August 22, 2023

Daily Market Commentary

Canadian Headlines

  • Northvolt AB raised $1.2 billion from North American investors including BlackRock Inc. and CCP Investments as the Swedish battery maker is said to be in talks to set up a new factory in Canada. Northvolt extended last year’s $1.1 billion convertible note to $2.3 billion to finance an expansion of its production capabilities in Europe and North America, the company said Tuesday. Ontario’s public-sector investment vehicle and its pension fund also invested. The battery maker has raised more than $9 billion in equity and debt in the past six years, bolstered by over $55 billion in orders from automotive clients including BMW, Volvo Cars and Volkswagen. The company has said it plans to eventually go public.
  • Teck Resources Ltd. says it is experiencing minor impacts at its smelter operations in southern British Columbia due to poor air quality caused by wildfires. “We have experienced minor effects to smelter operations at our Trail operation due to poor air quality in the area affecting the oxygen plant,” Teck spokesperson Chris Stannel says in emailed statement. “We’re closely monitoring the wildfire situation in the region.”
  • Canadian Prime Minister Justin Trudeau denounced Meta’s decision to block the sharing of news articles on its platforms as wildfires continued to devastate swaths of the Northwest Territories and British Columbia, forcing thousands to flee. “It is so inconceivable that a company like Facebook is choosing to put corporate profits ahead of ensuring that local news organizations can get up-to-date information to Canadians,” Trudeau said at a news conference Monday. Meta began blocking news links for Facebook and Instagram users in Canada in June after the country passed a law that allows news organizations to negotiate with tech giants to receive payments for articles shared on their platforms.


World Headlines

  • US stocks are set to extend gains after snapping a four-day losing streak on Monday as traders banked on tech shares ahead of a highly anticipated speech by Federal Reserve Chair Jerome Powell at the Jackson Hole summit later this week.  Contracts on the Nasdaq 100 climbed as much as 0.5% by 5 a.m. in New York while S&P 500 futures edged 0.3% higher. The underlying benchmarks have declined 5.2% and 4.1% in August, respectively.
  • Asian equities are set to snap a seven-day losing streak, boosted by a late rally in Chinese stocks and strength in US stock futures, which indicated a positive opening for Wall Street later.
  • The MSCI Asia Pacific Index gained as much as 1.2%, led by technology and financial shares. Gauges in Korea and Taiwan advanced as chip-related stocks climbed on optimism over Nvidia Corp.’s upcoming earnings report. Japan equities also ended higher.
  • European equities gained on Tuesday, following US markets higher after a rally driven by big tech stocks. The Stoxx 600 Index was 1.1% higher as of 12:15 p.m. in London. All sectors advanced, with the Stoxx 600 Technology Index up as much as 2.6%, the most in almost a month. The FTSE 100 rose 0.6%, set to end its longest losing streak since July 2019. Ubisoft Entertainment SA jumped after signing a cloud streaming deal for Activision Blizzard Inc. games.
  •  Oil held a modest decline on signs that supply is rebounding while concerns linger about demand in China, the biggest importer. West Texas Intermediate futures for October traded near $80 a barrel, after falling 0.7% on Monday. Observed exports from Iran have surged to 2.2 million barrels a day this month, and there has been a sudden flurry of talks between Turkey and Iraq as those countries seek to restart a major oil pipeline.
  • Gold rose for a second day, extending a climb from a five-month low, as the dollar weakened and traders awaited signals on the US Federal Reserve’s monetary policy. The greenback fell for a fourth straight day amid a broad rally in global stock markets. Its weakness offered support to bullion, which is priced in the US currency.
  • Iron ore rose for a fourth day on signs demand from Chinese steel mills may be improving ahead of an expected pick-up in construction in September and October. The steel-making staple has rallied around 10% since last Wednesday’s close as sentiment improved due to the absence of government directives to cut steel production and as the post-summer ramp-up in building approaches. That’s offsetting a worsening economic outlook in China.
  • The US bond-market selloff resumed Monday, driving 10-year yields to a 16-year high, as the persistently resilient economy has investors positioning for interest rates to remain elevated even after the Federal Reserve winds up its hikes. The selling pressure weighed on typical Treasuries as well as those that provide extra payouts to cover inflation, signaling bondholders are bracing for the risk that monetary policy will remain tight as the central bank guards against a re-acceleration in inflation. The yield on 10-year inflation-protected Treasuries on Monday pushed over 2% for the first time since 2009, extending its ascent from year-to-date lows near 1%. Not long after, the yield on 10-year Treasuries without that protection surpassed October’s peak, climbing nearly 10 basis points to as much as 4.35%, a level last seen in late 2007, before slightly paring the gain.
  • Two weeks after Moody’s Investors Service rattled financial stocks by cutting the ratings for a slew of US banks, S&P Global Ratings is downgrading and dimming its outlook for several more — citing a similar mix of pressures making life “tough” for lenders.
  • S&P lowered grades one notch for KeyCorp, Comerica Inc., Valley National Bancorp, UMB Financial Corp. and Associated Banc-Corp, it said Monday in a statement, noting the impact of higher interest rates and deposit moves across the industry. S&P also lowered its outlook for River City Bank and S&T Bank to negative and said its view of Zions Bancorp remains negative after the review.
  • SoftBank Group Corp.’s Arm Holdings Ltd. took a step toward what’s set to become the biggest initial public offering of the year, a bet that the once-obscure designer of phone chips can flourish in the era of artificial intelligence computing. In a long-awaited regulatory filing Monday, Arm said the offering is being led by Barclays Plc, Goldman Sachs Group Inc., JPMorgan Chase & Co. and Mizuho Financial Group Inc. The document listed 24 other underwriters below that top tier — with Morgan Stanley notably absent. A successful debut by Arm would provide a windfall for SoftBank founder Masayoshi Son, whose Vision Fund lost a record $30 billion last year. It could also spur dozens of companies to pursue — or further delay — their own IPO plans. That includes businesses like online grocery-delivery firm Instacart Inc., marketing and data automation provider Klaviyo and footwear maker Birkenstock.
  • Nvidia Corp. shares soared on Monday as more analysts raised their price targets on the stock, a sign of growing optimism about the chipmaker’s highly anticipated results later this week. The average price target for the stock has been moving steadily higher recently, and is above $520, up from $505 just a week ago. The current target implies an upside of about 11% from current levels.  The stock gained 8.5% on Monday, its biggest one-day percentage gain since May 25. Shares are up 221% this year, compared with a gain of 41% for the Philadelphia Stock Exchange Semiconductor Index. Much of the rally reflects optimism over artificial intelligence, which Nvidia is a key player in.
  • Macy’s Inc. profit beat analyst expectations as markdowns attracted bargain-hunting shoppers who are pulling back on purchases after a pandemic shopping boom.  While US shoppers are still spending at stores like Walmart Inc. for necessities, as well as on travel and entertainment, outlays on apparel and accessories have fallen from record highs during the pandemic. Promotions were “surgically implemented” to clear seasonal items, Macy’s Chief Executive Officer Jeff Gennette said in a statement. “We continue to see uncertainty in the macroeconomic environment,” he said.
  • A number of major carbon traders are finding that offsets they bought may now be valueless. Trafigura Group, the world’s largest buyer of carbon-removal credits, has suspended a consignment as it awaits the results of a probe into the forestry project behind the units. The situation has led the company to replace the offsets in a contract with a corporate client and instead keep the stranded credits on its own books. Hannah Hauman, global head of carbon trading at Trafigura — and a former oil trader — says the complete loss of value seen in some corners of the voluntary carbon market is unlike anything she’s witnessed in oil markets.
  • The US lifted restrictions on 27 Chinese companies and organizations, a sign Washington is extending an apparent olive branch ahead of Commerce Secretary Gina Raimondo’s planned trip to Beijing this month. The US Department of Commerce on Monday removed the Chinese entities — such as chemical firm and lithium battery material maker Guangdong Guanghua Sci-Tech Co., and sensor maker NanJing GOVA Technology Co. — from its “unverified list,” which restricts a company’s ability to buy American technology. The companies were taken off the list after they successfully completed end-use checks that allowed the commerce department’s Bureau of Industry and Security to establish their “legitimacy and reliability,” according to a government statement.
  • Microsoft Corp.’s $69 billion Activision Blizzard Inc. acquisition got a new chance at winning approval from UK regulators after the tech giant submitted a substantially different deal to the country’s antitrust watchdog. In a rare move, the Competition and Markets Authority would open a new deal probe after Microsoft said it would sell the rights of all current and future Activision games released during the next 15 years to Ubisoft Entertainment SA. The divestment doesn’t include the European Economic Area, the CMA said.
  • Rising onion prices in India pose a greater risk to Prime Minister Narendra Modi’s government than a recent spike of 700% in tomatoes, forcing authorities to take fresh steps to curb food inflation before key polls. India has imposed a 40% export tax on onions and plans to sell them locally at subsidized rates. The vegetable stands alongside tomatoes and potatoes as part of a trio of crops so crucial to Indian diets that past price spikes due to crop losses have prevented some ruling parties from returning to power. Consumers are more sensitive to onions — a vegetable that’s hard to be replaced with any other commodity in many local cuisines — than to tomatoes and potatoes.
  • US payrolls growth in the year through March is forecast to be weaker than current data illustrate — by one estimate about 500,000 jobs weaker. JPMorgan Chase & Co.’s Daniel Silver estimates Wednesday’s government preliminary benchmark revision will shave nearly half a million off the level of total employment for March, or about 40,000 fewer jobs per month over the 12-month period.