August 11, 2022
- Manulife Financial Corp.’s Canadian business boosted profit last quarter on the back of rising sales and lower-than-expected benefit use, cushioning the toll that continued Covid restrictions are taking on its Asian operations. Core earnings in Canada rose 8.5% from a year earlier to C$345 million ($270 million) in the second quarter, the Toronto-based company said Wednesday. Overall second-quarter profit topped analysts’ estimates. Chief Executive Officer Roy Gori said that Manulife’s home country of Canada remains a “strong growth market” for the company and one it continues to invest in as the penetration of insurance products is still relatively low. The country’s economy also has remained resilient through the turbulence of this year, he said.
- Brookfield Asset Management Inc. saw a record $56 billion in inflows in the second quarter, but funds from operations declined 13% on weaker performance from its private equity and infrastructure units. The Canadian alternative asset manager said it earned $1.4 billion in funds from operations, or 84 cents a share, according to a statement Thursday. That exceeded the 80 cents a share estimated by analysts in a Bloomberg survey. Fear of a recession, provoked by soaring inflation and rising interest rates, has weighed down deal-making and initial public offerings — crunching valuations and restricting the ability of private equity firms to exit investments. Apollo Global Management Inc.’s principal investing income plunged 83% as unfavorable market conditions led to a reduction in asset sales, while Blackstone Inc. has written down holdings, included those tied to the technology and industrials sectors last quarter.
- European stocks trimmed earlier gains as losses in the healthcare sector outweighed optimism that signs of a peak in US inflation would spark a dovish tilt in Federal Reserve policy. The Stoxx 600 Index was less than 0.1% higher by 10:33 a.m. in London after surging yesterday to its highest in two months as the US data showed a slight cooling in the consumer price index for July. Healthcare stocks including Sanofi, GSK Plc and Haleon Plc were major drags on the benchmark amid concern over litigation related to Zantac, a once-popular antacid that has drawn a flurry of US personal-injury lawsuits alleging it causes cancer. Energy as well as travel and leisure stocks were among the sectors moving higher. After a furious rally in July on a better-than-expected earnings season, the European benchmark gauge has struggled to rise for even two consecutive days this month amid fears of a recession and the impact on corporate profits for the rest of the year.
- Stocks trimmed a rally on Thursday spurred by softer-than-expected US inflation data as investors digested comments from Federal Reserve officials who remained resolute on the need for further interest-rate hikes. US equity futures pared gains, after the S&P 500 hit a three-month high and the Nasdaq 100 pulled 20% above a June low on Wednesday. Walt Disney Co.rallied in premarket after a strong performance by its streaming service. Bumble Inc. slid after the dating app company cut its revenue forecast. US headline inflation was 8.5% in July, down from the 9.1% June print that was the largest in four decades. Fed officials were quick to stress more rate increases are coming to counter price pressures and signaled investors should rethink expectations of cuts next year to shore up economic growth.
- Asian stocks gained as cooler-than-expected US inflation data spurred bets that the Federal Reserve will temper the pace of its interest-rate increases. The MSCI Asia ex-Japan Index rose as much as 1.8%, the most in three weeks, lifted by technology shares amid falling Treasury yields. Tech-heavy markets including Taiwan and South Korea led gains in the region. Benchmarks in China also advanced, while Japan’s market was closed for a holiday on Thursday.
- The International Energy Agency boosted its forecast for global oil demand growth this year as soaring natural gas prices and heatwaves spur industry and power generators to switch their fuel to oil. World oil consumption will now increase by 2.1 million barrels a day this year, or about 2%, up 380,000 a day from the previous forecast, the Paris-based agency said in its latest monthly report. The extra demand that prompted the revision is “overwhelmingly concentrated” in the Middle East and Europe. Natural gas prices have surged this year as Russia restricts gas flows to Europe, a move that is widely seen as retaliation for sanctions imposed over its invasion of Ukraine. The increase has prompted many industrial consumers, including refiners and power plants, to switch from gas to oil. Scorching temperatures have also spurred demand for air conditioning, particularly in the Middle East, where a significant amount of oil is burned during summer to generate electricity.
- Gold edged lower as investors digested the impact of cooler inflation in the US on the Federal Reserve’s monetary tightening path. Bullion initially jumped on Wednesday after the US consumer price index decelerated by more than expected in July — suggesting the Fed could be less aggressive in raising interest rates — but ended 0.1% lower despite the dollar weakening favorably. Some traders pared bets on tightening, with a half-point rate increase being re-established as the likeliest outcome next month, as opposed to another three-quarter point hike.
- Walt Disney Co. shares rose after the company reported better-than-expected subscriber growth for its streaming service in the third quarter and said it would raise the price of Disney+ by 38%, part of a plan to generate more revenue from the money-losing online business. On Dec. 8, Disney will introduce an ad-supported version of the flagship streaming service and raise the price of the ad-free option to $11 a month, the entertainment giant said Wednesday. Prices for some packages that include Hulu and ESPN+ will also rise. The price increases, subscriber gains and a strong third-quarter performance from Disney’s namesake theme parks may help reverse investor sentiment that sent the shares down 27% this year through Wednesday’s close. The company added 14.4 million new Disney+ subscribers in the quarter, beating analysts’ estimates of 9.8 million and bucking the downdraft that’s hit Netflix Inc.
- Kim Jong Un’s sister revealed the North Korean leader suffered from a “high fever” during a recent Covid outbreak, as she vowed to “eradicate” South Korean authorities if they continued to tolerate propaganda leaflets the regime blames for spreading the virus. Repeating dubious claims that the pamphlets caused the recent Covid outbreak in the north, Kim Yo Jong blamed “South Korean puppets” for sending “dirty objects” across the border in leaflets carried by balloons, the official Korean Central News Agency reported Thursday. The revelation of her brother’s illness marked an unusual admission for a regime that rarely comments on the leader’s health — and then only to show that he shares the struggles of the people. Kim Yo Jong said in a speech the North Korean leader was “seriously ill” during his bout with fever, according to KCNA. Still, she added in a quivering voice that her brother “could not lie down for even a moment because of his concerns for the people,” with state TV showing audience members in tears as she delivered her remarks. She didn’t say whether the elder Kim was among what North Korea calls “fever cases” or specify the date of his illness.
- The cooler-than-expected US inflation reading for July is a positive sign that has buoyed risk assets, but some investors may be getting a little ahead of themselves, according to analysts. The rally that sent the S&P 500 to a three-month high and the Nasdaq 100more than 20% above its June bottom was fueled by bets that the Federal Reserve may turn less hawkish on interest rate hikes. Yet market observers cautioned that policy makers will want to see months more of evidence that price gains are slowing before they change their view.
- Russia lost nine fighter aircraft in blasts that shook an airbase in Crimea, Ukrainian President Volodymyr Zelenskiy said. “In just one day, the occupiers lost 10 combat aircraft, nine in Crimea and one more in the direction of Zaporizhzhia,” Zelenskiy said in his nightly video address to the nation. More Russian armored vehicles, ammunition warehouses and logistics routes were also destroyed, he said. Russian officials have denied Ukrainian strikes caused Tuesday’s explosions at the Saky airbase, at least 200 kilometers (124 miles) from the nearest front lines. They blamed munitions detonating at a warehouse amid lapses in safety regulations. Satellite imagery showed apparently extensive damage to buildings and aircraft at the base that Russia has used to support its invasion.
- Siemens AG recorded a loss following impairments as well as drag from ongoing component shortages and pandemic lockdowns in China. Net income during the fiscal third quarter was a negative 1.7 billion euros ($1.7 billion), the company said Thursday. That missed analyst expectations of a 634 million euro loss, according to data compiled by Bloomberg. The German industrial giant said while it’s faced with a complex economic environment marked by sanctions on Russia, high inflation and effects of the pandemic, the company has avoided “larger disruptions.”
- Russia’s oil output is set to fall roughly 20% by the start of next year as a European Union import ban comes into force, according to the International Energy Agency. Gradual monthly declines will start as soon as this month as Russia cuts back refining, and will quicken as the embargo takes effect, the IEA said in a market report. The agency expects to see close to 2 million barrels a day shut in by the start of 2023, despite a healthy recovery in production in recent months. The EU is set to halt most crude purchases from Russia from Dec. 5 in a bid to cut off revenue streams that the Kremlin uses to finance its war in Ukraine. From Feb. 5, an EU ban on Russian oil-product shipments takes effect.
- About 350 billion rupees ($4.4 billion) of debt faces the risk of credit-rating downgrades after India’s central bank earlier this year asked assessors to discount guarantees that aren’t explicit enough or hold too many conditions. Guidance notes from the Reserve Bank of India in April and July suggested rating firms ignore guarantees such as letters of comfort, Icra Ltd., the local unit of Moody’s Investors Service, said in a statement Wednesday. The changes could lower ratings on so-called enhanced debt by two notches, increase the risk weight of the affected debt to 48% from 35%, and raise capital requirements of lenders by a non-material 4 billion rupees, Icra said. The tighter approach aims to strengthen a financial system that’s only just emerging from a credit crisis that engulfed Indian shadow lenders in 2018 and triggered the nation’s biggest bank failure in 2020. In India’s already-stretched insolvency courts, banks have struggled to collect on contingent support, such as the weaker forms of backing that the RBI asked ratings firms to ignore.
- The six leading Democratic candidates for New York’s newly redrawn 10th Congressional district sparred Wednesday night over immigration, former President Donald Trump and hyper-local issues like crumbling roadways, congestion pricing and street parking rules. The district, which stretches across Lower Manhattan and Chinatown and throughout Brownstone Brooklyn and Sunset Park, was formed after a redistricting upheaval redrew Congressional lines and created a melting-pot district with centers of influence among Asian, Black, Hispanic, Jewish and LGBTQ voters in one of the most liberal areas of the US.
- Ping An Insurance Group Co. isn’t convinced by HSBC Holdings Plc’s case against a proposed spinoff of its Asia operations, arguing the lender is in need of urgent and radical change, according to a person familiar with its views. The insurer estimates a spinoff would generate additional market value of $25 billion to $35 billion, release $8 billion in capital requirements, and save on headquarter and infrastructure costs, the person said. It believes that HSBC has only emphasized the downsides and challenges of spinning off the business. The Chinese firm’s position underlines the continuing gulf between HSBC and its largest shareholder. It indicates that Ping An is unlikely to relent in its campaign for change, heralding months more of uncertainty and turmoil for Europe’s largest lender.
- China may be ready to curb some of the excess liquidity sloshing in the banking system as it turns its focus to mitigating risks in the financial industry. The first sign of that could come at Monday’s medium-term lending facility operation. Eight out of 12 economists and analysts polled by Bloomberg are forecasting that the People’s Bank of China will withdraw cash through MLF for the first time this year by offering less cash than the 600 billion yuan ($89 billion) maturing this month. The median estimate is for a 400 billion yuan injection, and all of those polled expect the rate to be kept unchanged. The shift in the central bank’s operations indicates that Beijing is now prioritizing limiting financial risks over relying on ultra-loose liquidity to support growth. While ample cash conditions have pushed interbank rates to multi-year lows, the excess funds aren’t being funneled into the real economy. Instead of boosting loans to corporates and households, banks have ramped up purchases of government bonds and highly-rated credit by increasing leverage.
- US Senator Elizabeth Warren rebuked Federal Reserve Chair Jerome Powell for withholding information on trading by central bank officials during the pandemic and said an investigation into the matter by the Fed’s inspector general was “troubling.” The IG report “raises new concerns about the reasons why you continue to withhold key information about Fed officials’ financial trading activity from Congress and the public,” the Massachusetts Democrat said in a letter to Powell released Thursday. Warren –- a member of the Senate Banking Committee that has Fed oversight authority — also sent letters to all 12 reserve banks asking for securities transaction records for all senior officials since Jan. 1, 2020, giving the banks an Aug. 25 deadline.
“Do what is right, not what is easy nor what is popular.” —Roy T. Bennett
*All sources from Bloomberg unless otherwise specified