January 10, 2023
- Top central bankers from across Group of 20 said fighting climate change while setting interest rates to combat inflation is now a permanent tension for global monetary policymakers. The US, Canada and Mexico outlined joint actions to address regional issues, including migration and drug trafficking. Canadian Prime Minister Justin Trudeau will continue discussions today with US President Joe Biden and Mexican President Andrés Manuel López Obrador at their summit in Mexico. First Quantum Minerals will hold a conference call with investors at 8:30 a.m. Toronto time to give an update on its dispute with Panama.
- GPA Global, the packaging maker controlled by Ontario Teachers’ Pension Plan Board, is acquiring French rival Cosfibel Group to add products used by luxury brands from L’Oreal to Chanel. The transaction brings GPA manufacturing facilities in Spain, Portugal and Belgium, according to a statement Tuesday, which confirmed an earlier Bloomberg News report. Financial details weren’t disclosed. Acquiring Cosfibel will help GPA expand its presence in the beauty and food sector and boost its position in wine and spirits. The deal also helps it secure a European foothold to serve major high-end labels in the region, which has become more important as companies seek suppliers closer to home amid increasing logistical challenges.
- European stocks dropped after hitting their highest level in over eight months as hawkish comments from Federal Reserve officials dulled optimism around a pivot in central bank policy ahead of key inflation data. The Stoxx 600 Index was down 0.7% by 11:58 a.m. in London after closing Monday at its highest level since April 29. Retail and industrials were among the top decliners, while auto and energy outperformed. Euronav NV slumped by the most since October 2008 after Frontline Plc walked away from the deal. Frontline shares surged 19%. Caverion Oyj soared 17% after Triton made a competing offer for the Finnish building maintenance services provider, topping a previous bid by Bain Capital Private Equity LLP. Card Factory Plc jumped after raising its full-year Ebitda forecast.
- Wall Street equity futures dropped and stocks in Europe fell as investors assessed hawkish comments from Federal Reserve officials and awaited remarks from Chairman Jerome Powell for clues on the trajectory of interest rates. Contracts on the S&P 500 and Nasdaq 100 both fell by about 0.3%. Richard Branson’s Virgin Orbit Holdings Inc. tumbled in US premarket trading after a failed attempt to send Britain’s first satellites into orbit from its own soil. Traders hoping for a quick end to aggressive rate hikes as global inflation slows had a reality check on Monday, when San Francisco Fed president Mary Daly said she expects the central bank to raise rates to somewhere over 5%. Her Atlanta counterpart Raphael Bostic said policy makers should hike above 5% by early in the second quarter and then go on hold for “a long time.” Powell speaks later at an event in Sweden.
- Asian stocks declined as Chinese equities halted their rally, which had pushed a key regional benchmark to a bull market, amid profit-taking and renewed caution on the Fed’s rate-hike path. The MSCI Asia Pacific Index dropped as much as 0.3% as of 4:17 pm in Singapore, dragged lower by Alibaba and Ping An Insurance. Trading volume was about 4% lower than the three-month average, according to data complied by Bloomberg. Tuesday’s breather comes as Asia’s benchmark index a day earlier entered bull territory, driven by China’s reopening and a weakening dollar that lured investors back to the region after facing a downward spiral for much of 2022.
- Oil swung between gains and losses as traders took stock of the outlooks for US monetary policy and Chinese consumption. West Texas Intermediate edged higher near $75 a barrel after earlier losing 1.1%. Two Federal Reserve officials said the central bank will likely need to raise interest rates above 5% before pausing and holding to combat inflation. The comments also weighed on Asian stocks and other commodities. Oil rallied Monday after Beijing provided refiners and traders with a generous import quota in its second allocation for 2023, as Asia’s biggest economy gears up for growth after dismantling its strict Covid restrictions late last year. That’s being countered by continued indications that the market is oversupplied, with the nearest portions of the futures curves for Brent and WTI trading in a bearish contango.
- Gold held near the highest since May following comments from Federal Reserve officials that interest rates may have to rise more than markets expect. While swaps traders see a peak in rates below 5%, two Fed officials on Monday said the central bank will likely need to raise interest rates above that level before pausing and holding for some time. Bullion has rallied about 15% since early November after US inflation data spurred bets on a pivot to a more dovish policy. Spot gold added 0.1% to $1,873.84 an ounce as of 12:11 p.m. in London, after gaining 0.3% on Monday. The Bloomberg Dollar Spot Index edged higher after dipping in the prior two sessions. Silver declined, while platinum was little changed and palladium gained.
- The London Metal Exchange should tighten its rules and enforcement processes to prevent risks of market distortions, according to an independent review of the events surrounding March’s nickel crisis. The LME, which is also facing regulatory investigations from the UK’s Bank of England and Financial Conduct Authority, appointed Oliver Wyman to conduct the review last year. It offers the first in-depth independent assessment of the crisis, which shook the global metals world and brought several of the LME’s members to the brink of collapse. Nickel prices spiked by an unprecedented 250% in a little over 24 hours in a massive short squeeze centered on metals giant Tsingshan Holding Group Co., prompting the exchange to close the nickel market for a week and — most controversially — cancel billions of dollars of trades that took place at the highest prices.
- Jamie Dimon said the Federal Reserve’s rate hikes might need to go beyond what’s currently expected, but he’s in favor of a pause to see the full impact of last year’s increases. There’s a 50% chance current expectations are correct in assuming the Fed will boost its benchmark rate to about 5%, and a 50% chance that the central bank will have to go to 6%, the JPMorgan Chase & Co. chief executive officer said in an interview aired Tuesday on Fox Business. “I’m on the side that it may not be enough,” Dimon said. “We were a little slow getting going. It caught up. I don’t think there’s any harm done by waiting three or six months.” The CEO of the biggest US bank made his comments ahead of US inflation data due Thursday and fourth-quarter results from top banks beginning Friday. Fed officials slowed their rate hikes last month, raising borrowing costs by 50 basis points after four consecutive 75 basis-point increases. The target benchmark rate is 4.25% to 4.5%.
- The question that obsessed financial markets last year was when and where US inflation would peak. The 2023 version will likely be how far, and how fast, it comes down. Economists may not see eye-to-eye on the answer — but they more or less agree about where to look for it. The path of inflation will be determined in a handful of crucial areas of the economy. Some are domestic – what happens in American labor and housing markets will be key – and others are global as supply chains get reconfigured and trading blocs are reshuffled amid great-power tensions. US inflation is already retreating from a four-decade high above 9%. The December consumer price index, due on Thursday, is forecast to show a year-end rate of 6.5%. Pretty much everyone has a huge stake in where it’s headed next.
- Microsoft Corp. is in discussions to invest as much as $10 billion in OpenAI, the creator of viral artificial intelligence bot ChatGPT, according to people familiar with its plans. The proposal under consideration calls for the Redmond, Washington-based software giant to put the money in over multiple years, though the final terms may change, the people said, asking not to be named discussing a private matter. The two companies have been discussing the deal for months, they added. Semafor earlier reported that the potential investment would involve other venture firms and could value OpenAI at about $29 billion, citing people familiar with the talks. Documents sent to investors had targeted end-2022 for a deal closing, it added.
- Some of the world’s largest asset managers such as BlackRock Inc., Fidelity Investments and Carmignac are warning markets are underestimating both inflation and the ultimate peak of US rates, just like a year ago. The stakes are immense after Wall Street almost unanimously underestimated inflation’s trajectory. Global stocks saw $18 trillion wiped out, while the US Treasury market suffered its worst year in history. And yet, going by inflation swaps, expectations are again that inflation will be relatively tame and drop toward the Federal Reserve’s 2% target within a year, while money markets are betting the central bank will start cutting rates. That’s set markets up for another brutal ride, according to Frederic Leroux, a member of the investment committee and head of the cross asset team at €44 billion ($47 billion) French asset manager Carmignac, since worker shortages are likely to fuel higher-than-expected inflation.
- It’s a pivotal moment for President Joe Biden’s climate agenda as he reaches the halfway point in his first term, with his administration planning to impose major climate policies touching everything from the cars Americans drive to the electricity they use. Biden campaigned on promises to combat climate change, accelerate renewable fuels and decarbonize the nation’s power grids by 2035. As president, he’s pledged the US will at least halve its greenhouse gas emissions by the end of the decade. The sweeping climate law known as the Inflation Reduction Act is set to massively help the US reach that goal, policy analysts say, but success also depends on a host of other policies to force emission cuts and spur efficiency. With the IRA’s enactment, action now shifts from Congress to federal agencies. Scores of new measures are needed to implement the law’s climate provisions, but officials are also racing to finalize separate, long-planned regulations around issues as disparate as emissions from power plants, vehicle pollution and business disclosures of climate risks.
- Optimism among US small-business owners fell in December to the second-lowest level in nearly a decade as expectations for the economy and earnings deteriorated. The National Federation of Independent Business overall optimism index dropped 2.1 points to 89.8, the group said in a report Tuesday. Eight of the gauge’s 10 components decreased, and the figure was weaker than all estimates in a Bloomberg survey of economists. Inflation continues to be the single most important issue impacting small businesses, with increased costs for labor and materials cited as the top reason for a hit to earnings. A net 30% saw lower profits in the last three months, up from 22% in November.
- Coinbase Global Inc. is firing about 950 employees, or about 20% of its workforce, as the worsening crypto slump spurs another round of layoffs at the biggest US digital-asset exchange. Co-founder and Chief Executive Officer Brian Armstrong announced the job reductions in a blog post Tuesday, saying the steps were needed to weather the industry downturn. In June, Coinbase announced it would lay off 18% of its workforce, the equivalent of roughly 1,200 employees. It eliminated another 60 positions in November. It will now shut down several projects. Coinbase expects to book $149 million to $163 million of restructuring charges, according to a statement on Tuesday. The overhaul will be “substantially complete” by the end of the second quarter, it said. As a result, adjusted EBITDA for the full year ended Dec. 31 is expected to be around negative $500 million.
- Group of Seven nations are aiming to design two price caps for Russian refined petroleum products to account for those that trade at higher prices than crude, as well as those that sell at a discount, according to an official. As part of an effort to sanction Russia for its invasion of Ukraine, the European Union is set to ban the import of refined Russian products on Feb. 5 and to impose price caps on exports to third countries, which would in particular affect diesel, naphtha and fuel oil. The exact mechanisms and the price levels are still being negotiated among G-7 nations and the EU. The refined products ban followed a European ban on Dec. 5 of Russian crude imports, along with a price cap mechanism that allows European companies to provide financing and insurance for crude exports from Russia that are priced no higher than $60 a barrel.
- A deluge of debt sales in Europe has pushed issuance for the year beyond $130 billion in just a matter of days. More than 80 predominantly high-grade borrowers have piled in to the market in January to lock in funding that’s around the cheapest since the summer, according to data compiled by Bloomberg. It’s the fastest start to a year for Europe’s publicly-syndicated debt sales on record, Bloomberg data going back to 2014 show. “Issuers are taking this opportunity to get some funding done given there are still a lot of uncertainties out there,” said Marco Baldini, global co-head of investment grade syndicate at Barclays Bank Plc. “Right now, investors have cash and are positively disposed towards primary market investing.”
- Germany is tendering to purchase crude oil from Kazakhstan as the European nation pivots away from Russian supply. One shareholder at the large Schwedt oil refinery near Berlin has completed contract to purchase supplies from the landlocked Asian country, Germany’s economy ministry said in a statement. Talks are now taking place between Kazakh and Russian authorities about how to transport it. The refinery, along with a nearby plant at Leuna, is currently having to make less fuel than normal because Germany stopped purchasing crude from Russia via the Druzhba pipeline system to punish the Kremlin for the invasion of Ukraine. That’s created an urgent need for alternatives that possess properties to Urals, the flagship Russian grade.
- Former FTX engineering chief Nishad Singh met with federal prosecutors in a bid to become the third member of Sam Bankman-Fried’s inner circle to seek a cooperation deal in the fraud case over the cryptocurrency exchange’s collapse. Singh, who has not been accused of wrongdoing, attended a so-called proffer session last week at the Southern District of New York US Attorney’s Office, according to people familiar with the matter. At such meetings, individuals are usually granted a limited immunity to share what they know with prosecutors. A proffer session doesn’t automatically lead to a cooperation agreement. Prosecutors must weigh the value of Singh’s information before deciding whether to offer him a deal that could see him plead guilty and cooperate in exchange for possible leniency.
- The dollar has fallen to a make-or-break technical moment, with its two-year rally under threat as key US inflation data looms. The Bloomberg Dollar Spot Index has given back half of the gains it has made since Jan. 2021, and is on the cusp of breaking below the uptrend which kicked off in earnest that June. Bets on Federal Reserve rate increases have flipped to wagers on when hikes will come to an end and the gauge of the greenback has slumped over 9% from its September peak. Traders are readying for remarks from Fed Chair Jerome Powell at a central bank event in Sweden Tuesday and the latest US inflation data on Thursday. The dollar slumped after last week’s US manufacturing data hinted at easing price pressures, suggesting it will take an overtly hawkish Powell or strong CPI print to reverse its recent downtrend.
*All sources from Bloomberg unless otherwise specified