January 17, 2023

Daily Market Commentary

Canadian Headlines

  • The S&P/TSX Composite rose 0.1%, with nine of 11 sectors higher, led by health care stocks. As of market close, 152 of 236 stocks rose, while 77 fell. Dundee Precious Metals Inc. led the advances, rising 6.1%, while Mullen Group Ltd. decreased 8.7%.
  • Barrick Gold Corp.’s bullion output slid last year to its lowest level since 2000, missing analysts’ expectations and its own target as operational woes curbed production. Barrick produced 4.14 million ounces of gold last year, marking its third straight decline in annual output, according to preliminary figures released Tuesday by the Toronto-based company. Chief Executive Officer Mark Bristow had said as recently as Nov. 3 that the miner was on track to achieve its annual guidance of 4.2 million to 4.6 million ounces, albeit at the lower end of the range. Barrick faced challenges at its mines through 2022 that hurt production, including repairs and upgrades in Nevada and the inability to resume operations at its Porgera mine in Papua New Guinea while awaiting an agreement with the government to restart the facility.
  • Statistics Canada reports consumer price inflation for December at 8:30 a.m. Ottawa time. Economists are calling for the annual number to fall to 6.4%, with the CPI-median core measure at 4.9%. Housing starts data will be released at 8:15 a.m. Rogers Communications announced that Alan Horn, a longtime director and former CEO, has died.

World Headlines

  • European stocks were muted on Tuesday after gaining for four straight sessions as investors weighed the start of the earnings season and underwhelming economic data from China. The Stoxx 600 Index was down 0.2% as of 11:42 a.m. in London after marking its longest winning streak since mid-November. Latest figures showed China’s economy last year grew at the second slowest pace since the 1970s, although it also raised bets that the worst of the slump may be over. The FTSE 100 Index also traded 0.2% lower, near a record high that would be the first since 2018. Data showed today that UK wages are rising at a near unprecedented pace, heaping pressure on the Bank of England to deliver a 10th consecutive interest-rate increase next month.
  • US stock-index futures fell amid signs central banks will turn more hawkish and as investors focused on earnings reports from Wall Street banks. Contracts on the S&P 500 and Nasdaq 100 indexes slipped at least 0.3% each as US markets were set to reopen after a holiday. The Stoxx Europe 600 Index, the continent’s benchmark, was dragged by retail and real estate shares. Most Treasuries slid, with yield curves steepening. The dollar fluctuated between gains and losses, while gold declined. Whirlpool Corp. fell in premarket New York trading after reporting sales below expectations. Freeport-McMoRan Inc. declined amid a muted demand outlook for copper. US corporate earnings may set the tone for traders this week as the reporting season moves up a gear. Goldman Sachs Group Inc. and Morgan Stanley are set to release their results on Tuesday, yielding a clue on the health of the world’s largest economy. Of the 30 companies on the S&P 500 that have posted earnings so far, 24 have beaten analysts’ expectations.
  • Asian stocks were mixed as investors assessed data on China’s economic growth and braced for the Bank of Japan’s key policy decision due Wednesday. The MSCI Asia Pacific Index was little changed as of 4:30p.m. Hong Kong time, as losses in financial shares offset an advance in consumer discretionary stocks. Hong Kong’s Hang Seng Index fell 0.8%, ending a four-day rally. Alibaba gained 1% after news that billionaire-investor Ryan Cohen has acquired a stake worth hundreds of millions of dollars in the second half of last year. China’s CSI 300 Index ended flat after a report showed the nation’s gross domestic product grew 3% in 2022, higher than economists expected. The market took a breather after three days of gains fueled by optimism over reopening and eased tech regulations.
  • Oil steadied as traders looked to a revival in Chinese demand this year after data showed that the economy fared better than expected last quarter. Global benchmark Brent traded near $85 a barrel after shedding 1% on Monday. China’s economy grew more than anticipated in the fourth quarter as virus curbs swiftly ended, data from Beijing showed. That looks set to bolster traders’ expectations for higher energy consumption this year. Crude has had a rocky start to 2023, sinking in the opening week on concerns over a global slowdown, before rebounding. Aside from China, oil has found support from growing expectations that the Federal Reserve is nearing an end to its aggressive series of interest-rate hikes and a weakening dollar.
  • Gold edged down further from an eight-month high as focus turned to US data due later this week for more clues on the Federal Reserve’s monetary-policy tightening path. The precious metal has rallied in the past two months, climbing above $1,900 an ounce, amid speculation the Fed will start to ease the pace of its interest-rate hikes. That followed a multimonth decline when monetary tightening weighed on the non-yielding asset. Spot gold lost 0.4% to $1,909.28 an ounce as of 9:10 a.m. in London, and ended Monday lower after touching an eight-month high earlier in the day. The Bloomberg Dollar Spot Index was little changed. Silver, palladium and platinum fell.
  • Copper held losses and aluminum fell as investors assessed prospects for demand after top metal consumer China signaled its recovery could be bumpy. Copper had climbed with other metals since late last year, hitting a seven-month high last week, as China’s reopening and expectations of slower US interest-rate hikes brightened the outlook for base metals. The move has left bearish investors facing “severe pressure” on about $3 billion of short positions established around the middle of last year, Citigroup Inc. said in a note.
  • China tech bulls expect meme-stock icon Ryan Cohen’s foray into Alibaba Group Holding Ltd. to add impetus to the stock, which has increased more than $140 billion in market value in the latest turnaround. Hong Kong-listed shares of the Chinese e-commerce leader jumped 3% early Tuesday following news that Cohen has acquired a stake worth hundreds of millions of dollars in the second half of last year and is pushing for more buybacks. The stock later trimmed gains, but remains about 85% higher than its October trough on regulatory easing and China’s reopening from Covid curbs.  Cohen’s entry is “positive for the stock because it helps to raise confidence especially among Western investors who have been sceptical of China,” said Vey-Sern Ling, a managing director at Union Bancaire Privee. “It helps to highlight how undervalued the shares are, and if he encourages more buybacks then that helps shareholder returns too.”
  • Nissan Motor Co.’s independent directors endorsed proposals from Renault SA to rebalance a 23-year-old alliance and pave the way for the French carmaker’s own revamp, two people familiar with the situation said. Final talks are underway for Renault to reduce its stake in the Japanese carmaker over time to 15%, said the people, who asked not to be identified as the talks aren’t public. Nissan’s full board, including representatives from Renault, is expected to meet later this month to make a decision. An alliance event could be held in early February, people familiar with the plans said. The meeting of Nissan’s independent directors Monday lasted for more than two hours, ending shortly before midnight Tokyo time, they said.
  • Wall Street bond dealers are moving rapidly to the sidelines of US Treasury auctions — the very activity that defines their status at the heart of the world’s biggest bond market. Until 2008, the roughly two dozen “primary dealers” designated by the Federal Reserve Bank of New York had a virtual stranglehold on the distribution of new US government debt, capturing at least 60% of every 10-year note auction and usually more than 80%. But by last year their role was starkly smaller: The average was under 17% and, in one auction, was as low as 7.4%. The trend is the same for the Treasury’s other notes, bonds, and inflation-protected securities. Two auctions last week produced record low awards to those primary dealers.
  • Trade between the US and China is on track to break records, a signal of resilient links between the world’s top economies amid the heated national security rhetoric in Washington and fears of “decoupling.”  US government data through November suggest that imports and exports in 2022 will add up to an all-time high, or at least come very close, when the final report comes out Feb. 7. Beijing just published its own full-year figures that show record trade of around $760 billion. There are some caveats. Trade slowed toward the end of the year, as US import demand cooled and China struggled to manage its Covid restrictions. And the trade data isn’t adjusted for inflation, which means higher dollar figures may not translate to more goods shipped.
  • Emerson Electric Co. went public with its months-long pursuit of National Instruments Corp., revealing a bid to take over the maker of measurement systems for about $7 billion. St. Louis, Missouri-based Emerson made a cash bid of $53 per share in November, it said in a statement Tuesday, confirming an earlier Bloomberg News report. The latest bid was an improvement on an earlier proposal of $48 per share made in May, it said. Emerson has already purchased 2.3 million NI shares and has regulatory approval to boost its stake, it said. The company is prepared to nominate alternative directors for election to NI’s board, according to the statement. Shares of NI were up 13% in pre-market trading Tuesday.
  • Russia will create new commands near Europe as it expands its military to 1.5 million people amid deepening tensions with the US and its allies over the Kremlin’s invasion of Ukraine. New structures in the regions around Moscow, St. Petersburg and Karelia on the border with Finland will be created under the program, Defense Minister Sergei Shoigu told commanders Tuesday, saying the major changes will start this year and continue through 2026. In addition, he said, “self-sufficient” units will be set up on the Ukrainian territories that Russia has illegally annexed. Kremlin spokesman Dmitry Peskov said the military expansion came in response to the “proxy war” he claimed the US and its allies are waging against Russia in Ukraine, Interfax reported. Kyiv and its allies are fighting to fend off Russia’s invasion of its neighbor.
  • German power prices jumped to their highest level this year as icy weather drives demand for heating and wind output fell from near a record. Day-ahead prices in Europe’s biggest economy surged as much as 16% Tuesday in a stark reminder of the volatile nature of the power market. Temperatures in Frankfurt are forecast at 2C below normal on Wednesday, with freezing conditions expected for the rest of the week. While electricity prices have dropped over the past few months as the cost of natural gas plunged, the near-term market is still very much driven by the weather and how much power Germany’s thousands of wind turbines are generating.
  • Britain was in the grip of its worst industrial strife for more than 30 years even before the rail network and postal service ground to a halt over the festive period. Some 467,000 working days were lost to strikes in November, a 10-year high, after a wave of walkouts caused by the most severe cost-of-living crisis in a generation. Days lost over a six-month period reached the highest level since 1989-90. The Office for National Statistics said the transport, communications and education sectors drove the industrial unrest with pay disputes intensifying in December and January. Health service, postal and rail staff have walked out over pay in recent months with more strikes planned — including teachers, bus drivers and civil servants — for the coming weeks.
  • Liberty Mutual Holding Co. is exploring a sale of its Latin America businesses as part of the US insurer’s divestment plans from non-core markets, according to people with knowledge of the matter. The Boston-based firm is working with JPMorgan Chase & Co. on the potential sale, which could fetch about $1 billion, the people said, asking not to be identified because the discussions are private. The assets include operations in Brazil, Chile, Colombia and Ecuador, the people said. Liberty Mutual may kick off the sale as soon as the coming weeks, the people said. Some of the Liberty assets are attracting interest from global rivals including Zurich Insurance Group AG and Assicurazioni Generali SpA, the people said.
  • Tesla Inc. as well as Chinese automaker BYD and South Korea’s Hyundai Motor Co. are finalizing deals to invest in Indonesia’s electric-vehicle industry, said a senior minister. “All the top global carmakers are coming to us,” said Luhut Panjaitan, coordinating minister for maritime affairs and investment, in a meeting with local government leaders on Tuesday. “BYD, Tesla, Hyundai and others are all finalizing deals with Indonesia.” President Joko Widodo has set out a vision of building out an end-to-end electric vehicle supply chain onshore by offering potential investors access to Indonesia’s reserves of key battery metals as well as its more than 270 million consumers. That plan is starting to take shape as global EV and battery producers plan billions of dollars of investment, from Contemporary Amperex Technology Co.’s $6 billion mining-to-batteries complex to Hyundai’s new EV plant.
  • Silvergate Capital Corp. reported a $1 billion loss and said it would offboard some non-core digital-asset customers following a quarter that saw a dramatic draw-down in deposits after the collapse of Sam Bankman-Fried’s FTX. The La Jolla, California-based bank said the losses stemmed mainly from asset sales it was forced to make following the unraveling of the crypto exchange. Silvergate also said it will eliminate a portion of its digital-asset product portfolio and assess its pipeline of prospective digital-asset customers.  “While we are taking decisive actions to navigate the current environment, our mission has not changed,” Chief Executive Officer Alan Lane said in a statement Tuesday. “We believe in the digital asset industry, and we remain focused on providing value-added services for our core institutional customers.”
  • BlackRock Inc. Chief Executive Officer Larry Fink said the narrative around ESG investing has become ugly and is creating “huge polarization.” “I’m taking this very seriously,” Fink said in an interview with Bloomberg TV at the World Economic Forum in Davos. “We are trying to address the misconceptions. It’s hard because it’s not business any more, they’re doing it in a personal way. And for the first time in my professional career, attacks are now personal. They’re trying to demonize the issues.” Fink, 70, has been outspoken about investing with environmental, social and governance goals, making it a focal point in his annual letters to the industry. The firm has become a political punching bag from forces on both ends of the spectrum, with some on the right alleging its policies harm the fossil-fuel industry and others on the left arguing it’s not doing enough to respond to climate change.
  • Some of the biggest US banks may sell new debt after reporting earnings, making up the bulk of new issuance expected this week. Meanwhile, JPMorgan is laying the groundwork for a roughly $2 billion leveraged finance debt deal supporting the combination of market data providers NielsenIQ and GfK. Dealers are calling for another active week with $30 billion to $35 billion in fresh high-grade debt sales with a combined $20 billion to $25 billion of that expected to come from big bank issuance
  • Meta Platforms Inc.’s market-beating rally of the past few months is failing to convince some skeptics, given how much money the owner of Facebook and Instagram continues to pour into building its version of the metaverse. Meta is the best performer in the S&P 500 Index since the stock’s recent low in November, gaining 54%. The bounce was partially driven by the social-media firm’s announcement that it would slash more than 11,000 jobs, the first major round of layoffs in the company’s history. Yet signs of skepticism abound: Even after the surge, Meta sells for less than half its average price-earnings multiple of the past decade and is one of the cheapest stocks in the Nasdaq 100 Index. Its shares are still 64% below their 2021 record and analysts on average expect the stock to gain a mere 7.7% over the next 12 months.
  • OPEC’s top official said he’s “cautiously optimistic” about the outlook for the global economy, as a recovery in oil demand in China is tempered by signs of fragility elsewhere. “We’re seeing signs of green” as Beijing ends Covid-related lockdowns, OPEC Secretary-General Haitham Al-Ghais said in an interview with Bloomberg Television at the World Economic Forum in Davos on Tuesday. “We are optimistic, but we are cautiously optimistic.” Oil prices have had a shaky start to 2023 as traders assess whether China can successfully reopen its economy after almost three years of strict anti-virus measures. While travel is resuming, the country has had to deal with a surge in new Covid cases.






*All sources from Bloomberg unless otherwise specified