The Daily – December 2, 2022

December 2, 2022

Daily Market Commentary

Canadian Headlines

• The Biden administration proposed a ban on waste disposal that would thwart a long-planned gold and copper mine in Alaska, citing the potential harm to the area’s thriving sockeye salmon industry. The Environmental Protection Agency issued a formal recommendation Thursday to bar the disposal of mining waste in Bristol Bay, which hosts the world’s largest harvest of the fish. If finalized, that would effectively block efforts by Pebble Limited Partnership to extract gold, copper and molybdenum from southwestern Alaska. Pebble, a subsidiary of publicly-traded Northern Dynasty Minerals Ltd., has been seeking to mine in the area for more than two decades.   The move represents the penultimate step in a Clean Water Act process that EPA Region 10 Administrator Casey Sixkiller said would “help protect salmon fishery areas that support world-class commercial and recreational fisheries and that have sustained Alaska Native communities for thousands of years.”

World Headlines

• European stocks traded steady after closing at the highest level since June Thursday, as investors weigh concerns over recession and the labor market against bets on slower rate hikes and China’s reopening. The Stoxx Europe 600 Index was flat by 10:25 a.m. in London. Miners and energy led declines while the real estate and retail sectors outperformed. Credit Suisse Group AG jumped after its chairman said the bank had managed to essentially halt the outflow of assets. As the Stoxx 600 Index has jumped 16% over the past two months and, including dividends, is trading at levels seen before Russia’s invasion of Ukraine, Societe Generale SA strategists said they would wait for a better entry point before buying more aggressively into European equities.
• US equity futures slipped on Friday, reflecting a generally cautious mood on world markets ahead of a crucial monthly jobs report that could offer clues on how much further the Federal Reserve might raise interest rates. Contracts on the S&P 500 and Nasdaq 100 edged lower, with both underlying indexes still set for a second week of gains. Premarket US trading reflected concern over the impact of higher rates on company earnings, especially in the tech sector, where shares in cloud security company Zscaler Inc. and chipmaker Marvell Technology Inc. Stocks got a boost this week from a softening in China’s stringent Covid zero stance and signals from Fed Chair Jerome Powell of a downshift in the pace of rate hikes. Bets on where the US central bank’s rate will peak have now dropped below 4.9%, according to swap markets. The current benchmark sits in a range between 3.75% and 4%.
• Asia stocks fell, trimming their weekly gain, as investors sold off some positions ahead of a key jobs report in the US. The MSCI Asia Pacific Index declined as much as 0.9%, with most sectors in the red, led by energy and utility stocks. Benchmarks in Japan and South Korea were among the worst performers as investors await more signs of China’s reopening and economic policy at an upcoming meeting of the country’s top leaders. Chinese stocks edged lower. The Asian measure is poised to advance more than 2% this week, set for its fifth weekly gain. Bullish indicators are growing, with the index testing its 200-day moving average for the first time since September 2021, as global funds dip back into the region.
• Oil steadied but was on track for its biggest weekly gain in almost two months, as China softened virus controls and a weaker dollar boosted the allure of commodities. West Texas Intermediate held near $81 a barrel after a run of four daily gains. The uptick in prices comes ahead of a key meeting of the Organization Petroleum Exporting Countries and its allies this weekend, along with a last-minute drive by the European Union to agree on a price cap for Russian oil. China, the world’s largest oil importer, said it would allow some infected people to isolate at home, another softening of its Covid Zero policy. In addition, People’s Bank of China Governor Yi Gang said the central bank is now centered on economic growth, aiding the outlook for energy consumption.
• Gold declined in Asia after jumping 2% in the previous session as cooler-than-expected US inflation data added to hopes of a downshift in the Federal Reserve’s rate-hike path. Bullion surged past $1,800 an ounce on Thursday, a level it hasn’t surpassed since mid-August, and is up 2.4% this this week. Aggressive tightening has weighed on the precious metal for most of the year, but optimism the Fed is becoming less hawkish drove an 8.3% gain last month as the dollar and Treasury yields fell. A measure of inflation based on changes in US personal consumption for October came in below estimates. The American jobs market is also beginning to cool, but employment data due Friday will likely fall short of a turning point in the battle to control inflation.
• Stock investors’ optimism around a cooling labor market and a Federal Reserve pivot is overdone, according to Bank of America Corp. strategists, who recommend selling the rally ahead of a likely surge in job losses next year. “Bears (like us) worry unemployment in 2023 will be as shocking to Main Street consumer sentiment as inflation in 2022,” strategists led by Michael Hartnett wrote in a note showing that global equity funds just had their biggest weekly outflows in three months. “We’re selling risk rallies from here,” he said, reiterating his preference for bonds over equities in the first half of 2023. Stocks have rebounded in the past two months on bets that the Fed will be able to tame inflation in time to avoid a recession. That was reinforced this week after Chair Jerome Powell signaled the central bank was ready to slow the pace of rate hikes, but a crucial clue on the outlook will come today from the latest jobs report. Economists expect the data to show that labor demand is ebbing, but say a bigger slowdown is needed to bring that more in line with supply and contain wage growth.
• Global food prices fell for an eighth month in November, in a sign that inflationary pressures may be easing. A United Nations gauge of food prices declined 0.1% last month to the lowest since January. The renewal of Ukraine’s grain-export deal sent wheat and corn prices tumbling, while the threat of a global recession is curbing food demand. Rising food prices have been a major contributor to a broader inflationary spiral that’s fueling a cost-of-living crisis in countries from the UK to Malaysia. Investors and economists are watching closely for signs that inflation has peaked, allowing central banks to slow the pace of monetary tightening.
• Florida is pulling about $2 billion from BlackRock Inc. in the largest anti-ESG withdrawal announced by a US state, as Republicans ramp up their fight against the world’s largest money manager. BlackRock wasn’t aware of the decision until reading about it Thursday in a statement from Florida Chief Financial Officer Jimmy Patronis. In a video posted the day before the announcement, Patronis said financial firms should brace for more actions by the state’s Republican Governor Ron DeSantis, who campaigned for re-election on his so-called anti-woke agenda as he gears up for a possible presidential run. Florida becomes at least the sixth state divesting from New York-based BlackRock, Wall Street’s biggest champion of environmental, social and governance investing.
• OPEC’s efforts to deliver a substantial oil-output cut are being blunted the group’s allies. The Organization of Petroleum Exporting Countries slashed output by about 1 million barrels a day, according to a Bloomberg survey, roughly fulfilling their half of a cutback co-ordinated with the wider OPEC+ coalition. Group leader Saudi Arabia took considerable political heat from the US when it first announced the reduction, which has proven necessary to steady oil markets against deteriorating demand in China. Yet oil exports from the full 23-nation group dropped by just 361,000 barrels a day, as declines across most members were offset by a surge from Russia, data from energy analytics firm Kpler Ltd. shows. While exports and output aren’t perfectly correlated, the shipments can provide insight on a country’s oil production.
• Credit Suisse Group AG investors got a rare respite Friday after Chairman Axel Lehmann said the bank’s liquidity was improving and the huge outflows of client assets that had spooked markets were coming to an end. Withdrawals at the Swiss lender, which surged to about 84 billion francs ($90 billion) earlier this quarter after rumors about the bank’s stability, have “basically stopped,” Lehmann said in a Bloomberg Television interview with Francine Lacqua. The bulk of the bleeding occurred in October, and the bank has since seen some assets come back in Switzerland. Credit Suisse rose as much as 6.9% in Zurich trading, putting the stock on course to end a record 13-day losing streak, as the comments calmed investors. The bank had shocked markets late last month when it said clients in a matter of weeks had pulled about 10% of assets at the key wealth management unit, which is traditionally one of the bank’s most stable businesses.
• Russian President Vladimir Putin remains open to negotiations but the fighting will go on, his administration said. While military operations continue, Putin “was and remains open for contacts for negotiations,” Kremlin spokesman Dmitry Peskov said on a conference call on Friday. His comment — a reiteration of the Kremlin stance — was a response to President Joe Biden, who raised the prospect of talks if the Russian leader is committed to ending the war. Russian forces have been reeling after losing troops and weapons — and withdrawing from a swathe of territory they seized from Ukraine. Still, Russian missile strikes against Ukraine’s energy infrastructure have raised concerns over how citizens will weather the winter with power and water-supply shortages.
• President Gustavo Petro named a French-educated expert in economic development to Colombia’s central bank board, likely soothing investors who had feared he might name a radical leftist from his own circle. Petro named Olga Lucia Acosta, who is currently a regional adviser to the UN Economic Commission for Latin America. She also serves on the committee of the nation’s fiscal rule, which is intended to prevent the government from running up excess debt.
• Families flying abroad for Christmas face strikes at Heathrow airport, with baggage handlers set to walk out for three days just as the end of the school term triggers a mass exodus via the London hub. About 350 staff at Menzies Aviation, which provides ground-handling services for carriers including American Airlines and Deutsche Lufthansa AG, will strike from Dec. 16, the Unite union said in a statement Friday. The action will affect three Heathrow terminals as workers push for a pay rise. Unite said passengers face “disruption, delays and potentially cancellations,” though an earlier strike at Menzies over three days last month had little impact, according to airlines and Heathrow. That’s after the firm reached an outline deal with the GMB union representing the bulk of its handlers.
• The Chinese Grand Prix will not take place in 2023 given the “ongoing difficulties stemming from Covid-19 situation,” Formula 1 says in a tweet. Formula 1 is assessing alternative options to replace the slot on the 2023 calendar and will provide an update in due course, the organization said in a statement available on its website on Friday. The Covid-19 situation in China remains difficult even though Beijing is starting to allow some virus-infected people to isolate at home, starting with residents of the city’s most-populous district. It’s a landmark shift that reflects the pressure officials are under from a record outbreak and public opposition to the Covid Zero policy.
• A gauge of the dollar’s strength has dropped to the lowest level since June, as traders anticipate that a less-aggressive Federal Reserve policy will see the greenback continue to give up this year’s gains. The Bloomberg Dollar Spot Index is now down nearly 8% from a peak in September, with the Japanese yen benefiting the most out of Group-of-10 peers from the weaker greenback this week. The dollar has gone into reverse amid speculation the Fed will slow its pace of interest-rate hikes as soon as this month amid signs inflation and economic growth are both cooling. Demand for the currency has also waned as Treasury yields have slumped.

 

*All sources from Bloomberg unless otherwise specified