February 16, 2023

Daily Market Commentary

Canadian Headlines

  • Teck Resources Ltd. is planning to separate its multibillion-dollar steelmaking coal business to focus more on industrial metals, according to people familiar with the matter. The Canadian miner is expected to make an announcement on the spinoff as early as next week, the people said, asking not to be identified as the matter is private. Deliberations are ongoing and no final decision has been made, the people said. Teck has been weighing options for its coal division for over a year in a strategic shift toward mining more of the metals such as copper that are crucial to the global energy transition. Metallurgical coal is used in steelmaking, which is among the most polluting industries and faces significant pressure from policymakers. Teck, which is scheduled to report earnings next week, is one of the world’s largest exporters of metallurgical coal. The company produced more than 24 million metric tons in 2021 from four different operations in western Canada, according to its filings. The business accounted for 55% of the company’s gross profit.
  • Cenovus Energy Inc. on Thursday reported Q4 net earnings of $784 million, or 0.39 per diluted share, compared with a net loss of $408 million, or a loss of 0.21 per diluted share, a year ago. Adjusted funds flow rose to $1.19 per diluted share from $0.97 per diluted share a year earlier, while cash from operating activities swelled to $2.97 billion from $2.18 billion. Total upstream production was 806,900 barrels of oil equivalent per day in Q4, down slightly from 825,300 BOE/d in the same quarter of 2021. The board declared a base dividend of $0.105 per share, payable on March 31 to shareholders of record as of March 15. Additionally, as part of Cenovus’ leadership succession plan, Alex Pourbaix will transition to the role of Executive Chair and Jon McKenzie, the company’s current Executive Vice-President and COO, will become President and CEO, effective April 26.
  • Manulife Financial Corp.’s Canadian business helped lift fourth-quarter results while its operations in Asia have been slow to rebound from the latest round of Covid-19 restrictions. Core earnings in the Canada division rose 22% to C$350 million ($261 million), the Toronto-based company said Wednesday. Overall profit topped analysts’ estimates. Manulife’s domestic unit has helped prop up results during a tough stretch for the Asia operations, which the company sees as one of its key growth drivers in the years ahead. Earnings in the Canadian division last quarter were helped lower-than-expected policy use as well as an increase in new business value. Meanwhile, the Asia unit has struggled to bounce back even as governments in the region lift restrictions that were imposed to halt the spread of the pandemic. The division’s new business value declined last quarter amid lower sales in Hong Kong and unfavorable changes in product mix. Still, core earnings in Asia rose 4% to C$569 million.
  • Newcrest Mining Ltd. rejected an initial $17 billion takeover bid by US rival Newmont Corp., with the Australian miner’s interim CEO saying the company was “worth a lot more.” It did offer some hope to its suitor, however, by indicating it’s prepared to provide access to its books on a non-exclusive basis. The all-shares deal would have been the largest globally this year and created the world’s biggest gold miner. Newcrest is an attractive target because of the comparatively long life of its gold assets  — more than 20 years — as well as its deposits of copper. “The company is not up for sale and this was unsolicited,” Sherry Duhe, the interim chief executive officer, said in an interview on Bloomberg Television. “We have offered Newmont limited conversations to share a bit more about where we see value in the portfolio, and so obviously that’s with them now to see if they’d like to decide to engage.”
  • Shopify Inc. tumbled in after-hours trading after giving a sales outlook for the start of the year that fell short of analysts’ estimates, a sign that it face an uneven recovery from last year’s rout. The Ottawa-based company said it expects first quarter revenue growth in the “high teen percentages” over last year, slightly below forecasts for 20% growth, according to a Bloomberg survey. Shopify said operating costs should grow in the low single digits compared with the fourth quarter, excluding one-time charges. The shares were down more than 11% in extended trading at 6:08 p.m. in New York. Chief Executive Officer Tobias Lütke is working to recover from a misplaced bet that the pandemic-fueled surge in online shopping would become permanent. Though he’s cut jobs, raised prices and expanded offerings to merchants, the stock is a long way from a full recovery after losing about three-quarters of its value last year.
  • BlackRock Alternatives has bought a majority stake in Canadian waste management company Environmental 360 Solutions Inc. Investors led by the BlackRock Inc. division acquired the stake from owners including Almada Inc., OPSEU Pension Plan Trust Fund and Oaktree Capital Management, according to a statement that didn’t disclose terms of the deal. Based in Aurora, Ontario, E360S, as the company is known, provides garbage collection, recycling and related services in five of Canada’s provinces.

World Headlines

  • European shares hit their highest level in a year amid a slate of upbeat earnings, while the UK’s FTSE 100 climbed back above 8,000 points and France’s CAC 40 headed for a record close. The Stoxx 600 was up 0.4% by 10:52 a.m. in London, reaching its highest since February 2022. The index also advanced for a fourth straight session in its longest winning streak since Jan. 18. The FTSE 100 rose 0.1% to 8,008.45, thanks to a boost from Standard Chartered Plc, which gained after announcing a $1 billion share buyback as it seeks to fend off becoming takeover target. A resilient corporate earnings season has helped Europe’s benchmark stock index extend a sharp rally this year, with investors also optimistic about the outlook for economic growth. Meanwhile, signs of cooling inflation have raised bets that central banks could slow the pace of rate hikes, although policy makers have reiterated that rates could stay higher for longer.
  • Wall Street equity futures edged lower as traders awaited the another set of data readings on the strength of the economy and looked for clues on the outlook for rate hikes. The tone was less upbeat than in Europe, where positive earnings news buoyed stocks. Contracts for the S&P 500 and Nasdaq 100 were down as much as 0.3%, after the two benchmarks advanced on Wednesday. Shopify Inc. dropped as much as 9.7% in premarket trading after the cloud-based commerce platform’s first-quarter revenue forecast was weaker than expected. Cisco Systems Inc. gained after the communications equipment company raised its full-year outlook. Stock investors have been encouraged by upbeat earnings reports and evidence of resilience in the economy combined with signs that inflation, even if it remains too high, is at least receding. After US retail sales in January jumped by the most in almost two years and homebuilder sentiment rose in February, jobless claims and producer inflation figures due later Thursday will provide more data for Federal Reserve policymakers.
  • Equities advanced across Asia Pacific as traders awaited key US employment data, although initial gains in Chinese stocks evaporated on geopolitical worries. The MSCI Asia Pacific Index advanced as much as 1.4%, the most since Feb. 1. Samsung, Tencent and Alibaba were among the main contributors to the surge, also helping a rebound in the Hang Seng China Enterprises Index after it had fallen almost 10% from a January peak through Wednesday. The MSCI regional gauge is still down more than 3% from a Jan. 27 peak. In terms of the next near-term catalyst, traders expect to see an uptick in jobless claims in the US when the data is announced later Thursday, which could ease the pressure on the Federal Reserve for aggressive policy tightening.
  • Oil pared an earlier gain and remained within a recent narrow range as investors assessed more evidence of higher energy demand in China and a large build in US crude stockpiles. West Texas Intermediate turned lower after earlier adding 1.2%. Passenger loads at China’s top three airlines are rebounding as travel picks up again, adding to signs of increased mobility and energy consumption after refiners stepped up crude purchases and raised run rates. That was overshadowed by a bumper build in US oil inventories on Wednesday. Crude stockpiles rose by more than 16 million barrels with key market gauges for the American market continuing to point to oversupply.
  • Gold steadied after touching the lowest since early January as investors weighed fresh data that may prompt the Federal Reserve to extend its aggressive program of monetary tightening. Bullion had slipped 1% Wednesday, with prices extending their retreat in February amid concerns of a hawkish Fed response to signs of a robust US economy and elevated inflation. Higher borrowing costs hurt the metal’s allure because it doesn’t pay interest. Bullion ran into support around $1,830 an ounce on Wednesday, the upper end of the metal’s first barrier to the downside, said Craig Erlam, a senior analyst at Oanda Corp.
  • Last year, most US investors and central bankers underestimated how high inflation would climb. Now they may be underestimating how high interest rates will need to go to bring it back down. In spite of the Federal Reserve’s most aggressive credit tightening campaign in four decades, the US economy and financial markets started the new year with a bang. Payrolls surged, retail sales jumped and equity prices soared. Combined with an inflation rate that’s proving sticky and running well above the Fed’s 2% target, that’s a recipe for more rate hikes from central bank Chair Jerome Powell and his colleagues to cool things off. The risk is that tighter credit eventually catches up with the economy and triggers a recession, as consumers run down the financial buffers they built up during the pandemic. It’s those extra savings – Moody Analytics chief economist Mark Zandi reckons there’s still $1.6 trillion left – and a vibrant jobs market that has allowed households to ride out soaring prices and borrowing costs.
  • China questioned whether the US genuinely seeks to repair ties damaged by the dispute over a balloon just as the two nations’ top diplomats head to a security conference in Germany, where they may have an opportunity to meet on the sidelines. The balloon saga “tests the US’s sincerity and capability to properly handle crises and stabilize relations with China,” Foreign Ministry spokesman Wang Wenbin said Thursday at a regular press briefing in Beijing. “The US cannot ask for communication and dialog on the one hand while sharpening differences and escalating crises on the other,” he said, later calling on Washington to “properly handle this unexpected, isolated incident” and put ties back on track.
  • WeWork Inc. missed analysts’ expectations for profit in the fourth quarter, but showed a glimmer of potential for future profitability. The co-working company said it had positive adjusted EBITDA for the month of December — a notable change from its famously cash-burning history, especially under former Chief Executive Officer Adam Neumann. After a failed attempt at an initial public offering in 2019 and a gut punch from the global pandemic, CEO Sandeep Mathrani has been cutting expenses and inching toward turning a profit, though it remains far off. New York-based WeWork lost $527 million in the fourth quarter, a greater loss than the $328 million analysts had predicted, according to data compiled by Bloomberg. The company reported revenue of $848 million for the quarter, less than analyst estimates of $859 million.
  • Air India Ltd. could almost double what already stands to be the biggest aircraft order in commercial aviation history as it tries to emerge from decades of mismanagement and challenge local rivals and international giants like Emirates and Qatar Airways. In addition to the record order for 470 planes from Airbus SE and Boeing Co. announced Tuesday, the carrier has options to buy another 370 jets, Chief Commercial and Transformation Officer Nipun Aggarwal wrote in a LinkedIn post late Wednesday. That number hadn’t been disclosed before. Founded by Tata Group in the 1930s before being taken over the by the state and eventually bought by Tata again last year, Air India holds lucrative landing and parking slots at most major airports around the globe. It can fly nonstop to a range of destinations, bypassing Middle Eastern hubs. The aim is for the blockbuster order to put it among the world’s top carriers.
  • Europe’s natural gas demand will increasingly exceed supply through the remainder of the decade, potentially making the region the world’s main player in the market for the fuel, according to Shell Plc. The supply gap is set to widen to about 140 million tons of liquefied natural gas by 2030 from roughly 50 million in 2018, the company said in its annual LNG Outlook. LNG has provided a lifeline for Europe, helping to ease a historic energy crisis due to lost shipments from Russia in the fallout over Moscow’s war in Ukraine. Despite a recent drop in prices, Shell said it expects volatility to continue in the near term, while China’s emergence from Covid lockdowns and US-related risks will be key factors for the market.
  • Vodafone Group Plc is exploring options for its African business as investors ramp up pressure on the UK telecom company to boost performance, people familiar with the matter said. The London-listed firm is working with advisers to study ways to extract more value from its 65% holding in Vodacom Group Ltd., the people said, asking not to be identified as the matter is private. The early-stage considerations range from merging the business with other operators or divesting some assets in certain markets, to selling a stake in the company, the people said. Shares in Vodacom rose as much as 6% on Thursday. The stock was up 5.4% at 10:34 in Johannesburg, giving the company a market value of $15.2 billion. Vodafone was up 3.5% in London, valuing it at £27.9 billion ($33.6 billion).
  • Bank Indonesia will bolster the rupiah in facing a more hawkish Federal Reserve by luring exporters’ dollar earnings back onshore and letting short-term bond yields rise. Indonesia’s central bank will offer competitive rates on new foreign exchange term deposits effective March 1, Governor Perry Warjiyo said on Thursday. The tools will be offered in 1-, 3-, and 6-month tenors, with higher rates given to larger deposits and banks getting perks for holding them for longer. The repatriation of export earnings should help act as a buffer for Southeast Asia’s largest economy amid higher global rates and renewed volatility as the Fed signals more hikes to come, Warjiyo said. Turning to tools other than monetary policy would let Bank Indonesia stabilize the rupiah while keeping borrowing costs steady, especially as inflation has begun to ease.
  • Locked out of debt markets and facing significantly higher borrowing costs, executives at troubled companies are looking for help in an almost dormant corner of Wall Street. High-profile financial advisers including Houlihan Lokey Inc., Lazard Ltd. and Evercore Inc. say they’re experiencing a surge in enquiries for so-called liability management as corporates bloated with debt find themselves searching for solutions to the end of a decade of almost free money. Companies are grappling with the twin burdens of higher interest rates and slower economic growth, and some have already suspended dividends or put assets up for sale to pay debt. But with $6.3 trillion of outstanding corporate bonds alone coming due by the end of 2025, many are seeking alternative ways to protect their balance sheets.
  • The fattest profits in 70 years have helped sustain a pandemic hiring spree by US business. Now, margins are shrinking — and that could signal harder times ahead in the jobs market. As earnings season nears its end, corporate America’s two-year run of surging profits appears to be over. Fourth-quarter earnings for S&P 500 companies are still high by pre-pandemic standards, but they’re down 2.3% from the previous period — the first drop since 2020, according to Bloomberg Intelligence. Net income margins are poised to shrink for a second straight quarter. But the strength of that connection is trickier-than-usual to figure out right now. Profit numbers – like so many pandemic datasets — are in more-or-less uncharted territory, still near multi-decade highs, and the jobs market has been behaving strangely too.
  • As the crypto industry spiraled from the fallout of FTX and regulators began closing in, one corner of the sprawling market saw an influx of demand from institutional investors: listed futures trading. CME Group Inc.’s average daily trading volume in its crypto futures products rose a record 13% in 2022 to 53,600 contracts. Every crypto collapse, arrest and regulator probe since the FTX scandal has continued to feed that demand. “Our robust, price-discovery product is reinforced in times of stress,” Tim McCourt, global head of equity and FX products at CME, said in an interview. “People want to trade on a regulated venue, a trusted exchange where they know the rules of the road.”
  • Paramount Global, the owner of CBS and other TV networks, reported fourth-quarter results that missed analysts’ expectations, the result of slumping advertising sales. Earnings at the the New York-based media giant controlled by the Redstone family of 8 cents a share, excluding some items, the company said Thursday. That missed the average estimate of 24 cents. Revenue in the quarter was $8.13 billion, slightly trailed estimates of $8.17 billion.
  • Tesla Inc. terminated dozens of employees Wednesday at its plant in Buffalo, New York, one day after Autopilot workers at the facility announced a union campaign, organizers said in a complaint. In a filing with the US National Labor Relations Board, the union Workers United accused Tesla of illegally terminating the employees “in retaliation for union activity and to discourage union activity.” The union asked the labor board to seek a federal court injunction “to prevent irreparable destruction of employee rights resulting from Tesla’s unlawful conduct.” Several of the terminated employees had been involved in labor discussions, according to the union, including at least one who was a member of the organizing committee.
  • Installations of clean energy projects in the US slumped last year, with development slowed by challenges such as supply chain kinks and uncertainty over implementation of the Inflation Reduction Act. About 25 gigawatts of clean-power installations were built in 2022, down 16% from 2021, according to a report released Thursday from industry group American Clean Power. Onshore wind had its weakest year since 2018 with a 37% decline compared with 2021, thanks to the declining value of production tax credits for wind projects. Battery storage was a bright spot, with a record 4 gigawatts installed.  The Biden administration has set a goal of purging carbon emissions from the electric grid by 2030 to avoid the worst effects of climate change. That will require the construction of a huge amount of clean energy generation and storage, but the energy transition has been slowed by a range of hurdles, including trade restrictions and permitting obstacles.











*All sources from Bloomberg unless otherwise specified