August 9, 2022
- Investment group Fairfax Financial Holdings Ltd. has pitched a take-private deal for Recipe Unlimited Corp.that values the Canadian restaurant chain at about C$1.2 billion ($933 million). Toronto-based Fairfax would pay C$20.73 in cash for the company, which owns fast-casual and fast-food brands such as East Side Mario’s, Kelseys and Swiss Chalet. Fairfax already owns about 23% of the subordinate voting shares of Recipe, according to data compiled by Bloomberg. The price is a 53% premium to Monday’s close, Recipe Unlimited said in a statement. It requires the approval of the majority of minority shareholders. Cara Holdings Ltd. would remain an investor in the company.
- Pierre Poilievre has been riding a wave of support among working class men to become front-runner in the race to lead Canada’s main opposition Conservatives, but polling suggests he faces regional and demographic barriers in his bid to defeat Justin Trudeau in a general election. Just 17% of Canadians prefer Poilievre as prime minister, compared to 24% for Trudeau, according to a poll by Nanos Research Group for Bloomberg News. Jean Charest, the former Quebec premier who is the 43-year-old firebrand’s main rival in the Conservative race, has 13% support. Poilievre — who was endorsed last month by former Prime Minister Stephen Harper and has vowed to fire the governor of the Bank of Canada if he becomes prime minister — leads Trudeau among men, non-college graduates and people who can’t work remotely from home, the data show. He lags badly, however, with women, older Canadians and university educated voters.
- European stocks slipped on Tuesday as investors considered risks from inflation to corporate earnings amid concerns of a looming economic recession. The Stoxx 600 Index was down 0.5% at 11:19 a.m. in London, with technology stocks leading declines after US chipmaker Micron Technology Inc. cut its revenue forecast on weakening demand. European travel and leisure stocks also underperformed. The benchmark equity gauge has struggled to build momentum this month after a sharp rally in July that was sparked by a better-than-feared earnings season and bets on a dovish pivot in the Federal Reserve’s policy.
- US equity-index futures slipped as investors assessed whether a strong earnings performance can continue despite recent disappointments. The dollar extended a decline. Contracts on the Nasdaq 100 fell 0.5% following losses on the underlying gauge driven by Nvidia Corp.’s revenue miss and a glum forecast from chipmaker Micron Technology Inc. Those on the S&P 500 were also in the red. Treasuries dipped, with the 10-year benchmark yield rising three basis points as traders await Wednesday’s inflation report to gauge the path of Federal Reserve tightening. Focus is turning to the question of whether US consumer-price index may have peaked in June as economists project the biggest drop in more than two years for July. A blowout reading for nonfarm payrolls has eased worries about a recession, while corporate performance remains stellar.
- Asian stocks edged lower as investors awaited this week’s US inflation report for cues on the pace of monetary tightening, while assessing the ongoing corporate earnings season. The MSCI Asia Pacific Index fell as much as 0.6%, as technology shares followed US peers lower after a weak revenue forecast from Nvidia. Japanese stocks underperformed the rest of the region, weighed down by Tokyo Electron on disappointing earnings. Asian equities have been struggling for direction as investors remain wary over the prospect of faster US rate increases to curb inflation as well as rising geopolitical tensions. Fresh Covid lockdowns in China also added to the cautious sentiment.
- Oil reversed an earlier decline as Russian oil flows via the southern leg of a major pipeline were suspended. Brent futures climbed as much as 1.3% near $98 a barrel, reversing an earlier decline of 1.8%. Volumes of Russian oil shipped along the Druzhba pipeline toward Hungary, the Czech Republic and Slovakia were halted on Aug. 4 as sanctions prevent Russia’s transit payment, according to a spokesman for the country’s crude pipeline operator Transneft. Futures have been volatile in recent days amid thin summer trading volumes. The disruption to Russian oil supplies is a reminder of the risks to supply in a market that has been grappling with thin spare capacity. Still, futures fell to a six-month low last week as traders also assess the impact of a slowdown in global growth as central banks hike interest rates.
- Silver’s been the worst-performer among major precious metals in 2022, but prices may have fallen far enough to spark a modest recovery. The white metal has lost about 11%, weighed down by the stronger US dollar, rising interest rates and slowing growth. But prices could turn higher from later this year as the electronics and photovoltaics sectors support industrial consumption, while retail and jewelry demand look strong, James Steel, chief precious metals analyst at HSBC Securities USA Inc., said in a note early this month.
- Chinese e-commerce giant Alibaba Group Holding Ltd. let go of 9,241 employees in the three months to June, according to the company’s latest filing. The Hangzhou-based firm reported it had just over 245,000 employees at the end of the most recent reporting quarter, cutting back during a period that marked its first ever contraction in revenue. Alibaba also reduced its workforce in the first three months of the year by 4,375, mirroring widespread moves among global tech companies to rein in spending at a time of rising inflation, materials costs and political tensions. US firms like Apple Inc., Alphabet Inc. and Meta Platforms Inc. have cooled recruiting while Alibaba’s closest analog, Amazon.com Inc., has shed about 100,000 jobs. SoftBank Group Corp., Alibaba’s biggest shareholder and among the world’s most lavish venture capital spenders, promised this week to implement sweeping cost-cutting measures that would significantly affect headcount.
- The UK economy is still heading for a recession on Bank of England projections even if Liz Truss becomes prime minister and pushes through her aggressive tax-cutting agenda, according to Bloomberg Economics. The £39 billion ($47 billion) of tax giveaways proposed by the favorite to succeed Boris Johnson would reduce the depth of the slump expected by the central bank but still leave the economy smaller than it is now. The analysis published Tuesday calls into question Truss’s claim that a recession isn’t inevitable. She made her comments hours after the Bank of England warned the UK is facing almost two full years without a quarter of growth because of a deepening cost-of-living crisis.
- House Speaker Nancy Pelosi’s swing through Asia aimed to convey the US’s “strong and unshakable” support for the region. It ended up leaving many countries in stunned silence as China conducted unprecedented military drills around Taiwan. The shockwaves from the highest-level US visit to Taiwan in a quarter century are still reverberating around the region days after she flew back to Washington. China’s military has extended exercises designed to show an ability to encircle the island and cut off the Taiwan Strait, one of the world’s busiest trade routes, days after launching missiles that likely flew over Taipei and into waters Japan claims as an exclusive economic zone. On its own, such a display would normally generate widespread condemnation of China. But many governments also saw Pelosi’s visit as a step too far — and they don’t want to get caught in the middle.
- The supply of homes for sale across the US grew at a record rate last month, another sign that higher mortgage costs are cooling down the housing market. The number of active listings nationwide jumped 31% from a year earlier, a record-high increase for a third straight month, according to a report Tuesday by Realtor.com. The Federal Reserve’s effort to curb inflation by raising benchmark interest rates has put the brakes on the pandemic housing frenzy. This year’s jump in mortgage costs has sidelined many would-be buyers, and the decline in demand is leaving more homes on the market. Sellers are responding by trimming their prices to compete — a potential bit of good news for shoppers still in the hunt.
- The Federal Reserve is penciling in at least another couple of years of running down its bond portfolio of around $8 trillion. But observers are increasingly predicting it will end a whole lot sooner than that. Even before the Fed’s balance-sheet runoff plan, known as quantitative tightening, gets up to full speed in September — at a monthly clip of up to $95 billion, or over $1.1 trillion a year — two camps of economists and strategists have emerged predicting an early end, at some point in 2023. One group says the central bank will have to abandon QT as early as next year, when it turns to cutting rates to combat an economic downturn — unwinding some of the aggressive monetary tightening now under way to combat hot inflation.
- Federal investigators searched the Florida residence of Donald Trump on Monday as part of an investigation into whether he took classified documents from the White House when he left office, an explosive development that risks hanging over his possible run for the presidency in 2024. Trump, who was in New York City at the time of the seach, accused the Federal Bureau of Investigation agents of raiding Mar-a-Lago. The Justice Department declined to comment on Trump’s statement, but a person familiar with the search said it was related to the potential mishandling of the records. It began in the morning and lasted until after 6 p.m., the person said.
- SoftBank Group Corp.’s Masayoshi Son said he plans widespread cost cutting at his Japanese conglomerate and its Vision Fund investment arm after a record $23.4 billion loss on plunging portfolio valuations and foreign currency losses. Shares dropped. The Tokyo-based company lost the vast majority of that money — $17.3 billion — in the Vision Fund, as it marked down the value of holdings such as Coupang Inc., SenseTime Group Ltd. and DoorDash Inc. SoftBank also reported a $6.1 billion foreign exchange loss because of the weaker yen. The 64-year-old struck a darkly somber tone after the results Monday, taking responsibility for buying into startups at the height of the market and pledging to slash expenses to get back on track. Son said he will review “everything” for potential cuts without any “sacred cows.” SoftBank will scrutinize senior and junior employees in both front and back offices to an extent never experienced before.
- Munich Re’s profit slumped as the reinsurer took a hit of almost $1 billion to its investment portfolio in a volatile quarter for financial markets. The Munich-based company wrote down the value of its holdings by 908 million euros ($926 million) in the three months through June, mainly reflecting declines in the value of its equity investments. That reduced income from investments by half, and profit for the group by 31% to 768 million euros, according to a statement Tuesday. While Munich Re confirmed its target for a profit of 3.3 billion euros this year, it warned that volatile markets, an economic slowdown and the financial fallout from Russia’s invasion of Ukraine had increased uncertainty. Munich Re had suspended new business in Russia and Belarus in March and said it would stop investments there.
- US semiconductor firms are announcing billions in investments as President Joe Biden is set to sign a broad competition bill Tuesday that includes $52 billion in domestic semiconductor research and development. Micron Technology Inc. will invest $40 billion in memory chip manufacturing, according to the White House, and Qualcomm Inc. is partnering with GlobalFoundries, which has a facility in New York state, in a $4.2 billion agreement to manufacture chips. Micron on Tuesday said their investments would create up to 40,000 jobs in both construction and manufacturing, well beyond the initial White House estimate of 8,000, and it expects to receive funding through the semiconducter bill.
- Mexico’s inflation accelerated broadly in line with analysts’ estimates in July to the fastest pace since early 2001, as the central bank is seen delivering a second straight 75 basis-point increase to its key interest rate this week. Consumer prices rose 8.15% last month compared to a year earlier, slightly faster than the 8.14% median estimate of economists surveyed by Bloomberg, the national statistics institute reported Tuesday. On a monthly basis, inflationslowed to 0.74% from 0.84% in July, versus economists’ median estimate of 0.73%. Core inflation, which excludes volatile items like fuel, was 7.65% in the same period, above analysts’ median estimate of 7.61%. Inflation has continued surging despite the central bank’s nine straight rate hikes totaling 375 basis points since June last year.
- Spirit Airlines Inc. reported a narrower-than-expected loss after the deep-discount carrier cut growth plans to help control spiraling costs from flight disruptions. The second-quarter adjusted loss was 30 cents a share, Miramar, Florida-based Spirit said in a statement Tuesday. That compares with the 45 cent average of analyst estimates compiled by Bloomberg. Spirit, which is set to be acquired by JetBlue Airways Corp., joined other US carriers in slowing expansion amid labor shortfalls, spring storms and air traffic management problems. More than 30% of the carrier’s flights were delayed or canceled during the period.
- Domino’s Pizza Inc.’s footprint in the home of Pizza proved to be short lived with Italians favoring local restaurants over the American version. The last of Domino’s 29 branches have closed after the company started operations in the country seven years ago. It borrowed heavily for plans to open 880 stores, but faced tough competition from local restaurants expanding delivery services during the pandemic and sought protection from creditors after running out of cash and falling behind on its debt obligations. The US chain entered Italy in 2015 through a franchising agreement with ePizza SpA and planned to distinguish itself by providing a structured national delivery service along with American-style toppings including pineapple.
- Russian crude flows through Ukraine to Hungary, Slovakia and the Czech Republic were halted last week after sanctions prevented payment of the transit fee, according to Russia’s pipeline operator Transneft PJSC. Oil erased earlier losses on the news, rising 1.1% to $97.73 a barrel as of 11:58 a.m. in London. Russia has already blamed international sanctions for curbing flows of natural gas to Europe through the Nord Stream pipeline. Similar disruption to oil flows could deepen the region’s energy crisis. Ukrtransnafta, which operates Ukraine’s oil pipeline network and transits crude via the southern leg of the Druzhba link, halted Russian crude deliveries on Aug. 4, Transneft said in a statement on Tuesday. Flows through the northern leg of the link, which runs through Belarus to Poland and Germany, are unaffected, it said.
- Novavax Inc. shares lost a third of their value after the drugmaker slashed its 2022 revenue forecast as demand for its Covid-19 vaccine — which trailed competitors getting to market — failed to live up to expectations. Sales for the year will be as much as $2.3 billion, which is less than half the previous expected peak of $5 billion, the company said Monday in a statement. Novavax also reported a second-quarter loss of $6.53 a share, which was wider than analysts’ average estimate of $5.24. The Gaithersburg, Maryland-based company’s shares cratered, falling as much as 36% after US markets closed Monday. They were trading down more than 31% in pre-market trading Tuesday.
- Brazil’s central bank said it intends to keep its interest rate high for a “sufficiently extended period” while reiterating that it will consider another borrowing cost hike next month. Policy makers will mull the need for a smaller boost in September to help bring inflation around target, according to the minutes of their Aug. 2-3 meeting, when the board raised rates by 50 basis points to 13.75%. They wrote that the impacts of their “quite intense and timely” hiking cycle are expected in the second half of the year, though new fiscal stimulus may make it hard to assess the economy. Bank board members wrote in the document published on Tuesday that their strategy, “required that the monetary tightening cycle continued to move significantly further into contractionary territory, with an additional adjustment at this meeting and the maintenance of the interest rate in significantly contractionary territory for a sufficiently extended period.”
“Do what is right, not what is easy nor what is popular.” —Roy T. Bennett
*All sources from Bloomberg unless otherwise specified