December 19, 2022

Daily Market Commentary

Canadian Headlines

  • The threat of a mass extinction of plant and animal species led 195 nations early Monday to agree to protect and restore at least 30% of the Earth’s land and water by 2030.  Rich nations committed to pay an estimated $30 billion a year by 2030 to poorer nations through a new biodiversity fund that will be created under the Global Environment Facility, a 30-year-old organization that supports environmental work. The agreement was reached following two weeks of negotiations at the COP15 United Nations Biodiversity Conference in Montreal, where arguments over funding temporarily paused talks at one point.  “After four years of work, we have now reach[ed] the end of our journey,” said COP15’s president Huang Runqiu, adding the framework will guide countries to stop biodiversity loss. Canada’s environment minister Steven Guilbeault, who was hosting the conference, compared the deal to the UN’s landmark Paris agreement, in which countries committed to keep global temperature increase below 2 degrees Celsius and ideally closer to 1.5C.
  • Redaptive Inc., a company that manages energy-efficiency upgrades for commercial buildings, raised $200 million from Canada Pension Plan Investment Board in a funding round after withdrawing its plan for a US initial public offering.  The San Francisco-based company was valued at close to $1 billion in the round, according to a person with knowledge of the matter who asked not to be identified discussing private information. Some existing investors, including Linse Capital and CBRE, will also be participating in the investment, according to a statement reviewed by Bloomberg News. The company is expected to announce a second close early next year.

World Headlines

  • European stocks rallied after last week’s slump as traders snapped up energy shares amid optimism over China’s pledge to focus on boosting the economy next year. The Stoxx Europe 600 Index gained 0.6% by 11:05 a.m. in London after posting its biggest weekly drop since September. Energy stocks outperformed after China’s top leaders pledged to revive consumption and support the private sector, a marked shift from recent years. Meanwhile, consumer-products shares lagged behind. Among individual movers, sports-car maker Porsche AG advanced after joining the DAX Index. European stocks are headed for their largest annual decline since 2018 after a year marked by the war in Ukraine, soaring prices and aggressive monetary policy tightening. The benchmark recouped some losses this quarter on hopes of cooling prices and China’s reopening, but central bank commentary last week reiterated the commitment to higher interest rates to tame inflation.
  • US equity futures pointed to a stronger open on Wall Street, lifted by hopes that central banks would win their battle against inflation and Chinese leaders’ pledge to boost economic growth next year. Futures on the S&P 500 and the tech-heavy Nasdaq 100 ticked higher, led by energy and tech shares. While the underlying indexes remain on track to end the month lower, some investors may be looking past fears of an economic recession triggered by higher interest rates, and betting instead that inflation might be peaking, allowing the Federal Reserve and other central banks some leeway in tightening policy. Among the biggest risers in US premarket trading was Tesla Inc., which surged more than 5% in anticipation of Elon Musk stepping back from Twitter Inc., the social media company that has distracted him from running the electric-car maker for months. Twitter users voted 58% in favor of Musk stepping back from the leadership role.
  • Asia stocks headed lower for a third day as traders assessed rising infection numbers in China and risks of a regional economic slowdown. The MSCI Asia Pacific Index erased initial gains to fall as much as 0.4%, as health care and industrials dragged on the gauge. Initial optimism for stocks in China and Hong Kong faded amid concerns that Asia’s biggest economy will suffer from a spike in virus cases in Beijing, Shanghai and other major cities. Asian shares could climb more than 9% through 2023, according to strategists surveyed by Bloomberg. But the road may be bumpy as uncertainty remains over the pace of China’s reopening and the outlook for Federal Reserve policy. Moreover, the world’s biggest money managers are set to unload up to $100 billion of stocks in the final few weeks of the year.
  • Oil endured a choppy start to the week as the outlook for global growth in the face of interest-rate hikes was weighed against a pledge from China to revive consumption as Covid Zero is abandoned. Brent crude fluctuated and traded near $80 a barrel after losing more than 4% in the final two sessions of last week. Trading volumes were below the 30-day average for both the global benchmark and West Texas Intermediate. Chinese President Xi Jinping said restoring and expanding consumption should “take the precedence” as leaders concluded a meeting to set priorities for 2023. That pledge may help buttress energy demand even as Covid cases surge and the reopening process turns bumpy.
  • Gold was little changed as investors weighed the latest hawkish comments from Federal Reserve officials that they won’t relent on tighter policy until inflation is under control. After traders initially cheered the softer-than-expected US inflation data last week, Fed officials emphasized that rates would go higher for longer. New York Fed President John Williams, San Francisco Fed chief Mary Daly and Cleveland’s Loretta Mester all stressed the central bank’s commitment to lowering inflation back to their 2% target and the need for clear evidence of easing price pressures. A wave of monetary tightening and hawkish outlooks from central banks across the globe, including the European Central Bank, further bruised sentiment. Still, gold is holding gains made in recent weeks on bets of a slowdown in rate hikes next year.
  • Copper rose after China signaled a pro-growth stance for 2023, hinting at business-friendly policies and more support for the property market. At China’s Central Economic Work Conference that wrapped up Friday, top leaders pledged to revive consumption and support the private sector, a marked shift from recent years. Officials said they will implement favorable policies to encourage private enterprises to grow, while economists said the signals are clear that the focus next year is on boosting the economy. China’s Covid policies and the crisis in its property sector have weighed on demand for industrial metals this year. While the government has abandoned its Covid Zero policy in recent weeks, concerns are building over prospects for a surge in infections and the likely impact on the economy.
  • US equities are set for their worst year since the global financial crisis, and, according to Morgan Stanley strategist Michael Wilson, corporate profits are about to meet the same fate. A looming earnings recession “by itself could be similar to what transpired in 2008/2009,” said Wilson. That could spark a new stock-market low that’s “much worse than what most investors are expecting,” he wrote in a note. The strategist — a stalwart equities bear who called this year’s slump — said that although inflation has started easing from historic highs, recent signs of weakening in the US economy were worrying.
  • Twitter Inc. users voted for Elon Musk to step down from his role as head of the social platform in a poll the billionaire entrepreneur said he would respect, a sharp rebuke of his chaotic tenure less than two months since he took over. About 58% of the 17.5 million votes cast were in favor of Musk stepping back from the leadership role, despite there being no clear successor.  If Musk heeds the results, it would mark the end of 53 chaotic days at the helm, which has involved dismissing top executives, eliminating roughly half of its employees and spooking advertisers. Musk, who’s also chief executive officer of Tesla Inc. and Space Exploration Technologies Corp., has dedicated much of his time since acquiring Twitter on Oct. 27 to the social media service, drawing criticism for his abrupt policy changes and neglect of his other businesses. The stock of Tesla, his most valuable holding, has sunk by about a third since the acquisition.
  • The House committee investigating the Jan. 6 Capitol attack will complete its 17-month probe with votes Monday on recommendations for the first-ever criminal prosecution of a former president, with offenses including insurrection, according to people familiar with plans. The committee session, to be shown live beginning 1 p.m. Washington time by major television networks, follows a series of eight hearings in which the panel presented a case that Donald Trump’s efforts to overturn the 2020 election broke the law and incited the deadly assault on the Capitol.  The nine-member, bipartisan panel is also expected to vote on and release at least in part a final report on its investigation along with supporting documents backing criminal referrals against Trump and several associates, and proposed civil actions against others, the people said.
  • The highest interest rates in 15 years are delaying home dreams, putting business plans on ice and forcing many Americans to agree to loan terms that would have been unimaginable just nine months ago. Most of all, the surge in borrowing costs is punishing the cash-poor. And it’s about to get worse as the Federal Reserve carries on with its anti-inflation campaign and keeps hiking rates next year. “Consumers who weren’t able to make ends meet are just digging themselves a deeper and deeper hole with the higher interest rates,” said Philip Cornell, economist at the Ludwig Institute for Shared Economic Prosperity, which focuses on research about middle- and lower-income families.
  • The bird flu outbreak ravaging global poultry flocks is now the worst since records began, driving a spike in the price of eggs, threatening free-range chicken and risking long-term impacts to animal health. The avian flu season traditionally begins each October as migratory birds shed infected droppings or saliva while leaving cool areas of the Northern Hemisphere. But this year cases spread rapidly in warmer months, supercharging the virus and prompting mass culls. Poultry losses since October are almost 70% above last year’s pace, hitting 16.1 million by Dec. 1, according to the World Organisation for Animal Health. Before then, more than 138 million birds were lost in the 12 months through September, more than the prior five years combined, WOAH said.
  • European Union member states are making a desperate effort to agree on a plan to cap natural gas prices, a measure that has divided governments for months as the region grapples with an unprecedented energy crisis. Energy ministers meeting in Brussels on Monday are discussing the latest draft compromise by the Czech government to lower the cap to €180 ($191) per megawatt-hour, according to two EU diplomats with knowledge of the matter.  That compares with €188 floated on Saturday and €275 proposed by the European Commission last month. The market intervention measure would take effect from the beginning of February.
  • Vietnam is on track this year to bump Britain from its long-time place among the US’s top seven goods trading partners, which would be the first time the UK hasn’t been in that group in records going back at least to 2004. The UK’s share of the US merchandise trade slid to 2.6% through the first 10 months of this year while Vietnam’s rose to 2.7%, according to Census Bureau data. In full-year numbers going back almost 20 years, the top seven US partners in goods trade have consistently been Canada, Mexico, China, Japan, Germany, South Korea and the UK, though their position within the group has shifted around. Vietnam didn’t appear in the bureau’s top-15 list until 2019, and it has climbed ever since, ending last year at No. 10. If Vietnam’s lead over the UK holds for the final two months of 2022, it’ll be the first time that a majority of the top seven are Asian economies.
  • Investors should judiciously add more risk in 2023 now that US inflation has peaked and recession fears are “less ominous,” according to KKR & Co.’s Henry McVey. Even though market volatility will persist for the next 12 to 18 months, money managers should begin investing more capital in areas including infrastructure and private credit, McVey, the chief investment officer of KKR’s balance sheet, said in an interview before Monday’s release of the firm’s 2023 macroeconomic outlook. After sharp declines in stocks and high-yield bonds this year, and with new debt issuance and initial public offerings at their lowest levels since 2009, now is the time to begin adding risk back into portfolios, said McVey, who’s also head of global macro for New York-based KKR.
  • Meta Platforms Inc. was hit with a formal complaint from European Union antitrust watchdogs for allegedly squeezing out classified ad rivals by tying the Facebook Marketplace to its own social network. The European Commission said Monday it issued a so-called statement of objections to Meta, paving the way for potential fines or changes to the firm’s business model.  “With its Facebook social network, Meta reaches globally billions of monthly users and millions active advertisers,” EU Antitrust Commissioner Margrethe Vestager said in an email announcing the escalation of the case. “Our preliminary concern is that Meta ties its dominant social network Facebook to its online classified ad services called Facebook Marketplace,” meaning “Facebook users have no choice but to have access to Facebook Marketplace.”
  • The European Commission is adopting a new approach to its bond issuance to improve the efficiency of its sales and help boost liquidity in the secondary market. It announced Monday that it’s aiming to issue as much as €80 billion ($85 billion) of bonds in the first half of 2023, in line with analyst forecasts. Of that, €70 billion will be used to aid the region’s economic recovery, with the remainder earmarked to support Ukraine after Russia’s invasion. All notes — regardless of which program they’re issued for, such as NextGenerationEU or SURE — will now be branded EU-Bonds. The Commission will collect the proceeds in a central funding pool before allocating money appropriately.
  • Investors with combined assets of €1.3 trillion ($1.4 trillion) have demanded the world’s biggest oil companies take swifter action to cut greenhouse gas emissions. This year has seen record profits for Big Oil as countries emerged from Covid lockdowns, boosting energy consumption and prices as supplies tightened. The companies bolstered shareholder payouts in response. Many investors have in fact retreated from stronger climate advocacy amid energy security concerns. Shareholder activist group Follow This filed resolutions with Shell Plc, BP Plc, Exxon Mobil Corp. and Chevron Corp., urging them to align their 2030 emissions targets with the Paris Agreement. It was joined by investors including Edmond de Rothschild Asset Management, Degroof Petercam Asset Management and Achmea Asset Management. While they each manage billions of dollars, they hold less than 0.1% in the four oil firms, data compiled by Bloomberg show.







*All sources from Bloomberg unless otherwise specified