February 1, 2023

Daily Market Commentary

Canadian Headlines

  • Allied Properties REIT named Chief Financial Officer Cecilia Williams as its next CEO, to take over from company founder Michael Emory in May. Oil steadied before the Federal Reserve’s monetary-policy decision and guidance from producer group OPEC and its allies. CGI Inc. reported adjusted earnings per share for the first quarter that beat the average analyst estimate.
  • TC Energy said its estimate of the costs to complete the Coastal GasLink project has increased to approximately C$14.5 billion and continues to face material cost pressures, including challenging conditions in the Western Canadian labor market. New estimate excludes potential cost recoveries and incorporates contingencies for certain factors that may be outside of the company’s control. TC Energy expects to fund the incremental revised project costs and is actively pursuing cost mitigants and recoveries that may partially offset a portion of these costs. The review also considered the potential impact of an extension of construction well into 2024; in that event, costs would increase further by up to C$1.2 billion

World Headlines

  • European stocks edged higher as investors prepared for a slew of central-bank decisions starting with the Federal Reserve later on Wednesday, while assessing a flurry of earnings. The Stoxx Europe 600 rose 0.3% by 12:28 p.m. in London. Construction as well as travel and leisure stocks outperformed. Telecoms trailed, weighed down by post-results declines in Vodafone Group Plc. Health care was also under pressure, with Novo Nordisk A/S erasing earlier gains following 2023 guidance that analysts called “conservative” even after the Danish drugmaker forecast record earnings. The rally in European equities has stalled this week as traders prepared for central-bank decisions and parsed euro area economic data. The benchmark had its best January since 2015, rising 6.7% amid optimism fueled by cooling inflation, the easing energy crisis and China’s economic reopening.
  • US equity futures struggled for direction on Wednesday after a stellar start to the year for stocks, as traders braced for the Federal Reserve policy meeting amid misgivings about the outlook for interest rates. Futures on the S&P 500 pared declines, while contracts on the Nasdaq 100 fluctuated after the tech-heavy gauge jumped more than 10% in a January rebound unseen in more than two decades. An index of global stocks excluding the US is making history with a gain of 8.6% last month — the best start to a year on record.
  • Asian stocks rose ahead of the Federal Reserve’s interest-rate decision, as signs of cooling US inflation boosted risk appetite in the region. The MSCI Asia Pacific Index rose as much as 0.8%, driven by technology and consumer discretionary shares. Benchmarks in Hong Kong as well as the tech-heavy markets of South Korea and Taiwan all gained about 1%, while India declined. All eyes were on the Fed meeting later Wednesday, with markets expecting a 25-basis-point rate hike. Investors betting on a downshift in tightening were cheered by data showing slower growth in US employment costs, adding to signs of moderating inflation.
  • Oil steadied before the Federal Reserve’s monetary-policy decision and guidance from producer group OPEC and its allies. West Texas Intermediate was little changed near $79 a barrel after gaining 1.3% on Tuesday. While the US central bank is expected to deliver another interest-rate hike at Wednesday’s meeting, it’s likely to be just half of December’s 50-basis-point move as inflation shows signs of cooling. Traders will also track any guidance from the Organization of Petroleum Exporting Countries and its allies including Moscow. Delegates predict that output will be held steady at a monitoring meeting on Wednesday ahead of a fresh round of curbs on Russian energy that will kick in within days.
  • Gold steadied, after being whipsawed on Tuesday, as traders awaited the outcome of the Federal Reserve’s policy meeting for guidance on its rate path. Bullion slipped close to $1,900 an ounce in the previous session before rebounding as data showed US employment costs rising at a slower-than-expected pace. Wage gains driven by the tight labor market were a major driver of inflation last year, spurring the Fed to aggressively raise rates. Gold rallied strongly from November on bets the central bank would ease the pace of its monetary tightening, but has stalled in recent weeks as the outlook remains unclear. Swap markets are still forecasting rate cuts later this year, though officials have tried to play down the prospect while inflation remains high.
  • Euro-area inflation slowed more than expected, suggesting a more heated debate to come at the European Central Bank over how much more interest rates must still rise. January’s reading came in at 8.5%, Eurostat said Wednesday, less than economist estimates for a slowdown to 8.9%. The third monthly retreat was driven by energy. But a gauge of underlying inflation that excludes volatile items like that held at an all-time high of 5.2%. The data may embolden more dovish officials at the ECB who are starting to push for an easing in the pace of rate hikes following a widely anticipated half-point move on Thursday.
  • Swathes of office staff have been forced to work from home Wednesday as widespread industrial action closes schools and cripples Britain’s rail network. As many as 475,000 union members are on strike, demanding pay rises that do more to combat the cost-of-living crisis. Many were given salary increases of less than 5% last year, even as inflation climbed above 10%. Major train stations in London are completely closed, including Victoria, Cannon Street, Marylebone and London Bridge, while more than a dozen key commuter rail lines aren’t running any services. Some 85% of schools in England and Wales are estimated to be closed or partly shuttered, according to the National Education Union. However, Education Secretary Gillian Keegan said Wednesday morning that “the majority of schools” are open, with more precise figures to be published later today.
  • The crisis of confidence plaguing Gautam Adani has taken a sudden turn for the worse, with a record 28% plunge in his flagship company’s stock raising questions over the extra collateral he needs to cover loans. Adani Enterprises Ltd. plummeted in afternoon trading in Mumbai after Bloomberg reported Credit Suisse Group AG has stopped accepting bonds of Adani Group’s firms as collateral for margin loans to its private banking clients. Banks including Barclays Plc had earlier asked for more shares to cover a $1 billion loan. With the rout in the group’s stocks triggered by short seller Hindenburg Research’s fraud allegations reaching $92 billion on Wednesday, the risk is that more financial institutions start to scrutinize their exposure to the indebted conglomerate. Without a dramatic upturn, investors who bought into a recently completed $2.5 billion stock sale by Adani Enterprises may be staring at deep losses.
  • There was a time not too long ago when traders were betting that the Federal Reserve could start cutting interest rates at its meeting today. This was back in the summer, when one of those periodic bouts of euphoria was sweeping across markets because, the cognoscenti had determined, inflation would quickly subside and pave the way for the central bank to shift its focus to shoring up growth. There will be no cut today, of course. It’s all but certain that Chair Jerome “Jay” Powell will orchestrate the eighth straight increase in the Fed’s benchmark rate, albeit by a smaller increment. Traders were forced to capitulate months ago and have pushed back their predictions for a rate cut to July at the earliest. And yet, much of that same inflation-is-about-to-melt-away good vibe has taken hold of markets once again, sparking sharp rallies in the new year in stocks, corporate bonds and cryptocurrencies. Even coins tied to disgraced mogul Sam Bankman-Fried are soaring.
  • T-Mobile US Inc. exceeded Wall Street profit estimates and forecast 75% free cash flow growth for 2023, sending a clear signal that its Sprint Corp. merger integration and 5G network lead are paying off. For 2023, the second-largest US wireless carrier expects to add 5 million to 5.5 million new subscribers. Analysts surveyed by Bloomberg had projected 5.8 million, including 2.8 million new phone customers. T-Mobile typically raises its projections over the course of the year. Fourth-quarter earnings excluding some items came to $1.18 a share, the Bellevue, Washington-based mobile service provider said Wednesday, compared with estimates of $1.12.
  • Peloton Interactive Inc. reported improved cash flow and a narrower net loss in the latest quarter, leading Chief Executive Officer Barry McCarthy to say that questions about the viability of the business have been “put to bed.” Though sales continue to slide at the fitness company, it remains on track to generate positive cash flow by the end of the fiscal year in June, Peloton said Wednesday. Its revenue forecast for the current period, the fiscal third quarter, also came in ahead of analysts’ estimates. The shares jumped more than 7% in premarket trading. Investors have grown more bullish on the company in recent weeks, betting it can get back on course after a dramatic rise and fall during the pandemic. Peloton had seen demand surge during Covid-19 lockdowns, only to suffer an inventory glut and stock rout after consumers returned to their old habits.
  • The European Union unveiled a roadmap for how it plans to keep its industries competitive as the bloc tries to catch up to the US and China, which offer huge subsidies to domestic green technologies. The European Commission wants to use its Green Deal Industrial Plan to boost national support for companies through investment aid and tax credits, while also tapping into common European funds to underwrite important projects involving sectors such as hydrogen and quantum computing, according to the proposal presented on Wednesday. The plan, which the EU’s 27 leaders will discuss next week, is a response to US President Joe Biden’s Inflation Reduction Act, which includes roughly $500 billion in new spending and tax breaks over a decade. The commission plan has received a mixed reception in the bloc, with some concerned that the subsidies will only help richer countries like Germany, which have the fiscal capacity to invest in domestic firms.
  • Bettors in Nevada and Las Vegas tossed aside high inflation and recurring surges of Covid-19 to drop record sums for the second straight year. The Las Vegas Strip, home to giant casinos such as the MGM Grand and Bellagio, recorded a total win of $8.29 billion in 2022, an increase of 17% from the prior year, according to data released Tuesday by the Nevada Gaming Control Board. Statewide revenue hit $14.8 billion, up 11%. While trade shows and conventions remained weak during the pandemic, the US gambling capital bounced back quickly from the casino closures of 2020. Leisure travelers have continued to turn out, even as online betting spreads to many states. Federal stimulus funds, as well as a number of special events in the city, helped bring free-spending gamblers back.
  • JPMorgan Chase & Co. is planning to launch a digital bank in Germany as its second international consumer outpost, a move that will create a launchpad for the biggest US bank to further expand in Europe.  The launch is slated for late next year or early 2025, and the firm expects to target other EU countries after that, according to people familiar with the plans. JPMorgan has been hiring in Berlin as part of the effort, and intends for the German capital to be its base for EU consumer operations, the people said, asking not to be identified as the plans aren’t public.  New York-based JPMorgan made its first consumer foray beyond US borders in late 2021 with a digital-only retail bank in the UK offering checking accounts. The firm plans to introduce credit cards to that platform as soon as this year, followed by personal loans, the people said. A JPMorgan spokesperson declined to comment on its international consumer expansion plans.
  • Contemporary Amperex Technology Co. Ltd., the world’s biggest maker of batteries for electric cars, has chosen banks for its sale of global depositary receipts in Switzerland to raise at least $5 billion, according to people familiar with the matter. The Chinese giant is working with China International Capital Corp. and China Securities International on the share sale, the people said, asking not to be identified as the information is private. CATL has also picked Goldman Sachs Group Inc. and UBS Group AG for the GDR sale, the people said. The listing could happen as soon as this year, said one of the people. Deliberations are ongoing and details of the GDR sale could still change, they said.
  • India earmarked 350 billion rupees ($4.3 billion) to invest in the nation’s energy security and green transition, in a step toward Prime Minister Narendra Modi’s goal of reaching net zero emissions by 2070. The investments will be made by the oil ministry, Finance Minister Nirmala Sitharaman said in her federal budget speech Wednesday. She didn’t give a time frame for the spending, but listed green growth as one of the key budget priorities for the year through March 2024.  “We are implementing many programs for green fuel, green energy, green farming, green mobility, green buildings, and green equipment and policies for efficient use of energy across various economic sectors,” she said. “This budget builds on our focus on green growth.”
  • President Joe Biden and House Speaker Kevin McCarthy will finally size each other up, after weeks of trading public barbs over spending cuts and deficits while the US debt limit hangs in the balance. “Show me your budget, I’ll show you mine,” Biden said Monday when asked what his message would be when the two meet Wednesday afternoon at the White house. It’s their first face to face since McCarthy won the speaker’s gavel, and veterans of past debt standoffs concur that the threat of a US default is greater than ever. House Republicans are demanding spending reductions, while Biden has said he’s open to fiscal reforms but won’t negotiate over the borrowing cap.
  • The world’s dealmakers are enduring their worst start to a year in two decades, as economic and financing headwinds continue to prevent a bounceback in mergers and acquisitions. Global deal values ended January at about $124 billion, according to data compiled by Bloomberg. That was down roughly two thirds year-on-year and the worst tally for an opening month since 2003, the data show. While all major regions and sectors ended January lower compared with the same point in 2022, there were less severe falls in areas such as industrials. That was thanks to the largest deal of the month—water company Xylem Inc.’s agreement to buy Evoqua Water Technologies Corp. in a $7.5 billion all-stock deal.
  • A $480 billion chipmaker whose processors are used for complex computing tasks. A digital-media company seeking to mine nascent technologies for content. A tiny software firm whose shares traded below $1 for most of December. These are some of the disparate businesses whose stocks are benefiting from euphoria swirling around artificial intelligence — the latest buzzword to whip traders into a speculative froth — and evoking memories of past bubbles. The blistering rallies in companies that have AI in their names is reminding veteran market professionals of previous crazes like the one in 2017 sparked by blockchain technology. In that period, there was a dash for exposure — both from companies and traders — only to see the frenzy fizzle and stock gains disappear. While AI is undoubtedly a huge growth opportunity and a theme that investors should take seriously, buyers should beware, said Michael O’Rourke of Jonestrading.








*All sources from Bloomberg unless otherwise specified