February 7, 2023
Daily Market Commentary
- Bank of Canada Governor Tiff Macklem is scheduled to give a lunchtime speech in Quebec City. A central bank survey shows financial market participants expect the BOC will cut its key interest rate to 4% by December, from the current 4.5%.
- Prime Minister Justin Trudeau is preparing to commit billions of dollars to help shore up a strained health-care system, opening the spending taps for a service that many Canadians say isn’t working well. Trudeau will host provincial leaders this week in Ottawa to try to make progress on a new health funding deal. The premiers want as much as C$28 billion ($21 billion) in new annual spending. Federal officials dispute the need for that amount, and they want to place conditions on the money, such improving outcomes in long-term care. Canada’s government-dominated medical system bears some resemblance to Britain’s National Health Service, but it’s not truly national. Most of the funding and administrative responsibility lies with the provinces, with some federal money attached. But all sides agree that it was pushed to the brink by Covid-19.
- Bitcoin miners Hut 8 Mining Corp. and US Bitcoin Corp. are merging in an all-stock deal after a prolonged slump in cryptocurrency prices heaped pressure on the industry. The combined company will have a market capitalization of about $990 million, according to a statement on Tuesday. It will have “access to” roughly 825 megawatts of “gross energy” across six sites. US Data Mining Group Inc. is the legal name of US Bitcoin Corp. Bill Tai will remain chairman of the board, while Jaime Leverton will continue as chief executive officer of the new company, which will be named Hut 8 Corp. and based in the US.
- Canada Goose said it expects to achieve revenue of C$3 billion and 30% adjusted EBIT margin in fiscal 2028. Revenue growth is expected to be driven by the acceleration of the consumer-focused growth initiatives, the buildout of the DTC network and the creation of new and more rapid expansion of existing categories. Sees continued growth in all categories including in heavyweight and lightweight down and accelerated growth of newer categories such as rainwear, apparel and footwear as well as the addition of further categories including eyewear, luggage and home
- European stocks advanced on Tuesday as investors weighed resilient corporate earnings against uncertainty over the path of central bank rate hikes. The Stoxx 600 added 0.2% by 10:42 a.m. in London. Energy, miners and banks outperformed, while real estate and consumer products stocks lagged behind. After kicking off the year with one of their best ever January performances, European stocks have stumbled this month as investors worry that central banks may keep rates higher for longer amid better-than-feared economic data and inflationary pressures. Sentiment was boosted early last week as the policy outlook from the Federal Reserve and the European Central Bank was perceived as dovish, but a stronger-than-expected US jobs on report on Friday dulled risk demand again.
- US equity futures fluctuated and stocks rose as investors weighed earnings reports and awaited commentary due later from Federal Reserve Chair Jerome Powell. Futures on the S&P 500 and the Dow were flat, while those on the Nasdaq 100 contracts edged higher. Pinterest Inc. fell in premarket trading after posting weaker-than-forecast revenue. Energy shares led gains in Europe after oil major BP Plc boosted shareholder returns and reported record profit. US President Joe Biden will speak to a joint session of Congress on Tuesday evening against the backdrop of renewed tensions with China and a brewing showdown with House Republicans over raising the federal debt ceiling.
- Asian stocks edged higher, halting a two-day slump, as investors adjusted positions ahead of commentary from Federal Reserve Chair Jerome Powell later Tuesday. The MSCI Asia Pacific Index rose as much as 0.8%, with benchmarks in Hong Kong, China, Japan and South Korea advancing. Chinese technology shares contributed much of the gains, led by Baidu after it affirmed a plan to publicly roll out a ChatGPT-like service in March. Investors are waiting to see if Powell gives any hints on future policy after a strong US jobs report last week. Fears of higher rates have eased demand for Asian emerging market stocks following a solid start to the year. Chinese shares eked out gains after huge losses in the previous session, as relations with the US remain fragile amid a dispute over an alleged spy balloon.
- Oil rallied as Saudi Arabia signaled confidence in the demand outlook with a surprise boost in crude prices, while investors awaited comments on monetary policy from Federal Reserve Chair Jerome Powell. West Texas Intermediate futures climbed above $75 a barrel, extending a rebound from the lowest since mid-December. Saudi Aramco increased most of its prices for crude that will be shipped to its main market of Asia in March, amid growing optimism over a robust demand recovery in China following the end of Covid Zero. Oil has fluctuated in a relatively narrow range so far this year, with the global Brent benchmark swinging between about $80 and $90 a barrel. While traders are awaiting more signs of stronger Chinese demand, that has been offset by signs of oversupply in the near term.
- Gold inched up from near a four-week low as traders awaited comments from Federal Reserve Chair Jerome Powell for clues on the outlook for monetary policy. The metal has largely treaded water since tumbling 2.5% on Friday, when unexpectedly strong US jobs data moderated expectations that the Fed will switch to rate cuts this year. Powell’s comments later Tuesday may offer signs of whether the central bank may need to raise rates to a higher peak than policymakers previously expected. Spot gold added 0.2% to $1,870.54 an ounce at 11:15 a.m. in London. The Bloomberg Dollar Spot Index steadied. Silver and platinum were little changed, while palladium dropped for a fourth day.
- Apollo Global Management is among a group of financial firms in talks to take a stake in Credit Suisse Group AG’s revamped investment bank, people familiar with the matter said. Credit Suisse said last year that it would carve out the advisory part of its investment-banking operation into a new entity under the resurrected CS First Boston brand following a string of scandals. The bank said it would raise outside capital to launch the new entity, which it hopes to list in a separate initial public offering eventually. The talks with Apollo are continuing and could fall still apart. An investment in CS First Boston would represent another level of commitment from Apollo, which had previously agreed to take over Credit Suisse’s securitized-products group, which packages and resells debt. The size of the potential stake couldn’t be learned.
- Rescue teams from overseas began deploying in Turkey on Tuesday after a pair of powerful earthquakes a day earlier killed at least 4,000 people in the country and neighboring Syria, leaving millions to suffer without power or heat throughout a snowy night. As dawn neared, people in both countries were set to spend a second day searching through the ruins of thousands of buildings left damaged or demolished by a magnitude 7.7 quake that hit near the Turkish city of Gaziantep on Monday morning. Another temblor measured at 7.6 struck nearby just nine hours later, according to Turkey’s disaster response management agency, known as AFAD. Rescue teams from Romania, Switzerland, Azerbaijan and Lebanon have been sent to the quake zone, Turkey’s Vice President Fuat Oktay said, part of broad international effort to quickly respond to the crisis. Chinese media said the government will offer 40 million yuan ($5.9 million) in assistance.
- Joe Biden will speak to a joint session of Congress on Tuesday evening against the backdrop of renewed tensions with China and a brewing showdown with House Republicans over raising the federal debt ceiling. The downing of a Chinese surveillance balloon that is hampering efforts to improve ties with Beijing and the specter of a US default that threatens to wreak havoc on the US economy will have investors, diplomats and lawmakers looking for reassurance as the president juggles two challenges with international ramifications. The president is also expected to highlight the accomplishments of his first two years in office — including his landmark climate and health law and infrastructure package — and chart his vision for the year ahead in the State of the Union, according to White House officials.
- Bed Bath & Beyond Inc. has lined up investors for an eleventh-hour cash infusion that would allow it to stave off a bankruptcy filing, according to people with knowledge of the matter. The retailer, which has been preparing for a Chapter 11 filing after lenders declared it in default last month, plans to issue convertible preferred securities and warrants, it said in a statement Monday, in a deal that would ultimately raise more than $1 billion. The company has gathered orders from institutional investors that would cover the full offering, said the people, who asked not to be identified because the details are private. A significant chunk of the orders are coming from one anchor investor, said one of the people, who wouldn’t identify the investors.
- London house prices flatlined, recording their worst performance in more than three years, one of the UK’s biggest mortgage lenders said. The cost of an average home in the capital hit £530,396 ($637,720) in January, unchanged from a year earlier, according to Halifax. This was the slowest rate of growth since November 2019, when prices fell by 1% from the previous year. Compared to a month earlier, prices fell 2% from £541,472. While London’s house price growth has lagged many other areas of the UK “for some time,” according to Halifax, the price of a typical home is still around a quarter of a million pounds above the UK national average.
- Prime Minister Rishi Sunak created a new government department focused on energy security and used a limited reshuffle of his UK cabinet to reset his premiership after a rocky first 100 days in power. Sunak named Grant Shapps as energy security secretary, Greg Hands as Conservative Party chairman and Kemi Badenoch as business and trade secretary. He broke up the sprawling department responsible for business, energy and industrial strategy and named Michelle Donelan as science, innovation and technology secretary, heading a brand-new ministry. After three months largely focused on cleaning up the mess left by his predecessors Liz Truss and Boris Johnson, Sunak is now trying to reshape the government to focus on his priorities. He regularly talks of the need to focus on technology and embrace the entrepreneurial spirit of Silicon Valley, while Russia’s war in Ukraine has also highlighted the need for Britain to become more self-sufficient in its energy production.
- Companies that pledged to leave Russia almost a year ago in response to the Ukraine invasion are wading through heightened risk and complex terrain as they gradually pull the plug on their business ties. Companies including McDonald’s Corp withdrew from Russia this past summer, citing the humanitarian crisis in Ukraine as well as the impact the war is having on its fast-food franchises. But others including BP P.LC., Dutch mobile provider Veon Ltd. and Philip Morris International Inc. have faced a much lengthier and cumbersome process exiting Russia. “Russia is a market where it’s easier said than done to practically leave,” said Daniel Tannebaum, who leads the global anti-financial crime practice at consulting firm Oliver Wyman.
- Goldman Sachs Group Inc. raised $5.2 billion for a private equity fund that will buy early-stage companies that are typically small in size, a sign of confidence in an industry that’s confronting strong headwinds. Goldman Asset Management’s West Street Global Growth Partners I exceeded its initial target and received $3.7 billion from institutional and high net worth investors, according to a statement Tuesday. It also got a significant commitment from the firm and its staff, it said. The fund targets enterprise and financial technology, as well as the healthcare and consumer sectors, where the pace of innovation “shows no sign of abating,” Julian Salisbury, Goldman’s chief investment officer for asset & wealth management, said in the statement.
- India is looking to sign many more long-term deals to buy liquefied natural gas to help power its economic growth. Petronet LNG Ltd., India’s biggest gas importer, wants to secure 12 million tons a year of additional supply under long-term contracts, Managing Director Akshay Kumar Singh said Tuesday in Bengaluru at India Energy Week. That’s equivalent to about 60% of the nation’s deliveries last year, according to ship-tracking data. New Delhi is trying to boost its LNG import capacity to increase the share of natural gas in its coal-heavy electricity mix to 15% by 2030 from about 6% now, Prime Minister Narendra Modi said Monday.
- Adani Enterprises Ltd. surged, leading gains as most of the Indian conglomerate’s stocks rose after its founders pre-paid some debt and traders covered short positions. The flagship’s shares rallied as much as 25% before finishing up nearly 15% in Mumbai on Tuesday. That helped trim the slide in the group’s market capitalization to $115 billion since US-based Hindenburg Research released a report on Jan. 24 alleging market manipulation and accounting fraud — claims that Adani has repeatedly denied. The reprieve came as Gautam Adani and his family prepaid $1.11 billion worth of debt in a bid to calm a selloff that sparked fears of a contagion across India’s economy and markets. Adani Ports & Special Economic Zone Ltd. said on Tuesday that it will repay debt of around 50 billion rupees ($605 million) in the year starting April, helping the billionaire’s firm to improve a leverage metric at a time when its financial health and that of other group companies has come under intense scrutiny and concerns have grown over their access to funding.
- Federal Reserve Bank of Minneapolis President Neel Kashkari said January’s strong labor-market report shows the US central bank needs to keep raising interest rates. “Right now I’m still at around 5.4%,” Kashkari told CNBC in an interview Tuesday, referring to his forecast for how high rates need to go to bridle inflation. “If I had to pick a number today, I’d be where I was in December.” The FOMC raised its benchmark rate by a quarter percentage point to a range of 4.5% to 4.75% last week. The smaller move followed a half-point increase in December and four jumbo-sized 75 basis-point hikes prior to that.
- Brazil’s central bank signaled plans to hold its interest rate high for longer and reaffirmed its commitment to meet its inflation targets after President Luiz Inacio Lula da Silva slammed current monetary policy. The central bank conducts policy based on its established targets, board members wrote Tuesday in the minutes to their Jan. 31 – Feb. 1 policy meeting, when they kept the benchmark Selic unchanged at 13.75%. They noted “with particular concern” a worsening of inflation expectations, which could be explained by a “possible perception of leniency” toward current goals. Policymakers’ remarks come one day after Lula called the central bank’s stance on rates an “embarrassment” and said there’s “no justification” to keep borrowing costs at their current levels.
- BP Plc said it will cut oil and gas output more slowly this decade after the supply disruption caused by Russia’s invasion of Ukraine boosted prices and delivered record profits. While the British company said it was doubling down on the transition to cleaner energy with an additional $8 billion of spending to 2030, it will ramp up investments into fossil fuels by the same amount. By the start of the next decade, the company will have higher emissions than previously promised, with oil and gas output down by 25% compared to 2019, compared with its old target for a drop of as much as 40%. The strategic shift reflects the new reality since President Vladimir Putin’s military attack on Ukraine, and his use of energy supplies as a weapon against Europe. After years of criticism for their role in causing climate change, oil and gas companies now face calls from governments around the world to boost production.
*All sources from Bloomberg unless otherwise specified