December 15, 2022

Daily Market Commentary

Canadian Headlines

  • A section of TC Energy’s Keystone pipeline unaffected by a recent spill, from Alberta to Illinois, was restarted. Oil prices rallied, with WTI over $77. Carlsberg agreed to buy Waterloo Brewing, based in Kitchener, Ontario, for about C$144 million. Ahead Thursday: Canada Mortgage and Housing Corp. will report housing starts for November at 8:15 a.m. Ottawa time, with existing home sales data to follow around 9 a.m.

World Headlines

  • European stocks declined as the Federal Reserve’s hawkish outlook weighed on risk sentiment before the European Central Bank decides on interest rates. The Stoxx Europe 600 slipped 1.1% by 12:10 p.m. in London after the Fed hiked rates by 50 basis points to the highest level since 2007, and Chair Jerome Powell said the central bank has more work to do to vanquish inflation. In the UK, the FTSE 100 and the domestically-skewed FTSE 250 each dropped 0.4% after the Bank of England raised interest rates for a ninth time in a row to a 14-year high. The ECB is expected to follow with a half-point hike on Thursday, slowing the recent pace of interest-rate increases. Among sectors, consumer products and retail were the biggest decliners as data showed China’s economic activity weakened in November before the government abruptly dropped its Covid Zero policy. Among individual movers, Hennes & Mauritz AB declined after sales showed little change in the fourth quarter.
  • US equity-index futures and European stocks declined after the Federal Reserve rebuffed expectations for a dovish tilt and said interest rates will go higher for longer. Contracts on the S&P 500 and Nasdaq 100 gauges fell at least 0.9% each. Demand for haven assets sent the dollar and Swiss franc higher amid a wave of rate hikes from Taiwan to Norway. Britain’s pound extended losses after an expected half-point rate hike by the Bank of England. The euro fell before the European Central Bank’s decision. Tesla Inc. dropped in premarket New York trading after Elon Musk sold $3.6 billion of shares. A global rally sparked by softer-than-forecast US inflation came to an abrupt halt on Wednesday after policymakers signaled a peak rate that was far above market expectations and sought to dispel hopes for a rate cut next year. Chair Jerome Powell reaffirmed the central bank won’t back away from its fight against inflation despite mounting fears of job losses and a recession.
  • Asian stocks declined as the Federal Reserve signaled higher interest rates, while a disappointing set of economic data from China soured sentiment. The MSCI Asia Pacific Index dropped as much as 1.4%, led by consumer discretionary and technology shares. Most markets in the region were in the red, with Hong Kong and South Korea among the worst performers. Chinese benchmarks fell, with Hong Kong’s Hang Seng Index dropping more than 1%, as the nation’s economic activity worsened in November. There will likely be more disruption to growth as infections surge after the government abruptly dropped its Zero-Covid policy.
  • Oil steadied after a three-day rally, as TC Energy Corp. restarted a section of the major Keystone pipeline and the dollar advanced. West Texas Intermediate futures edged lower to about $77 a barrel, trading in a narrow daily range along with global benchmark Brent crude. A section of the pipeline that extends from Hardisty, Alberta, to Wood River and Patoka, Illinois, was restarted and TC Energy is continuing repair and remediation on the affected segment. Oil futures were also under some pressure from a rising dollar after the Federal Reserve rebuffed expectations for a dovish tilt and said interest rates will go higher for longer. A stronger greenback makes commodities priced in the currency less attractive.
  • Gold fell after Federal Reserve Chair Jerome Powell said the authority isn’t close to ending its campaign of rate hikes, with higher-than-expected borrowing costs signaled for next year. Powell pushed back strongly against bets of rate cuts next year, even as data shows inflation abating. The central bank opted for a smaller 50 basis point increase at its December meeting, a move widely telegraphed by the markets. Fed policy makers projected rates would end next year at 5.1%, according to their median forecast, before being cut to 4.1% in 2024 — a higher level than previously indicated. Moves in the bond market were relatively muted following the speech, a sign investors are doubting the central bank’s will to stay the course.
  • Elon Musk sold another $3.58 billion worth of Tesla Inc. shares, bringing the total amount he’s offloaded since late last year to almost $40 billion. The latest disposal of about 22 million shares this week coincided with Musk falling from the top spot on the Bloomberg Billionaires Index, a position he’d occupied since September of last year. Tesla’s market value also has slumped below the half-trillion-dollar mark for the first time since November 2020. The disclosure sent Tesla shares down as much as 3.5% to $151.33 before the start of regular trading Thursday. The stock has plunged 55% this year through Wednesday’s close.
  • Citigroup Inc said it will wind down its consumer banking business in China, a move which is expected to affect about 1,200 employees in the country. The exit will include products such as deposits, insurance, mortgages, investments, loans and cards, the lender said in a statement Thursday. The bank will also explore options for those employees who wish to continue to work at Citi in China or across the bank’s global network, it added. The US bank announced a plan to exit the business in April 2021 as part of a global strategy to exit consumer franchises in 14 markets in Asia, Europe, Middle East and Africa and Mexico. The lender said the cost of the exit isn’t expected to be material and it remains committed to its wealth management and institutional business in China.
  • California is poised to adopt a more aggressive plan to reduce climate-warming emissions over the next five years at the end of a two-day meeting of the state’s air board that begins Thursday. The plan would cut greenhouse gas emissions by 48% by 2030, compared to 1990 levels, a bolder goal than the previous 40% target. The state would build no new gas plants and would develop an equitable multi-agency process that aims to transition away from oil and gas use. The California Air Resources Board, the state’s air regulator, estimates the plan would cut air pollution by 71% and reduce fossil fuel consumption by 86%. It also is projected to create 4 million new jobs and save $200 billion annually in health costs from pollution.
  • The Bank of England raised interest rates for a ninth time in a row to a 14-year high of 3.5%, pressing ahead with efforts to tame sky-high inflation. The nine-member Monetary Policy Committee split three ways on the decision as officials tried to balance the risk of inflation getting entrenched against squeezing too hard on growth just as the economy enters a recession. Six members including Governor Andrew Bailey voted for the half-point rise. Catherine Mann favored three-quarters of a point, while Silvana Tenreyro and Swati Dhingra backed leaving rates unchanged
  • European Union efforts to reach a final agreement on rules to prevent greenwashing in debt instruments have stalled, as disagreements flare over how wide-reaching such a deal should be. The European Parliament and member states had been aiming to complete the Green Bond Standard this week, but talks collapsed Wednesday evening, according to negotiators. The two sides failed to make progress on whether transparency requirements should include issuers who don’t adopt the green-bond label, and on the degree of flexibility around the use of proceeds, according to Paul Tang, the lawmaker overseeing the negotiations. Talks are now slated to resume next year, Tang said. There was little movement from either side on Wednesday evening, quashing hopes of a breakthrough.
  • Meta Platforms Inc. has halted construction of two new data centers in Denmark, canceling a 2.4 billion kroner ($342 million) contract it signed in August with contractor Per Aarsleff Holding A/S. Per Aarsleff received notification that a contract to expand a data center in Odense was terminated, the Danish builder said in a statement Tuesday evening. The parent of Facebook and Instagram confirmed that it had stopped developing the site to Bloomberg News on Thursday. Meta operates two large data centers in its Odense campus and is scheduled to finish a third next year. The canceled project would have built two additional buildings for housing servers and was scheduled to open by the end of 2025.
  • When Qatar was drawn out of the envelope as a future host of the World Cup back in 2010, it was doubtful the majority of football fans would have been able to find it on a map. A dozen years, $300 billion and a raft of controversy later, one of the most expensive marketing campaigns in history will culminate with the tiny Gulf state hosting a final on Sunday between Argentina and France that’s expected to be watched by half the planet. The inevitable question is whether the extravaganza was all worth it — even for a host with a seemingly bottomless pit of money. The organizers — particularly FIFA — see the event as an outright success: a record TV audience, happy fans and a burnished brand. But however much soft power Qatar has gained from the tournament, the return to normality will be an epic comedown.
  • Ford Motor Co. and China’s Contemporary Amperex Technology Co. Ltd. are considering building a battery manufacturing plant in Michigan in a complex arrangement designed to reap new tax benefits without running afoul of US-China political sensitivities. The state has emerged along with Virginia as a potential home of the multibillion-dollar facility, according to people familiar with the matter, who asked not to be identified discussing sensitive negotiations. The factory will provide lithium iron phosphate batteries for Ford’s electric models. The companies are weighing a novel ownership structure under which Ford would own 100% of the plant, including the building and the infrastructure, while CATL would operate the factory and own the technology to build the cells, the people said. Such an arrangement would let the facility qualify for lucrative production tax credits under the new Inflation Reduction Act while requiring no direct financial investment from CATL.
  • One of the hottest pandemic-era trends in investing is receding back into obscurity after more than a billion dollars in losses for backers of special-purpose acquisition companies. In the first four months of 2023 alone, sponsors of SPACs with some $74 billion in cash will need to find targets to buy or move to dissolve their funds, according to data compiled by Bloomberg. Assuming the shopping spree comes up empty, this will likely mark the end of a frenzy that saw more than 800 of the funds raise almost a quarter-trillion dollars in 2020 and 2021. The euphoria has worn off, with hundreds of sponsorship teams expected to throw in the towel through early next year.
  • Cathie Wood scooped up more shares of Tesla Inc. and Coinbase Global Inc., underscoring her faith in electric vehicles and cryptocurrency as key trends for the future. A gamut of Ark Investment Management LLC’s funds, including Wood’s flagship Ark Innovation ETF, bought nearly 75,000 shares of the EV maker and about 297,000 of the cryptocurrency exchange operator on Wednesday, continuing a dip-buying streak that started in October, according to data compiled by Bloomberg. Ark has continued its purchases in Coinbase despite unprecedented volatility induced by the collapse of Sam Bankman-Fried’s FTX crypto empire. Coinbase shares plumbed a record low on Tuesday, before recovering slightly on Wednesday.
  • The potential addition of Patriot missile defense batteries to Ukraine’s arsenal comes as Kyiv and Moscow both face a critical question with the war in its 10th month: Can they secure enough missiles and artillery through winter to prevail? A combination of cold, but still wet weather and Russian consolidation along defensive lines has slowed advances by either side on Ukraine’s battlefields, but not the war’s intensity. The conflict continues to churn through limited reserves of troops and munitions at a frightening pace. The big worry now for Russia this winter is to avoid ceding more territory to Ukrainian counter-offensives, according to three people close to the Kremlin and the Russian defense ministry. They cited concerns that the supply of ammunition and weapons has been too slow to ensure Russia’s forces hold their ground.
  • Ernst & Young’s leaders are looking at backup plans for the firm’s split to address rising funding costs and a potential slowdown in growth that could imperil the rich payouts promised to partners, according to people familiar with the matter. Leaders of the accounting powerhouse are talking to private-equity firms as they draw up plans for the sale of EY’s consulting arm, the people familiar with the matter said. Options include using private debt, which would involve private-equity funds in an initial public offering, or delaying the effort beyond the current target at the end of 2023, the people said. EY is moving ahead with the breakup, announcing Wednesday that Carmine Di Sibio, the firm’s current head and the architect of the plan, would run the new consulting firm. That puts him in line to make tens of millions of dollars in compensation if the firm prospers. He had been scheduled to retire next year. EY said that Julie Boland, the U.S. chair and managing partner, would lead the audit-focused partnership.
  • Commodities will be the best-performing asset class once again in 2023, handing investors returns of more than 40%, according to Goldman Sachs Group Inc. The Wall Street bank said that while the first quarter may be “bumpy” due to economic weakness in the US and China, scarcities of raw materials from oil to natural gas and metals will boost prices after that. Goldman predicted a multi-year commodities supercycle in late 2020. It has stuck to that view even as energy prices dipped in recent months due to China’s coronavirus restrictions and a global economic slowdown suppressing demand.
  • The European Parliament voted Thursday to stop legislative work related to Qatar and called for barring the country’s representatives from the legislature after the Gulf state was tied to a corruption scandal where police seized more than €1.5 million ($1.6 million) in cash. The parliament is reeling from an investigation after Eva Kaili, a vice president of the body, and Pier Antonio Panzeri, a former member, were arrested on money laundering and corruption charges. Belgian prosecutors said they’re probing whether large sums of money were being paid to influence the decisions of parliament. Lawmakers voted to suspend parliamentary work that involves Qatar, which includes a visa liberalization plan. That would also include the finalization of a 2019 deal that expands flight rights between the EU and Qatar to open up the market for both sides. The deal still needs to be ratified by all member states before it goes to parliament, and the vote won’t affect the provisional implementation of the agreement.
  • The European Central Bank is poised to slow the recent pace of interest-rate increases and outline plans to shrink its almost €5 trillion ($5.3 trillion) stash of bonds, broadening efforts to curb inflation that’s still five times the target. After back-to-back hikes of 75 basis points, all but three of 51 economists surveyed by Bloomberg predict a half-point move on Thursday. That would take the deposit rate to 2% — around the point widely considered to neither stimulate nor constrain the struggling euro-zone economy. The more moderate increase may signal the peak for rates is coming into view following the most aggressive bout of monetary tightening in the ECB’s history. Price gains eased last month for the first time in 1 1/2 years, though remained in double digits.






*All sources from Bloomberg unless otherwise specified