August 31, 2022
- Canadian equities tumbled in their biggest one-day drop in more than two months as slumping oil and copper prices dragged down energy and materials stocks. The S&P/TSX Composite fell for the third day, dropping 1.6%, or 323.22, to 19,512.90 in Toronto. The move was the biggest since the 3.1% drop on June 16.
- The world desperately needs more grain, and Canada is set to harvest a bumper crop. The only problem is that snags in the country’s railway system may make it difficult to ship. Last year, the nation’s two major railways struggled to move Canada’s much smaller 2021 crop amid disruptions from wildfires, floods and extreme weather. This year, the northern nation will likely harvest its third biggest wheat crop on record and 42% more canola. Canada’s harvest rebound comes as world grain supplies have been uncertain following the war in Ukraine and as extreme weather trimmed output in parts of Europe. Drought is also shrinking crops from the US Farm Belt to China. Soaring commodity prices are also contributing to food inflation that’s been gripping the globe. The bumper crops are in line with Canadian National Railway Co.’s grain plan, said spokesman Jonathan Abecassis. The country’s largest railway said in July it expects to move as much as 27 million metric tons in the crop year starting Aug. 1.
- European shares extended their monthly decline on fears of more aggressive rate hikes by the Federal Reserve and the European Central Bank. The Stoxx Europe 600 Index dropped 0.4% by 12:27 p.m. in London, erasing earlier gains of as much as 0.4%. Energy stocks declined the most as oil headed for a third monthly drop, the longest losing run in more than two years. Utilities also underperformed, extending their decline to a fourth day as investors fret over Russian gas supplies at the start of a three-day halt of the key Nord Stream pipeline. Technology and travel and leisure stocks outperformed. The main regional benchmark is set for a monthly decline of about 4.5% as investor sentiment has been hit by soaring inflation, a looming European energy crisis and concerns over hawkish monetary policy as the Fed and the ECB raise rates. The Stoxx 600 has now erased about half of its summer rally.
- US equities were poised to finish August in the red as investors pondered if the Federal Reserve will stop at nothing to bring down inflation, even if it’s at the expense of growth. S&P 500 futures were 0.1% lower as of 5:22 a.m. in New York, putting the underlying benchmark on track for a 3.6% drop for the month. Dow Jones futures also slipped, while Nasdaq 100 contracts edged up 0.2%, pointing to a 4.6% monthly decline for the technology-heavy gauge. In premarket trading, HP Inc. slipped after the company reported quarterly sales that missed estimates and cut its annual profit forecast. Bed Bath & Beyond Inc. rose as investors geared up for a strategic update from the home-goods retailer.
- Asian equities were steady Wednesday as traders digested China’s weak economic data while technology stocks rebounded. The MSCI Asia Pacific Index erased an earlier loss to trade up as much as 0.6%. Chinese benchmarks underperformed the region after factory activity contracted on power shortages spurred by a historic drought. Stocks were also weak in Hong Kong as Warren Buffett’s sale of shares in BYD Co. fueled general risk-off sentiment, countered by advances in the city’s tech shares. Traders also weighed US job and consumer confidence numbers, which were seen backing the Federal Reserve’s rate-hike plans.
- Oil headed for a third monthly drop, the longest losing run in more than two years, on concern that tighter monetary policy will hit growth and China presses on with its Covid Zero strategy. West Texas Intermediate fell as much as $4.09 a barrel from high to low on Wednesday, putting it on course for a monthly decline of about 10%. Europe is gripped by an energy crisis that may herald a recession while in Asia, growth has slowed in China, the top world’s oil importer. Traders are nevertheless tracking an array of supply-related issues that have the potential boost prices. While there has been significant unrest in both Libya and Iraq in recent days, oil output in both OPEC members appears to be unaffected so far. Separately, talks to revive an Iranian nuclear deal that may unlock greater crude exports have dragged on, and Russian output has been maintained at levels higher than prior expectations.
- Gold headed for a fifth straight monthly drop, the longest losing run in four years, as speeches by Federal Reserve officials indicate the central bank will keep monetary policy tight for some time. The metal fell to a one-month low on Wednesday, extending a run of losses since a speech by Fed Chair Jerome Powell which stressed the central bank’s commitment to reining in inflation. It’s now down more than 6% in 2022, having come close to a record high when Russia’s invasion of Ukraine stoked demand for haven assets. Other officials struck a similarly hawkish tone. New York Fed chief John Williams said Tuesday that interest rates probably need to advance above 3.5% at some point to contain price pressures. Separately, Richmond Fed President Thomas Barkin said the central bank will “do what it takes” to curb inflation.
- US regulators have picked companies including Alibaba Group Holding Ltd. and Netease Inc. in the first batch of inspections after reaching a deal with China to end a decades-long impasse over access to audit papers of Chinese firms listed in New York. Other firms selected include Baidu Inc., JD.com Inc. and Yum China Holdings Inc., according to two people with direct knowledge of the matter. The US Public Company Accounting Oversight Board has requested to review materials from the latest financial year, one of the people said. The list is still subject to change. The PCAOB didn’t immediately respond to a request for a comment outside of normal business hours. The inspections, planned to take place in Hong Kong next month, come after a breakthrough on Friday in granting US inspectors access to background audit paperwork of Chinese stocks. The dispute heated up in 2020 after a US law set a time frame for firms whose work papers can’t be inspected to be kicked off American stock exchanges.
- Euro-area inflation accelerated to another all-time high, strengthening the case for the European Central Bank to consider a jumbo interest-rate hike when it meets next week. Consumer prices in the 19-nation currency bloc jumped 9.1% from a year ago in August, beating the 9% median estimate in a Bloomberg survey of economists, led by energy and food. Stripping out those drivers, a gauge of underlying inflation inched up to a fresh high of 4.3%, highlighting how price pressures continue to become more broad-based.
- Forget about a soft landing. Federal Reserve Chair Jerome Powell is now aiming for something much more painful for the economy to put an end to elevated inflation. The trouble is, even that may not be enough. It’s known to economists by the paradoxical name of a “growth recession.” Unlike a soft landing, it’s a protracted period of meager growth and rising unemployment. But it stops short of an outright contraction of the economy. Powell “buried the concept of a soft landing” with his Aug. 26 speech in Jackson Hole, Wyoming, said Diane Swonk, chief economist at KPMG LLP. Now, “the Fed’s goal is to grind inflation down by slowing growth below its potential,” which officials peg at 1.8%.
- Bed Bath & Beyond Inc. shares plunged in premarket trading Wednesday after the home-goods retailer announced in a filing that it may offer, issue and sell shares of its common stock from time to time. Shares in the retail-trader favorite sank as much as 21% as of 6:42 a.m. New York time, erasing an earlier gain of as much as 6.5%. The company said it plans to use proceeds from any sales of its common stock to, among other things, pay down its outstanding debts. The announcement comes as investors geared up for a strategic update from the home-goods retailer, due before the opening bell. While the focus of Bed Bath & Beyond’s “business and strategic update” is unknown, it will be watched closely following last week’s report that the company was said to be looking to mortgage its prized Buybuy Baby brand. Morgan Stanley analysts have previously said that cash burn and vendor support will also be in focus at the conference call, which is scheduled for 8:15 a.m. New York time.
- An investor group including Air France-KLM and Delta Air Lines Inc. looks primed to buy Italy’s fledgling state-controlled carrier, after being selected over a rival bid from a team that included Deutsche Lufthansa AG. The Rome-based Finance Ministry, which is running the process to find a new owner for ITA Airways, said Wednesday that it will start exclusive talks with the investor group led by the Certares investment fund that includes Air France-KLM and Delta. The two bidding groups had spent months jockeying for position in the contest for the airline that emerged from the ashes of former flag carrier Alitalia.
- Credit Suisse Group AG faces a capital gap of at least 4 billion Swiss francs ($4.1 billion) to improve its financial strength, fund its restructuring and support growth, according to Deutsche Bank AG. The size of any equity raise would be determined by the Swiss bank’s ability to quickly sell its securitized-products trading business, Deutsche Bank analysts wrote in a note to clients on Tuesday. While Credit Suisse exceeds its regulatory minimum requirements, the bank is below its future targets as well as the metrics of larger rival UBS Group AG, they wrote. Credit Suisse is undertaking a deep overhaul after a string of scandals and losses called into question the wisdom of trying to compete as a global investment bank. The bank’s new Chief Executive Officer Ulrich Koerner is looking at how to reshape that division, including by attracting third-party capital for securitized products.
- Austria approved a 2 billion euro ($2 billion) loan for Vienna’s municipal utility after spiking energy prices forced the company to provide more collateral to keep the lights on in the capital. Wien Energie GmbH, the city-owned utility serving 2 million people, will get access to the credit facility as Austrian authorities probe the trades leading to its cash crunch, Finance Minister Magnus Brunner said at a briefing on Wednesday. The loan is on the low end of potential financing needs, which swelled to as high as $6 billion before European benchmark power prices slumped earlier this week.
- Toyota Motor Corp. pledged to invest up to 730 billion yen, or around $5.6 billion, to boost electric car battery production in Japan and the US as consumer demand for cleaner transport takes off globally. Battery production is expected to begin between 2024 and 2026, the world’s biggest automaker said in a statement Wednesday. Although Toyota sees hybrid and even hydrogen fuel cell cars as part of a green future, it has hastened its push to electrify more of its lineup in recent months. In December, it promised to be ready to sell only zero-emission cars in Europe by 2035, aligning with the European Union’s green deal measures proposed earlier in 2021.
- UBS Group AG is letting go of half a dozen mainland China-focused employees in Hong Kong as turmoil in the world’s second-largest economy hammers dealmaking, prompting global banks to rein in their presence in the once lucrative market. The Swiss bank has trimmed bankers in businesses including debt capital markets, investment banking and real estate, the people said, asking not to be named discussing private information. A UBS spokesman declined to comment. Investment banking revenue for UBS in China has plunged by about half, though gains in Japan and Australia helped prop up its overall Asia business, people familiar said. New issuance in debt and equity markets has slowed this year following sweeping policy changes in China and slowing economic growth, denting revenue at banks that had ambitious expansion plans for the country.
- JPMorgan Chase & Co.’s Frankfurt offices are being raided by Cologne prosecutors as part of their vast probe into the controversial Cum-Ex scandal that robbed tax payers of billions of euros. The US bank confirmed in a statement that it was visited by officials and said that it continues “to cooperate with the German authorities on their ongoing investigation.” A spokesman for Cologne prosecutors on Wednesday said searches at an unidentified bank started on Tuesday and include the homes of four suspects as well as an auditing firm that isn’t a target in the probe. More than 50 officers are involved, including specialists to unearth evidence buried in emails. The investigators are also looking for evidence of deals similar to Cum-Ex.
- Google employees are ratcheting up pressure on the internet-search giant to abandon its artificial intelligence work with the Israeli government, planning public demonstrations to draw greater attention to the controversial cloud-computing contract. Half a dozen current and former workers will speak on Wednesday alongside Palestinian rights activists in San Francisco to call for the Alphabet Inc.-owned company to end Project Nimbus, a $1.2 billion contract through which Google and Amazon.com Inc. provide the Israeli government with AI and cloud services. The seven-year contract went into effect in July 2021. A petition protesting the agreement has received 800 signatures from Google employees, according to one of the organizers. Additional demonstrations are planned on Sept. 8 in New York, the San Francisco Bay Area and Seattle, according to a statement from the Alphabet Workers Union, which represents some of the employees involved.
*All sources from Bloomberg unless otherwise specified