January 16, 2023

Daily Market Commentary

Canadian Headlines

  • The Bank of Canada will release two key reports, the Business Outlook Survey and the Canadian Survey of Consumer Expectations, at 10:30 a.m. Ottawa time. Also ahead Monday morning: December housing sales and prices from the Canadian Real Estate Association.
  • Elliott Investment Management now has until March 17 to appoint an additional director to Suncor Energy’s board, according to a statement. In July 2021, Suncor reached an agreement with Elliott in which the oil company’s board would appoint three new independent directors, and Elliott had the right to appoint an additional director if some performance criteria relative to peers are not met.

World Headlines

  • European stocks extended recent gains on expectations that inflation will continue to recede before investors become focused on earnings in the coming weeks, while the FTSE 100 neared a record high. The Stoxx Europe 600 Index rose 0.2% by 11:25 a.m. in London. Real estate and health care shares outperformed while travel and leisure lagged behind. The UK’s FTSE 100 is one of the last European benchmarks to scale pre-Covid highs. European stocks have posted the best first two weeks in a year on record as easing inflation pressures, China’s reopening and aversion of an energy crisis thanks to mild weather supported appetite for equities. Already in a bull market, the Euro Stoxx 50 is also among the top 10 performing benchmarks globally in dollar terms so far this year, and its 14-day relative strength index has crossed into overbought levels.
  • While inflation in the US appears to have peaked, aggressive policy tightening by the Federal Reserve and other central banks risks pushing the global economy into a recession that could hurt corporate profits. The World Bank last week added to the gloomy outlook, warning of “one of the sharpest slowdowns we have seen in the past five decades.”  Earnings will be a key catalyst moving forward as traders assess whether companies were able to navigate headwinds including higher interest rates. The busy week will also be punctuated by corporate earnings, including Wall Street heavyweights Goldman Sachs Group Inc. and Morgan Stanley. A host of Fed officials will be speaking this week, providing more clues for investors. The World Economic Forum’s annual meeting kicks off in Davos, Switzerland, with speakers there including European Central Bank President Christine Lagarde and the International Monetary Fund’s Kristalina Georgieva.
  • Asian stocks edged lower as investors braced for another possible surprise from the Bank of Japan later this week, while Chinese shares continued to rally on hopes for reopening and eased regulation. The MSCI Asia Pacific Index gave up gains of as much as 0.6% to fall 0.4%, dragged by consumer discretionary and industrial shares. Japanese stocks faltered as the yen strengthened ahead of the BOJ’s policy decision Wednesday. The onshore Chinese market and the Philippines led gains around the region. China’s CSI 300 Index jumped 1.6% to an almost five-month high as overseas investors stepped up purchases of the nation’s shares amid broader optimism on border reopening. Also boosting sentiment was news that Didi Global Inc. has secured the green light to resume signing up new users, another sign that China’s tech crackdown is over.
  • Oil fell for the first time in eight sessions as traders took stock of the outlook for worldwide demand, with China’s reopening delivering a lift while other parts of the global economy slow. West Texas Intermediate fell toward $79 a barrel after rallying more than 8% last week. China ditched Covid-19 curbs in late 2022 after years of strict lockdowns. That’s set to improve economic activity and mobility, with analysts forecasting oil demand in the top crude importer will likely hit a record. Crude has had a bumpy start to the year, collapsing in the opening week before rebounding. In addition to China’s swift pivot, support for crude prices in recent sessions has come from growing expectations that the Federal Reserve is now nearing an end to rate hikes, and a weakening dollar. Traders are also tracking the impact of sanctions on Russian oil and product flows.
  • Gold declined from an eight-month high as the dollar rebounded on muted risk appetite in other markets. US equity futures declined on Monday after a strong week for stocks, while European shares held steady. A gauge of the greenback rose from a 6-month low amid the cautious mood, putting some pressure on bullion. Gold is still holding above $1,900 an ounce following a 2.9% advance last week on bets the Federal Reserve will slowdown its aggressive rate hikes as inflation abates. Expectations of short-term price gains in the US have fallen to the lowest in nearly two years, while the consumer price index fell month-on-month in December.
  • China’s top economic planning body has summoned a group of iron ore traders and asked them to provide details of recent business, a sign that authorities want to head off fresh commodity inflation as the economy rebounds. At least five domestic iron ore traders or brokerages are set to meet Tuesday with officials from the National Development and Reform Commission to discuss the market, according to people with knowledge of the matter. The NDRC requested the firms’ recent trading records for physical and futures markets ahead of the talks, said the people, who asked not to be identified as the information is private. Iron ore futures jumped almost 60% from the end of October through last Friday, before slumping Monday on fears over action by authorities to quell the rally. The steel-making material has surged on hopes that infrastructure and construction activity will rebound this year as China’s economy expands faster.
  • US Treasury Secretary Janet Yellen will hold her first face-to-face meeting with Chinese Vice Premier Liu He on Jan. 18 in Zurich, making a detour on her way to talks in Africa. The pair “will exchange views on macroeconomic developments and other economic issues,” the Treasury Department said in a statement. The surprise announcement follows the November meeting between President Joe Biden and President Xi Jinping on the sidelines of the Group of 20 summit in Bali, Indonesia. It was the first face-to-face session for the heads of state and has initiated a modest thawing of relations between the two governments. Despite that, the Wednesday morning meeting in Switzerland could be contentious as Washington and Beijing continue to squabble over trade, human rights and the autonomy of Taiwan. In recent months Yellen has championed a so-called “friend-shoring” policy that would see the US and its allies rely less on China for the supply of critical goods.
  • The latest discovery of classified material at Joe Biden’s home in Wilmington, Delaware, highlights the long-term political and legal risk to the president from a rapidly unfolding investigation that could yield further damaging revelations. Disclosure after disclosure this week about sensitive papers at Biden’s office and private residence embarrassed and undermined the president, his attorneys and spokespeople, who have argued that they’re handling it by the book. While they’ve claimed they took appropriate precautions, promptly informed the government and arranged the return of materials, they say they must weigh disclosures to the public against legal considerations. But the decision to wait more than two months, until after midterm elections, to disclose the initial discovery of classified documents has fanned criticism of the president’s commitment to transparency that has only grown as Biden and his team stumbled through the subsequent week.
  • China’s reopening to international travel could propel global air traffic back to pre-pandemic levels as soon as June, one of the world’s leading aircraft-leasing firms predicts. Avolon Holdings, the world’s second-largest jet lessor, said Monday that the aviation sector “is set to thrive in 2023,” with Asia driving the rebound from years of Covid-19 disruption after Europe and North America did so last year. China’s surprise decision to drop border curbs earlier this month has given the industry a boost following earlier projections for a reopening much later in 2023. Avolon released its outlook at the start of back-to-back leasing conferences in Dublin where other firms also adopted a more upbeat tone.
  • UK property sellers boosted asking prices for the first time in three months in January, easing concerns that the market has turned toward a protracted slump. The price sellers sought surged 0.9% in January after declines in the previous two months, the property portal Rightmove said Monday. It was the largest gain for this time of year since 2020 and boosted average prices by £3,301 ($4,022) to £362,438. Rightmove said it recorded a 55% jump in potential buyer inquiries in the past two weeks, the biggest New Year bounce since 2016. Its figures contrast with data from mortgage lenders showing that the cost of property sold has dropped for four consecutive months, the longest slump since 2008.
  • Chinese financial regulators and the nation’s biggest bad-debt management companies plan to offer as much as 160 billion yuan ($24 billion) of refinancing support to high-quality developers in the first quarter, according to people familiar with the matter.  Under the plan first announced on Friday with little details, the People’s Bank of China will channel 80 billion yuan of loans through China Huarong Asset Management Co. and its peers to selected developers at an annual rate of 1.75%, the people said, asking not to be identified because the matter is private. The distressed debt firms are encouraged to match the amount from their own coffers, the people added. The loans add to a clutch of measures issued since November to arrest the slump in China’s property market. Regulators are ramping up financial support to systemically important developers, while lowering mortgage rates and down payment requirements to boost demand.
  • Investors are on high alert for further policy tweaks from the Bank of Japan this week after December’s shock decision to raise the bar on yield movements failed to significantly improve market liquidity. While almost all economists surveyed by Bloomberg expect no change at the two-day meeting finishing Wednesday as their main scenario, market pressure on the central bank’s stimulus framework has intensified since last month’s efforts to ease the side effects of policy. Another increase in the ceiling for the 10-year yield is seen as the most likely course of action, should the BOJ act, given its recent emphasis on improving bond-market functioning.
  • The chief executive officer of the Qatar Investment Authority says the sovereign wealth fund supports Elon Musk’s vision for Twitter Inc., despite the turmoil that’s accompanied the US billionaire’s takeover. “We engage with the management, with Elon in terms of the plan that he has for the company, and we believe in this, and we trust his leadership in terms of turning around the company,” CEO Mansoor Al Mahmoud said in a Bloomberg Television interview at Davos on Monday.
  • Didi Global Inc. has secured the green light to resume signing up new users, suggesting the worst is over for a ride-hailing giant that symbolized Beijing’s bruising campaign to rein in its powerful internet industry. The widely anticipated decision is one of the clearest signs yet that Xi Jinping’s administration, keen to jumpstart an economy that’s sagged under three years of Covid Zero restrictions, sees a need for private sector’s support in that broader campaign. Beijing is again allowing Didi to bring in new users for the first time since regulators removed its main apps from stores in 2021, the company said in a statement on its official Weibo page. That suggests the services will soon return to Apple and Android stores.
  • The European Central Bank’s battle with inflation may end within half a year as policy makers begin to reverse rate hikes as soon as July, according to economists polled by Bloomberg. The deposit rate will be raised to a peak of 3.25% — from its current level of 2% in three steps. The survey shows two half-point hikes at the February and March meetings, followed by a 25 basis-point increase in May or June. The median analyst prediction then envisages cutting the rate back to 3% at the start of the third quarter. Such a scenario would suggest a drastic turn of events that the ECB doesn’t envision. Most of its officials see rates remaining where they are after the so-called terminal rate is reached and none have called for rate cuts.
  • German Defense Minister Christine Lambrecht stepped down following a series of missteps and days of speculation over her future, a blow to Chancellor Olaf Scholz’s government as it weighs crucial decisions on arming Ukraine. Lambrecht asked to be relieved of her cabinet post, blaming intense media reporting as an unacceptable distraction, and Scholz accepted the request and respects the decision, the government said Monday. The German leader will propose a replacement for his fellow Social Democrat “promptly,” though that’s unlikely to happen before Tuesday, Christiane Hoffmann, a deputy Scholz spokeswoman, said at the regular government news conference in Berlin. Lambrecht will remain in office until a successor is appointed by the federal president, Hoffmann added.
  • Almost nobody was buying offices in London in the final quarter of 2022 as the market turmoil from now-abandoned government spending plans sent borrowing costs soaring. Less than £400 million ($488 million) of offices in the UK capital were bought and sold in the final three months of the year, an 88% drop from the prior quarter, according to CoStar Group Inc. The dealmaking freeze — worse than the decline during the financial crisis or Covid-19 lockdowns — came as former Prime Minister Liz Truss’s proposals for unfunded tax cuts spooked markets.  About £6.4 billion of deals were recorded in the first quarter, when investors were pricing in a gentle increase in rates — an outlook that drastically changed during the year as central bankers tried to get a grip of inflation and markets struggled to digest Truss’s plans. Over the past 20 years, about £3.5 billion of offices have been bought and sold each quarter on average, CoStar’s data show.





*All sources from Bloomberg unless otherwise specified