February 17, 2023

Daily Market Commentary

Canadian Headlines

  • Rogers Communications, Shaw Communications and Quebecor extended the deadline to close their deals to March 31. The companies said they’re working with the department in charge of telecom policy, led by Industry Minister François-Philippe Champagne, who has final say on the deal.
  • Hedge fund Luxor Capital Group stepped up its attack on Ritchie Bros. Auctioneers Inc.’s plan to buy another firm for $6 billion, saying Ritchie executives manipulated forecasts to strengthen their case for the deal. Ritchie has understated the future profitability of its core auction business to help justify the decision to take over IAA Inc., New York-based Luxor says in a presentation seen by Bloomberg News. Ritchie’s senior executives lowered the company’s projected growth rate, and increased capital expenditures, in order to make the math work on the acquisition, Luxor claims. Ritchie’s stock price fell 18% on the day it was announced, but has since risen to just above its pre-deal level.
  • A Bank of Canada official reiterated policymakers’ focus on the 2% inflation target, and said that the central bank can diverge from its peers in normalizing interest rates. In a speech from the Alberta School of Business in Edmonton, Deputy Governor Paul Beaudry spoke about the importance of getting inflation “all the way” back to target, even if the Bank of Canada’s policy route differs from its peers. “The bottom line is that we shouldn’t be too concerned if Canada follows a slightly different path to normalization than our counterparts,” Beaudry said in prepared remarks of the speech on Thursday, adding that “what matters most is getting all the way there.” While reinforcing the central bank’s commitment to getting inflation back to 2%, the deputy governor’s comments also suggest the Bank of Canada may be less worried about holding the benchmark overnight rate at 4.5% while its peers continue hiking borrowing costs.
  • Air Canada (AC.TO) on Friday reported Q4 adjusted net loss of $217 million, or $0.61 per diluted share, compared with an adjusted net loss of $577 million, or $1.61 per diluted share, in the fourth quarter of 2021. Analysts polled by Capital IQ expected adjusted loss of $0.29 per share. Operating revenue for the quarter ended Dec. 31, 2022 increased 71% to $4.68 billion from $2.73 billion a year earlier. Revenue was about 6% higher from the fourth quarter of 2019, before the COVID-19 pandemic, the airline said. Analysts surveyed by Capital IQ expected revenue at $4.5 billion. Air Canada said that, for the first quarter of 2023, it plans to increase its available seat miles capacity by about 50% from the same quarter in 2022, or approximately 84% of first quarter 2019 capacity. The airline also provided full year 2023 adjusted EBITDA guidance of about $2.5 – $3.0 billion and its 2024 target of about $3.5 – $4.0 billion.
  • EQB, the holding company of Equitable Bank, on Thursday said its fourth-quarter profit fell 43% on higher one-time items and a loan-loss provision, as it raised its dividend 6%. The company said it earned C$45.82 million, or C$1.20 per share, in the period, down from C$80.6 million, or C$2.32, in the year-prior quarter. Adjusted profit, which excludes most one-time items, rose 15% to C$92.5 million, or C$2.46, beating the average analyst estimate for the measure of C$2.40 per share, according to Capital IQ. Revenue rose 37% to C$235.09 million, while it set aside C$7.78 million for loan losses after a recovery of C$1.42 million in the fourth quarter of 2021. Non-interest expenses and taxes also rose following an acquisition. EQB also raised its quarterly dividend 6% to C$0.35, with the first higher payout coming March 31 to shareholders of record on March 15.
  • Fairfax Financial Holdings Limited (TSX: FFH and FFH.U) overnight Thursday reported Q4 net earnings of US$2.1 billion, or US$78.33 per diluted share, compared with US$987.7 million, or US$33.64 per share, a year earlier. Analysts polled by Capital IQ expected earnings of US$67.92 per share. For the fiscal year 2022, net earnings were US$1.15 billion, or US$43.49 per diluted share after payment of preferred share dividends, compared with fiscal year 2021 net earnings of US$3.4 billion, or US$122.25 per share. Separately, Fairfax India Holdings Corporation (TSX: FIH.U) reported Q4 net earnings of US$92.56 million, or US$0.65 per diluted share, compared with a net loss of US$117.73 million, or US$0.83 per share, a year earlier. Fairfax India also said it is in “strong” financial health, with cash and marketable securities of approximately US$334 million.
  • Agnico Eagle Mines (AEM.TO, AEM) dropped 2.6% in after-hours New York trading after the company on Thursday said its fourth-quarter profit more than doubled on higher revenue and a non-cash gain following its November acquisition of Kirkland Lake Gold. The miner said it earned US$205.01 million, or US$0.45 per share, in the period, including a US$83.77-million gain on the value of financial derivatives, up from US$101.36 million, or US$0.41, in the year prior quarter. Adjusted income, which excludes most one-time items rose 83% to US$185.4 million, or US$0.41, matching the average analyst estimate for the measure, according to Capital IQ. Revenue rose 46% to US$1.38 billion. Agnico Eagle said it expects 2023 gold production of 3.24-million ounces, up from 3.14-million ounces in 2022. The company’s US$1 billion acquisition of Yamana Gold’s (YRI.TO, AUY) Canadian assets is expected to close in March.
  • Uni-Select (UNS.TO) Friday reported adjusted net income of $15.7 million, or $0.32 per common share, unchanged compared with the year-ago period when it also earned $0.32 per share, excluding one-time items, while consolidated sales grew 6.2% year-over-year to $424.8 million during the three months ended Dec. 31. Analysts polled by Capital IQ, on average, had been expecting normalized net income of $0.30 per share for the automotive coatings company on $415.1 million in Q4 revenue.

World Headlines

  • Asian stocks drop on Friday, following a slump on Wall Street, as comments from two Federal Reserve officials weigh on the region’s tech shares. The MSCI Asia Pacific Index fell as much as 1.3%, set for a three-week decline that would be its longest losing streak since October. Hong Kong and South Korea were the region’s worst performers, with benchmarks for mainland China, Australia and India also falling.
  • Contracts for both the S&P 500 and Nasdaq 100 retreated after the underlying indexes sank more than 1% on Thursday. Rates-sensitive technology stocks led declines in Europe’s Stoxx 600 index as money market traders bet that the ECB’s deposit rate will peak at 3.75% by October, up from a low of 3.4% following the bank’s meeting this month.
  • Treasuries extend losses with yields cheaper by 3bp-5bp across the curve vs Thursday’s closing levels. Core European rates lead the selloff following hawkish comments from ECB’s Schnabel and German PPI data. US 10-year yields around 3.88%, cheaper by ~3bp on the day but outperforming bunds and gilts by 0.5bp and 2bp in the sector; US front-end underperforms on the curve, flattening 2s10s spread by ~1bp.
  • Gold fell as the dollar strengthened after a slew of data and comments from Federal Reserve officials boosted expectations of steeper rate hikes. The metal is headed for a weekly loss after two US inflation prints came in hot, damping hopes that price pressures were beginning to ease. Two of the Fed’s most hawkish policymakers signaled they may favor returning to bigger interest-rate hikes in the future. That’s driven gold down sharply in February after a run of three monthly gains, spurred by bets on the Fed would ease back on tightening. The dollar and Treasury yields have both erased this year’s losses, putting pressure on the non-interest bearing metal.
  • JPMorgan drops expectation that OPEC+ will defend an oil price floor of $80 a barrel, analysts led by Natasha Kaneva say in report. Bank sees lower price floor for crude at $65-$70 a barrel. OPEC+ no longer has a need to cut production quotas by 400,000 b/d this year, as bank previously indicated. Still, overall market balances are looking tighter than before amid stronger demand outlook
  • European natural gas futures falling to a 17-month low have brought the fuel within touching distance of the oil price. The benchmark front-month Dutch gas contract slumped below €50 per megawatt-hour on Friday, a sign that Europe’s energy crisis is receding following a relatively mild winter and an influx of liquefied natural gas. It’s also equivalent to about $88 a barrel of oil — slightly higher than Brent crude, which is now trading near $83 a barrel in London. The last time the global crude benchmark was higher than the gas price was July 2021.
  • Bitcoin retreated after three days of gains that were fueled by easing fears of a US regulatory crackdown. Cryptocurrency-exposed stocks fell in New York premarket trading, with Coinbase Global Inc., Riot Platforms Inc. and Stronghold Digital Mining Inc. among those in decline.
  • In US premarket trading, DoorDash Inc. shares jumped as the food delivery company’s results showed resilient demand. Moderna Inc. fell following mixed results for a flu vaccine candidate. Roku Inc. rose, set to extend gains for a fifth session, after BofA Global Research raised its recommendation on the streaming-video platform’s stock to buy.
  • The market for wagers on the Federal Reserve’s policy rate fully priced in quarter-point increases at each of the central bank’s next two meetings.  The rate on the May overnight index swap contract rose to 5.11%, more than 50 basis points above the current effective fed funds rate. The market also priced in a higher eventual peak for the policy rate, with the July contract’s rate rising to 5.31%. The Fed has raised its policy rate eight times since March 2022, most recently to a range of 4.5%-4.75% on Feb. 1, after dropping the lower bound to around 0% two years earlier at the onset of the pandemic.
  • Investors rushed to offload German bonds and money markets cranked up rate-hike wagers after European Central Bank Executive Board member Isabel Schnabel said she saw risks that markets will underestimate inflation. For the first time, traders fully priced in a 3.75% terminal deposit rate by September, according to swaps tied to ECB meeting dates. That’s up from a low of 3.4% expected following this month’s ECB policy outcome. At the same time, odds of a rate cut this year were reduced to just one basis point, the least since the middle of December. Germany’s 10-year yield jumped as much as 9 basis points on Friday, reaching 2.57% and nearing the highest level since 2011.
  • Qatari investors are readying a roughly £5 billion ($6 billion) opening bid for Manchester United Plc, people with knowledge of the matter said, ahead of what’s expected to be a fierce bidding war for the English football giant. A consortium including Hamad bin Jassim bin Jaber Al Thani, the country’s former prime minister and ex-head of the Qatar Investment Authority, is putting the final touches on a proposal to acquire the English Premier League club from the US Glazer family. Shares in Manchester United rose as much as 5.9% in premarket trading on Friday. The stock closed 9.7% higher in New York on Thursday, giving the club a market value of $4.4 billion.
  • Germany wants to intensify cooperation with Japan to help secure supplies of raw materials as part of a wider effort to make supply chains more resilient and avoid over-reliance on single countries. Raw-material security and linking the two nations’ strategies will be top of the agenda at upcoming talks with Japanese Prime Minister Fumio Kishida, Chancellor Olaf Scholz said Thursday during a visit to the Federal Institute for Geosciences and Natural Resources in Hanover. “At the latest with the Russian war of aggression on Ukraine, we have learned that we must do everything possible not to be dependent on supply chains that we cannot sufficiently influence,” Scholz said.
  • Deere & Co. raised its earnings guidance above analyst estimates as sustained high crop prices keep farmers spending, resulting in a record windfall for the top maker of agricultural machinery. The shares rose. A year after Russia’s invasion of Ukraine sent wheat futures to a record, Deere is betting crops will stay pricey, enabling farmers to absorb cost inflation and overhaul aging fleets. China’s reopening from the pandemic and a drought in Argentina are set to boost demand, with US farmers remaining optimistic even as income moderates from record levels. “Deere is looking forward to another strong year on the basis of positive fundamentals, low machine inventories, and a continuation of solid execution,” Chief Executive Officer John May said in Friday’s statement. Deere shares rose 28% last quarter but had pulled back this year. The stock was up more than 2% at 6:20am in New York on Friday, before the start of regular trading.
  • Wu Qing, a 57-year-old who earned the nickname “the broker butcher” for cracking down on traders in the mid-2000s, is slated to become the head of the nation’s securities regulator.  Wu, now the vice mayor of Shanghai, is poised to replace Yi Huiman as chairman of the China Securities Regulatory Commission, a person familiar with the move said, asking not to be identified discussing private information. Yi, in charge of the CSRC since 2019, will oversee the banking and insurance sector. Wu is no stranger to markets. Before becoming vice mayor of the financial hub in 2018, he headed the Shanghai Stock Exchange for almost two years. Prior to that, he worked in various roles at the CSRC, earning the nickname “the broker butcher” after shuttering 31 firms over regulation breaches.
  • China will scrutinize Ford Motor Co.’s recent agreement with Contemporary Amperex Technology Co. Ltd. to ensure the Chinese battery giant’s core technology isn’t handed over to the US carmaker, another sign of geopolitical tensions between the two powers complicating business deals. Ford said Monday the tie-up would see CATL’s lithium iron phosphate, or LFP, battery technology licensed for use in a new $3.5 billion electric-vehicle battery plant that Ford will run and control in southwest Michigan.  While Beijing is pleased the deal showcases China’s prowess in the EV battery space, officials are concerned that competitive aspects of CATL’s technology could be given to or accessed by the American automaker, people familiar with the matter said, asking not to be named discussing Chinese government deliberations.
  • Lenovo Group Ltd.’s profit fell for the first time in almost three years on waning demand for personal computers, forcing it to warn of job cuts ahead. Net income fell for the first time since 2020, after revenue dropped a bigger-than-expected 24% to $15.3 billion in the final quarter of last year, according to a company statement. Analysts had expected sales of $16.4 billion on average. The world’s largest maker of personal computers has been struggling with a tumble in global demand following a pandemic-era work-from-home boom. PC shipments worldwide plunged 28% last quarter to 2018 levels, according to IDC, hurting it and long-time rivals HP Inc. and Dell Technologies Inc.
  • Rishi Sunak is in Northern Ireland for talks with the region’s parties as expectation mounts that Britain and the EU will reach a deal on post-Brexit trading arrangements in the coming days. Sunak will also meet with Ursula von der Leyen in Munich over the weekend, people familiar said.
  • China’s top copper merchant, Maike Metals International Ltd., filed a request to a court for “preliminary restructuring” as it seeks to emerge from a liquidity crisis and start trading metal again. Maike, which until recently was responsible for a quarter of China’s refined copper imports, will seek a fair debt payment plan to preserve its creditors’ interests and plans to introduce new investors, as well as “quickly resume the main business of commodity trading,” it said in a statement on its WeChat account. Preliminary restructuring is a procedure for reaching an initial debt agreement before entering formal restructuring in court.
  • Zambia’s copper output fell to a seven-year low in 2022, in a blow for the government’s ambition to more than double the size of the industry. Finance Ministry figures show the southern African nation mined 763,288 tons of the metal that’s key to the green-energy transition, a 4.7% drop from the year before. That’s the lowest level since 2015, according to government data compiled by Bloomberg, despite elevated prices and tax incentives to boost production.












*All sources from Bloomberg unless otherwise specified