January 12, 2022
Daily Market Commentary
- Canadian equities climbed, led higher by gains in the energy and materials sectors, after the U.S. Federal Reserve said it will manage inflation as the economy rebounds. The S&P/TSX Composite rose 1 percent at 21,274.81 in Toronto. The move was the biggest advance since rising 1.9 percent on Dec. 21 and follows the previous session’s decrease of 0.1 percent. Brookfield Asset Management Inc. contributed the most to the index gain, increasing 2.7 percent. Lithium Americas Corp. had the largest increase, rising 13.0 percent.
- The discovery of a case of mad cow disease has prompted some Asian countries to suspend imports of Canadian beef, a move that could further disrupt the global meat trade already rocked by the Covid-19 pandemic. China, South Korea and the Philippines have temporarily halted imports of beef from Canada, where an ‘atypical’ case of bovine spongiform encephalopathy (BSE) — commonly known as mad cow disease — was found. An atypical case is rare and happens spontaneously, as opposed to classical cases caused by contaminated feed. The cow was euthanized on the farm and did not enter the food or animal feed chain, the Canadian Food Inspection Agency said on Tuesday.
- Even the ultra-wealthy are finding they’re not immune to Canada’s housing shortage, and nowhere is that truer than in the country’s most expensive major market, Vancouver. Luxury real estate in the city broke local records last year, with sales of mansions priced over C$10 million ($7.9 million) growing 240%, faster than anywhere else in Canada, according to a report Wednesday by Sotheby’s International. Toronto wasn’t far behind with 238% growth. Those transactions included the highest price ever paid for a single-family Vancouver home. Sotheby’s wouldn’t say how much the property, known as Belmont Estate, went for, but CTV News cited a price of C$42 million.
- European equities extended their rebound into a second day on Wednesday as traders awaited a key U.S. inflation reading to gauge price pressures in the world’s biggest economy. The Stoxx 600 Europe Index was up 0.5% as of 9:42 a.m. in London. Miners led the advance as nickel, copper and iron ore prices rose. Investors will be keeping a close eye on data due later Wednesday that’s likely to show an increasing pace of U.S. inflation. Concerns that the Federal Reserve may tighten policy more aggressively than anticipated to tame surging prices fueled a global rout last week, though the main European benchmark has since steadied after reassurances by Jerome Powell that the Fed’s pivot into normalcy won’t hurt growth.
- U.S. equity futures were higher Wednesday and Treasury yields steady as traders marked time before a key reading on American inflation. Gains in Nasdaq 100 contracts edged out those of S&P 500 peers, with both up modestly. In the premarket, Dish Network Corp. rose 7% on a New York Post report of merger talks with DirecTV. Investors settled into a wait-and-see mode hours before the release of the U.S. consumer price index print, expected to show price pressures quickened in December to 7.1%, the highest in four decades.
- Asian stocks climbed to their highest level in almost seven weeks as Federal Reserve Chair Jerome Powell’s remarks spurred expectations that anticipated rate hikes won’t derail the global economic recovery. The MSCI Pacific Index added as much as 1.6% to its highest since Nov. 26, bolstered by gains in the consumer-discretionary and information-technology sectors. Alibaba Group and Tencent Holdings were among the biggest contributors to the measure’s rise. Benchmarks in Hong Kong and Japan led gains for the region. Powell pledged to do what’s necessary to contain an inflation surge and prolong the economic expansion at his confirmation hearing for a second term as U.S. central bank chief. Futures on the S&P 500 advanced in Asia trading after halting a five-day slide. A gauge of Chinese technology shares ralliedafter the Nasdaq 100 outperformed major benchmarks.
- Oil was near its highest level since November, as the Federal Reserve soothed expectations of tighter policy and industry estimates pointed to another drawdown in U.S. crude stockpiles. West Texas Intermediate traded above $81 a barrel after rallying 3.8% on Tuesday. The American Petroleum Institute reported that U.S. crude inventories fell by about 1 million barrels last week, according to people familiar with the figures. That followed a monthly report from the U.S. Energy Information Administration on Tuesday that showed global oil inventories will decline slightly in the first quarter, compared to a previous forecast of expansion.
- Gold held near the highest in almost a week as Federal Reserve Chair Jerome Powell sought to reassure investors that the central bank could contain decades-high inflation without hurting the U.S. economy. Speaking at a 2-1/2 hour congressional confirmation hearing Tuesday, Powell said officials won’t hesitate to act if needed to tackle inflation, and argued that much of the price pressures the U.S. is experiencing will ebb on their own as supply-chain snarls and labor force shortages associated with the pandemic ease. He added that the Fed was on course to begin raising interest rates from near zero and reducing its mammoth $8.8 trillion balance sheet.
- The White House is moving to prevent future shortages of Covid-19 tests by ensuring they continue to be produced in large numbers. A South African trial will assess the safety and impact of varying doses of Johnson & Johnson’s and Pfizer Inc.’s vaccines as boosters for those infected with HIV. European Union regulators said that frequent boosters could adversely affect the immune system — and may simply not be feasible. Australia’s cases are surging and worsening worker shortages. In New York City meantime, infection rates are “plateauing,” according to Governor Kathy Hochul. About 400,000 Israelis have gotten a fourth vaccine dose.
- Nickel extended gains to the highest in more than a decade after top supplier Indonesia said it’s considering a tax on exports, fueling a rally driven by projected demand from electric vehicles. Copper also jumped to the highest since October as all metals advanced on the London Metal Exchange. Base metals are extending gains after their best year in more than a decade, aided by strong demand and power-related supply disruptions. Nickel has led the way, with prices up nearly 10% this week after Tesla Inc. moved to secure future supplies from Talon Metals Corp.
- India is pushing for a valuation of about 15 trillion rupees ($203 billion) for a state-owned insurer that’s soon expected to file for the nation’s biggest initial public offering, people familiar with the matter said, even as arrangers awaited a final report on the firm’s estimated worth. The so-called embedded value of Life Insurance Corp. of India is likely to be more than 4 trillion rupees, and its market value could be about four times that amount, the people said, asking not to be identified as the discussions are private. Once the final report is in, the valuation the government is seeking could change. Embedded value, a key metric for insurers, combines the current value of future profits with the net value of assets. The gauge will be part of LIC’s IPO prospectus that’s likely to be filed in the week starting Jan. 31. Typically, the market value of insurers is between three and five times the embedded value.
- PKN Orlen SA agreed to sell Polish oil refining and retail assets to Saudi Aramco and Mol Nyrt. to help finalize a takeover of a local competitor and diversify away from Russian oil supplies. State-controlled Orlen needed to divest some Grupa Lotos SA assets to gain European Union approval to take over its smaller peer. The long-planned merger of companies jointly worth more than $11 billion is part of the Polish government’s plan TO create a national energy champion able to compete internationally. The deal will give Saudi Aramco, world’s largest oil company, a bigger foothold in a region traditionally dominated by Russian oil supplies. It will buy 30% in Lotos’s refinery on the Baltic coast and a wholesale fuel unit. It also signed a long-term delivery deal that may cover 45% of Orlen’s oil needs, according to the Polish company.
- The White House is moving to prevent future shortages of Covid-19 tests by ensuring they continue to be produced in large numbers even after the surging omicron variant recedes and demand fades. “We’re going to keep moving at this speed, and faster, to get volume up on a monthly basis,” Tom Inglesby, President Joe Biden’s newly appointed testing coordinator, said in an interview. Biden is under pressure to bolster availability of testing as the highly transmissible omicron variant fuels a record number of coronavirus cases. Americans are waiting in long lines — sometimes for hours — to get tested, and quickly snap up the limited supply of at-home kits from store shelves, leading to widespread frustration that poses a political risk for the president.
- A 19-year-old security researcher claims to have hacked remotely into more than 25 Tesla Inc. cars in 13 countries, saying in a series of tweets that a software flaw allowed him to access the EV pioneer’s systems. David Colombo, a self-described information technology specialist, tweeted Tuesday that the software flaw allows him to unlock doors and windows, start the cars without keys and disable their security systems.
- The most common prediction among political pundits for 2022 is that Democrats will lose control of the House of Representatives in November. The reasons are almost too numerous to list: Inflation is up; voters’ perception of the economy is down; Covid‑19 lingers; President Joe Biden is unpopular; and by a 2-to-1 margin, Americans say the country is on the wrong track. In addition, the president’s party almost always loses seats in midterm elections. These powerful headwinds have both parties believing that House Democrats are most likely doomed. But conventional wisdom sometimes turns out to be wrong. What would it take for Democrats to defy expectations in the fall? Although no one is predicting such an outcome, political handicappers and strategists in both parties can envision plenty of scenarios for how Democrats might pull a rabbit out of their hat.
- Goldman Sachs Group Inc. clients joined the chorus of bullish calls for Europe, forecasting that the region’s stocks will outperform this year as the outlook for U.S. equities dims. The firm surveyed the audience at its 30th annual global strategy conference this week, attended by more than 3,000 clients from around the world, according to a note. When asked which equity region will perform best in 2022 in local currency terms, Europe attracted the most votes with 36%, up from 21% last year. The results echo the views of Goldman’s own equity strategists, who have said that European stocks are a good place to seek shelter as interest rates rise. Morgan Stanley’s strategy team agrees, citing Europe’s less stretched valuations.
- The U.S. government limited Medicare coverage of Biogen Inc.’s Alzheimer’s disease treatment and similar drugs to patients enrolled in clinical trials, a highly unusual move that will curb access to the controversial treatment approved last year. Coverage of Biogen’s therapy, sold under the brand name Aduhelm, and other amyloid-targeted Alzheimer’s therapies, will be limited to people participating in qualified clinical trials, the Centers for Medicare & Medicaid Services said Tuesday in a statement. The shares fell 10% Wednesday before U.S. markets opened and have lost almost 40% since the drug’s June 7 approval. The decision is preliminary and will be followed by a 30-day public comment period. A final determination is due in April. The policy will set national rules for how Medicare treats Aduhelm and similar drugs that may follow.
- Britain’s poorest households are facing a 3 billion pound ($4.1 billion) squeeze on living standards in April when their benefits will rise by half the expected rate of inflation, the Institute for Fiscal Studies said. To protect those on low incomes from the looming spike in energy in bills, the government should change this year’s benefit uprating to match the current rate of inflation, the public finances think tank said in an analysis published Wednesday. Officials are under pressure to help households manage a living cost shock in April, when the maximum energy suppliers can charge customers is due to increase by 50% and the government raises taxes on workers by 12 billion pounds.
- The U.K. government unlawfully dished out contracts worth nearly 600 million pounds ($820 million) to supply personal-protective equipment at the start of the coronavirus pandemic, a London judge ruled. Although the Department of Health and Social Care breached its obligations when using a so-called ‘VIP lane’ to award lucrative contracts to two firms in April and May 2020, it’s unlikely the outcome would’ve been “substantially different,” the judge ruled Wednesday. As a result she refused to grant any remedies in the case. “Although the operation of the High Priority Lane used unlawful criteria for allocation to the same, it did not play any material part in the award of the contracts to PestFix or Ayanda,” Judge Finola O’Farrell said. “There was objective justification for treating the offers from PestFix and Ayanda as high priority offers.”
- The U.K. government is being hit with two lawsuits from environmental groups who claim that its plans to radically decarbonize the economy in the coming decades fall short of what’s needed to avoid catastrophic climate change. Friends of the Earth and ClientEarth will file separate suits in London this week challenging the lawfulness of the government’s much hyped net zero strategy. They’ll argue that much of the climate policy is predicated on unproven technology that’ll only delay the needed move away from a society that relies on fossil fuels. In October, the U.K. government unveiled its plans to zero out emissions, ahead of hosting COP26 in Glasgow. Its watchdog, the Climate Change Committee, broadly welcomed the document but said there were a number of sizable omissions, including how the policies would be funded.
- Developer Sunac China Holdings Ltd. is seeking to raise $500 million in a top-up share placement, partly to repay short-term loans, after saying earlier Wednesday it had resolved a dispute that triggered a rout in its dollar bonds. Sunac’s onshore unit had been told by a local court in Shenzhen that some of its equity interests would be frozen. The company is now working toward withdrawing that order, it said. Some of China’s most stressed property developers face a raft of key payments this week, a test for the country’s volatile credit market. China Evergrande Group, which already failed to repay dollar debt on time, is seeking to avoid its first onshore default when holders vote on whether to allow the firm to defer payment Thursday.
- Singapore’s sovereign wealth fund GIC Pte. is poised to get a massive influx of new funds to manage after the city-state changed the way the central bank transfers excess foreign currency reserves to the firm. Parliament on Tuesday passed a bill allowing the Monetary Authority of Singapore to buy a new type of non-marketable security issued by the government, known as Reserves Management Government Securities. The new mechanism will be used to bring down the level of foreign reserves held by the central bank — currently about S$566 billion ($419 billion) — to a rate equal to 65% to 75% of gross domestic product. The rest would be run by GIC. The result could be a huge injection of funds for GIC, already one of the world’s biggest asset managers. Finance Minister Lawrence Wong said about S$185 billion would need to be transferred in phases to reach the optimal reserves amount, without specifying how long that would take. The reserves were equal to about 111% of GDP as of the third quarter, he said.
- Just before dawn Tuesday, Kim Jong Un watched as a hypersonic missile took flight, “leaving behind it a column of fire,” and adding a new weapon in his arsenal that could potentially slip past U.S. defenses and deliver a nuclear bomb. The rocket deployed a hypersonic glide vehicle that successfully hit a target at sea after flying roughly 1,000 kilometers (620 miles) and performing a 240-kilometer “corkscrew” maneuver, the official Korean Central News Agency said. Kim supervised the launch, making his first reported appearance at a weapons test in almost two years and underscoring the importance of a missile that would “help bolster the war deterrent of the country.” While North Korea’s claims weren’t immediately verified, the launch was symbolic of a shift in the regime’s testing program. For more than two years, Kim has been focused on churning out a range of missiles developed to evade allied defense systems and make the idea of any U.S.-led preemptive attack too costly to contemplate.
- An investor group that includes Centerbridge Partners and Massachusetts Mutual Life Insurance Co. is planning to start a life and annuity reinsurance company, according to people familiar with the matter. The new firm, Martello Re, will have an initial equity investment of $1.65 billion, said the people, who asked not to be identified because the information is private. Other backers of the new firm are expected to include Brown Brothers Harriman, the people said. The move reflects a growing interest among alternative asset managers in the insurance business. Apollo Global Management Inc. helped launch Athene Holding Ltd. in 2009 and agreed last year to acquire the business outright in a deal implying an equity value of $11 billion for Athene. Carlyle Group Inc. and T&D Holdings Inc. agreed in 2019 to buy a majority stake in Fortitude Re from American International Group Inc. for about $1.8 billion.
- Morgan Stanley is seeking to add around 50 positions at a new research center that will support its trading activities in Paris, as part of plans to boost its presence in the French capital and double its staff there by 2023. The new hub will help the bank meet rising client demand for quantitative strategies, the bank said in a memo seen by Bloomberg. The bank could add the positions both through external hires and staff relocations, a person familiar with the plans said. U.S. banks and hedge funds are increasingly beefing up their operations in Paris, as trading activity drains from London. While JPMorgan Chase & Co. set its trading and sales business line in the city, hedge funds Citadel and Millennium Management are hunting for talent to support their expansion plans.
- Investors withdrew from U.S.-listed fixed income exchange traded funds last week following five straight weeks of inflows. Corporate bond ETFs led the outflows. Inflation protected bond ETFs had the second biggest change from the previous week. Net outflows from ETFs totaled $1.8b in the week ended Jan. 11, including the effect of leveraged funds, compared with inflows of $2.89b the prior week.
- Technology stocks could be volatile again Wednesday as U.S. consumer prices are expected to show their fastest increase in four decades, potentially providing more clarity on the Federal Reserve’s next moves. A spike in bond yields has pushed investors to rotate out of high-flying growth stocks since the beginning of the year, as investors buy shares of energy, financials and other cyclical corners of the market that stand to benefit from higher interest rates. The surge in inflation comes as the Fed is set for its sharpest turn toward monetary policy tightening in decades to tame stubbornly high prices.
“There is nothing either good or bad but thinking makes it so.” William Shakespeare
*All sources from Bloomberg unless otherwise specified