August 29, 2023

Daily Market Commentary


Canadian Headlines

  • Bank of Montreal put aside more money for potentially sour loans and severance costs as it absorbs Bank of the West during a difficult period for US regional lenders.  The Canadian bank earned C$2.78 per share on an adjusted basis in the fiscal third quarter, weighed down by weaker results in its US personal and commercial division. Analysts surveyed by Bloomberg were expecting C$3.13 per share.
  • Bank of Nova Scotia missed analysts’ estimates as lending margins shrank from a year earlier and the company increased provisions for potentially souring loans. Net interest margin, a measure of how much Scotiabank makes from lending money compared with what it pays for deposits, came in at 2.1% for the fiscal third quarter, the Toronto-based company said in a statement Tuesday. That was worse than the 2.13% it reported for the second quarter and 2.22% a year earlier, and lower than the 2.3% average analyst forecast in a Bloomberg survey. Overall earnings fell short of analysts’ estimates.


World Headlines

  • US equity futures struggled for traction on Tuesday as traders awaited a raft of economic figures over the next few days for clues on the outlook for global central bank policies. Contracts on the S&P 500 and Nasdaq 100 fluctuated before edging higher after China signaled further measures to support its economy. Treasury yields dipped, while a gauge of the dollar was steady. Among individual movers in US premarket trading, electronics and appliances retailer Best Buy Co. Inc. climbed 3.3% ahead of its second-quarter earnings report. Verizon Communications Inc. and AT&T inc. rose after Citigroup Inc. upgraded the stocks to buy, saying it sees a more constructive investment case for large-cap telecommunications firms.
  • Asian stocks rose, on course for the highest close in two weeks, as Chinese equities extended their gains following the country’s market-boosting measures. A fall in Treasury yields also helped sentiment.  The MSCI Asia Pacific Index climbed as much as 0.9%, poised for a second day of advance. Chinese internet firms Tencent and Alibaba provided the biggest support to the gauge, with a measure of tech firms listed in Hong Kong rising as much as 3.1%.  Chinese stocks rose further as local media urged investors to allow the latest support measures, including the first cut in stamp duty since 2008 as well as curbs on share sales by major stakeholders, to work their way through the market. In Hong Kong, the Hang Seng gauge of Chinese shares added as much as 2.7%, helped by gains in BYD Co. after the company reported solid earnings, while the benchmark Hang Seng Index climbed about 2%.
  • European stocks rose on Tuesday as China’s measures to bolster its economy and supportive UK inflation figures boosted investor risk appetite. The Stoxx 600 Index was up 0.6% by 11:54 a.m. London time, with all sectors in the green. Miners and telecoms led gains. A Bloomberg report that China’s biggest state-owned banks are weighing further cuts to deposit rates helped sentiment, following on from weekend stimulus measures. The UK’s FTSE 100 index was also buoyant following Monday’s holiday, gaining 1.5%  Figures showing that food inflation in Britain cooled to lowest level in almost a year in August lifted domestic stock like Ocado Group Plc.
  • Oil rose marginally with equities as traders waited for the next set of clues on the outlook for crude demand in the US and China. West Texas Intermediate traded above $80 a barrel after gaining 1.5% over the past three days, the longest run of gains since late July. In broader markets, stocks climbed, adding a tailwind to crude, and China’s banks are weighing further rate cuts to boost growth.
  • Gold edged higher, extending recent gains, as traders awaited US jobs data that may shift views on the Federal Reserve’s rate path. That came after yields on shorter-dated US bonds rose last week in anticipation of another hike by the US central bank following comments by Fed Chair Jerome Powell. Higher yields are typically negative for bullion, which doesn’t generate interest. The precious metal has rallied slightly after hitting the lowest in five months earlier in August. That’s largely failed to entice fresh buying from Western money managers, with both exchange-traded funds and futures traders continuing to cut their bullish bets.
  • Hurricane Idalia is set to intensify into an “extremely dangerous” major storm, bringing life-threatening winds and floods, as it barrels north toward Florida’s Gulf Coast.   Idalia is set to make landfall on Wednesday in a broad geographic area that includes Tampa, the National Hurricane Center said in an update at 5 a.m. Eastern time. Its center was located about 85 miles (135 kilometers) north of Cuba’s western tip, with maximum sustained winds of 75 miles per hour. It’s forecast to move over the eastern Gulf of Mexico on Tuesday, and blast through northern Florida before nearing the Carolina coastline on Thursday.
  • China’s state banks are throwing nearly all they have at seeking to boost consumer spending, directed by policymakers who are digging deeper into their toolkit to shore up growth in the world’s second-largest economy. As soon as Tuesday, China may announce that the big state-owned banks are cutting rates on the majority of the nation’s 38.6 trillion yuan ($5.3 trillion) of existing mortgages, according to people familiar with the matter. The reductions will only affect loans on first homes, according to two of the people. At the same time, lenders such as Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. are poised to later this week cut deposit rates for a third time in a year to shore up their plunging margins.
  • Large regional bank stocks will be in focus on Tuesday as US regulators are expected to propose new rules that would require midsize lenders to issue sufficient long-term debt to cover capital losses in the event of a failure. An FDIC meeting is scheduled to start at 10 a.m. New York time on Tuesday.
  • Private-sector data indicate the number of job openings was little changed in July. Declines in excess labor demand — which account for the bulk of the labor-market softening seen to date — have held steady over the past three months. In his Jackson Hole speech, Fed Chairman Jerome Powell suggested the Phillips Curve may have steepened, meaning that inflation can continue to decline with only a marginal loosening in the labor market. With the labor-force participation rate holding steady for months, we expect the Fed will need to keep rates higher for longer to lean against labor demand and sustainably rein in inflation.
  • Interest rates may be peaking in Europe, but for the consumers, companies and governments that borrowed trillions of euros during the era of ultra-low borrowing costs, there’s still plenty of pain in store. Through the end of this decade, borrowers across the continent face repayment on a mountain of debt sold when financing costs were many times lower. Although the adjustment is painful in many places, including the US, it’s a particular shock in Europe, where  interest rates were below zero for eight years. Many borrowers have delayed refinancing in the hope that rates would come tumbling down again. But with economies having largely performed better than expected, that’s looking increasingly unlikely.
  • Airlines are rushing to restore normal flight operations in the UK and repatriate stranded passengers after the worst air-traffic outage in a decade led to hundreds of delays and cancellations on one of the busiest days this travel season. British Airways and EasyJet Plc told passengers due to fly on Tuesday that they shouldn’t travel to the airport without checking the status of their flight as it may be delayed or canceled. Both carriers were also offering those due to depart Monday or Tuesday free changes to flights to a later date, with EasyJet also offering refunds. London Heathrow showed 56 delayed flights and 32 cancellations on Tuesday, according to Flightradar24. That compares with more than 170 axed flights on Monday. Gatwick airport, the second major hub in London, suffered 23 cancellations on Tuesday, the data show.
  • The UK government pledged to rip up environmental rules protecting waterways that were inherited from the European Union, in a bid to boost housebuilding. Ministers will reform “nutrient-neutrality” regulations that prohibit builders developing in areas where polluted soil run-off has left the water in poor condition, the Department for Leveling Up, Housing and Communities said on Tuesday in a statement that confirms a Bloomberg article from last month.  “These laws which originate from Brussels put a block on new homes in certain areas,” the government said in the statement. After the planned changes, “it is expected that developers could begin construction on these homes in a matter of months.”
  • As a growing share of US companies are forced to tell job applicants and employees upfront how much they’ll pay for work, lawmakers are beginning to ask them to be equally transparent about opportunities to get a promotion. Illinois legislators included so-called opportunity transparency when enacting this year’s pay equity law, which takes effect in 2025, and Colorado’s legislature beefed up requirements for next year to insist employers be more forthcoming on information about promotions. New Jersey has a similar provision in pending legislation.
  • Best Buy Co. said a painful sales slump in consumer electronics and household appliances is starting to show signs of easing.  US comparable sales fell 6.3% during the fiscal second quarter, the shallowest decline in more than a year, Best Buy said Tuesday as it reported results. That was in line with analyst estimates. “Next year the consumer electronics industry should see stabilization and possibly growth driven by the natural upgrade and replacement cycles and the normalization of tech  innovation,” said Chief Executive Officer Corie Barry in a statement.
  • Walmart Inc., Walgreens Boots Alliance Inc. and CVS Health Corp. are rolling out new care options normally only available at doctor’s offices. Testing and treatment services for strep throat, flu and Covid-19 are now available from Walmart pharmacists in 12 states, the company said in a statement Tuesday. Walgreens will soon have a similar offering across 13 states. And CVS pharmacists will evaluate symptoms and prescribe flu antiviral medicine and cough suppressants in 10 states, although they won’t offer tests.  The big chains are angling for a larger slice of health-care spending as new state laws allow pharmacists to treat minor ailments. In some cases — like strep tests for children as young as three — that could save people time-consuming and expensive visits to the physician.
  • VinFast Auto Ltd. is unprofitable, thinly traded and exciting individual investors as it rises faster than any other large-cap stock worldwide. That’s a perilous combination for anyone tempted to bet on further gains in the Vietnamese electric-vehicle startup, which has soared 688% since its debut in a SPAC listing on Aug. 15. VinFast’s $190 billion market capitalization is now bigger than half of the companies in the Dow Jones Industrial Average, including Goldman Sachs Group Inc. and Walt Disney Co. The last time a stock with a tiny free float rose from relative obscurity to the ranks of the world’s largest companies, it didn’t end well for investors. AMTD Digital Inc., another US-listed company with roots in Asia, baffled market veterans a year ago by soaring more than 32,000% in the span of a few weeks. The money-losing financial services company’s paper value at one point reached over $400 billion, exceeding that of JPMorgan Chase & Co.