January 11, 2023
- Teck Resources said 4Q steelmaking coal sales were 4.3 million tonnes, below previous guidance, as cold weather affected rail and port operations. Oil reversed an earlier decline as traders weighed the outlook for stronger Chinese demand against a reported build in US crude stockpiles. Ahead Wednesday, retailer Aritzia Inc. will report its earnings.
- The US and Canada plan to introduce a new Nexus enrollment option for air travelers this spring as they work to clear the backlog of applicants by increasing interview appointments, extending hours of service, and expanding the locations where interviews are conducted, according to a joint statement. Will include interviews at reopened enrollment centers in Canada, and separate US Customs and Border Protection interviews at Canadian airport pre-clearance locations for applicants.
- European equities rose on optimism around cooling inflation, with US consumer price data on Thursday seen providing further clues on the path of the Federal Reserve’s monetary policy. The Stoxx Europe 600 Index added 0.6% by 10:12 a.m. in London. Retail sharess led the move higher following a strong trading update from JD Sports Fashion Plc, while real estate and miners also gained. The insurance sector, meanwhile, was hit by Direct Line Insurance Group Plc scrapping its dividend due to a jump in claims. Europe’s main equities benchmark has surged this year, adding to a 15% rally since the end of September and extending the outperformance versus the US, fueled by China’s reopening and cheaper valuations. Traders are now bracing for tomorrow’s US CPI reading, which is expected to show a further easing in December, spurring hopes that the Fed will slow its pace of rate hikes.
- Wall Street equity futures were steady and European stocks climbed as traders prepared for US inflation data Thursday that may show further softening, bolstering the case for less-aggressive interest-rate hikes. S&P 500 and Nasdaq 100 contracts pared an earlier advance. Bath & Beyond Inc. shares surged in US premarket trading, rising alongside fellow meme stocks, with the troubled home-goods retailer on course for a third day of gains. Treasury yields trimmed their advance from the previous session, with the rate on 10-year debt slipping to just below 3.6% as investors remained focused on the price outlook for the US. A gauge of dollar strength held within sight of a seven-month low.
- Asia’s equity benchmark resumed its advance, led by gains in key regional markets including Japan, South Korea and Hong Kong. The MSCI Asia Pacific Index climbed as much as 0.9% to the highest level in almost five months before paring about half of its gain. Tencent and Alibaba were the top contributors, with tech and communication services among the major sectoral boosters. Traders awaited a key US inflation report due Thursday that will have a bearing on the upcoming rate decision of the Federal Reserve, whose aggressive hikes have prompted foreign funds to sell Asian equities for much of 2022. The dramatic recovery in Chinese equities, with a gauge of mainland companies listed in Hong Kong up more than 40% in about two months, helped the broad Asian benchmark enter a bull market this week. The key gauge is outperforming US peers so far in 2023 boosted by optimism over China’s reopening and a weakening dollar.
- Oil reversed an earlier decline as traders weighed the outlook for stronger Chinese demand against a reported build in US crude stockpiles. West Texas Intermediate rose as much as 0.8%, after earlier losing 1.1%. Crude inventories jumped by 14.9 million barrels last week, the American Petroleum Institute reported, according to people familiar with the data. If confirmed by government figures later Wednesday, it would be the largest increase since February 2021. On the demand side, there’s a more bullish picture for China’s oil use. Trading giant Unipec bought US Mars crude for March-April arrival on Wednesday, while another Chinese firm also purchased American barrels. Earlier this week, the government issued a bumper batch of import quotas, spurring hopes of improved crude consumption.
- Gold extended an advance to an eight-month high as Treasury yields declined ahead of crucial US inflation data due on Thursday. Bullion has rallied about 15% since the end of October as the dollar and US bond yields fell. Cooler US inflation and labor market data have raised expectations of a dovish pivot by the Federal Reserve this year, even as officials caution more rate hikes are needed. The recent rally has so far yet to trigger fresh inflows into gold-backed exchange-traded funds, which can be a key driver of the metal’s price. The US consumer price index on Thursday, expected to show a month-on-month decline, may be crucial to determining if gold’s uptrend continues.
- Copper extended gains to a fifth day, rising above $9,000 a ton for the first time since June, as investors bet upcoming US data will show further softening of inflation. The key industrial metal is trading at the highest level since June after rebounding in the past two months. Bets on aggressive interest-rate hikes slowing in the US, along with China’s exit from stringent Covid restrictions as it introduces a slew of property-sector stimulus measures, are brightening the demand outlook for commodities. Overnight, Federal Reserve Chair Jerome Powell refrained from commenting on the outlook for monetary policy as traders look to Thursday’s consumer price index data for signs of economic cooling. Slower inflation could help build the case to ease the central bank’s rate-hike pace.
- Korean conglomerate Hanwha Solutions pledged to invest more than $2.5 billion in US solar manufacturing, a boost to the Biden administration’s efforts to reduce the nation’s dependence on China for its panel supply. Unit Hanwha Qcells plans to build a new plant in Bartow County, Georgia, to make 3.3 gigawatts of solar ingots, wafers, cells and panels, the company said in a statement Wednesday. It also committed to assembling two gigawatts of modules at its factory site in the northwest part of the state, which is already the biggest panel plant in the Western Hemisphere. The US is racing to boost domestically made cleantech supplies in its fight against climate change — while also attempting to cut its reliance on imported panels. President Joe Biden’s landmark climate law, the Inflation Reduction Act, which includes generous incentives for solar, battery and electric-vehicle manufacturing, has sparked a wave of new factory announcements.
- The UK and Japan will allow military forces to be deployed to one another’s nations, as Tokyo expands bilateral cooperation with other US allies amid concerns about China’s rise. UK Prime Minister Rishi Sunak will sign a major defense agreement during a meeting Wednesday in London with his Japanese counterpart Fumio Kishida. The pact — the most significant deal of its type between the two countries in more than a century — will allow planning and delivery of larger, more complex military exercises, according to a UK government statement. The UK becomes the first European country to have such an agreement with Japan, which has a similar deal with Australia. Japan’s cabinet recently approved the country’s biggest increase in defense spending since the end of World War II in 1945, updating its national security policy and describing China as an “unprecedented strategic threat.”
- The European Union is skeptical that the US will make any meaningful changes to the $370 billion green investment plan that the bloc says unfairly subsidizes American companies. Even though President Joe Biden said last month that he saw room for tweaks to the Inflation Reduction Act “to make it easier for European countries to participate,” the US has so far only offered tax credits for commercial electric vehicles, which EU officials view as insufficient, according to people familiar with the matter. The US has ignored most of the bloc’s concerns and proposals about how to make the IRA — which offers tax incentives for items and parts made in the US — less discriminatory against European firms, said the people, who asked not to be identified because discussions on the matter are private.
- Credit Suisse Group AG is considering cutting the bonus pool for 2022 by about half, according to people familiar with the matter, capping a grim year in which the bank was forced to raise $4 billion after a string of losses. The Swiss lender is set to make even more drastic cuts to variable compensation after the 32% decline for 2021, according to people familiar with the matter. A cut by half would make the 2022 bonus pool about 1 billion Swiss francs ($1.1 billion), which compares with 2.9 billion francs two years earlier. Credit Suisse’s belt-tightening is likely more severe than that at Wall Street peers including JPMorgan Chase & Co. and Citigroup Inc., which are set to cut bonuses after a slump in dealmaking and sales of new securities. It also underlines the challenges Chief Executive Officer Ulrich Koerner now faces in executing a turnaround that isn’t expected to deliver profits until 2024 while trying to hang on to already disgruntled staff.
- US mortgage rates retreated for the first time in three weeks, helping provide a modest lift to refinancing activity. The contract rate on a 30-year fixed mortgage decreased 16 basis points to 6.42% in the week ended Jan. 6, according to Mortgage Bankers Association data released Wednesday. That helped boost applications for refinancing, which rose 5.1% in the week. Even with last week’s advance, the refinancing index remains near the lowest level in two decades. Mortgage rates have more than doubled in the last year as the Federal Reserve increases borrowing costs to rein in inflation, which has hampered activity in the housing market.
- Apple Inc. is planning to start using its own custom displays in mobile devices as early as 2024, an effort to reduce its reliance on technology partners like Samsung and LG and bring more components in-house. The company aims to begin by swapping out the display in the highest-end Apple Watches by the end of next year, according to people with knowledge of the matter. The screens upgrade the current OLED — organic light-emitting diode — standard to a technology called microLED, and Apple plans to eventually bring the displays to other devices, including the iPhone. The changes are part of a sweeping effort to replace Apple supplies with homegrown parts, an undertaking that will give the company more control over the design and capabilities of its products. The tech giant has dropped Intel Corp. chips in its Mac computers in favor of in-house designs and plans to do the same with the key wireless components in its iPhones.
- Brazil’s Attorney General office warned the Supreme Court new protests are being called by “extremist groups” who seek to overturn the result of the presidential elections just days after rioters stormed government buildings in the nation’s capital. Acts “for the retaking of power” are being called by supporters of former President Jair Bolsonaro for Wednesday afternoon in all of Brazil’s capitals, the Attorney General’s Office, known as AGU, told the court in a filing on Wednesday. AGU called for “immediate, preventive” measures, including that any attempt to block highways or break into public buildings be immediately suppressed, and that anyone disobeying be arrested on site. It also asked the court to order Telegram, where calls for protests are circulating more widely, to block the accounts of several users identified by the AGU.
- The market volatility and interest-rate hikes that gave US banks their biggest windfall last year may prove to be their biggest headache in 2023. When Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. kick off the industry’s fourth-quarter earnings on Friday, investors will be less interested in seeing how robust profits were in the final three months of last year and more focused on signs the nation’s biggest banks are girding for a major downturn as rate increases crimp economic activity. “We are entering a period of uncertainty from a period of strength,” Jason Goldberg, an analyst at Barclays Plc, said in an interview. “Despite the fact we are potentially looking at a recession in the face, loan losses are at record lows, trading remains elevated, and net interest income will set records at the banks,” he said. “Yet everyone is scared of their shadow.”
- Investors found few places to hide from last year’s demolition derby, which hit corporate bonds harder than it did stocks on a global basis. But if Wall Street’s credit managers and prognosticators are right, 2023 will be the year that corporate bonds boom. Despite a late-year rally, the value of corporate debt declined worldwide in 2022 by $2.6 trillion, or nearly 17%, according to Bloomberg data. Blue-chip corporate debt had the worst year on record after a similar fall. By comparison, stocks fell 13.7%. One reason bonds are poised for a rebound is that debt is looking more attractive than equity. The 2022 swoon means investors can buy bonds at big discounts to last year’s values, with the average low-risk corporate bond priced at about 90 cents on the dollar. Less than two years ago, they traded at 110 cents on the dollar.
- Demand for Europe’s debt sales has reached the equivalent of half a trillion dollars already this year as investors seek to put money to work in bonds offering some of the highest yields in years. Investors have bid €474 billion ($509 billion) — more than three times the €145.5 billion of issuance in Europe’s syndicated primary market this month through Tuesday, according to data compiled by Bloomberg. The tally includes all company and government bond offerings, and demand is over €100 billion more than the average for the prior five years to the same date. “Fixed income is finally back for investors and investment-grade is in the sweet spot,” said Henrietta Pacquement, head of the global fixed income team at Allspring Global Investments. “There’s a fair amount of appetite for investment-grade credit, as well as cash that needs to get invested.”
- Ukraine will stop Russian aggression and the conflict won’t turn into World War III, President Volodymyr Zelenskiy said as his forces battled to keep control of Soledar and Bakhmut in the eastern Donetsk region. The Kremlin had positioned the most experienced units from the Wagner military-contracting company near Soledar, according to Ukrainian operational command spokesman Serhiy Cherevatyi. The Pentagon said 90 to 100 Ukrainian soldiers will arrive at a US Army base in Oklahoma for training starting next week on operating and maintaining the Patriot air defense system that Washington is providing.
*All sources from Bloomberg unless otherwise specified