December 1, 2023

Daily Market Commentary

Canadian Headlines

  • National Bank of Canada on Friday reported a rise in profit and revenue in its fiscal fourth quarter, driven by good performances among its main segments. For the period ended Oct. 31, the Canadian bank posted net income 768 million Canadian dollars ($566.4 million), which on a per-share basis was C$2.14. This is up from last year at this time when it reported net income of C$738 million, or C$2.08 a share. National Bank of Canada benefited from higher revenue in its personal and commercial segment, which rose 8% thanks largely to growth in its loans and deposits. Its wealth management segment also saw growth in revenue, rising 4% year-over-year, while the financial markets business increased by 31%. Provision for credit losses, which are provisions that the bank sets aside to cover bad or uncollected debt, rose to C$115 million from C$87 million a year ago.
  • Bank of Montreal missed analysts’ earnings estimates as the company reported higher expenses related to the integration of Bank of the West and a drop in wealth-management income. The Toronto-based lender earned C$2.81 per share on an adjusted basis in the fiscal fourth quarter, it said in a statement Friday, falling short of the C$2.85 average estimate of analysts in a Bloomberg survey. Non-interest expenses totaled C$5.7 billion ($4.2 billion), up from C$4.78 billion a year earlier and missing analysts’ forecasts of C$4.95 billion. The Canadian bank acquired regional US lender Bank of the West in February and converted its branches to the Bank of Montreal brand over Labor Day weekend. For the fourth quarter, Bank of Montreal had after-tax acquisition and integration costs of C$433 million, up from C$145 million a year earlier.
  • Kinepolis Group NV, one of the largest theater operators in Europe, recently considered making a bid for Cineplex Inc., the No. 1 chain in Canada, but chose not to proceed after concluding a deal would struggle to win regulatory approval, according to people familiar with the matter. Kinepolis may still pursue a deal if it can partner with another bidder to acquire some of Cineplex’s theaters, said the people, who asked not to be identified discussing nonpublic information. Kinepolis, based in Ghent, Belgium, accounts for about 13% of Canadian movie ticket sales through its Landmark Cinemas subsidiary, while Cineplex has about 75% of the country’s box-office revenue, with 158 theaters.
  • First Quantum Minerals Ltd. began what could shape up as a yearslong legal battle over its $10 billion copper mine in Panama after authorities there said the operation would be shuttered. A unit of the Canadian firm initiated proceedings before the International Court of Arbitration this week, it said in a statement Friday. The concession agreement for the Cobre Panama mine provides for arbitration in Miami. First Quantum is turning to international courts after weeks of protests in Panama culminated in the government vowing to shut the mine after the Supreme Court ruled that a law enabling the mining firm’s contract was unconstitutional. Commercial output at the mine is already halted after blockades choked off supplies, with First Quantum suspending the operation’s production guidance for this year. If Cobre Panama stays offline, the Canadian miner could be forced to slow spending at operations elsewhere and face potential breach of debt covenants.
  • A venture firm backed by Power Corp. of Canada closed a round for a new climate-technology fund, tapping Quebec institutions as it raised about $37 million. Montreal-based Diagram Ventures will seek out investments in early-stage companies with promising technology to reduce emissions. The company operates as part as Power’s alternative investment platform, Sagard Holdings Inc., alongside numerous other entities. Power’s major shareholder is Canada’s billionaire Desmarais family.

World Headlines

  • European stocks kicked off December with gains, extending a rally that added $1.2 trillion to the Stoxx 600’s market value last month, as investors waited to see if Federal Reserve Chair Jerome Powell offers any clues on the timing of interest rate cuts. The benchmark index rose 0.6% by 9:50 a.m. in London, with miners leading gains following an unexpected pickup in China’s Caixin manufacturing activity gauge. The sector was also lifted by Anglo American PLC and Antofagasta PLC, both of which advanced after upgrades from UBS. Cosmetics firms L’Oreal SA and Beiersdorf AG edged higher after strong earnings from US peer Ulta Beauty. European stocks marked their strongest advance since January last month on optimism around easing inflation and a peak in interest rates. A broad rally on Wall Street also led the S&P 500 to one its best November gains in a century.
  • Nasdaq futures slipped. Oil held losses after OPEC+ promised further output cuts but was hazy on details. Bitcoin soared to its highest price so far this year. Investors are trying to gauge if November’s scorching gains across asset classes can go further. Some suggest optimistic market wagers on the timing of interest-rate cuts next year read too much into recent comments by Fed officials. Powell is set to speak at Spelman College in Atlanta on Friday. The S&P 500 had one of its strongest Novembers on record, while the MSCI All Country World Index saw its third-largest monthly gain in the past decade. The Bloomberg Dollar Spot Index dropped by the most in a year, while US Treasury yields tumbled about 60 basis points in the month.
  • Asian equities fell, led by stocks in Hong Kong and South Korea, as sentiment remained cautious ahead of comments from Federal Reserve Chair Jerome Powell later on Friday. The MSCI Asia Pacific Index dropped as much as 0.5%, with technology shares the biggest drag, as some Fed officials stayed wary of interest rate cuts next year. Stocks in China also ended lower, though the benchmark CSI 300 Index pared most of its losses after a report that a state institution bought exchange-traded funds in what was seen as the latest policy effort to bolster markets. Elsewhere, stocks in Japan gained as a stall in yen strength boosted exporters. Traders will later Friday be monitoring a speech by Powell, who is likely to reiterate that it’s too soon to declare victory than discuss rate cuts. Several Fed officials previously indicated that they were more comfortable with keeping rates steady given easing inflation and softer economic data.
  • Oil held losses after OPEC+’s promised further output cuts but was hazy on details. Brent crude for February traded near $81 a barrel following a 2.4% slide in the previous session. The alliance announced roughly 900,000 barrels a day of fresh output cuts next year, but the curbs are voluntary, with Angola already rejecting its quota. Saudi Arabia, meanwhile, said it will prolong its separate 1 million barrel-a-day reduction through the first quarter. Crude initially climbed Thursday as a preliminary agreement brought hopes it would help stem an anticipated surplus at the start of next year. That optimism quickly faded with analysts citing a lack of clarity from the meeting, and subsequently doubts over whether the cuts would be fully implemented.
  • Gold is on track for a third weekly gain amid fresh signs that a cooling US economy will be supportive of the metal into next year. The metal rose on Friday as the dollar weakened amid robust risk appetite in stock markets. Investors are waiting for a public appearance by Federal Reserve Chair Jerome Powell, who may provide guidance on the path for interest rates. Gold is trading near a record high after rallying about 12% since early October. The surge was initially sparked by haven buying at the start of the Israel-Hamas conflict, but has since been driven by bets on the Fed shifting to monetary loosening early next year.
  • Prompt natural gas prices in Europe narrowed their gap with futures as a cold snap blasts through much of the region, even amid signs of ample winter supplies. Day-ahead fuel contracts traded in Amsterdam, the continent’s key hub, rose as much as 3.5% Friday, at times topping the price of January futures. The short-term gains reflect the cold spell as demand for heating rises temporarily. A downward trend in the longer-dated contracts suggests easing concerns about the outlook later in the season. Temperatures this week dropped from Germany to the UK, with ice and snow disrupting life in parts of the region and straining energy networks. Milder conditions are expected back as the month progresses.
  • Pfizer Inc. is dropping development of its experimental weight-loss pill after a high rate of side effects appeared in a mid-stage study, a blow to the drugmaker’s efforts to find new avenues for growth. More than half of patients in the study had to stop taking danuglipron due to nausea and vomiting, according to a statement Friday. The shares dropped 3.4% in trading before US markets opened. Weight-loss shots made by Eli Lilly & Co. and rival Novo Nordisk A/S are a gold mine that’s propelled the companies to dizzying valuations and lured other drugmakers into the field. Pfizer and AstraZeneca Plc see pills as a way to make inroads into a market projected to reach $100 billion within seven years.
  • Federal Reserve officials shifted their tone this week, inching closer to the conversation markets have long been having: When will the central bank begin cutting interest rates? A litany of policymakers — including six who will vote on policy next year — indicated in recent days that they were comfortable with keeping rates steady at their December meeting, encouraged by the downward trend in inflation and data showing a slowing economy. Though Fed officials showed little interest in discussing rate cuts, markets quickly latched onto comments by Governor Christopher Waller. An inflation hawk closely followed by Wall Street, Waller acknowledged the Fed would consider trimming rates if inflation continues to fall, in line with typical policy guidelines central bankers use.
  • Israel and Hamas resumed their war in the Gaza Strip on Friday morning after a week-long truce ended with the two sides failing to agree on the release of more hostages held by the militant group. Israeli jets struck Hamas targets in Gaza soon after the cease-fire finished at 7 a.m. local time. The army also dropped leaflets on southern parts of the enclave, including around the city of Khan Younis, telling people to evacuate and signaling an expansion of Israel’s ground offensive beyond the north. The warring sides traded accusations. Israel said Hamas, designated a terrorist group by the US and European Union, didn’t free all the kidnapped women it promised to in the latest group to be released. It added that Hamas violated the truce by firing missiles at Israel.
  • After years of development delays and manufacturing snags, Tesla Inc. finally handed over its first Blade Runner-esque Cybertrucks to customers. Chief Executive Officer Elon Musk delivered a handful of pickups on Thursday to owners including Reddit co-founder Alexis Ohanian. The automaker provided a long-awaited update on pricing and specifications, estimating the base version will cost $60,990, up more than 50% from the cheapest option floated four years ago. It won’t be available until 2025. Tesla is taking reservations for that vehicle and two configurations that it will deliver next year, which cost an estimated $79,990 and $99,990. The version offering the most battery range will go about 340 miles on a charge, well short of the more than 500 miles the company touted four years ago.
  • Short-sellers were caught flat-footed as the S&P 500 Index roared back from a three-month slump with the strongest gain since July 2022, hammering them with mark-to-market losses of over $80 billion, according to data from S3 Partners LLC. That’s the biggest hit since January, when equity prices staged a surprisingly strong rebound from last year’s rout. It’s the latest blow for a group that’s seen its bearish bets repeatedly upended in 2023 as the stock market defied naysayers, climbing sharply even as the Federal Reserve pushed up interest rates. For most of this year, the gains were fueled by an economy that remained unexpectedly resilient and by advances in artificial intelligence that set off a tech-stock frenzy. Then, after the Fed on Nov. 1 held interest rates steady for a second-straight meeting, share prices started surging again amid conviction that its most aggressive monetary policy tightening since the 1980s is finally over.
  • Credit Agricole SA is exploring building a stake in Worldline SA as it looks for ways to help stabilize its struggling payments partner, according to people familiar with the matter. Worldline shares surged as much as 9.1%. The French lender has been discussing a potential move to buy stock in Worldline after its shares plunged in recent weeks, the people said, asking not to be identified because the information is private. Credit Agricole is seeking to play a role in shoring up the business, which has a market value of about €4.1 billion ($4.5 billion). Worldline on Oct. 25 cut its sales outlook, saying consumers are growing more cautious and spending less, hurting the company’s growth and profitability. The shares plunged by 59% that day. The warning added to a string of bad news for the payments industry in Europe, which is grappling with a slowdown after years of growth.
  • President Vladimir Putin ordered the transfer of all the rights to managing St. Petersburg’s Pulkovo airport from foreign shareholders that include Germany’s Fraport AG and the Qatari wealth fund by shifting their stakes into a new Russian entity. Under a decree published late Thursday, shareholdings in the Cyprus-registered concession that runs the airport of Russia’s second-largest city will be consolidated in a new domestic company. Existing investors, which also include a consortium with Abu Dhabi sovereign fund Mubadala Investment Co., will retain their stakes but won’t be able to vote because those rights will be held only by Russian shareholders in the new company. German airport operator Fraport, the Qatar Investment Authority, and Russia’s VTB Bank each hold about 25% of Pulkovo’s concession. The remainder is controlled by a consortium of investors including Russia’s sovereign wealth fund, RDIF, Mubadala and Baring Vostok, according to the Interfax news service.
  • The UK is braced for another round of rail strikes, with train drivers threatening to extend industrial action well into next year. Members of the Aslef labor group began nine days of protest on Friday, starting with an overtime ban. Strikes kick off on Saturday but are spread out, with each affected rail line targeted on only one of six days. It marks a slowdown from a year ago when thousands of rail workers walked out across the whole of the UK on multiple days in the run up to Christmas. The union at the heart of last year’s disruption, the RMT, accepted a pay deal Thursday that will end its own strikes until at least the spring. Aslef is now the last major rail union holding out for a bigger raise.
  • Apple and Paramount Global have discussed bundling their streaming services at a discount, the latest attempt by rival entertainment giants to team up as they look to make their offerings more affordable and attractive. The companies have talked about offering a combination of Paramount+ and Apple TV+ that would cost less than subscribing to both services separately, according to people familiar with the discussions. The discussions are in their early stages, and it is unclear what shape a bundle could take, they said. The discussions between Apple and Paramount come as most entertainment giants are dealing with competitive pressures. They have been raising prices sharply in recent months in an effort to bring their streaming businesses to profitability, but have in turn faced rising levels of customer defections.
  • Signs are piling up — in recent data, in warnings from top retailers such as Walmart Inc. and in anecdotes from local businesses across the country — that after defying expectations all year and splurging over the summer, American households are starting to pull back. A burnt-out consumer, weighed down by high interest rates and dwindling savings, is the surest sign that economic growth is gliding lower heading into 2024. The economy may face additional challenges in the new year as the labor market cools and wage growth moderates. Monthly government data on personal spending published Thursday showed a cutback in discretionary categories like cars, furniture and gym memberships to begin the fourth quarter. Holiday shopping was also less festive, with Black Friday spending down at a number of the country’s largest chains and a record amount of online purchases made using buy-now-pay-later schemes on Cyber Monday.