February 8, 2023

Daily Market Commentary

Canadian Headlines

  • Brookfield Asset Management Ltd.’s distributable earnings rose 6% in the fourth quarter as it wrapped up a year of record fundraising. The Canadian alternative asset manager said distributable earnings increased to $569 million from $539 million in the prior year. It’s the first quarterly report for Brookfield Asset as a public company after it was spun out of parent Brookfield Corp. in December. “As we head into 2023, we expect strong growth in fee-related earnings, benefiting from a full year contribution from our latest flagship funds, along with two of our follow-on flagship funds expected to be in the market soon,” President Connor Teskey said in a statement. The company raised a record $93 billion in capital last year. Brookfield Corp. spun off the division — retaining a 75% stake in it — in an effort to gain a higher valuation by separating the money-management business from its own investment capital. Brookfield Asset managed $418 billion in fee-bearing capital at the end of December across real estate, infrastructure, credit, private equity and renewable power.
  • Bank of Canada Governor Tiff Macklem conceded that rate hikes have hit the country’s homeowners hard, saying the impact of higher borrowing costs on consumers is a major reason why he chose to hit pause before the US Federal Reserve. In an interview with Bloomberg News, Macklem said the central bank needs time to gauge how households and businesses are adapting to higher rates before it makes any further moves.  Canadians “are more indebted today than they’ve ever been,” Macklem said after a speech Tuesday in Quebec City. Although some households were able to build up cash reserves during the pandemic, “extra savings are probably not going to last as long as the higher debt.”
  • Prime Minister Justin Trudeau’s government will commit C$46.2 billion ($34.4 billion) in new funding over the next decade to help prop up Canada’s health-care system, which is struggling to keep up with demand. Some C$17.3 billion of the money is to top-up the Canada Health Transfer over the next decade, including a guarantee of annual increases of at least 5% for the next five years. Trudeau is also promising an immediate C$2 billion boost to that fund. The transfer currently increases by at least 3% each year, although it can be higher because it tracks the three-year average of nominal growth in output. In the fiscal year that began last April, the transfer rose to C$45.2 billion, or 9.4% of total federal program expenses.

World Headlines

  • European stocks rose after Federal Reserve Chair Jerome Powell refrained from quashing optimism over an easing of US rate hikes, and as investors digested earnings reports and buyback announcements. The Stoxx 600 Index added 0.8% by 9:56 a.m. in London. Real estate, chemicals and energy were among the top advancers, while staples and utilities lagged. After one of the best starts to a year that saw the Stoxx 600 enter a bull market, equities in Europe have trimmed gains in February amid concern over higher-for-longer interest rates due to a stronger-than-expected economy and inflationary concerns.
  • US futures fell amid mixed earnings reports, while stocks caught up with late gains on Wall Street spurred by a sanguine rates outlook. Oil extended an advance. Contracts on the three major U.S. gauges fell, following Tuesday’s rally after Federal Reserve Chair Jerome Powell refrained from pushing back against investor optimism. Chipotle Mexican Grill Inc. dropped in premarket trading after its results missed estimates. Microsoft Corp. gained, with its market value poised to breach $2 trillion, as analysts raised price targets after it unveiled plans to use artificial intelligence tools to improve online search and browsing. Risk sentiment got a boost after Powell highlighted that disinflation has begun. While he repeated that further hikes will likely be needed if the jobs market remains strong, his comments soothed traders who had expected a more aggressive pushback against a loosening in financial conditions following Friday’s bumper payrolls report.
  • Asian stocks edged higher as traders parsed comments by Federal Reserve Chair Jerome Powell that were seen as dovish, even after he reiterated that further interest rate hikes are needed to curb rising inflation. The MSCI Asia Pacific Index gained as much as 0.6%, driven by rate-sensitive technology shares. Benchmarks in Taiwan and South Korea advanced, while Japanese, Hong Kong and Chinese shares fluctuated. Powell largely stuck to his previous tone, saying further hikes will likely be needed after strong jobs data, while acknowledging disinflation has begun. The Fed chair’s remarks at the Economic Club of Washington offered traders some relief, who were bracing for a more hawkish recalibration of rate expectations.
  • Oil extended its biggest gain in three months on optimism the US Federal Reserve will maintain its path on interest-rate hikes without shifting to a more hawkish policy. West Texas Intermediate climbed above $78 a barrel after closing 4.1% higher on Tuesday, as Fed Chair Jerome Powell said that more rate increases would be needed, but disinflation had begun. The remarks, though not very different to what he said last week, were taken positively by the markets and equities gained. The comments added to indications of tighter oil supplies over recent days. Key timespreads for the global Brent benchmark have strengthened amid disruptions to vital Norwegian and Azeri flows. Meanwhile, the American Petroleum Institute reported US crude inventories dropped by 2.2 million barrels last week, according to people familiar with the data. Official government figures are due later Wednesday.
  • Gold rose as the dollar weakened after Federal Reserve Chair Jerome Powell avoided striking an overly hawkish tone despite strong US economic data. The precious metal has edged higher since tumbling 2.5% on Friday, when unexpectedly strong US jobs data moderated expectations that the Fed will switch to rate cuts this year. On Tuesday. Powell passed up an opportunity to tamp down investor optimism aggressive monetary tightening will soon cease. Spot gold climbed 0.4% to $1,881.23 an ounce at 10:41 a.m. in London, after gaining 0.3% in the previous session. The Bloomberg Dollar Spot Index declined 0.2%. Silver, platinum and palladium all rose.
  • Invesco Ltd. said Chief Executive Officer Marty Flanagan plans to retire in June and will be replaced by Andrew Schlossberg.  Schlossberg, a senior managing director and head of the Americas for the investment-management firm, will also join the board on June 30, the Atlanta-based company said Wednesday in a statement.  “Andrew has a long and established track record of delivering a superior investment experience to clients, helping employees grow in their careers, and leading innovation and profitable expansion across our global business,” Chairman G. Richard Wagoner said in the statement.
  • Europe’s top banking regulator said lenders faces higher capital requirements if firms fail to heed warnings to get a better handle on the risk posed by trading clients.  “I expect that they will comply,” Andrea Enria, the European Central Bank’s top oversight official, said in an interview with Bloomberg TV. The watchdog would apply “capital add-ons” to individual banks if they ignore warnings published last month, as several firms have, with regard to their leveraged loan businesses since 2017, he said. The ECB stepped up its scrutiny of so-called counterparty credit risk after the collapse of family office Archegos Capital Management in 2020 showcased the dangers that some banks face from trading clients. The regulator’s broader efforts to ensure banks improve risk management have chafed in the industry, with lenders pushing back notably on the ECB’s treatment of leveraged loans.
  • CVS Health Corp. has agreed to buy Oak Street Health Inc. for an enterprise value of $10.6 billion, as the pharmacy giant pushes deeper into health-care with its second major acquisition in the space in as many years. The drugstore chain is paying $39 a share in cash for the Chicago-based company at an equity value of $9.47 billion, according to an announcement Wednesday, confirming an earlier Bloomberg News report. It will be funded “through available resources and existing financing capacity” and CVS said it’s “committed to maintaining current credit ratings.” CVS, based in Woonsocket, Rhode Island, has been expanding more directly into health care via acquisitions, agreeing last year to buy Signify Health Inc., a deal expected to close in the first half of this year. The Oak Street deal is also expected to close this year.
  • Turkey’s stock exchange suspended trading for the first time in 24 years, following a selloff that erased $35 billion from the value of its main equities gauge in the wake of two devastating earthquakes. “Our stock exchange has decided to halt trading in equities, futures and options markets,” Borsa Istanbul said in a statement on Wednesday morning, following two market-wide circuit breakers. It didn’t say when trading would resume. The benchmark Borsa Istanbul 100 Index has lost 16% this week, erasing almost $35 billion from the value of its member stocks, in the aftermath of two deadly earthquakes that struck Turkey’s southern region. Turkish stocks, which are this year’s worst performers globally, entered a technical bear market on Tuesday after falling more than 20% from their January high.
  • Tesla Inc. will present a third version of Elon Musk’s “master plan” next month, almost a full year after the chief executive officer said he was working on a next edition. The electric-car maker will outline “the path to a fully sustainable energy future for Earth” during its March 1 investor day, Musk tweeted. Tesla has already said its expansion plans and next-generation platform for cheaper vehicles will be on the agenda. Musk first published a master plan for Tesla in 2006, outlining ambitions to build a high-performance sports car and use proceeds from that product to gradually build more affordable electric vehicles. Ten years later, he authored “part deux,” which detailed ambitions to build solar roofs, expand into all major auto segments and develop self-driving capability.
  • President Joe Biden used his State of the Union address Tuesday evening to lay a trap, and House Republicans couldn’t help but walk into it. Biden intended his speech to be a relatively staid affair. His appeal to bipartisanship would provide an implicit contrast to Republicans he’s painted as consumed by the party’s fringe ahead of high-stakes talks over the debt limit and a bitter reelection campaign. Instead the fringe came straight to Biden. The night is destined to be remembered for the moment that Representative Marjorie Taylor Greene of Georgia, a conspiracy theory enthusiast, began jeering Biden from the back row over his claim that some Republicans supported sunsetting Medicare and Social Security.
  • Ukrainian President Volodymyr Zelenskiy arrived in the UK on Wednesday, only his second confirmed trip outside the country since the war began, as Prime Minister Rishi Sunak offered more training for Ukrainian troops and fighter jet pilots. Zelenskiy arrived at Stansted Airport outside of London in a Royal Air Force plane, before heading into London to meet Sunak in Downing Street and address UK lawmakers in Parliament. He will also meet King Charles III during his visit, the Press Association reported. The leaders will discuss a “two-pronged” approach to UK support for Ukraine, beginning with an increase in military equipment to help Ukraine counter Russia’s expected new offensive, backed up by long-term support, Downing Street said. Sunak will also offer to bolster the UK’s training offer for Ukrainian troops, including expanding it to marines and fighter jet pilots.
  • Microsoft Corp.’s $69 billion acquisition of Activision Blizzard Inc. will harm competition in the UK gaming market, Britain’s antitrust watchdog has provisionally found. The Competition and Markets Authority said it had taken an initial view that the deal could result in a substantial lessening in competition, higher prices, fewer choices or less innovation for UK gamers, according to a statement published Wednesday. Microsoft first announced the Activision deal last year, looking to add blockbuster games like Call of Duty to a business that already includes the Xbox console, the Halo franchise and Minecraft world-building software. But the tie-up has fallen foul of global regulators who fear that Microsoft could make it harder for rival platforms to get unfettered access to Activision’s most popular titles.
  • The UK was the only European country in the Group of Seven nations where real incomes adjusted for inflation fell in the third quarter of last year, according to the OECD. Rampant inflation was to blame for continuing slide in household spending power, the Paris-based organization said, piling pressure on Prime Minister Rishi Sunak’s government and the Bank of England to get the cost-of-living crunch under control. The figures underscore a widening gap between the rich and the poor and help explain why millions of public-sector workers have walked off the job seeking higher pay. Pressure is now on Sunak to settle the strikes by offering raises to workers on the lowest pay including teachers, nurses and ambulance drivers.
  • A surprise jump in used-vehicle prices last month is adding to US car buyers’ frustration and has the potential to dent hopes inflation is headed lower even as the Federal Reserve hikes interest rates. The 2.5% rise in average used-vehicle prices in January from December clawed back some of last year’s 15% decline, according to data from auctioneer Manheim. Used-car prices often are a bellwether for the new-car market, so potential buyers had reason to believe automakers and dealers would soon be offering fat rebates and breaks on leases. It isn’t happening. New-car prices remain at record levels. Used-vehicle prices are not only high at auction, but at retail showrooms as well. Add in a strong jobs report and it may take more action to tame inflation.
  • Uber Technologies Inc. reported revenue that beat analysts’ estimates, suggesting rising inflation hasn’t kept consumers from ordering more takeout or hailing a ride. The shares jumped about 6% in premarket trading. Revenue rose 49% to $8.6 billion in the fourth quarter, the San Francisco-based company said Wednesday in a statement. That beat the $8.5 billion analysts had projected, according to data compiled by Bloomberg. Gross bookings, which encompass ride hailing, food delivery and freight, increased 19% to $30.7 billion, in line with estimates.  Uber’s report contrasts with much of the technology sector that’s seen giants like Microsoft Corp. and Alphabet Inc. and gig-economy peers like DoorDash Inc. and Lyft Inc. lay off workers and scale back to adjust to a more uncertain economic outlook. Uber eliminated thousands of jobs in the early stages of the pandemic in 2020 but has said recently it has no plans for widespread job cuts.
  • Credit Suisse Group AG, fighting to stem a wave of investor outflows, is dialing back some stringent anti-money laundering controls in Asia after they drew protests from clients and bankers and contributed to staff departures.  A requirement that private bankers verify most of their clients’ sources of wealth was eased near the end of last year, while third-party transactions are no longer subject to executive approvals, according to people familiar with the matter. The backtracking highlights the delicate balance facing the bank as it tries to tighten operations following a series of scandals, while hanging on to clients in one of the fastest-growing regions for money management. The measures, more stringent than at many peers, threatened to stall efforts to recover from massive outflows that contributed to another quarterly loss for the embattled bank.
  • Masayoshi Son is now personally on the hook for about $5.1 billion on side deals he set up at SoftBank Group Corp. to boost his compensation, as losses mounted at its core Vision Fund venture capital arm. Son, whose stake in SoftBank grew in recent months, also owns portions of the company’s key investment vehicles. While these holdings have sparked controversy due to corporate governance concerns, the Japanese billionaire has denied any conflict of interest. His unrealized losses widened roughly $400 million from three months before. The founder and chief executive of SoftBank was down $4.7 billion on the same side deals through the September quarter.
  • Under Armour Inc. raised its profit forecast after a strong holiday season and better-than-expected inventory management. The athletic-wear retailer now sees full-year earnings excluding some items in the range of 52 cents to 56 cents per share, up from a prior forecast of 44 cents to 48 cents. Revenue growth is still seen up low single-digits on a percentage basis, or mid-single-digits excluding currency impact, according to a statement Wednesday. Revenue rose 3% to $1.58 billion for the third quarter ended Dec. 31, beating the $1.55 billion average of analysts surveyed by Bloomberg. Adjusted earnings were 16 cents a share, while analysts were looking for 9 cents.
  • Half of Americans say they are financially worse off now than they were a year ago, the highest share since 2009, according to a Gallup poll released Wednesday. An even greater portion of lower-income Americans said they were losing ground, according to the Jan. 2-22 survey. About 61% of those with a household income of less than $40,000 reported they were worse off, compared to 49% and 43% for middle- and high-income households respectively. Gallup noted high inflation, rising interest rates and declining stock values likely weighed on Americans’ financial situations. That said, respondents remain upbeat about their future finances despite looming concerns about a recession.








*All sources from Bloomberg unless otherwise specified