December 6, 2022
Daily Market Commentary
- Toronto home prices fell the least this year in November as fewer people put their homes up for sale, slowing a correction that began when interest rates started to march higher. The benchmark home price in Canada’s largest city slipped 0.8% to C$1.09 million ($802,000), the smallest monthly drop since prices began falling in April, according to data released Tuesday by the Toronto Regional Real Estate Board. Activity is slow: Just 4,544 homes were sold during the month, down 49% from a year ago. Fewer than 8,900 homes were brought to market in November, down from October and from the year before. The real estate board said the numbers provide evidence the correction is slowing down. “The marked downward price trend experienced in the spring has come to an end,” Jason Mercer, its chief market analyst, wrote in a statement. “Selling prices have flatlined alongside average monthly mortgage payments since the summer.”
- European stocks were slightly weaker for a third day as bond yields edged higher and as strong US economic data weighed on bets that the Federal Reserve will slow the pace of rate increases. The Stoxx Europe 600 Index was down 0.3% by 10:12 a.m. in London. Energy and financial services sectors underperformed, while insurance gained the most. A seven-week rally in European stocks has paused in recent days as worries about a resilient US economy and sticky inflation outweighed optimism about a reopening in China and a slowdown in the pace of Fed rate hikes. Economists have warned the central bank now has enough worrisome inflation data to consider raising rates to a higher peak than investors expect.
- Markets struggled for direction Tuesday as traders weighed prospects for a slowdown in the pace of US rate hikes against data that shows tighter policy may be needed for longer. Contracts on the S&P 500 wavered following a third day of declines for the S&P 500 on Monday. Futures on the Nasdaq 100 fluctuated in a narrow range. A gauge of European equities turned lower as a seven-week rally lost steam. The dollar and Treasuries were steady. A resilient US economy and sticky inflation is countering optimism about a reopening in China, with money market futures and economists suggesting the Fed will need to push rates to a higher peak than previously expected.
- Asian stocks declined as a rebound in Chinese shares lost momentum after unexpectedly strong US economic data renewed concerns that the Federal Reserve will need to push rates to a higher peak than previously expected. The MSCI Asia Pacific Index dropped as much as 1.2%, with Chinese internet firms and Asian chipmakers contributing the most to the benchmark’s drop. Shares in Hong Kong dropped as investors monitored China’s move toward exiting its Covid Zero policy. Gauges in Taiwan, South Korea and Singapore fell while Vietnam’s equity benchmark sank about 4% amid profit taking. Asia’s drop was limited relative to losses in the US, where about 95% of the S&P 500’s companies were in the red. Stocks in Japan edged up as investors weighed dovish remarks from Bank of Japan Governor Haruhiko Kuroda.
- Oil stabilized after Monday’s plunge as signs that China is moving away from its strict Covid Zero policy helped stem losses from a wider market slump. West Texas Intermediate was little changed near $77 a barrel following a roller-coaster session on Monday, when a broad shift away from risk assets saw prices close down 3.8%. The city of Beijing will scrap Covid testing requirements at public venues following similar moves in other areas, bolstering the outlook for demand in the world’s largest crude importer. The market is weighing the long-term impact of the latest round of restrictions placed on Russia by the European Union and Group of Seven to punish Moscow for the war in Ukraine. These include limits on insurance and a $60-a-barrel cap on Russian oil. So far, although some ships are stuck near Turkey in part due to the changes, there’s been no widespread disruption.
- Gold’s rebound above $1,800 an ounce has been met with selling by some of the largest players in the market, raising questions about the sustainability of the rally. Bullion-backed exchange-traded funds cut their holdings by 13.7 tons on Monday, according to an initial tally by Bloomberg. The biggest daily drop in 20 months pushed down gold by the most since September. Over the previous five weeks, ETF gold stockpiles remained little changed, even as prices climbed higher.
- JPMorgan Chase & Co.’s only sell rating on Wall Street has now gone. The Jamie Dimon-led bank was upgraded by two notches to a buy-equivalent rating at Morgan Stanley, which said the lender is typically more resilient than rivals during downturns. The upgrade, by analyst Betsy L. Graseck, leaves JPMorgan with no sell or equivalent ratings among analysts tracked by Bloomberg. JPMorgan’s price-to-earnings multiple didn’t drop as much as peers during past recessions, Graseck wrote in a note to clients. Cost management is also improving, with operating leverage turning positive, while the bank is making progress on meeting higher capital requirements, she added.
- Georgia voters Tuesday will decide whether to send Senator Raphael Warnock, a Democratic incumbent, back to Washington for a full six-year term or instead elect Republican Herschel Walker in the second consecutive runoff election for the seat in less than two years. Polls show Warnock with a slight lead over Walker, a former University of Georgia football star who was handpicked by former President Donald Trump. Neither of the two men reached the 50% threshold required to avoid the runoff in the Nov. 8 election, due in part, to a third-party candidate who won’t appear on Tuesday’s ballot. As of Monday, a record 154,176 early voting ballots had been accepted, according to Gabriel Sterling, chief operating officer for Georgia’s Secretary of State.
- Apple Inc. Chief Executive Officer Tim Cook and Advanced Micro Devices Inc. CEO Lisa Su will join President Joe Biden on Tuesday at an Arizona event for Taiwan Semiconductor Manufacturing Co., where the chipmaker will announce plans to bolster its investment in the state to $40 billion and construct a second production facility. Cook, Su and Biden will be at the site of a $12 billion plant in Phoenix that TSMC is already building, a showcase in the administration’s efforts to encourage companies to bring more chip manufacturing to the US and prevent a repeat of the supply disruptions over the last two years that cost companies hundreds of billions in sales. TSMC ramped up its plans after major customers, including Apple, urged the Taiwanese chipmaker to build more advanced semiconductors in the US, Bloomberg News reported. Cook has told employees his company plans to source chips from the Arizona plant under construction.
- The airline industry is set to achieve its first post-pandemic profit next year, as a travel rebound in the US offsets the impact of ongoing Covid-19 curbs in China, the International Air Transport Association predicted. Carriers will likely generate a collective $4.7 billion in net income in 2023, IATA said in an update to its financial outlook Tuesday. While less than a fifth of the level seen in 2019, it’s nevertheless a welcome development after years of disruption that have resulted in close to $190 billion of losses by IATA calculations. The recovery will remain patchy, IATA says. North American carriers should rack up $11.4 billion in earnings, more than twice the global estimate. Only two other regions — Europe and the Middle East — are likely to halt losses and eke out small gains, while Asia is set to suffer a $6.6 billion deficit, even assuming that China begins to re-open to international traffic in the second half of the year
- France’s Engie SA agreed to a 15-year contract to buy liquefied natural gas from Sempra Infrastructure as companies increasingly look for long-term supply from the US to avoid shortages. Engie will buy 0.875 million tons per year of LNG from the first phase of the proposed Port Arthur plant under development in Texas, Sempra said in a statement Tuesday. It is in the process of completing the remaining steps necessary for a final investment decision for the project in the first quarter of 2023, the company added. The deal follows a binding contract UK chemical giant Ineos signed last week with Sempra, while Engie earlier this year agreed to boost volumes it buys from Cheniere Energy Inc. The US is the fastest-growing LNG exporter and is already helping plug gaps in European supply after Russian pipeline-gas deliveries slumped.
- NRG Energy Inc. agreed to buy Vivint Smart Home Inc. for $2.8 billion in an all-cash deal, accelerating its consumer-focused growth strategy. The deal at $12 a share represents a premium of about 33% to Vivint’s closing share price on Dec. 5, according to a statement Tuesday. The total enterprise value of the deal is $5.2 billion, including $2.4 billion of debt. NRG Energy has been pushing into the retail electricity business, with the latest deal a further step away from running power plants. The company agreed to buy Centrica Plc’s Direct Energy unit in a $3.6 billion deal in 2020.
- Republicans are warning the Biden administration not to prioritize green energy goals over enforcing federal import restrictions meant to discourage alleged human rights abuses in China. The directive from Republican Representatives Mike Gallagher and Chris Smith, as well as Senators Marco Rubio and Tom Cotton, signals tough oversight of the issue after the GOP takes control of the House in January. Trade curbs in the Uyghur Forced Labor Prevention Act are already thwarting imports of solar panels and other gear critical to renewable power projects, potentially at the expense of clean energy goals in the Inflation Reduction Act. “We urge you to fully enforce the Uyghur Forced Labor Prevention Act as required by law, particularly when it comes to solar panels made with forced labor, which will get subsidies, grants and tax credits under the IRA,” the lawmakers say in a letter to Homeland Security Secretary Alejandro Mayorkas and the acting head of US Customs and Border Protection. “American taxpayers cannot be allowed to subsidize the effective enslavement of the Uyghurs and other predominantly Muslim ethnic groups.”
- Deutsche Bank AG and Rabobank UA were sent a formal complaint by the European Union’s antitrust watchdog, setting them up for possible fines for their alleged roles in a cartel for euro-denominated bonds. The European Commission on Tuesday said it sent the banks a complaint laying out its preliminary concerns that they colluded “to distort competition” when trading sovereign, SSA, covered and government guaranteed bonds. The two lenders are suspected to have unlawfully “exchanged commercially sensitive information and coordinated their pricing and trading strategies when trading these bonds in the secondary market” in Europe through traders between 2005 and 2016. The commission said such exchanges “would have taken place mainly through emails and online chatroom communications.”
- The downturn in Britain’s housing market hit construction activity harder than expected in November, with orders drying up and mounting concerns about the outlook for the economy. S&P Global said purchasing managers in the construction industry were the most pessimistic since the start of the pandemic in May 2020. Its index tracking output fell to 50.4 in November, the weakest in three months and down from 53.2 in October. While the index was above the threshold of 50 indicating growth for a third month running, economists had forecast a reading of 52. The findings indicate headwinds facing the economy, with soaring interest rates and inflation dragging down the affordability of new homes. House prices have fallen over the past three months, prompting economists to warn of a more protracted downturn in the months ahead.
- Blue chip companies are fronting the money for private equity funds to buy their unwanted assets, smoothing the way for sales in an increasingly difficult dealmaking environment. Emerson Electric Co. kicked off the trend in October, loaning money for Blackstone Inc.’s takeover of its $14 billion climate technologies unit. Last month, major Swedish landlord SBB offered cheap financing to a newly-formed joint venture with Brookfield Asset Management Inc. that will absorb its roughly $4 billion education portfolio. Dealmakers are dusting off their playbooks from the global financial crisis, devising creative ways to get transactions completed as traditional financing sources dry up. Buyers are finding it more difficult to get credit at affordable rates from major Wall Street banks, and the direct lenders filling the gap aren’t always able to keep up with demand.
- JPMorgan Chase & Co. is planning to increase headcount in its Latin American private-banking unit by about 25% next year as the firm looks to attract more clients with $5 million to $25 million to invest at the bank. The additions would add roughly 100 people to the US firm’s private-banking ranks serving the region from foreign offices in Miami, New York, Houston and Geneva, outposts where it has about 430 employees dedicated to the business. Credit Suisse Group AG clients pulled as much as 84 billion Swiss francs ($90 billion) from the bank during the first few weeks of the quarter, underlining ongoing concerns over the bank’s restructuring efforts after years of scandals. That’s potentially the worst exodus since the financial crisis.
- Warner Bros. Discovery Inc. will once again sell HBO Max through Amazon Prime in a bid to bring millions of new subscribers to its flagship streaming service. Amazon.com Inc. customers will be able to sign up for HBO Max through the retailer’s store for online video channels and watch its programs within Amazon’s main streaming service. The deal also covers Warner Bros. Discovery’s new streaming service that will combine HBO Max with Discovery’s other assets. Warner Bros. Discovery Chief Executive Officer David Zaslav is reversing a move by the previous leaders of HBO Max, as Bloomberg News previously reported he was considering. HBO Max was available through Amazon for long enough to sign up about 5 million customers. But WarnerMedia CEO Jason Kilar yanked it from the service in September 2021 because he wanted HBO Max to have more control over the user interface and billing.
- Contagion from the collapse of crypto exchange FTX is spreading into the world of decentralized finance, as lending protocol Maple Finance severed ties with a hedge fund that defaulted on almost $36 million worth of crypto loans on its platform. Sydney-based Orthogonal Trading said in a tweet on Tuesday that it defaulted on a $10 million loan after being “severely impacted by the collapse of FTX and associated trading activities,” without giving further details. M11 Credit, which runs a lending pool on Maple, on Monday said Orthogonal Trading had informed it on Dec. 3 about its inability to repay. Orthogonal Trading had taken out $31 million of loans in the USDC stablecoin and another $4.9 million denominated in a token called wrapped Ether, according to data from Maple. M11 Credit said it has issued a notice of default for “all active loans” to Orthogonal Trading.
*All sources from Bloomberg unless otherwise specified