December 5, 2022

Daily Market Commentary

Canadian Headlines

  • The S&P/TSX Composite fell 0.2%, with seven of 11 sectors lower, led by real estate stocks. As of market close, 148 of 236 stocks rose, while 86 fell. Tilray Brands Inc. led the advances, rising 9.6%, while Wesdome Gold Mines Ltd. decreased 8.6%.
  • A Blackstone Inc. business has agreed to buy six industrial properties in the Toronto area. Blackstone Real Estate is paying more than C$400 million ($297 million) in cash for the properties, which total 1.5 million square feet (140,000 square meters) and are all fully leased. The transaction is one of the largest trades of a private industrial portfolio in Canada in recent years. “Global logistics is one of our highest-conviction investment themes, and high-quality, last-mile industrial properties like these continue to benefit from some of the strongest real estate fundamentals in Canada,” said Janice Lin, Blackstone’s head of Canada real estate.  The private equity firm is purchasing the properties from the asset-management arm of Toronto-Dominion Bank, according to a person familiar with the matter, who asked not to be named because the information is private. A Blackstone spokesperson declined to comment, while a TD representative had no immediate comment.

World Headlines

  • European stocks were little changed after posting their longest weekly gaining streak since April 2021, as investors turned cautious about the outlook for both economic growth and central bank policy. The Stoxx Europe 600 Index retreated 0.09% by 11:03 a.m. in London. Miners surged, while food and beverage and personal care stocks underperformed. Vodafone Group Plc gained after it said Chief Executive Officer Nick Read will step down at the end of 2022 following a year when the telecommunications company’s share price sank. Prosus NV climbed after Chinese authorities accelerated a shift toward reopening the economy. The outlook for next year is more mixed as on the one hand technical obstacles such as the 200-day moving average or the downtrend of 2022 have been fully overcome, but on the other hand, the Stoxx 600 remains in overbought territory. Growth fears are also rising as data today confirmed a fifth consecutive month of contraction in euro area business activity in November.
  • US futures slipped as Treasury yields rose on inflation risks and uncertainty about the path of American rate policy, stifling potential gains from China’s move to ease Covid restrictions. Contracts on the S&P 500 retreated 0.3% while those on the Nasdaq 100 were down 0.1%. A hotter-than-expected US jobs report last week along with a jump in average hourly earnings point to fresh inflation risks and more bond volatility. While dovish Fedspeak may be keeping yields anchored, they have some way to go to before they close the gap with terminal rate expectations. The S&P 500 is on course for its biggest fourth-quarter gain since 1999 amid hopes that US inflation has peaked and bond yields have stabilized.
  • Asian stocks rebounded, inching closer to bull market territory, as Chinese equities resumed their rally on further relaxation of Covid rules in Asia’s biggest economy. The MSCI Asia Pacific Index climbed as much as 1.4%, led by communication services and consumer discretionary shares. Benchmarks in Hong Kong led gains in the region with the Hang Seng Tech Index soaring more than 9% and the Hang Seng China Enterprises Index up roughly 5%. Investors cheered latest signs of China pivoting from its strict virus rules as authorities eased Covid testing requirements across major cities over the weekend, including the financial hub of Shanghai. The move fueled gains in reopening stocks in China and its neighboring countries such as South Korea. Markets were closed in Thailand for a holiday.
  • Oil advanced after China made further progress toward reopening, OPEC+ kept output steady, and sanctions on Russian crude kicked in. West Texas Intermediate futures rose toward $82 a barrel as China’s key urban centers including Shanghai announced further easing of Covid restrictions over the weekend. The Organization of Petroleum Exporting Countries and its allies on Sunday agreed to maintain production at current levels, pausing to take stock of the global market. To further punish Moscow for the invasion of Ukraine, the European Union, in tandem with the Group of Seven, agreed to cap Russia crude prices at $60 a barrel, while banning most seaborne imports from Monday. While penalizing Russia, the price level is meant to encourage continued Russian oil exports. The Kremlin said it is working on a response, and that it won’t recognize the rules.
  • Gold steadied after earlier touching the highest level since July as traders weighed more US economic data and China’s relaxation of its strict Covid-Zero policies. Bullion had been hurt by the Fed’s aggressive rate hikes this year, but recent indications that the central bank is becoming less hawkish have boosted the metal, pushing it past $1,800 an ounce last week. Attention is focused on how high the central bank will take its interest rates, with policymakers expected to opt for slower tightening this month. On the slate Monday are US purchasing managers indexes and durable goods orders, which will be scrutinized for signs demand is slowing. Traders are also watching China’s accelerating shift toward reopening, with Shanghai and Hangzhou easing some restrictions after protests against the nation’s stringent policies.
  • Morgan Stanley strategist Michael Wilson is returning to the bear camp. The strategist, one of the US stock market’s most vocal skeptics, has seen enough of the recent rally that he’d predicted and says investors are better off booking profits. “We are now sellers again,” the strategist and his colleagues wrote in a note on Monday. They expect the S&P 500 to resume declines after the index crossed above its 200-day moving average last week, saying the downtrend since the beginning of the year remains intact. “This makes the risk-reward of playing for more upside quite poor at this point,” they wrote. The call marks a shift in Wilson’s view as recently as last week, when he said the tactical recovery could continue into December before coming under pressure from weaker corporate earnings next year. The strategist — who ranked No. 1 in the latest Institutional Investor survey — said on Monday he now sees “absolute upside” for the S&P 500 at 4,150 points — about 2% above current levels — which could be achieved “over the next week or so.”
  • Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the fourth straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.78 billion in the week ended Dec. 2, compared with gains of $1.56 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $27.5 billion.
  • Tesla Inc. plans to lower production at its Shanghai factory, according to people familiar with the matter, in the latest sign demand in China isn’t meeting expectations. The output cuts will take effect as soon as this week, said the people, who asked not to be identified because the information isn’t public. They estimate the move could reduce production by about 20% from full capacity, which is the rate at which the factory ran in October and November. The decision was made after the automaker evaluated its near-term performance in the domestic market, one of the people said, adding that there’s flexibility to increase output if demand increases. A Tesla representative in China declined to comment. The carmaker’s shares fell as much as 2.4% to $190.10 at 5:25 a.m. Monday in New York, before the start of regular trading.
  • Investors will struggle to find top-ranked ESG funds after Christmas, as asset managers shy away from Europe’s strictest sustainability tag in response to tougher regulations, according to an analysis by Jefferies International Ltd. BlackRock Inc., Pacific Investment Management Co. and Amundi SA are among funds that have already removed the EU’s highest environmental, social and governance fund designation, known as Article 9, from large chunks of their business. A Bloomberg tally indicates that funds worth at least $100 billion have been downgraded, though the actual figure may be significantly higher. With the development set to continue, the number of new Article 9 funds being issued “will be close to zero” in the new year, Luke Sussams, head of ESG and sustainable finance for Europe at Jefferies, told Bloomberg Monday.
  • The UK government is set to announce a package aimed at boosting growth in financial services and the City of London on Friday, according to people familiar with the plans. The Treasury is in the process of finalizing the package and has penciled in the end of the week for the announcement, pending sign-off from the Cabinet, one of the people said. City minister Andrew Griffith had been expected to unveil the reforms, which the government will pitch as securing new opportunities from Brexit by sweeping away unnecessary regulations, before Christmas. Key to that has been a plan to replicate the “Big Bang”, the wave of deregulation in the City in 1986.
  • Vodafone Group Plc Chief Executive Officer Nick Read will step down at the end of 2022, after he failed to halt a years-long slide in the telecommunication giant’s share price and mergers with major rivals failed to materialize. Chief Financial Officer Margherita Della Valle will do the job on an interim basis while the board, led by Chairman Jean-Francois van Boxmeer, seeks a replacement. Read, who’d been in the post for four years and at Vodafone for more than two decades, will stay on an as adviser until the end of March, the company said in a statement on Monday.
  • Commodities trader Trafigura Group signed a $3 billion German government-backed loan for gas supplies, as Berlin steps up efforts to secure natural resources following Russia’s invasion of Ukraine. The first gas delivery took place on Nov. 1, and Trafigura will primarily use existing quantities from its global gas and liquefied natural gas portfolio, the trading house said Monday in a statement. It’s the second such deal in recent months, after Trafigura in October announced it had secured an $800 million loan to supply metals to Germany. For trading houses like Trafigura, the deals represent relatively cheap financing at a time when high commodity prices and extreme volatility have increased their need for credit and have left some banks reluctant to add exposure to the sector.
  • Chinese authorities eased Covid testing requirements across major cities over the weekend as Beijing appears to be engineering a gradual shift away from its strict Covid Zero policy amid elevated cases and public protests. The financial hub of Shanghai, which saw a grueling two-month lockdown earlier in the year, scrapped PCR testing requirements to enter all public venues except some like restaurants, bars and nursing homes, city authorities said. Measures will “continue to be optimized and adjusted” in line with national policy and the local situation, according to the statement. Hangzhou, home to tech giant Alibaba Group Holding Ltd., also dropped testing requirements to enter most public venues including offices and supermarkets and to take public transportation. Tests will no longer be required to purchase certain medicines, city authorities said in a statement.
  • Credit Suisse Group AG rose as much as 7.5% on the prospect that Saudi Arabian Crown Prince Mohammed bin Salman will take a stake in the Swiss firm’s planned investment bank spin out.  Bin Salman may put about $500 million into the vehicle, according to people with knowledge of the matter. Other investors may include former Barclays Plc chief executive Bob Diamond’s Atlas Merchant Capital, the people said, asking not to be identified as the deliberations are private. It’s unclear whether the Crown Prince’s interest would come in a personal capacity or through other investment vehicles in the Kingdom. The Saudi National Bank, 37% owned by the nation’s sovereign wealth fund, is already an anchor investor in Credit Suisse’s $4 billion ongoing capital raise. A further investment by the oil-rich nation would boost confidence in the lender’s restructuring efforts. The Swiss firm’s executives have already said several parties are interested in investing in the reprisal of the Credit Suisse First Boston brand under veteran dealmaker Michael Klein.
  • After winning over some of the biggest retirement plans in the US, private credit managers have found new fertile ground for their investment pitch: Australia’s $2.3 trillion pension industry. Four of the top-10 pensions Down Under — Australian Retirement Trust, HostPlus, UniSuper and Colonial First State — are making significant increases to their private credit allocations, according to recent statements and interviews with Bloomberg News. AustralianSuper, the nation’s largest, is midway into a three-year push to triple its allocation. That’s music to the ears of private credit funds, which have outperformed other asset classes so much that some US pensions and endowments can’t buy more without breaking allocation limits. There’s no such problem for Australia’s superannuation operators, as the pensions are known locally. They are estimated to have less than 1% of their combined investments in private credit.
  • Bearish traders are signaling that crypto losses will continue into next year, as risk-averse firms scale back from a market roiled by the implosion of digital-assets exchange FTX. The Bitcoin futures curve is stuck in backwardation, meaning its spot price is higher than its futures price. The CME Group’s January 2023 contract has dropped to its deepest discount to spot since its launch earlier in November and is stuck trading at more than 1% below the cash price. Active Bitcoin futures on the CME group platform are all trading at a discount. Contracts on Deribit, the most liquid crypto-native derivatives exchange, are also trading at discount with the January contract priced at $17,290 compared with Bitcoin’s cash price at around $17,300.
  • A new business group led by Republican heavyweights will launch its first seven-figure ad campaign this week. The target: legislation taking aim at a key source of revenue for Visa Inc. and Mastercard Inc. The American Free Enterprise Chamber of Commerce, which has branded itself as an “anti-woke” alternative to the US Chamber of Commerce, is hoping to gin up opposition to the Credit Card Competition Act, bipartisan legislation that targets the $77 billion banks and payment companies collect from merchants each year whenever consumers swipe their credit cards at checkout.
  • The European Central Bank will probably lift borrowing costs by a half-point this month, according to Governing Council member Gabriel Makhlouf, slowing the pace of its increases after inflation moderated for the first time in 1 1/2 years. A rise of 50 basis points “is about where we’ll end up,” Makhlouf told reporters Monday in Dublin, saying that if that’s the case, other hikes will follow at subsequent meetings. He himself considers a half-point step to be “the minimum needed” to continue bringing inflation back toward the 2% target from five times that at present.
  • Democratic-led states where gun restrictions were upended by a recent U.S. Supreme Court ruling are pushing ahead with new measures to ban concealed weapons from places such as hospitals, parks and houses of worship. Lawmakers in several states are considering legislation to replace their old permitting regimes, which gave state licensing officials wide latitude to deny permits unless a gun owner could provide sufficient justification for carrying a concealed weapon outside the home. The 6-3 high-court opinion said that New York officials had too much discretion. The court also set a new constitutional test for state and local gun-control measures: They must be consistent with the nation’s historical tradition of firearms regulation. New York lawmakers enacted a new law a week after the ruling. It changed the criteria for obtaining a license — requiring in-person training as well as disclosure of social-media accounts — and prohibited guns in a number of what it said were sensitive places.



*All sources from Bloomberg unless otherwise specified