February 10, 2023

Daily Market Commentary

Canadian Headlines

  • Enbridge Friday morning reported non-GAAP Q4 net income of CA$0.63 per share, down from a CA$0.68 per share adjust profit during the final three months of 2021. Analysts, on average, had been expecting the pipeline company earning CA$0.73 per share during the three months ended Dec. 31, excluding one-time items. Looking forward, the company reaffirmed its 2023 outlook expecting distributable cash flow in a range of $5.25 to $5.65 per share compared with its DCF of $5.42 per share during 2022 and straddling the $5.46 per share analyst mean for the current year. Enbridge also declared an $0.8875 per share dividend, up 3.2% over its most recent distribution and payable March 1 to shareholders of record on Feb. 15.
  • Fortis Inc. reported a fourth-quarter profit of $370 million, up from $328 million a year earlier. The gas and power utility says the profit for the quarter amounted to 77 cents per diluted share for the quarter ended Dec. 31, up from 69 cents per diluted share in the last three months of 2021. On an adjusted basis, Fortis says it earned 72 cents per share in its latest quarter compared with an adjusted profit of 63 cents per share a year earlier. In its outlook, Fortis announced a five-year capital plan to spend $22.3 billion. It says the growth will help support its dividend growth guidance for between four and six per cent annually through 2027.

World Headlines

  • European stocks dropped on Friday and were set to erase a small weekly gain as investors monitored a rush of earnings and worried that central banks would stay hawkish for longer, dulling the outlook for economic growth. The Stoxx 600 Index was down 0.8% by 11:02 a.m. in London, a day after hitting its highest level since April. Retail, travel and leisure and consumer products sectors were among the biggest decliners, while energy outperformed. January’s powerful rally in European stocks has lost steam this week as Federal Reserve policy makers reiterated that interest rates will need to rise further in order to meaningfully tame inflation. A mixed bag of corporate earnings has also added pressure at a time when the Stoxx 600 is inching toward overbought territory.
  • Stocks fell with US futures and Treasuries extended a selloff as wagers for more hawkish monetary policy mounted. Oil rose after Russia said it will cut output. Contracts on U.S. stock gauges fell, with Tesla Inc. and Big Tech names in the red in premarket trading. Lyft Inc. tumbled after its outlook disappointed analysts. European equities extended their worst weekly drop in nearly two months, while the region’s bonds also fell. Adidas AG slumped as it warned of losses after ending ties with rapper Ye. US Treasuries extended losses after investors pushed yields on the two-year Treasury above the 10-year’s by the most since the early 1980s, a sign of flagging confidence in the economy’s ability to withstand additional Federal Reserve hikes.
  • Asian stocks were poised for a second weekly decline as worries about a more hawkish Federal Reserve weighed on sentiment, while a pullback in China’s reopening rally also dragged the region’s equities. The MSCI Asia Pacific Index fell as much as 1.1% on Friday, with losses driven by consumer discretionary and communication service shares. The Hang Seng Index declined the most among benchmarks, led by Chinese technology stocks, while gauges for South Korea and Australia also fell. Meanwhile, Japanese stocks edged higher as strong earnings from chipmakers providing a boost. However, Nikkei futures slipped after a report said Kazuo Ueda will be nominated as the Bank of Japan’s next governor.
  • Oil jumped after Russia said it plans to cut March production by 500,000 barrels a day.  Brent crude climbed as much as 2.6% in London to trade above $86 a barrel, erasing an earlier decline, while West Texas Intermediate moved above $80 a barrel. The move is the first major indication of an impact on Russian production since a swath of sanctions was placed on the country’s output over the last three months.  Russia’s production cut will be voluntary and is a response to western price caps, Deputy Prime Minister Alexander Novak said in a statement. The country is able to sell its oil volumes and it does not want to adhere to price restrictions imposed by western nations.
  • Gold was steady near the lowest close in a month as poor risk sentiment in equity markets boosted the dollar. Bullion traders are trying to anticipate the next move of the Federal Reserve after a long rally on expectations the central bank will soon stop raising rates. A procession of policy makers have this week reiterated their determination to continue hiking rates after data pointed to sustained economic resilience. Higher borrowing costs undercut gold’s allure as it doesn’t pay interest. Spot gold rose 0.2% to $1,864.69 an ounce at 12:05 p.m. in London after closing down 0.7% on Thursday. The Bloomberg Dollar Spot Index rose 0.1%. Silver and platinum climbed, while palladium declined.
  • Chinese banks extended a record amount of new loans in January after authorities prodded them to lend more to businesses, though consumer borrowing remained subdued. Financial institutions offered 4.9 trillion yuan ($720 billion) of new loans last month, higher than the 4.2 trillion yuan estimated by economists, and compared with a record 3.98 trillion yuan a year ago. That pushed the broad measure of credit — aggregate financing — to 5.98 trillion yuan in January, the People’s Bank of China said Friday, above economists’ estimates. The M2 measure of money supply rose 12.6% from a year earlier, the fastest pace since April 2016.
  • The UK avoided a recession last year by the narrowest of margins after the cost-of-living crisis and industrial action hit the economy during December. Gross domestic product was unchanged in the fourth quarter following a revised 0.2% decline in the previous three months, the Office for National Statistics said Friday. Output in December alone fell 0.5%. The figures meant that Britain dodged back-to-back quarterly contractions — the definition of a technical recession. The economy nonetheless was 0.8% smaller than its size at the end of 2019, making the UK the only Group of Seven country that has yet to fully recover output lost during the pandemic.
  • Joe Biden wanted a show of strength and found it in a union hall in Wisconsin — a state Democrats learned the hard way that they can’t ignore, and one where the president sent his strongest signal yet of a reelection bid. The trip this week, on the heels of the State of the Union address, plucked Biden from the bruising fray of Washington and dropped him in front of a friendly crowd near Madison, a heavily Democratic part of a swing state that will help crown the winner of the 2024 election. Biden has given every signal that he plans to run again; and if, at age 80, he’s harboring any misgivings, he received only encouragement in Wisconsin. Hundreds of people packed the union training center in DeForest, just outside Madison, to cheer him on, and labor leaders there praised him as the most pro-union president they’ve known.
  • There’s a reason why Apple Inc. is under less pressure than tech peers to slash jobs during the current slowdown: It hired more efficiently in the first place. During the industry’s pandemic-fueled hiring binge, Apple added fewer employees than other big tech firms. On top of that, the company generated far more revenue per new hire than its peers, according to data compiled by Bloomberg. That more cautious approach is paying off now. Though Apple has frozen hiring in some areas and is keeping a lid on spending — especially outside research and development — it hasn’t yet resorted to the mass layoffs underway at Amazon.com Inc., Alphabet Inc.’s Google, Meta Platforms Inc. and other tech giants.
  • China said it is willing to forge closer ties with Taiwan’s main opposition party, underscoring recent efforts by Beijing to adjust its tough approach to the democratically run island. Song Tao, the head of Beijing’s Taiwan Affairs Office, made the remarks in a meeting with visiting Kuomintang Vice Chairman Andrew Hsia on Thursday, the official Xinhua News Agency reported. Hsia also met Friday with Politburo Standing Committee member Wang Huning, the No. 4 official in China’s ruling Communist Party, state broadcaster CCTV reported.  Song said China and the Communist Party are “willing to enhance exchanges and build up mutual trust with the KMT, and work with the KMT to promote relations between the two parties and two sides of the Taiwan Strait.”
  • Russia plans to cut its oil output by 500,000 barrels a day next month, following through on a threat to retaliate against western energy sanctions and sending oil prices sharply higher. The move threatens to renew turmoil in the oil market, which had so far taken disruption to Russian supplies in stride. Delegates from other members of the OPEC+ coalition signaled they won’t boost production to fill in the gap. Crude prices jumped on the news, with global benchmark Brent trading 2.2% higher at $86.34 a barrel by 12:22 p.m. in London. Prior to this week, the international benchmark had dropped 9% since mid-January, helping to ease inflationary concerns.
  • Banks in the euro zone will return another €36.6 billion ($39.2 billion) in long-term funding to the European Central Bank after the terms of the programs were toughened to help the fight against inflation. The repayment is less than the €50 billion median estimate in a Bloomberg survey conducted last month. It’s also below the amount banks handed back in earlier rounds after ECB officials toughened the conditions of the so-called TLTRO loans.  The total outstanding amount will now have fallen by almost €900 billion since November, with the timing driven in part by regulatory factors. The reimbursements present a sizable reduction of the ECB’s balance sheet, which had ballooned in recent years due to various stimulus measures.
  • China’s consumer inflation accelerated last month as the country reopened and the Lunar New Year holiday spurred demand, although gains remain muted enough for the central bank to keep easing monetary policy to support the economy’s recovery. The consumer price index rose 2.1% from a year earlier, the National Bureau of Statistics said Friday, up from 1.8% in December and matching the median estimate in a Bloomberg survey. Core inflation, which doesn’t include volatile food and energy prices, rose to 1% — the highest since June — a sign of stronger demand in the economy. Producer deflation deepened in January, with prices falling 0.8% from a year earlier, largely because of softer commodity costs. Economists surveyed by Bloomberg had expected a 0.5% decline.
  • People around the world are taking drastic steps to cope with rising energy costs: bubble-wrapping their windows, skipping showers and sitting in the dark. Despite a mild winter in places like New York City and London, the global energy crisis is hammering people who are grappling with inflation that is driving up the cost of pretty much everything. Russia’s invasion of Ukraine sent consumer energy bills soaring, but even before the war, a jump in post-pandemic demand and the transition to renewables had made the world’s energy system more fragile and prone to shock. Energy prices in 2023 are expected to be 75% above their average over the past five years, even if, as forecast, costs moderate this year compared to 2022, according to the World Bank. The IEA estimates the number of people living in households that spend at least 10% of their income on energy increased by 160 million between 2019 and 2022, contributing to inflationary pressures and the looming risk of global recession.
  • After advertising its efforts to produce environmentally friendly fuels from algae for over a decade, Exxon Mobil Corp. is now quietly walking away from its most heavily publicized climate solution. Exxon has slashed its support for Viridos Inc., a biotech company based in La Jolla, California, that operated as the oil giant’s key technical partner since it began its algae push in 2009. With Exxon funding drying up and difficulty finding other backers, the biotech firm laid off 60% of its staff on Dec. 27, according to Viridos executives. The biotech company said it is still moving forward with algae research. Exxon, meanwhile, has also halted funding for a multi-million-dollar algae project at the Colorado School of Mines at the end of last year, after supporting the work for eight years. Another Exxon-backed venture with the National Renewable Energy Laboratory is set to end within weeks.
  • Adidas AG shares slumped after the German shoemaker warned that it’s sitting on a €1.2 billion ($1.3 billion) pile of unsold merchandise after terminating its lucrative branding deal with rapper Ye.  The German sneaker brand said that in a worst-case scenario, if it has to write off all existing Yeezy inventory, it faces an operating loss of as much as €700 million in 2023. The stock fell as much as 11%, and it has lost half its value since mid-2021. Gulden is looking to refresh a brand beset by crises on several fronts. He’s conducting a strategic review aimed at reigniting profitable growth by next year that could cost as much as €200 million in 2023. A loss would be the first in at least three decades.
  • Billionaire Rupert Murdoch’s News Corp. said it will cut 5% of its staff this year, or about 1,250 positions, across its empire after earnings plunged in its book publishing, news media and digital real estate divisions. The reductions are “a necessary response” amid a “surge in interest rates and persistent inflation,” Chief Executive Officer Robert Thomson said on the New York-based media conglomerate’s second-quarter earnings call Thursday.  Employees will be let go across all the group’s businesses, which include the Wall Street Journal, publisher HarperCollins, and The Times and The Sun newspapers in the UK, according to Thomson. The annual savings will be at least $130 million, he said.
  • China accused the US of exaggerating the dispute over a balloon the Biden administration says was conducting surveillance, signaling the nations remain at odds over an issue that’s rekindled tensions. “The unintended entry into US airspace of a civilian, unmanned Chinese airship, this is an isolated, unexpected incident,” Chinese Foreign Ministry spokeswoman Mao Ning said Friday at a regular news briefing in Beijing.  Mao made the comments when asked about the State Department asserting that the aircraft was part of a military-led spy program spanning more than 40 countries. “The relevant action of the US side is political manipulation and hype,” she said. “We are firmly opposed to that.”
  • Next week’s US inflation data will mark a turning point for the equity rally at a time when investors are swapping stocks for bonds amid the specter of a recession, according to Bank of America Corp. strategists. Global equity funds had outflows of $7.4 billion in the week through Feb. 8, according to a note from the bank that cited EPFR Global data. Cash funds also saw redemptions at $10.1 billion, while $7.4 billion entered bonds. Bank of America strategist Michael Hartnett said that while it was “so very tempting” to believe that last week’s blowout US jobs report for January indicated the economy could avoid a contraction, the consumer prices data on Tuesday will be “vital” for clues on when the Federal Reserve would start easing up on monetary policy.
  • Citigroup Inc. has been dropped from the group of banks poised to handle the biggest-ever municipal-bond transaction from Texas after the state’s attorney general’s office determined the firm “discriminates” against the firearms industry, barring it from underwriting most government borrowings in the state. The Texas Natural Gas Securitization Finance Corp. board met on Thursday and took action to “reconstitute” the syndicate on the $3.4 billion deal, according to Lee Deviney, executive director of the Texas Public Finance Authority, the state agency overseeing the borrowing. Citigroup had been listed in the original iteration of the underwriting firms approved by the board in May and is no longer included in the final group. Citi’s removal from the deal isn’t a surprise after Attorney General Ken Paxton’s office last month said that they would no longer “approve any public security issued on or after today’s date in which Citigroup purchases or underwrites the public security,” according to a Jan. 18 letter to bond counsels written by Leslie Brock, assistant attorney general chief of the public finance division.
  • From worsening bird flu to shrinking beer sales and a gloomy outlook for grocery bills, here’s a snapshot of key food stories from around the world: With the earnings season underway, food-and-beverage company Unilever, the maker of Hellmann’s mayonnaise and Ben & Jerry’s ice cream, will continue raising prices because it has only passed off three-quarters of its higher costs onto consumers, CEO Alan Jope said this week. While the company hinted the pain may ease this year, it may sell fewer of its products as shoppers balk at paying more. In the face of higher input costs, food giants like Unilever and Nestle are also narrowing their product ranges as they try to simplify operations to save money. y results are sending a rather negative signal for consumer costs. Agricultural commodity prices may be tumbling, but on-the-shelf prices will keep going up.

 

 

 

 

 

 

 

*All sources from Bloomberg unless otherwise specified