produced 2,553 vehicles in the first quarter as it contended with a snarled supply chain and pandemic challenges. The company also reaffirmed its guidance to build 25,000 electric vehicles this year.
  • VW will scrap dozens of combustion engine models by the end of the decade and concentrate on profitable premium vehicles, the FT reported.
  • Ingka Investments, the investment arm of Ikea’s biggest retailing group, has bought nine solar park projects in Germany and Spain for about 340 million euros ($373 million). The projects are being developed by Germany-based Enerparc AG and expected to be ready for construction at the end of this year, according to an emailed statement.

“The best way to predict your future is to create it.” — Abraham Lincoln

*All sources from Bloomberg unless otherwise specified