The Daily – August 28, 2023

August 28, 2023

Daily Market Commentary

NEWS

• US stock futures ticked up Monday as the market looked set to build on gains made Friday on Federal Reserve Chair Jerome Powell’s cautious comments on future interest rate moves.  S&P futures climbed 0.2% while contracts on the Nasdaq 100 rose 0.3% by 5:32 a.m. in New York. Stocks also advanced in Europe and in China, where the government announced support for equity markets.  Among individual movers in premarket trading, 3M Co. gained 4% after Bloomberg News reported it tentatively agreed to pay more than $5.5 billion to resolve lawsuits claiming it sold the US military defective combat earplugs.
• Asian equities rose, with Chinese markets leading the way on investor enthusiasm for new support measures from the government, and relief over US interest rate policy providing an additional tailwind for the region. The MSCI Asia Pacific Index headed to its best daily advance this month, climbing as much as 1.7%, with Tencent and Alibaba among the biggest boosts. China’s key mainland stock gauge and a measure of Hong Kong-listed tech stocks each soared more than 5% in early trading, but they pared gains in a blow to Beijing’s efforts.
• European stocks rose on Monday as China’s stimulus to lift its equity market boosted risk sentiment, while investors considered the outlook for interest rates after cautious remarks from Federal Reserve Chair Jerome Powell. The Stoxx 600 Index was up 0.7% as of 8:02 a.m. in London, tracking a rally in Asian peers as China cut stamp duty on stock trades for the first time since 2008 and pledged to slow the pace of initial public offerings. Technology and construction stocks led the gains in Europe as all industry sub-indexes advanced. Stock markets in the UK are closed for a local holiday. Among individual movers, Valneva SE rallied as it reported positive initial Phase-3 safety data in adolescents for its single-dose chikungunya virus vaccine candidate.
• Oil held a gain as China announced measures to boost its stock and property markets, helping offset concerns about increased supply and monetary tightening in the US and Europe. West Texas Intermediate traded around $80 a barrel after closing 1% higher on Friday. The US benchmark fell over the previous two weeks on speculation the US could ease sanctions on Iran and Venezuela, boosting supply, and a deteriorating demand outlook in China, the world’s biggest oil importer.
• Natural gas prices in Europe and Asia are set for another volatile week as a fight between unions and some Australian export facilities rages on. Unions will finish voting on Monday over whether to endorse strikes at a liquefied natural gas facility operated by Chevron Corp. Workers voted to strike at two other Chevron plants late last week, but there is no timetable for any action yet. Any update on the talks could send gas futures swinging, as anxious traders fear strikes would disrupt production and tighten the global market. While Woodside Energy Group Ltd., another Australian exporter, made a deal last week with workers and avoided strikes, it isn’t clear if Chevron will be able to do the same.
• The world’s top central bankers stressed the need to keep interest rates high until inflation is contained — and wrestled with deeper economic shifts that will make their jobs harder. At an annual Federal Reserve gathering in Jackson Hole, Wyoming, keynote speeches from Fed Chair Jerome Powell and European Central Bank President Christine Lagarde on Friday laid out the challenges each is facing in deciding if they should extend historic strings of rate increases that began last year. At the same time, they offered investors few clues as to whether they would in fact do so in the coming months.
• Christine Lagarde’s avoidance of a clear signal of intent for European Central Bank policy has just thrown a brighter spotlight on a pivotal week in the euro zone. While the president observed on Friday that inflation remains undefeated, she didn’t address prospects for the Sept. 14 meeting, giving colleagues scope to publicly debate the need for increasing borrowing costs just as crucial data arrive in coming days. Consumer-price numbers will set the scene for one of the most suspenseful decisions since ECB rate hikes began more than a year ago, as officials ask if additional monetary tightening is an imperative, or whether a souring economic outlook is bleak enough to warrant a pause.
• Instacart filed plans to go public on Friday — and in doing so, pulled back the curtain on a grocery-delivery business that has faced a rapid slowdown in the growth of its core business and is searching for new ways to make money. Orders on America’s largest online grocery delivery platform rose 18% to almost 263 million in 2022 but were virtually flat in the first half of 2023 compared with a year earlier, Instacart said in its filing with the US Securities and Exchange Commission. The company was able to become profitable in 2022, thanks in part to a boost in revenue from advertising, which now accounts for nearly a third of the company’s total revenue.
• Indonesian mining contractor Bukit Makmur Mandiri Utama Pt (Buma) and Australian coal producer Stanmore Resources Ltd. are in talks with private credit funds to back competing bids for coal mines in Australia, people familiar with the matter said. Buma and Stanmore have made initial bids for at least one of BHP Group Ltd.’s coal mines, Daunia and Blackwater, in the northeastern state of Queensland, according to the people, who asked not to be identified speaking about private matters.
• Some of the most widely used drugs in the US may be heading for lower prices under Medicare, a move that could save taxpayers billions of dollars and squeeze profits for big pharmaceutical companies. The US government is preparing to release a list this week of 10 drugs that the health program for the elderly will be able to negotiate prices for — one of the key elements of President Joe Biden’s signature Inflation Reduction Act. Analysts expect Johnson & Johnson’s Xarelto blood thinner and Eli Lilly & Co.’s Jardiance for diabetes to be among the medications chosen. The ability for the government to haggle over prices is a marked change for pharma companies that have long been able to charge whatever they think a medication is worth, even as most other industrialized companies bargain hard. With the IRA now enabling Medicare to come to the table over products that have long been on the market, drugmakers are girding for the prospect of lower revenue from some of their biggest sellers.
• A rally in emerging markets faded as doubts over China’s commitment to revive its faltering economy and confusion over the US Federal Reserve’s next steps kept sentiment in check.  MSCI Inc.’s gauge of developing-nation equities surged as much as 1.6% before paring most of its early gains on Monday. The price action reflected moves in Chinese stocks after Beijing’s measures to reinvigorate the market, including a cut in a levy on stock trades, failed to sustain a rally.
• 3M Co. has tentatively agreed to pay more than $5.5 billion to resolve over 300,000 lawsuits claiming it sold the US military defective combat earplugs, people familiar with the deal said. The settlement would avert a potentially much larger liability that 3M sought to curb though a controversial bankruptcy case that ultimately collapsed. The sum is about half the roughly $10 billion some financial analysts predicted 3M could end up paying over allegations that the earplugs didn’t adequately protect the hearing of service members.
• Wagner mercenary group chief Yevgeny Prigozhin’s death in a plane crash last week was confirmed by Russian investigators, as speculation over a possible Kremlin-ordered execution continues to swirl.  DNA tests showed that all 10 passengers and crew listed as having boarded the private jet on Aug. 23 were killed, according to a statement on the Russian Investigative Committee’s website Sunday.