August 24, 2023

Daily Market Commentary

Canadian Headlines

  • Toronto-Dominion Bank saw its expenses and provisions for credit losses rise in the third quarter, another signal that borrowers are feeling squeezed by aggressive rate hikes. The Canadian bank set aside C$766 million ($566 million) for troubled loans in the quarter ended July 31, about 4% more than analysts had projected. Non-interest expenses were up 24% over the previous year.  Those factors dragged earnings per share down to C$1.99 on an adjusted basis, missing consensus estimates of C$2.04, as compiled by Bloomberg.
  • Royal Bank of Canada said it plans to cut as much as 2% of its full-time staff in the coming quarter after a surge in expenses weighed on third-quarter results.  Expenses climbed 23% to C$7.86 billion ($5.8 billion) for the fiscal third quarter, compared with the C$7.31 billion average of analyst estimates compiled by Bloomberg. Royal Bank ended the quarter with 93,753 employees after it shed about 645 jobs in the period. “We remain focused on executing on our cost reduction strategy while leveraging our strong balance sheet and diversified business model to support our growth,” Chief Executive Officer Dave McKay said in a statement Thursday.
  • ConocoPhillips has been put on divestment watch by some of Europe’s biggest pension funds, after using proceeds from a recent debt financing to expand its business in oil sands. The Houston-based oil company obtained full control of the Surmont field in Alberta, Canada, this year, paid for with funds from three US dollar bond sales worth $2.7 billion.


World Headlines

  • Futures contracts for the S&P 500 climbed 0.7%, while those for the Nasdaq 100 advanced more than 1%, adding to Wednesday gains. Better-than-expected earnings from Nvidia Corp. stoked the upswing. The chip-maker forecast quarterly sales to reach $16 billion, eclipsing the $12.5 billion anticipated by analysts. Nvidia’s gains alone represent about a quarter of the rally in Nasdaq futures.
  • European stocks advanced for the fourth session in a row on Thursday, as UBS Group AG led financial services stocks higher and chipmakers gained after Nvidia Corp.’s blowout sales forecast.  The Stoxx Europe 600 rose 0.3% by 12:18 p.m. in London, with the financial services and real estate subgroups advancing while the basic resources sub-index lagged. Shares in UBS gained after the Zurich-based lender was reported to have set a target of winding down Credit Suisse Group AG’s domestic bank. Executives are preparing for an announcement as soon as the end of this month, people familiar with the matter said.
  • Asian equities advanced, on track for their biggest one-day gain since July 25, boosted by a rally in semiconductor stocks and Chinese technology firms after Nvidia projected better-than-expected revenues for its third quarter. The MSCI Asia Pacific Index climbed as much as 1.3%, heading for a third straight day of gains. A Bloomberg gauge of chip shares in Asia jumped the most since June 13 on the back of Nvidia’s blowout earnings that comfortably surpassed analysts’ expectations.
  • Oil steadied after three days of losses as traders weighed an improving supply outlook in a market grappling with a shaky economic outlook. West Texas Intermediate futures traded near $79 a barrel after dropping 1.8% on Wednesday. The Biden administration is in talks with Venezuela to explore a temporary lifting of sanctions that have hindered its oil sales. That comes on top of a surge in exports from Iran this month.
  • Gold edged higher after its biggest jump in five weeks, which was triggered by economic reports that reignited optimism policymakers are nearing the end of monetary-tightening cycles. Treasury yields stabilized after retreating across the curve on Wednesday, following the release of US figures that showed American business activity stagnated in August due to subdued customer demand.  Swaps traders dialed back bets on further rate hikes by the Federal Reserve in response to the underwhelming data.
  • Iron ore fell for the first time in six days ahead of what’s likely to be an ugly earnings season for Chinese steel mills.  The steel-making staple dropped as much as 2.2% before paring some losses. Steel mills, which have been hit by a downturn in demand due to China’s deteriorating property market and disappointing economic growth, are set to report half-year results before the end of the month. Steel stockpiles at major mills rose to the highest level since May by the middle of this month, according to data from China Iron and Steel Association. Inventories are expanding even as the typically busy construction season over September and October approaches.
  • Federal Reserve Chair Jerome Powell, expected to address monetary policy on Friday at the Jackson Hole symposium, may have little room to relieve growing credit market stresses as the US economy booms. While debt risks abound, from US regional banks to Chinese property developers, swap traders have been pricing in less potential for Fed rate cuts over the past month. The iShares iBOXX high-grade and high-yield corporate bond exchange-traded funds faced withdrawals en masse over that period, while super short-term Treasuries received huge inflows.
  • US mortgage applications for home purchases stumbled last week to an almost three-decade low, indicating residential real estate is reeling from the recent spike in borrowing costs. The Mortgage Bankers Association index of home-purchase applications fell 5% to 142, the lowest level since 1995. The Wednesday data also showed that the contract rate on a 30-year fixed mortgage increased 15 basis points to 7.31% in the week ended Aug. 18 — the highest since late 2000.  Including a decline in refinancing activity, the overall measure of mortgage demand dropped 4.2%.
  • Nvidia Corp. shares were set to hit a record high in early trading after the chipmaker at the forefront of an industrywide artificial intelligence race delivered a third-straight sales forecast that surpassed Wall Street estimate. Shares rose 8.7% to $512 before markets in New York opened on Thursday after Nvidia said sales will be about $16 billion in the three months ending in October. If the gain holds, it will mark a record. Analysts had estimated just $12.5 billion, according to data compiled by Bloomberg. Nvidia’s results last quarter also blew past projections, and it approved an additional $25 billion in stock buybacks.
  • Meta Platforms Inc., Google and X, formerly known as Twitter, will need to adhere to strict new content moderation rules in the European Union when a new law governing social media platforms becomes legally enforceable from Friday. Alphabet Inc.’s Google said Thursday that it’s making several changes to comply with the EU’s Digital Services Act, including expanding access to data on targeting of online ads and disclosing more information about its content moderation operations for services like Google Search. It will also augment risk analysis for its largest platforms. Nineteen companies were designated “very large online platforms” and “very large online search engines” by the EU last spring, which means they had more than 45 million monthly users.
  • Republican presidential candidates were largely united in their criticism of President Joe Biden’s economic record in Wednesday’s debate but sparred over foreign policy, the border and abortion rights. Absent from the event — and also largely from the discussion — was former President Donald Trump, the clear frontrunner for the nomination. When asked if they would support Trump as the nominee, even if he’s convicted of a felony, all but former governors Chris Christie of New Jersey and Asa Hutchinson of Arkansas raised their hands.
  • The plane crash that presumably killed Wagner founder Yevgeny Prigozhin restored Vladimir Putin’s reputation as Russia’s unchallengeable leader for many of the country’s elite, even as the cause of the disaster may never be fully established. The mercenary leader’s demise removes a man who’d courted impunity after leading the mutiny that threatened the Russian president’s grip on power. His elimination is a strong stabilizing factor for Putin’s regime because it shows that anyone challenging him comes to a bad end, according to four people close to the authorities, who asked not to be identified because the matter was sensitive.
  • Roark Capital Group has won the race to acquire US sandwich chain Subway after seeing off a late challenge from a rival bid group led by TDR Capital and Sycamore Partners. The private equity firm has entered into a definitive agreement to buy Subway, according to a statement on Thursday. Bloomberg News reported earlier today that Roark was putting the final touches on its takeover of the company.
  • Shares of Boeing Co. and its biggest supplier, Spirit AeroSystems Holdings Inc., fell after the planemaker disclosed improperly drilled holes in a component that helps maintain cabin pressure within the 737 Max jet. The latest issue with Boeing’s best-selling model threatens to derail delivery targets for the Max as the company speeds the manufacturing pace of its cash-cow airliner.
  • While the financial impacts aren’t yet clear, “it appears the fix is likely to take several weeks for completed aircraft, which likely puts pressure on Boeing’s delivery forecast for the year,” Jason Gursky, an analyst at Citi, wrote in a note to clients on Thursday. Spirit will likely be responsible for the cost of inspections and repairs, Gursky said.
  • China is attempting to defuse risks from its $9 trillion pile of off balance-sheet local government debt, without resorting to major bailouts. That path forward is a treacherous one for President Xi Jinping’s government. To thread the needle, the provinces and cities whose borrowing drove the world’s largest infrastructure boom will need to roll back their spending and restructure debt — all without drastically dragging down economic growth. If they fail, it could thrust the world’s second-biggest economy into a prolonged malaise.
  • Britain’s mortgage crunch is reversing the fortunes of its once-biggest housebuilder Persimmon Plc, whose reliance on first-time buyers has turned from a boon into a drag on its market value.  The firm is expected to be kicked out of the UK’s top equity index in next week’s reshuffle, ending a decade-long stay. That’s on the back of a collapse in first-time buyer deals, which now account for about a third of the developer’s customers, as the highest mortgage rates since the 2008 financial crisis and a cost-of-living squeeze hit demand.
  • UBS Group AG is poised to decide in favor of fully integrating Credit Suisse’s domestic bank, ending months of speculation about the future of the business. The Zurich-based lender has set a target of winding down the Credit Suisse brand in the country, people familiar with the matter said. Executives are preparing for an announcement as soon as the end of this month, the people said, who asked not to be named discussing private details.