February 15, 2023

Daily Market Commentary

Canadian Headlines

  • Barrick Gold Corp. plans to reverse a three-year production slump that brought output to the lowest level in more than two decades. The world’s second-biggest gold miner expects to produce 4.2 million to 4.6 million ounces this year, up from 4.14 million ounces last year, according to its fourth-quarter earnings report. A production boost would buck a three-year decline that saw last year’s annual output sink to its lowest level since 2000. Miners have been looking to bolster production with spot gold up about 75% since late 2015, even as prices waver amid inflation and central bank rate hikes. Barrick has faced challenges at mines that have hurt production, including repairs and upgrades in Nevada and stalled operations at its Porgera mine in Papua New Guinea while awaiting the government’s go-ahead to restart the facility.
  • Canadian Prime Minister Justin Trudeau’s government will stop funding projects affiliated with universities, institutes or labs connected to foreign military, national defense or state security entities. Tuesday’s announcement seeks to close the loop on so-called sensitive research areas that pose risks to national security, according to a government statement. The Globe and Mail reported last month that 50 Canadian universities had extensive research collaborations with the Chinese military since 2005. The projects with China’s National University of Defence Technology included areas such as quantum cryptography, photonics and space science, the newspaper said.
  • One of the largest shareholders of IAA Inc. plans to vote against the company’s sale to Ritchie Bros. Auctioneers Inc., arguing that the price is too low and the deal doesn’t make strategic sense. Discerene Group LP, holder of around 3.6% of IAA shares, says the sale process “was fundamentally flawed and flies in the face of good corporate governance,” according to a letter to the board seen by Bloomberg News. IAA directors didn’t do enough to seek out other buyers, and at the price Ritchie is offering, the company would be better off staying independent, the investment firm said in the letter. Ritchie, a seller of industrial equipment based near Vancouver, has offered about $6 billion in cash and shares for IAA, which auctions damaged and written-off vehicles. The deal ran into friction from the start: Ritchie’s share price tumbled 18% on the day of the announcement in November, though it has since bounced back.

World Headlines

  • European stocks were steady after erasing an early decline as investors digested recent US and UK inflation data and the likelihood of interest rates staying higher for longer, alongside mixed earnings reports from large-cap companies. The Stoxx Europe 600 Index was up less than 0.1% by 10:10 a.m. in London. Consumer goods outperformed as Kering SA rose despite a sales slump at Gucci as analysts suggested the worst of China woes might be over. Grocers Koninklijke Ahold Delhaize N.V. and Carrefour SA surged as their earnings were boosted by surging food prices. Alongside earnings, investors are evaluating inflation data amid continued focus on central bank efforts to tame price rises. Statistics from the UK on Wednesday showed inflation cooling faster than expected, with price growth slowing to 10.1% in January. However, data Tuesday showed US consumer prices rose briskly at the start of the year, spurring concern that the Federal Reserve could hike rates higher than previously expected, sending US index futures lower today.
  • Wall Street equity futures pared their declines while European stocks steadied as investors assessed how inflation data from the US and the UK will affect the outlook for interest rates, and as they digested results from major companies. Contracts for the S&P 500 and the Nasdaq 100 retreated by about 0.2%, off their lows for the session. Airbnb Inc. rallied in premarket trading after the home-sharing company gave a revenue outlook that beat analysts’ estimates, prompting gains in other travel stocks. Devon Energy Corp. fell after the shale giant’s earnings fell short of projections and 2023 capital spending guidance came in higher than expected.
  • Asian stocks were set for their steepest slide in more than a week amid concerns over the outlooks for US interest rates and China’s economy, with a gauge of equities in Hong Kong headed for a correction. The MSCI Asia Pacific Index retreated as much as 1.4% to the lowest level since Jan. 12, dragged down by TSMC, CBA and Samsung. Benchmarks slid more than 1% in Hong Kong, South Korea and Australia after US inflation data overnight stoked speculation the Federal Reserve will keep rates higher for longer. Since its late-January peak, the Hang Seng China Enterprises Index has fallen about 10% as optimism over China’s reopening gave way to worries over the direction of US borrowing costs and US-China relations.
  • Oil fell as an industry estimate pointed to another major build in American inventories and the dollar gained, with investors assessing the outlook for even tighter US monetary policy to combat sticky inflation. West Texas Intermediate fell below $78 a barrel after ending 1.4% lower on Tuesday. The industry-funded American Petroleum Institute reported that US commercial crude inventories rose by 10.5 million barrels last week, according to people familiar with the figures. Official data come later Wednesday. Prices fell even after a brighter outlook from the International Energy Agency, which lifted its estimates for global oil demand this year as China’s economy reopens. The world’s largest importer has been on a crude oil buying spree in recent weeks, the latest sign of more positive demand as China emerges from Covid.
  • Gold touched its lowest in more than five weeks after stronger-than-expected US inflation fueled expectations for the Federal Reserve to stay hawkish on monetary policy. Consumer prices rose briskly at the start of 2023, data on Tuesday showed, a sign that the central bank may need to stiffen its fight against inflation. Bullion moved lower on Wednesday as investors priced in higher interest rates, while the dollar strengthened. Gold fell as much as 1.2% to $1,831.92 an ounce, the lowest since Jan. 6, before trading at $1,836.55 as of 9:40 a.m. The Bloomberg Dollar Spot Index rose 0.3%. Palladium, platinum and silver also declined.
  • The UK’s inflation rate slowed for a third month but remained stubbornly in double digits five times above the Bank of England’s targeted level. The Consumer Prices Index rose 10.1% from a year ago in January, the lowest since September, and down from 10.5% the month before and a 41-year high of 11.1% in October. Economists had expected a slight slowdown to 10.3%. BOE Governor Andrew Bailey hopes that inflation will fall sharply this year as energy prices ease and the economy tips into recession. While the BOE is concerned that a shortage of workers is pushing up wages and threatening an inflationary spiral, this month’s figures give policy makers room to wait before considering the next move on rates.
  • India reached a milestone at the end of last year when it overtook China as the world’s most populous nation. But that explosive growth is hardly reflected in the size of its commercial aviation fleet. Today the entire country has only about 700 aircraft—fewer than United Airlines Holdings Inc. alone—and just 50 widebody jets to transport its increasingly mobile 1.41 billion people. Chinese carriers, by contrast, operate about 480 twin-aisle aircraft, and Emirates, whose base of Dubai has a fraction of the population of Mumbai, boasts a widebody fleet of 260 jetliners, according to figures from Cirium, which aggregates aviation data. Now, Air India is making an expensive push to renew its fleet and expand its global presence. One year after conglomerate Tata Group bought the airline from the government for $2.2 billion, Air India on Feb. 14 announced an order of 470 aircraft, potentially marking the biggest deal in commercial aviation history with a list price value likely exceeding $60 billion. The global importance of the purchase was underscored by the three heads of state who participated in the announcement: Indian Prime Minister Narendra Modi, US President Joe Biden and French President Emmanuel Macron.
  • Dutch brewer Heineken NV said it took an impairment charge related to its business in Russia as it tries to sell the unit amid shifting rules imposed by the government. The world’s second-largest brewer recorded a charge of €88 million ($94 million) on its Russia business, saying it hopes to have a deal to transfer ownership in the coming months. The company said last year it expects impairment and non-cash related charges of €400 million from the business.  Many consumer-goods companies have yet to sell their Russian units after pledging to exit that market due to the war in Ukraine. Philip Morris International Inc. said earlier this month that the company’s divestment plan has become extremely challenging because of the government’s role in any sale process.
  • Elon Musk said he may need the rest of this year to put things right at Twitter Inc. before handing off to a new chief executive officer, potentially prolonging concerns the billionaire is being distracted from leading Tesla Inc. “I need to stabilize the organization and just make sure it’s in a financially healthy place and the product road map is clearly laid out,” Musk said via a remote video link to the World Government Summit in Dubai on Wednesday. “I’m guessing toward the end of this year should be a good timing to find someone else to run the company,” the 51-year-old said. “I think it should be in stable condition around the end of this year.” Since taking over in October, Musk has said that he plans to step aside at some point, but had never specified when. The billionaire executive embarked on a search for a new CEO for Twitter in December, a person familiar with the search said at the time. In the meantime, his lack of presence at Tesla has drawn the ire of some investors, who have called on him to pay more attention to the electric-vehicle maker.
  • The European Union is poised to force banks to report information on Russian Central Bank assets as part of the bloc’s latest sanctions package targeting Moscow for its war in Ukraine, according to draft proposals seen by Bloomberg. Getting a handle on the scale of central bank and other sanctioned state-backed assets that have been immobilized in the EU is seen as a first step to exploring options to potentially using those funds to contribute to Ukraine’s reconstruction. The European Commission, the bloc’s executive arm, also proposed strengthening the reporting obligations on frozen assets linked to sanctioned Russian companies and individuals, and suggested fines — of as much as €50,000 for individuals and 10% of annual turnover for entities — to be imposed for failure to provide the required information, the documents say.
  • Kering SA’s revenue plunged as Gucci took a severe sales hit caused by disruptions in China and an ad controversy hurt demand for Balenciaga products. Comparable revenue at Gucci slid 14% in the fourth quarter, Kering said Wednesday, missing analysts’ estimates. Kering blamed China for the poor performance and said Balenciaga had a difficult December. The stock fell as much as 4.8% and then erased that decline after Chairman François-Henri Pinault pledged to keep investing in Gucci in an attempt to revive the brand. Kering underperformed rivals LVMH and Richemont, which were both able to report revenue growth for the final three months of 2022 as they offset weakness in China with growth elsewhere. Kering’s growth motor, Gucci, has been slowing down overall, which prompted Kering to name Sabato De Sarno as new creative director for the Italian label following the exit of former top designer Alessandro Michele in November.
  • Russia’s oil exports neared an all-time high last month, but Western sanctions squeezed revenues as the nation’s crude was sold at steep discounts, the International Energy Agency said. Russia shipped a total of 8.2 million barrels a day of crude and fuel in January, according to the IEA. That’s close to the record set in February 2020 “as measures have been put in place to facilitate the re-routing of crude oil exports to new destinations, mostly in Asia,” the agency said in its monthly report published Wednesday. Yet the Kremlin’s January revenues from the exports fell by more than a third to $13 billion from a year ago, as sanctions imposed by Western nations and their allies led to deep discounts on Russian barrels, the IEA said. The money generated was only slightly higher than December’s $12.8 billion, it said.
  • Blackstone Inc. is seeking minority stakes in companies to capture technological advances in India, even as global investors grow cautious after a short seller report rattled the empire of one of the nation’s richest men. India, Blackstone’s second-largest market outside of the US, has generated the highest private-equity returns for the firm, Gray said at an event in Mumbai on Tuesday. The US investment manager has roughly $50 billion of assets across its private equity and real estate portfolios in the country, he said. Since its first growth-equity investment last year, the firm has invested in online dating app Bumble Inc. and oat milk maker Oatly Group AB, among others.
  • Treasuries will face more pressure from inflation — but this time with China as a key catalyst not the US, according to some investors. Two-year yields climbed to their highest in three months on Tuesday after a stronger-than-expected US annual inflation rate surprised traders. But the chance of a renewed surge in commodities — driven by China’s reopening — risks ramping up that price pressure and pushing yields even higher, said fund managers including AllianceBernstein and Kapstream Janus Henderson. Treasuries have found themselves on the back foot this month after a strong rally in January, as data showed the US labor market was outperforming expectations and consumer price growth was stickier than hoped for. Combined with hawkish rhetoric from Federal Reserve officials determined to quash inflation, expectations for peak US rates have begun to climb again.
  • ASML Holding NV, a critical cog in the global semiconductor industry, said a former employee in China stole data about its technology, a disclosure that threatens to inflame political tensions amid heightened concerns about espionage. The Dutch technology company, which makes machines needed to produce high-end chips used in everything from electric vehicles to military gear, initiated an internal investigation and tightened security controls after recently discovering the data breach. It said on Wednesday that export controls may have been violated, exposing the company to a potential regulatory backlash. ASML’s data breach involved technological information but not hardware and was carried out by a male employee in the last couple months, according to a person familiar with the details. Authorities in the Netherlands and the US have been notified, said the person, who asked not to be identified because the investigation is ongoing.
  • China warned that it will retaliate against the US over violations of its sovereignty, potentially escalating a lingering dispute just as top diplomats from both nations plan to attend a security conference in Germany. At a briefing Wednesday, Foreign Ministry spokesman Wang Wenbin repeated Beijing’s view that the Chinese balloon downed by a US jet off the South Carolina coast this month had inadvertently floated over the country after being blown off course. He criticized the Biden administration’s decision to take it out and said the move would have consequences. “China is strongly opposed to this and will take countermeasures against relevant US entities that have undermined our sovereignty and security to firmly safeguard our sovereignty and legitimate rights and interests,” Wang told reporters at the daily briefing.
  • Scottish First Minister Nicola Sturgeon resigned after more than eight years as head of the country’s government and independence movement in a surprise move that will reverberate across UK politics. Sturgeon, 52, has headed the semi-autonomous administration in Edinburgh since 2014. The decision to step down comes after an unusually turbulent time for Sturgeon and leaves her Scottish National Party — and the independence campaign — looking for a new figurehead without a clear road map. While her departure removes a formidable opponent to Prime Minister Rishi Sunak’s Conservatives north of the border, it may end up benefiting Keir Starmer’s opposition Labour Party more. Labour dominated Scottish seats in the Westminster Parliament until the 2015 wipe-out when it lost 40 seats and the SNP swept up 56 of 59 constituencies north of the border.
  • US mortgage rates surged last week by the most in four months, reaffirming a retrenchment in housing demand that’s struggling for momentum. The contract rate on a 30-year fixed mortgage rose 21 basis points to 6.39% in the week ended Feb. 10, the highest since the first week of the year, according to Mortgage Bankers Association data released Wednesday. That was the first increase this year. That took the total applications index, which measures home purchase and refinancing activity, down 7.7%. Refinancing activity dropped 12.5%, the most since the end of November. Purchases fell 5.5%. The MBA survey, which has been conducted weekly since 1990, uses responses from mortgage bankers, commercial banks and thrifts. The data cover more than 75% of all retail residential mortgage applications in the US.
  • Barclays Plc slumped after posting a surprise drop in profit as revenue missed estimates across every major business line. Inside the corporate and investment bank, dealmakers faced a continued drought, traders fell short of hopes and the bank recorded further losses tied to its leveraged finance portfolio. At the firm’s UK franchise, the net interest margin — a key measure of profitability — got less of a boost from rising interest rates than expected. The worse-than-expected results capped a year in which Barclays faced a litany of charges tied to litigation and conduct, partly to cover buying back US investment products it mistakenly oversold as well as a settlement for a long-running probe into staffers’ usage of unapproved messaging channels.
  • Warren Buffett slashed his holding of Taiwan Semiconductor Manufacturing Co. just months after disclosing a major stake, an unusually quick reversal by the legendary stock picker that’s chilling investor sentiment toward the chip giant. Buffett’s Berkshire Hathaway Inc. cut its holding of TSMC’s American depositary receipts by 86% last quarter, according to the latest filing. Assuming it sold them at the average price over the period, the stake sale would have fetched $3.7 billion. Shares of the world’s largest chip foundry slid as much as 4% in Taipei following the news, amid broad market losses. TSMC had jumped in November amid news that Buffett had acquired a stake worth about $5 billion, and it’s still up more than 40% from an October low.
  • Deutsche Lufthansa AG grounded all of its flights early Wednesday after damage to a set of Deutsche Telekom AG broadband cables caused widespread IT problems.  Some flight operations have resumed, though all flights in Frankfurt, its main base, remain grounded, a spokesman said. Lufthansa expects the problem to be resolved by early evening. Lufthansa’s global flight operations center is located on the outskirts of Frankfurt’s airport, so damage to the communications links there ripple through Lufthansa ground IT systems across the world. The issues on Wednesday affected the company’s check-in operations and other systems. The disruption, caused by damage to broadband cables at a rail location in northern Frankfurt, forced Europe’s biggest airline by fleet size to ground hundreds of flights worldwide. In Germany, air traffic control had to divert landings in Frankfurt to prevent an overflow.
  • Glencore Plc will return more than $7 billion to shareholders in dividends and buybacks after the commodities giant reported another blockbuster profit driven by its coal and trading divisions. While Glencore and its rivals have been positioning themselves to take advantage of rising demand for metals linked to the energy transition — such as copper for wiring and nickel for batteries — the commodity giant’s profits last year were overwhelmingly driven by mining and trading fossil fuels.  Glencore’s core profit rose 60% to a record $34.1 billion, of which more than half — $17.9 billion — came from coal production, the company said in a statement on Wednesday. The commodity trading unit earned $6.4 billion in core profit, also its highest ever.
  • The European Union’s new sanctions package would target €11 billion worth of goods via trade bans and technology controls, European Commission President Ursula von der Leyen said. Proposals would focus among other things on export restrictions on multiple electronic components used in Russian armed systems including drones, missiles and helicopters. The EU is poised to force banks to report information on Russian Central Bank assets as part of the bloc’s latest sanctions package targeting Moscow for its war in Ukraine, according to draft proposals seen by Bloomberg. The EU is aiming to adopt its 10th package of sanctions next week ahead of the one-year mark of the Russian invasion. NATO members should spend a minimum of 2% of GDP on defense and simply aiming to get close to the target won’t be sufficient, German Defense Minister Boris Pistorius told reporters ahead of a second day of alliance meetings in Brussels.











*All sources from Bloomberg unless otherwise specified