February 6, 2023

Daily Market Commentary

Canadian Headlines

  • Newmont Corp. made a provisional offer to acquire Australia’s top gold miner Newcrest Mining Ltd. in what would be the biggest global takeover of the year so far. The offer, which values Newcrest at around $17 billion, would also be one of the largest in Australian history, according to data compiled by Bloomberg. Newcrest jumped as much as 14% in early trading, the most since 2008. Shareholders would receive 0.38 Newmont shares for each Newcrest share held, equivalent to A$27.16 a share or a 21% premium to Friday’s close, the Melbourne-based miner said in a regulatory filing Monday. The board is considering the proposal, which is conditional on Newmont being granted exclusive due diligence, Newcrest said.
  • First Quantum Minerals Ltd. said loading operations at Cobre Panama’s port have been suspended, as a dispute over taxes and royalties at a huge copper mine in the Central American country escalates. If the government forces it to shut the Cobre Panama mine — “which may become necessary if concentrate is not shipped by mid-February due to limited storage capacity on site” — it will hurt the country and the operation’s employees, the Vancouver-based miner said Monday in a statement. The dispute between First Quantum and Panama erupted after the two sides failed to reach a tax agreement for a mine that’s responsible for about 1.5% of the world’s copper production. Last month, First Quantum Chief Executive Officer Tristan Pascall said the miner is prepared to agree with Panama’s tax and royalty demands for the Cobre Panama mine.

World Headlines

  • European stocks slipped after closing in a bull market on Friday amid concerns that a hot jobs report will keep the Federal Reserve hawkish, while US-China tensions also weighed on the sentiment. The Stoxx Europe 600 retreated 0.8% by 9:23 a.m. in London after the benchmark closed up more than 20% from its September low on Friday. The FTSE 100 dropped 0.8% after closing at a record high. Aurubis AG slumped despite the copper smelting company guiding to earnings at the upper end of expectations, with Baader Helvea analysts saying the risk of a pullback has increased following the shares’ strong recent run. After one of the best starts to a year ever for European stocks, traders are taking profits on the rally as concerns about monetary policy come back into focus. The 2023 recovery — led by last year’s biggest losers and beaten-down cyclicals — has been fueled by hopes of cooling inflation, lower natural gas prices and China’s reopening. Investors are also closely monitoring earnings to assess how companies are navigating the slowing economy.
  • Wall Street equity futures and European stocks slumped as an unexpectedly strong US jobs report raised the prospect of more rate hikes from the Federal Reserve. Concern over US-China geopolitical tensions also weighed on sentiment. Contracts on the S&P 500 and the Nasdaq 100 were lower by at least 0.9%. The Stoxx Europe 600 index dropped more than 1% after closing Friday in a bull market, with the technology and real estate sectors leading the retreat.  On the outlook for US stocks, Goldman Sachs Group Inc. strategists said the rally over the past month may be as good as it gets this year. The S&P 500 now accurately reflects signs of better-than-expected economic growth and a drop in bond yields, strategists led by David J. Kostin wrote in a note.
  • Asian stocks fell as concerns over US-China geopolitical tensions fueled risk-off sentiment in the region, with traders also mulling the prospect of further interest rate hikes by the Federal Reserve. The MSCI Asia Pacific Index dropped as much as 1.6%, the most in over seven weeks, dragged by technology shares. Stocks in China and Hong Kong were among the worst performers after the US shot down an alleged Chinese spy balloon off the South Carolina, raising the risk of retaliation from Beijing. Also weighing on sentiment was an unexpectedly strong US jobs report, seen as giving the Federal Reserve room to remain aggressive in its fight against inflation. Investor optimism had risen recently on signs of a moderation in Fed rate hikes as well as China’s post-pandemic reopening.
  • Oil rose as a major oil pipeline was temporarily halted, while key producers flagged stronger Chinese demand just as more sanctions on Russian flows take effect. West Texas Intermediate climbed toward $74 a barrel after closing on Friday at the lowest level in about a month. Turkey halted oil flows to the Ceyhan export terminal on the Mediterranean coast after a major earthquake. There were no leaks detected on the pipelines feeding oil to the port, according to an official who asked not to be identified. The disruption comes amid ongoing optimism around stronger Chinese consumption, after International Energy Agency Executive Director Fatih Birol said at the weekend that the world’s largest crude importer could see a stronger-than-anticipated rebound that’ll boost demand for crude. That view was echoed by the chief executive officer of Kuwait Petroleum Corp. on Monday.
  • Gold steadied after tumbling 2.5% on Friday following a stronger-than-expected US jobs report that damped optimism the Federal Reserve would turn less hawkish this year. The labor market reading reduces the chances the Fed will switch to rate cuts later in 2023 and prompted a jump in the dollar and US bond yields, a negative for non-interest bearing bullion. The metal snapped a six-week rally to slump 3.3% last week, the most since July. Spot gold added 0.5% to $1,873.29 an ounce as of 10:50 a.m. in London, after reaching $1,881.30 earlier. The Bloomberg Dollar Spot Index rose 0.4% after surging 1.2% Friday. Palladium dropped 2.1%, while silver edged higher and platinum held steady.
  • A holding controlled by the Rothschild family is planning to take the eponymous French bank private in a deal that values it about €3.7 billion. Concordia is planning to file a tender offer for Rothschild & Co’s shares at €48 apiece, the bank said in a statement Monday. The holding, which owns 38.9% of the firm’s shares and 47.5% of the voting rights, intends to implement a squeeze-out afterward. The Paris-based firm, which ranked 6th globally in the number of mergers and acquisitions it advised on last year, has been expanding its footprint in the US in recent years. In spite of a tumultuous environment for dealmaking, Rothschild posted an increase in revenue in every quarter of 2022. The bank is expected to release full-year earnings on Feb. 13.
  • Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the 18th straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.51 billion in the week ended Feb. 3, compared with gains of $2.07 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $12.8 billion.
  • Renault SA and Nissan Motor Co. signed a deal aimed at easing longstanding tensions between the two companies, allowing them to move forward at a time of unparalleled challenges for the automotive industry. As part of the hard-won pact, Renault will cut its holding in Nissan to 15% from 43% to rebalance lopsided capital ties, the partners said Monday, resolving a cause of friction that slowed cooperation at a crucial time for carmakers globally. The agreement also includes joint development of several new models globally.  Nissan intends to invest in Renault’s electric-vehicle business Ampere for as much as a 15% stake in the entity that’s being separated from Renault’s combustion-engine and powertrain operations. Alliance junior partner Mitsubishi Motors Corp. will also weigh investing in Ampere.
  • The US sent divers to salvage what they believe is spy equipment from the Chinese balloon shot down off South Carolina, as pressure mounted on President Joe Biden to hit back at Beijing with new export controls on sensitive technology. The government anticipates finding equipment capable of taking detailed photographs, along with other sensors, one person familiar with the matter said. US lawmakers are already demanding to know if the balloon’s payload contains technology from the US or its allies, another person said. Both asked not to be identified because the administration doesn’t want to reveal exactly what it suspects the balloon was carrying. The balloon, said to be the size of at least two school buses, and its sensors are lying in 50 feet (15 meters) of water and scattered over a seven-mile (11-kilometer) area off Myrtle Beach. Divers and cranes operating from the surface were expected to haul it up in the coming days, potentially giving intelligence analysts crucial insight into Chinese spying capabilities.
  • Dell Technologies Inc. is eliminating about 6,650 roles as it faces plummeting demand for personal computers, becoming the latest technology company to announce thousands of job cuts. The reduction amounts to about 5% of Dell’s global workforce, the company said in a regulatory filing early Monday. Dell is experiencing market conditions that “continue to erode with an uncertain future,” Co-Chief Operating Officer Jeff Clarke wrote in memo viewed by Bloomberg. After a pandemic-era PC boom, Dell and other hardware makers have seen cratering demand. Industry analyst IDC said preliminary data show personal computer shipments dropped sharply in the fourth quarter of 2022. Among major companies, Dell saw the largest decline — 37% compared with the same period in 2021, according to IDC. Dell generates about 55% of its revenue from PCs.
  • The yen fell on the back of a Nikkei report that the Japanese government approached Bank of Japan Deputy Governor Masayoshi Amamiya about succeeding Haruhiko Kuroda at the helm of the central bank. The Japanese currency declined as much as 1% against the dollar on speculation that Japan’s ultra-easy monetary policy will endure if Amamiya, who has been instrumental in formulating the large-scale stimulus programs, is the next successor. In London trade, it trimmed losses to trade around 132.11. Amamiya is a longtime heavyweight at the BOJ and seen by market players as the closest to a continuity candidate among the likely replacements. The Nikkei report said the government is in the final stage of finalizing its nominations, citing government and ruling coalition officials.
  • A flurry of big deals in sectors ranging from mining to storage has provided respite for the world’s dealmakers after their slowest start to a year in two decades. More than $40 billion in potential transactions came to light over the weekend and into Monday, according to data compiled by Bloomberg, as deal-hungry companies sought to start spending after a prolonged period on the sidelines.
  • Some of the most powerful Middle East earthquakes in decades killed more than 1,000 people in Turkey and Syria on Monday and forced a halt in crude oil flows to a regional export terminal. A pre-dawn earthquake hit near the Turkish city of Gaziantep with a 7.7 magnitude, killing more than 1,000 people in Turkey and about 370 in Syria. Hours later, a second 7.5 temblor struck nearby and was felt in the Turkish capital Ankara, some 600 kilometers (375 miles) away.  “We’ve been shaken by the strongest disaster in a century,” Turkish President Recep Tayyip Erdogan said. Speaking before the second quake, he said it was impossible to say what the death toll would rise to.
  • Deutsche Bank AG is looking at ways to cut jobs to ensure it will hit its cost targets, a senior executive said Monday. The German lender needs to “maintain a laser focus on costs” after promising to keep expenses in check despite rapid inflation, UK & Ireland Chief Executive Officer Tiina Lee said in an interview with Francine Lacqua on Bloomberg TV. That involves “looking to strategically adjust headcount” after some “tactical” cuts last quarter, Lee said. Lee’s comments echoed Chief Executive Officer Christian Sewing, who last week vowed to rein in spending through various initiatives including staff reductions. While Sewing singled out consumer banking activities in Germany as one area where cuts would take place, the trading operations will likely be spared, Bloomberg News has reported.
  • The stock rout roiling Gautam Adani’s indebted conglomerate entered a third week, with the billionaire and his family prepaying $1.11 billion worth of borrowings backed by shares in a bid to restore investor confidence. Six of the group’s 10 stocks ended lower in Mumbai on Monday, with Adani Transmission Ltd. and Adani Total Gas Ltd. leading the losses. The meltdown since US short-seller Hindenburg Research made fraud allegations against the ports-to-power group in a Jan. 24 report has wiped out $117 billion, or almost half of the market value of its companies. Adani has repeatedly denied the claims. Worries about the conglomerate’s access to funding rose further after Bloomberg reported Saturday that Adani Enterprises Ltd., its flagship firm, has shelved a bond sale just days after it abandoned a record stock offering. S&P Global Ratings also has cut its outlook on a port operator and an electricity distributor in the group, just as some of the companies are due to release quarterly earnings this week, giving investors a chance to scrutinize the conglomerate’s financial health.
  • Crypto companies are continuing to shed workers around the world in the aftermath of last year’s bear market, taking job losses in just the first five weeks of the year into the thousands.  US billionaire twins Tyler and Cameron Winklevoss’s Gemini Trust Co., Digital Currency Group’s London-based Luno exchange and Singapore crypto lender Matrixport Technologies Ltd. are among those who made recent cuts. Higher interest rates and recession risks are spurring a range of sectors to retrench. Over 30,000 positions were lost in January in the technology industry at firms like Google parent Alphabet Inc., Microsoft Corp. and Amazon.com Inc.
  • Bank of England policy maker Catherine Mann has urged her fellow rate-setters to “stay the course” to carry on raising interest rates even though markets are betting on the approaching end of the most aggressive hiking cycle in three decades. Mann said the UK central bank is most likely to increase borrowing costs again at its next meeting rather than pause but warned of the risk of letting up in the fight against inflation too early. “The consequences of under tightening far outweigh, in my opinion, the alternative,” Mann said in the text of a speech given in Budapest on Monday. “We need to stay the course, and in my view the next step in bank rate is still more likely to be another hike than a cut or hold.”
  • Oil giant Chevron Corp. is looking to seal an energy exploration deal with Algeria, as the North African country steps up efforts to replace sanctioned Russian supplies in nearby Europe, according to people familiar with the matter. Over the past decade, U.S. companies have pulled back from operations in oil-and-gas-rich Middle Eastern and African countries they viewed as politically risky to focus on booming shale production at home. Yet Chevron, which is the world’s second-largest Western oil company by market capitalization, recently revived talks to invest in Algeria, people familiar with the matter said. Chevron signed a memorandum of understanding with state-run company Sonatrach to investigate natural-gas opportunities in 2020 but progress had been slow until recently.
  • Manchester City Football Club is facing an investigation into its finances by England’s Premier League, risking a points deduction that could dash its chances at the title and see it miss out on qualifying for Europe’s lucrative Champions League.  A commission set up by the world’s largest football league will investigate alleged financial breaches by Manchester City dating back to 2009, shortly after it was taken over by a group of companies linked to Abu Dhabi, according to a website statement. The alleged breaches apply to four different sets of rules including those relating to the reporting of its finances, as well as the disclosure of a manager’s salary. The club is also accused of breaking rules around cooperating with the Premier League in its investigations from 2018 to the present day.







*All sources from Bloomberg unless otherwise specified