December 20, 2022

Daily Market Commentary

Canadian Headlines

  • Magna International Inc. has agreed to buy a driver-assistance unit from SSW Partners for about $1.5 billion following a drawn-out battle to control previous parent Veoneer Inc. The purchase will complement the Canadian-Austrian automotive supplier’s advanced driver-assistance business with combined sales expected to reach $3 billion in 2024, Magna said Tuesday. The cash acquisition will also add engineering resources and expand the company’s customer base. “We plan to accelerate innovation by building on both organizations’ strengths, including customers, suppliers, technology partners and employees,” Magna Chief Executive Officer Swamy Kotagiri said in a statement. Carmakers and suppliers have been fine-tuning their approach to self-driving and driver-assistance systems after struggling to deliver meaningful progress on deploying robotaxi on public roads. Volkswagen AG and Ford Motor Co. last month pulled their support from self-driving firm Argo, after pouring billions into the startup. Other carmakers like Tesla Inc. have also fallen short on self-driving goals.


World Headlines

  • European stocks fell after a decision by the Bank of Japan to revise its yield-curve-control policy caught investors off guard and added to fears around the impact of hawkish central banks. The Stoxx 600 Index was down 0.4% by 10:03 a.m. in London after earlier sliding as much as 1%. Global markets were roiled today after BOJ Governor Haruhiko Kuroda doubled a cap on 10-year yields, sparking a jump in the yen and a slide in government bonds in a move that helps pave the way for possible policy normalization under a new governor. The real estate and utilities sectors led the declines in Europe, while banking and insurance stocks outperformed. The BOJ’s surprise move is the latest in a slew of hawkish central bank decisions and commentary. The European Central Bank and Federal Reserve last week both reiterated their resolve to fight high inflation with rate hikes, fueling a risk-off mood and sending the benchmark Stoxx 600 to its worst weekly slump since September.
  • US stock-index futures were steady as investors assessed the impact of hawkish central bank policies after the Bank of Japan shocked markets by widening a yield-trading band. Contracts on the S&P 500 were flat by 7:25 a.m. in New York. Nasdaq 100 futures slightly underperformed, falling 0.2% as the yield on 10-year Treasuries extended gains. The dollar slumped as the yen rose after the BOJ said it would allow benchmark yields to rise to around 0.5% from its previous 0.25% range. Among US premarket moves, Lucid Group Inc. advanced after the company said it has completed its stock sale program and successfully raised about $1.5 billion. US stocks dropped for a fourth session on Monday as traders assessed the Federal Reserve’s path for next year after central bank officials vowed to keep raising rates until they’re confident inflation is coming down meaningfully. The S&P 500 closed at its lowest level in more than a month, dragged by declines in big-tech firms including Apple Inc., Microsoft Corp. and Inc.
  • Asia stocks fell as Japanese shares tumbled following a surprise policy tweak by the central bank, while China’s Covid disruptions also hurt sentiment. The MSCI Asia Pacific Index dropped as much as 1.1% before mostly trimming losses. The Nikkei 225 Index slumped 2.5% as the Bank of Japan raised the upper band limit of its yield curve control program, giving the yen a boost. Financial shares in the nation surged. Stocks in China and Hong Kong fell for the second day as the reopening rally continued to cool. China reported a pickup in Covid deaths, with analysts expecting the actual toll to be much worse than the official tally. Despite the dismantling of heavy Covid restrictions, activity in key cities has slowed as infections spike, diminishing the economic boost from a reopening.
  • Oil rose as investors weighed a potential boost for energy demand after China abandoned its Covid Zero policy against persistent concerns over a global economic slowdown. West Texas Intermediate futures traded above $76 a barrel, also getting a boost from a weaker dollar, which makes commodities priced in the currency more attractive. China’s efforts to revive its economy by removing harsh virus curbs is spurring hopes of higher consumption in the long term, despite a surge in cases clouding the near-term outlook. Continued supply disruption in the US are also bringing some bullish sentiment. Oil output in North Dakota has fallen by about 300,000 barrels a day since a winter storm last week and the recovery will take a few weeks. Meanwhile, TC Energy Corp.’s restart plan for the Keystone pipeline, which was halted earlier this month, is under review, the Pipeline and Hazardous Materials Safety Administration said on Monday.
  • Gold climbed as the dollar weakened after the Bank of Japan shocked markets by unexpectedly revising its yield-curve-control policy. Bullion has been pressured this year by the Federal Reserve’s monetary tightening, which has supported the dollar and Treasury yields. A partial reversal in those moves has seen gold climb in recent weeks, driven by cooler-than-expected US inflation data that’s diminished bets on more aggressive rate hikes. Spot gold rose as much as 1.1% to $1,807.45 an ounce and was at $1,806.38 as of 9:43 a.m. in London. The Bloomberg Dollar Spot Index fell 0.7%. Silver, platinum and palladium rose.
  • After hitting an abrupt and confusing snag in a Bahamas courtroom, Sam Bankman-Fried’s preparations to be extradited to the US appear back on track. FTX co-founder Bankman-Fried said in court Monday that he was ready to waive his right to fight extradition to the US where he faces fraud charges over the collapse of the cryptocurrency exchange. However, his local lawyer, Jerone Roberts, said in the same hearing that he wasn’t aware of the plan. Ultimately, the proceedings were adjourned, and Bankman-Fried was ordered to return to jail. Later in the day, Roberts appeared to reverse himself, telling local media that Bankman-Fried wouldn’t fight extradition and could be back in court again this week. Attempts to reach Roberts were unsuccessful.
  • It’s been one blow after another for Apple Inc. in recent months. Labor unrest and production halts at Foxconn Technology Group’s massive iPhone plant in central China are expected to cause Apple to miss out on the sale of millions of the devices this holiday season, the company’s most important time of the year. Most economists predict that a global recession will take hold next year, reducing consumer appetite for the expensive devices Apple sells. As central banks rapidly raise interest rates to bring inflation to heel, technology stocks have especially fallen out of favor. Apple stock this year has lost nearly $800 billion, or about a fourth of its market value. At the same time, Apple is under increasing antitrust scrutiny for its App Store practices. In the European Union, the company is preparing to allow apps from other sources on its iPhones and iPads to comply with strict EU requirements coming in 2024, Bloomberg News has reported. That development could inspire the US and other countries to follow the EU’s lead, threatening to take a bite out of the $23 billion in revenue that analysts estimate the App Store will generate in the company’s current fiscal year, which ends in September.
  • Twitter Inc. will restrict voting on major policy decisions to paying Twitter Blue subscribers, company owner Elon Musk said in one of his first tweets following a poll calling for him to step down. Responding to a Blue member going by the name Unfiltered Boss, Musk agreed with the suggestion that only subscribers should have a voice in future policy and said, “Twitter will make that change.” A day earlier, the billionaire chief pledged to submit all future policy decisions to a vote and offered Twitter users a choice on leadership, asking them if he should step down. More than 10 million, or 57.5% of the vote, were in favor of Musk relinquishing his role as head of Twitter. He committed to abide by the result when asking for the vote, but nearly a day later, he had tweeted more than 10 times without directly addressing the outcome. Musk responded to a tweet suggesting the poll may have been manipulated by bots with a single word: “interesting.”
  • Inc. settled European Union antitrust investigations over how the U.S. ecommerce giant uses rivals’ sales data and whether it unfairly favors its own products. The European Commission accepted proposals from Amazon, including a vow to stop using non-public data on independent sellers on its marketplace for its competing retail business. Amazon also pledged to address concerns about the way its Buy Box for showcasing specific offers and Prime unduly favored its own retail business, as well as marketplace sellers that use Amazon’s logistics and delivery services.
  • Germany slashed its consumption of Russian gas this year amid lower flows and a drive to diversify supplies after the war in Ukraine. The share of Russian gas consumed in Europe’s biggest economy dropped to about 20% this year from 55% in 2021, according to data from energy lobby group BDEW. Russia has heavily reduced flows to the continent, hitting Germany more than most. The nation is increasingly turning to imports of liquefied natural gas to fill the supply gap. The first terminal for the fuel opened last weekend, one in five chartered by the government.
  • The European Union agreed to cap natural gas prices next year through a complex plan with several caveats. Still, it could have prevented some of the extreme spikes seen this summer. The cap, set to take effect Feb. 15, requires a few conditions before it is triggered: for three working days, the benchmark price must be above €180 ($191) a megawatt-hour and also at least €35 above global prices for liquefied natural gas. If it had had been introduced this year, the cap could have been used on roughly 40 days in August and September — when prices neared records — Bloomberg calculations from S&P Global Commodity Insights data show.
  • Train drivers announced another day of strikes in January as part of a long-running dispute over pay. The Aslef union, which represents 96% of train drivers in England, Scotland and Wales, said members will walk out on Jan. 5. This means there’ll be five consecutive days of strikes in the first week of the new year as the National Union of Rail, Maritime and Transport Workers is holding industrial action on Jan. 3, 4, 6 and 7. The announcement follows the labor group securing a new mandate from its members to hold strikes, potentially over the next six months. More than nine in 10 union members who voted in the ballot backed further strikes.
  • Credit Suisse Group AG shares are hovering near record lows as some analysts question the lender’s credibility due to a lack of visibility on its ambitious turnaround plan. The stock slipped as much as 3.9% on Tuesday, declining for a seventh straight session, after Citigroup Inc., alongside RBC Capital Markets LLC, flagged future uncertainties. The banks’ sell-side analysts were resuming research coverage, having been a part of a syndicate that helped Credit Suisse drum-up its rights offering last month. Citi’s Andrew Coombs said in a note he has “little conviction” in the Swiss lender’s strategic plan, “based upon the current limited disclosure and recent company track-record.” He expects Credit Suisse to make “a heavy loss” in 2023 on restructuring charges, before a return to breakeven in 2024.
  • The US is concerned China’s runaway Covid-19 outbreak might spawn new mutations of the virus, as the world’s most populous country continues to grapple with the impact of loosening “Covid Zero” protocols that had kept the pandemic at bay. “When it comes to the current outbreak in China, we want to see this addressed,” State Department spokesman Ned Price said in a briefing on Monday. “We know that anytime the virus is spreading in the wild that it has the potential to mutate and to pose a threat to people everywhere.” Chinese cities are witnessing a wave of Covid-19 cases, with concerns growing that the government may be hiding the true toll of the virus after years of insisting that the Communist Party had handled the virus more skillfully than the West. On Monday, police and security guards pushed journalists back from a Beijing crematorium.
  • 3M Co., confronting regulatory pressure and lawsuits that threaten billions of dollars in damages, will stop making so-called forever chemicals and discontinue their use in products by the end of 2025. The industrial conglomerate expects to book pretax charges of $1.3 billion to $2.3 billion as it stops making per- and polyfluoroalkyl substances, or PFAS, according to a statement Tuesday. That will include an estimated charge of up to $1 billion this quarter. The announcement marks a historic break with an entire class of chemicals — consisting of thousands of variations on the carbon-fluorine bond — that were first created in researching the atomic bomb in World War II. They helped 3M develop hundreds of different products over more than 70 years, like Scotchgard, and are now a potential liability that could reach $30 billion.
  • Economists say there is a 7-in-10 likelihood that the US economy will sink into a recession next year, slashing demand forecasts and trimming inflation projections in the wake of massive interest-rate hikes by the Federal Reserve. The probability of a downturn in 2023 climbed from 65% odds in November and is more than double what it was six months ago, according to the latest Bloomberg monthly survey of economists. The poll was conducted Dec. 12-16, with 38 economists responding about the chance of a recession. The median estimates see gross domestic product averaging a paltry 0.3% next year, including an annualized 0.7% decline in the second quarter and flat readings in the first and third quarters. Consumer spending, which accounts for about two-thirds of GDP, is projected to barely grow in the middle half of the year.








*All sources from Bloomberg unless otherwise specified