February 9, 2023

Daily Market Commentary

Canadian Headlines

  • Ivanhoe Mines Ltd. founder Robert Friedland said he may bring in a minority partner to help develop Congolese copper assets that are key to the green energy transition. The Vancouver-based company is in discussions with potential partners, including sovereign investors, as countries seek stable supplies of the metal, Friedland said. But Ivanhoe will only enter partnerships that bolster the growth plans of its flagship Kamoa-Kakula mine in the copper-rich Democratic Republic of Congo, the billionaire said. “We’re in all kinds of strategic discussions and you know, most of the most interesting investors tend to be sovereign investors,” Friedland said in Bloomberg’s Cape Town office on Wednesday. “We only want to do things that help it to grow.” BHP Group held early stage discussions with Ivanhoe to buy into Western Foreland, a huge exploration territory that neighbors the Kamoa-Kakula mine, Bloomberg reported in 2021. Congo has some of world’s richest deposits of copper and is the biggest supplier of cobalt, a key battery metal mined alongside it.
  • Sun Life Financial Inc.’s US and Canadian insurance businesses are getting a lift as benefit-use patterns return to normal. Fourth-quarter underlying profit in the Canada unit rose 22% to C$324 million ($241 million), the Toronto-based company said Wednesday. Overall profit topped analysts’ estimates. Sun Life is getting a boost as customers’ tapping of their insurance benefits more closely syncs up with expectations, after the elevated use and unpredictable patterns the company saw earlier in the pandemic. The Canadian business was helped last quarter by lower claims volumes while the US unit saw reduced medical stop-loss and disability claims, as well as lower Covid-related claims.

World Headlines

  • European stocks advanced for a third session, reaching the highest in almost a year, as investors weighed a slew of corporate earnings and greeted a slowdown in German inflation. The Stoxx 600 Index was up 1% as of 10:20 a.m. in London, trading at highest level since February 2022. Industrials and banking stocks led gains, while the food, beverage and tobacco subindex was the worst performer, weighed down by declines in British American Tobacco Plc after the firm’s decision to end a buyback program disappointed some investors. Equities in Europe are having a slower February, following a stellar start to the year that led the main regional benchmark to enter a bull market. Investors are monitoring inflation and the strength of the economy to assess what central banks will do as fears of higher-for-longer interest rates cloud the positive sentiment toward riskier assets.
  • US futures advanced with stocks as investors assessed earnings reports and awaited data on US jobless claims. Contracts on U.S. gauges signaled a rebound from Wednesday’s equity losses. Tesla Inc. climbed 3.6% in premarket trading, with shares set to double from a January low. Walt Disney Co. surged on better-than-expected results and a restructuring plan that includes job cuts and cost savings. Investors will closely watch US data, including Thursday’s report on initial jobless claims, for clues on policy after a string of Federal Reserve officials reiterated that interest rates will need to keep rising to curb inflation, taking the edge off market optimism. Earnings are also in focus, with bumper share buybacks a highlight of the season.
  • Asian stocks edged higher as Chinese shares gave the region a boost, offsetting renewed concerns over the trajectory of US interest rates after hawkish comments made by Federal Reserve officials. The MSCI Asia Pacific Index erased an earlier loss of 0.4% to rise 0.5%. Shares in China and Hong Kong jumped, fueled by the tech sector, as recent market optimism in AI-related stocks continued despite a warning against speculative trades from an official media. Asian equities have lost momentum after a strong start to the year, after a US jobs report last week stoked concerns over borrowing costs. Shares will likely remain volatile over the next few months, as the “expected softness in the economic outlook for developed markets may weigh on externally exposed sectors and markets,” said Soo Hai Lim, head of Asia ex-China equities at Barings.
  • Oil steadied after rallying around 7% over the previous three sessions as investors assessed continued supply disruption and the outlook for interest rates. West Texas Intermediate futures traded above $78 a barrel after closing almost 2% higher on Wednesday. BP Plc said exports of Azeri oil from Turkey’s port of Ceyhan still haven’t resumed following two devastating earthquakes. Last month those flows amounted to 615,000 barrels a day. A raft of Federal Reserve speakers reinforced the idea that interest rates will need to keep climbing to combat inflation, putting concerns about a possible drag on demand back in focus. Crude has traded in a narrow band of just over $10 since the start of the year as investors look for signs of a sustained rebound in Chinese demand, which some predict will drive prices above $100 a barrel. Market volatility has eased as traders look for direction.
  • Gold edged up for a fourth day, supported by a weaker dollar as markets focused on whether the Federal Reserve will soon take a more dovish stance on interest rates. Markets have been betting that US rates are nearing their peak, keeping the dollar under pressure, though the outlook has changed a bit recently as Fed officials stressed the need to keep raising borrowing costs. Four policymakers on Wednesday welcomed a recent moderation in inflation while cautioning that the fight isn’t yet won. Spot gold rose 0.5% to $1,884.86 an ounce by 10:58 a.m. in London, and is up about 3% this year. The Bloomberg Dollar Spot Index was 0.4% lower. Silver and platinum rose, while palladium steadied.
  • Mexico’s inflation accelerated roughly in line with expectations in Januarty, giving policymakers little room for maneuver at the central bank’s first interest interest rate decision of the year later on the day. Consumer prices rose 7.91 on an annual basis, up from 7.82% in December, the national statistics institute reported Thursday. It matched the 7.91% median estimate of economists surveyed by Bloomberg. Core inflation, which excludes volatile items such as fuel, sped up to 8.45% from 8.35% in December, slightly above economists’ median estimate of 8.44%. The measure, which is closely watched in Mexico, slowed in December for the first time in two years.
  • Tesla Inc. is poised to double in value from a January low, boosted by a breakneck rally for growth stocks and signs that big price cuts are working to spur a demand rebound for the electric-vehicle maker. The shares jumped as much as 4.1% to $209.50 in US premarket trading, implying a 106% gain from their Jan. 6 intraday trough. The surge over the past month comes as investors pile back into so-called growth stocks, betting that the Federal Reserve’s aggressive rate-hike cycle is nearing its end. The Elon Musk-led company has also gained after better-than-expected earnings and a spate of positive headlines on tax credits for electric vehicles boosted sentiment. At the same time, a big price cut in January appears to be working, prompting a surge in demand for Tesla cars.
  • Credit Suisse Group AG said that it will buy Michael Klein’s investment banking boutique as it brings in the veteran dealmaker to lead the spinoff of its First Boston unit. The Swiss bank said the purchase price is $175 million, with the full consideration valued at $210 million, to take over The Klein Group. The sellers will get cash, as well as a convertible note and warrants that will become equity in CS First Boston, which is being prepared for a spinoff or public offering by the end of 2024. Klein, a former Citigroup Inc. executive who’s advised on many of the biggest global transactions, is expected to help recruit star dealmakers and attract investors as the Swiss firm works to carve out its investment bank. After a string of losses, it’s seeking to focus on areas of traditional strength such as capital markets, advisory and the leveraged finance businesses.
  • Walt Disney Co. shares rose as much as 7% in early trading after Chief Executive Officer Bob Iger announced plans for a dramatic restructuring of the world’s largest entertainment company, including 7,000 job cuts and $5.5 billion in cost savings. The reductions include plans to cut $3 billion from its budget for movies and TV shows and the rest in non-content related areas. About $1 billion of the savings are already underway, Iger said Wednesday on a conference call with investors. As part of the change, Disney’s CEO also announced that the company will be reorganized into three divisions: an entertainment unit that includes its main TV, film and streaming businesses; the ESPN sports networks; and the theme-park unit, which includes cruise ships and consumer products.
  • PepsiCo Inc. reported fourth-quarter profit that beat expectations, a sign that inflation-weary grocery shoppers are absorbing higher prices on beverages and snacks. Closely watched as one of the first major beverage companies to report earnings this season, PepsiCo posted profit of $1.67 a share during the final three months of 2022, excluding some items, besting the average estimate of $1.64 compiled by Bloomberg. This year, PepsiCo sees organic sales, which strip out items such as currency volatility, growing 6%, the company said Thursday. That’s above the 5.08% estimate from Wall Street.
  • Tiny Gerlach, Nevada, looks like the ideal place to receive some of the $42.5 billion in federal funds that President Joe Biden has targeted to provide internet access to underserved areas. There’s just one catch: The town of 161, gateway to the state’s Black Rock Desert, already has broadband access, according to a government map showing that T-Mobile US Inc. provides service there. If that’s true, Gerlach is unlikely to be eligible for help from the once-in-a-generation program. Wireless providers have exaggerated the breadth and quality of their service — complicating efforts to identify areas in need, according to state and local officials, consultants and US lawmakers. By doing so, they can block potential rivals from obtaining subsidies and invading their markets. Their reported coverage areas appear on newly devised and much-disputed maps that will determine how the funds get allocated.
  • Beijing lashed out at President Joe Biden for saying Chinese leader Xi Jinping faces “enormous problems,” underscoring the renewed tensions between the two nations since the US downing of a balloon in its airspace. “The US remarks are highly irresponsible and violate basic diplomatic protocols,” Chinese Foreign Ministry spokeswoman Mao Ning said Thursday at a regular press briefing in Beijing. “We are firmly opposed to that and condemn that,” Mao said in response to a question about Biden’s comments in an interview with PBS Newshour. China’s Ministry of Defense said separately on Thursday it declined to engage in talks with the US over the balloon because “the use of force violates international practice and sets a bad precedent,” according to a statement from spokesman Tan Kefei. “The US hasn’t created a proper atmosphere for dialogue,” he added, calling the downing of what China considers a civilian balloon “irresponsible.”
  • Medical device maker Globus Medical Inc. has agreed to buy smaller competitor NuVasive Inc. in an all-stock transaction valuing it at more than $3 billion. NuVasive investors will receive 0.75 of a share of Globus Class A stock for each of their shares, according to a statement on Thursday that confirmed an earlier Bloomberg News report. The combined company will have an 11-member board consisting of eight directors from the current Globus board and three from NuVasive’s.  “This transaction reflects our mission to become the leading musculoskeletal technology company in the world by developing products that promote healing in patients with musculoskeletal disorders,” said Dan Scavilla, president and chief executive officer of Globus Medical, said in the statement.
  • The global bird flu outbreak is worsening, highlighting the challenge farmers and officials face in reining in the deadly virus. Just over 100 million poultry died or were culled due to avian influenza between the start of October and Feb. 3, according to the World Organisation for Animal Health. That’s more than triple the number in the same period in the previous season, which ended with record losses from the disease. Farms across Europe and North America have suffered severe outbreaks, and cases are also picking up in South America — including in Bolivia, which borders major chicken producer Brazil. Egg-laying hens have been among the hardest hit, boosting prices of the grocery staple and further squeezing consumers.
  • When Credit Suisse Group AG’s Archegos disaster hit, its traders were in the midst of racking up a $2.65 billion quarter. Less than two years later, they produced a $96 million quarter. That 96% plunge underscores the end of the Swiss firm’s ambitions as a global investment bank. Ever since the near-simultaneous implosions of Archegos Capital Management and Greensill Capital pushed the lender into chaos, it has sought to reduce risk in the volatile trading business and pivot further to wealth management. That slide only accelerated last quarter. Fixed-income, a business where peers recorded double-digit gains, slumped 84% from a year earlier in dollar terms. Equities fared even worse, reporting a 96% decline.
  • Toshiba Corp. said it received an offer from a Japanese group as the conglomerate moved a step closer to ending a troubled chapter in its 148-year history — after a series of scandals plunged it into difficulty and set it on a path toward a sale. The Tokyo-based company announced the offer from a consortium led by domestic private equity firm Japan Industrial Partners Inc. in a statement Thursday. It said it just received the offer today and will assess it, noting that there’s no assurance a deal will be done. The statement didn’t give further details of the proposal. The announcement suggests that Toshiba’s sale process is back on track after its preferred bidder, the group led by JIP, ran into difficulty securing bank financing. Top Japanese lenders decided to issue commitment letters to support a loan for the buyout, Bloomberg News reported this week.









*All sources from Bloomberg unless otherwise specified