February 22, 2023
- Canadian stocks posted their biggest decline in two months Tuesday as cannabis and information-technology shares declined, even as consumer price index data showed cooler-than-expected inflation for January. The S&P/TSX Composite fell 1.3% as every sector declined and the index fell for a third straight session. Only 22 stocks in the main index rose on Tuesday, while 211 fell and 3 were unchanged. NexGen Energy Ltd. led the declines, falling 9%, while uranium mining peers Energy Fuels Inc. and Cameco Corp. were also among the 10 worst performers.
- A Brookfield Asset Management Inc.-led consortium aims to finalize a A$15.3 billion ($10.5 billion) takeover of Australian utility Origin Energy Ltd. within weeks, after reviving the deal following months of uncertainty. Canada-based Brookfield and EIG Global Energy Partners expect to conclude a binding agreement with Origin as soon as mid-March, according to people familiar with the matter, who asked not to be identified discussing private negotiations. The consortium on Wednesday made a new offer of A$8.90 a share, down from an A$9 a share proposal announced in November. That comes after an original deadline for due diligence expired last month amid concerns over the impact of an intervention on gas prices by Australia’s government.
- European equities fell after a slew of earnings from corporate heavyweights sparked concerns that companies may not be as resilient as thought, alongside worries that a hot economy may force central banks to keep interest rates high. The Stoxx Europe 600 index was down 0.9% by 10:29 a.m. in London. Basic resources underperformed as miner Rio Tinto Plc fell after slashing its dividend following weak demand for metals in China. Lloyds Banking Group Plc also weighed on the FTSE 100 index as lending margins disappointed, even as the company announced a £2 billion ($2.4 billion) share buyback. After a roaring start to 2023, gains for European equities have been tempered by worries about central banks keeping interest rates higher for longer if inflation stays elevated. A final January reading of German inflation on Wednesday showed an increase on the previous month driven by energy prices, while purchasing managers’ index statistics Tuesday revealed a return to private-sector growth in Germany and France, fueling concern that rate hikes are failing to cool the economy.
- Global stocks extended a selloff and Treasuries wobbled as investors looked ahead to Federal Reserve minutes for further clues on whether rates would stay higher for longer. Contracts on the S&P 500 and Nasdaq 100 indexes fluctuated after the underlying indexes posted the biggest one-day slump in two months. Longer-term Treasuries erased their gains. Shorter-term Treasuries held to their gains, while longer-term ones erased theirs. The two-year rate slid 3 basis points from the highest level since early November. Its 10-year counter part was little changed. Disappointing earnings projections are seen everywhere. Walmart Inc. reported a weak profit outlook that fell short of analyst estimates, signaling another rocky year for the world’s largest retailer. Home Depot Inc. also released a profit-decline forecast. Only 68% of S&P 500 companies reporting results this season have beaten estimates, compared with about 80% seen during recent quarters.
- Asian stocks declined for a second day after a jump in US Treasury yields undermined confidence in the equity market’s advance this year, with shares in Hong Kong falling to the brink of a correction. The MSCI Asia Pacific Index fell as much as 1.4% to its lowest level since Jan. 9, with TSMC and Tencent among the heaviest drags on the gauge. Shares in Australia, Japan and mainland China slipped, while losses in Hong Kong’s Hang Seng Index reached almost 10% since a Jan. 27 peak. A key MSCI gauge of Indian stocks was also on course to enter a technical correction as the selloff in Adani Group shares deepened. Indexes in Vietnam and South Korea were among the biggest decliners in the region as investors awaited the release of Fed minutes from its latest policy meeting.
- Oil extended its longest run of losses this year ahead of the release of Federal Reserve minutes that may provide further clues on the path forward for monetary tightening in the US. West Texas Intermediate fell near $75 a barrel after declining for a fifth session on Tuesday. The prospect of more aggressive interest-rate hikes from the Fed to quell inflation have kept a lid on prices, despite increasing evidence of a robust recovery in China following the end of Covid Zero. Oil’s lackluster start to the year has dented some early optimism that resurgent Chinese demand would buoy prices. Morgan Stanley on Wednesday became the latest bank to trim its forecasts, arguing that the market will be oversupplied in the first quarter, and in balance in the second quarter before moving into a smaller-than-expected deficit in the second half.
- Gold steadied after closing at the lowest in more than six weeks as investors awaited the release of Federal Reserve minutes for clues on its interest-rate path. The metal fell 0.3% on Tuesday as Treasury yields jumped on expectations that the Fed will keep tightening monetary policy to quell inflation. Higher rates tend to curb the appeal of the non-interest bearing asset, which has now erased most of January’s gain. Officials have since been split on the size of the next move. Cleveland Fed President Loretta Mester and St. Louis Fed President James Bullard have advocated for 50 basis points in light of hotter inflation data. Richmond Fed President Thomas Barkin has said that 25 basis points allows more flexibility.
- US natural gas futures fell below $2 for the first time since 2020, extending a massive selloff as traders give up on hopes of extreme cold boosting demand. Gas for March delivery dropped to $1.987 per million British thermal units on the New York Mercantile Exchange, the lowest since September 2020. The slump in gas prices marks a major reversal in the bullishness that swept across the market last year, when shortage fears sent prices to the highest level in 14 years. Abnormally mild temperatures this winter have eroded energy demand, causing inventories of the heating and power-generation fuel to swell above usual levels and prices to plunge more than 70% since November. A much-delayed restart of the Freeport LNG terminal in Texas has also weighed on prices as its shutdown after a June explosion curbed export demand.
- Chinese authorities have urged state-owned firms to phase out using the four biggest international accounting firms, signaling continued concerns about data security even after Beijing reached a landmark deal to allow US audit inspections on hundreds of Chinese firms listed in New York. China’s Ministry of Finance is among government entities that gave the so-called window guidance to some state-owned enterprises as recently as last month, urging them to let contracts with the Big Four auditing firms expire, according to people familiar with the matter. While offshore subsidiaries can still use US auditors, the parent firms were urged to hire local Chinese or Hong Kong accountants when contracts come up, one of the people said, asking not to be identified discussing private information. China is seeking to rein in the influence of the US-linked global audit firms and ensure the nation’s data security, as well as to bolster the local accounting industry, the people said. Beijing has been giving the same suggestion to state-backed firms for years, but recently re-emphasized that companies should use other auditors than the Big Four, the people added. No deadline has been set for the changes and replacements may happen gradually as contracts expire.
- The PGA Tour Inc. won a court ruling that makes Saudi Arabia’s sovereign wealth fund and its governor defendants in its countersuit against LIV Golf, the rival upstart backed by the oil-rich kingdom. US District Judge Beth Labson Freeman in San Jose, California, late on Tuesday raised the stakes for the Saudi Public Investment Fund and its governor, Yasir Al-Rumayyan, by allowing the PGA to add them to its original complaint, which alleged that LIV has interfered with PGA players’ contracts, harming the US-based tour’s brand and reputation. The ruling in the acrimonious antitrust battle follows a decision last week by a San Jose magistrate judge granting a subpoena by the PGA that directs PIF and Al-Rumayyan to provide testimony and turn over documents.
- Chinese President Xi Jinping urged the country to accelerate fundamental scientific research so it can become self-reliant in critical technologies, capping a series of government proclamations in past days about the need to counter Washington’s sanctions on everything from semiconductors to software. The government should provide more policy support for research efforts and strengthen the nation’s “strategic technology power,” Xi said in a Politburo group study, Xinhua News Agency reported on Wednesday. Xi also ordered the increased use of homegrown alternatives to replace foreign technologies, pledging more funding and tax stimulus to key research institutes. Although mostly repeating existing policies, the remarks showed Xi taking center stage in countering the Biden administration and injecting renewed urgency into Beijing’s technology ambitions. Eight of the 10 paragraphs in the Xinhua article began with Xi’s name or included it within the first few words, making clear his personal role in the effort.
- JPMorgan Chase & Co. has curbed its staff’s use of the ChatGPT chatbot, according to a person familiar with the matter. The artificial intelligence software is currently restricted, the person said, who asked not to be identified because the information is private. The move, which impacts employees across the firm, wasn’t triggered by any specific incident but reflects normal controls around third-party software. ChatGPT became an internet phenomenon in recent months and spurred buzz about its future potential in everything from writing poems in the style of Shakespeare to creating stock portfolios. There’s even an exchange-traded fund planned around the concept.
- Abu Dhabi Investment Authority is among parties considering a bid for a 34% stake in Associated British Ports, the UK’s biggest port operator, according to people with knowledge of the matter. Infrastructure investors Stonepeak Partners LP and Canada’s British Columbia Investment Management Corp. are among others interested in the stake being sold by Canada Pension Plan Investment Board, according to the people. The stake could be valued at about £2 billion ($2.4 billion) or more, they said. ABP owns and operates 21 ports in England, Scotland and Wales and handles around one quarter of the UK’s seaborne trade and more than £150 billion of UK trade annually. CPPIB bought its stake in the ports group from Goldman Sachs Group Inc. and Prudential Plc for £1.6 billion in 2015.
- Stellantis NV unveiled a share buyback of as much as $1.5 billion after posting record full-year results driven by high vehicle prices, a strong model lineup and positive currency effects. The purchases, which follow Mercedes-Benz AG and BMW AG, will be done in the open market until the end of the year, the maker of Jeep SUVs and Peugeot cars said Wednesday. Stellantis also said it expects another year of double-digit returns, even as the company continues to battle parts shortages and logistics challenges. There has been “some improvement in our outbound transportation but it’s not complete yet,” Chief Financial Officer Richard Palmer said on a call with reporters.
- Federal Reserve officials could shed light on how many policymakers saw the case for a larger interest-rate increase at their last meeting and whether they anticipated the need to take rates higher than previously thought to tame persistently high inflation. US central bankers will publish minutes at 2 p.m. Wednesday of their Jan. 31-Feb. 1 gathering, at which they voted unanimously to raise rates by just a quarter percentage point. That was a moderation from their half-point hike in December after four consecutive jumbo-sized 75 basis-point increases. The action brought the Fed’s benchmark policy rate to a target range of 4.5% to 4.75%. The minutes will be published after US stocks and bonds sank Tuesday amid speculation the Fed will raise rates further than investors anticipated just weeks ago. A series of Fed officials last week outlined ongoing inflation concerns.
- Tesla Inc. is prioritizing battery-cell production in the US over Germany because of manufacturing tax breaks included in President Joe Biden’s Inflation Reduction Act. While Tesla has started assembling battery systems and is preparing to produce individual components such as electrodes at its factory in Gruenheide, outside Berlin, its focus for cell manufacturing currently is in the US because of tax incentives there, a company spokeswoman said Wednesday by email. The IRA’s allure has fueled concerns that Europe will fall behind in the race to attract production of EV components. Executives from Volkswagen AG, truckmaker Volvo AB and battery maker Northvolt AB have said the law’s roughly $370 billion in green-tech aid are impossible to ignore. Northvolt, which may delay a cell plant in Germany in favor of faster moves in the US, has highlighted that the IRA’s tax credits cover about 30% of cell manufacturers’ operating costs.
- Shares of Domino’s Pizza Enterprises Ltd. plummeted the most on record in Sydney after the pizza chain operator said its first-half earnings fell as customers spurned price increases meant to offset inflationary pressures. The stock tanked 24% on Wednesday after the Australia-based company said price hikes have hurt customer counts, especially in Europe and Asia. A key measure of the firm’s earnings in the six months to December tumbled 21% from a year ago, according to a company statement. Domino’s woes reflect the pain rising inflation is inflicting on both consumers and corporations. It’s the latest among a slew of Australian companies flagging inflation concerns during the country’s February earnings season. BHP Group Ltd. on Tuesday said mounting energy and labor costs damped its results, while Commonwealth Bank of Australia earlier this month noted that it has set aside more capital cushions as consumers feel the pinch from higher price pressures.
- People buying their first home can be eligible to receive some relief from mortgage insurance costs under a program that the Biden administration will unveil on Wednesday. Borrowers with mortgages insured by the Federal Housing Administration will see their fees cut by about $800 a year, or a 0.3 percentage point, according to a White House fact sheet. Vice President Kamala Harris plans to announce the program during an event in Maryland on Wednesday with Housing and Urban Development Secretary Marcia Fudge. The move is an effort by the administration to address the soaring borrowing costs that have stifled housing demand and weighed on the US economy. While the insurance relief plan does not have an income threshold, it’s designed for low- and middle-income buyers purchasing through a federal program.
- A London judge was asked to decide if a lawsuit against the Metropolitan Police Service, for its alleged failure to investigate fully ex-Prime Minister Boris Johnson over the partygate scandal, can go ahead. The Good Law Project, a public interest group, asked a London court to decide whether Johnson’s attendance at Downing Street parties at the height of pandemic lockdown restrictions should have been properly looked at by the UK’s biggest police force. Should they win, the Met could be forced to reopen the investigation that played some part in the collapse in public trust of Johnson, and ultimately his resignation. “The failure to serve fixed penalty notices on Mr. Johnson and to close the investigation known as Operation Hillman as of May 2022 was despite evidence presented” in a civil servant’s report that he had attended and participated in the three gatherings, Danny Friedman, a lawyer for the group, said at a London court hearing on Wednesday. Judges will decide whether a full judicial review can proceed later this year.
- The UK has surpassed India as the world’s sixth-largest equity market for the first time in almost nine months as a weaker pound boosted the appeal of heavyweight exporters trading in London and Adani Group-led jitters weighed on stocks in Mumbai. The combined market capitalization of primary listings in the UK, excluding ETFs and ADRs, reached about $3.11 trillion on Tuesday, some $5.1 billion higher than their Indian equivalents, according to data compiled by Bloomberg. That hasn’t happened since May 29. James Athey, investment director at Abrdn, said investors are “seeing a deep value opportunity in the UK” following the declines in sterling and with government policy that is “less experimental.” Furthermore, the FTSE 100’s makeup of financials, commodities and defensives stocks is “almost the perfect combination for now,” he said.
- US President Joe Biden was slated to meet in Warsaw with eastern European leaders who have supported Ukraine with weapons deliveries and by taking in millions of refugees fleeing Russia’s war. Josep Borrell, the European Union’s top diplomat, has asked the bloc’s defense ministers to immediately provide Ukraine with ammunition from their existing stockpiles and from orders they have already placed, according to a letter dated Feb. 21 and seen by Bloomberg. The front line has not moved despite Russian troops using an entire range of weapons against the Ukrainian army, including gas grenades in the Bakhmut, Lyman and Avdiyivka areas, Ukrainian President Volodymyr Zelenskiy said.
- Tesla Inc. may join General Motors Co. in making battery materials deals this year to curb costs across the supply chain. Yet prices may rise on the long term as BloombergNEF estimates the energy transition will require $10 trillion of metals by 2050. The 43% decline in lithium carbonate prices from mid-November came as partnerships and price wars became dominant industry themes. Lithium Americas Corp. described GM’s $650 million stake in the Vancouver-based miner as an industry turning point. Sigma Lithium Corp. stock surged 16% on Feb. 21 on a report Tesla may invest.
- China’s top diplomat Wang Yi said relations with Russia were “solid as rock” even as Beijing moves to portray itself as a neutral actor that can broker peace in Ukraine. In a meeting on Tuesday with Russian Security Council Secretary Nikolai Patrushev, Wang said China sought to “promote mutually beneficial cooperation in all areas” as the two nations defend national interests. He is set to meet with Russian Foreign Minister Sergei Lavrov on Wednesday. Relations between China and Russia are “solid as rock and will stand the trials of the changing international situation,” Wang said in comments broadcast on Russian state television. Wang’s visit to Moscow roughly a year after Russian leader Vladimir Putin ordered a full-scale invasion of Ukraine shows that China has little intention of abandoning its staunch diplomatic partner despite Beijing’s efforts to limit the damage caused by the war. China has said it will soon release details of a plan to bring peace in Ukraine, a proposal met with skepticism in the US and Europe.
- Global bonds are poised to erase all of the gains they made in their best start to a year on record. Fixed-income assets have gone into reverse as central banks around the world have stood by their intention to keep raising interest rates to tame inflation, defying bond bulls who piled into debt last month betting on a pivot. Treasuries tumbled Tuesday on further signs the world’s biggest economy is proving resilient despite almost a year of policy tightening. “Global bonds can decline further in coming weeks due to the ongoing recalibration of the economic outlook and the Fed’s reaction function,” said Damien McColough, head of fixed-income research at Westpac Banking Corp. in Sydney. The “higher for longer narrative” for central bank interest rates is the driver, he said.
- Sam Bankman-Fried is resisting efforts to make him testify in the bankruptcy case of the digital asset lender Voyager Digital Ltd. Lawyers for the co-founder of FTX, the cryptocurrency exchange that collapsed causing billions of dollars in losses, asked a federal judge in California Tuesday to block a subpoena from lawyers representing unsecured creditors in the bankruptcy case underway in New York. The subpoena calls for Bankman-Fried to appear in person Feb. 23 at the San Francisco offices of McDermott Will & Emery to answer questions, and it included 49 separate and wide-ranging document requests to be turned over by Feb. 20.
- A rebound in US consumer spending last month was broad-based across all income levels, according to a Morning Consult survey. A bump in real income and savings at the end of last year gave consumers some breathing room to cover expenses and pay down debt last month, Morning Consult said in a report. The outlook for the rest of the year is uncertain, however. Retail giants Walmart Inc. and Home Depot Inc. both citing the uncertain economy in their earnings forecasts on Tuesday. The share of consumers reporting deteriorating finances continued to outnumber those expressing an improvement in the Morning Consult survey. The burden of inflation is weighing on budgets, with almost one in five households reporting higher expenses than income in January.