January 2, 2024

Daily Market Commentary

Canadian Headlines

  • Oil rose in New Year trading after Iran sent a warship into the Red Sea, escalating Middle East tensions, and as the outlook for Chinese crude demand brightened. WTI jumped above $73 a barrel. The yield on Canada’s benchmark two-year bond was up 7 basis points in early trading to 3.96%.

World Headlines

  • European stocks slipped on the first day of trading in 2024 as bonds retreated, while energy shares outperformed as crude oil rose amid increased tensions over the Red Sea. The Stoxx Europe 600 erased gains of as much as 0.7%, dropping 0.2% at 12:03 p.m. in London. Yields on 10-year US bonds and German bunds rose as money markets wagered on fewer than 150 basis points of easing by the Federal Reserve in 2024. Energy stocks gained, buoyed by gains in crude after Iran sent a warship to the Red Sea in response to the US Navy’s sinking of three Houthi boats over the weekend. Consumer products and technology stocks lagged. European stocks gained 13% in 2023 amid optimism that central banks will soon pivot to interest rate cuts, protecting regional economies from major contractions. The rally sent the Stoxx 600 to overbought levels, as indicated by its 14-day relative-strength index. Eurozone inflation figures due later this week will provide clues about monetary policy.
  • US stock futures and Treasuries dropped as traders trimmed their bets on interest-rate cuts and speculated that the recent rally has been overdone. Futures on the Nasdaq index lost 1%. Apple Inc. fell in premarket trading after an analyst at Barclays Plc warned that iPhone demand is cooling. The 10-year Treasury yield rose seven basis points to 3.95%. Brent crude surged more than 2% after Iran dispatched a warship to the Red Sea. The dollar gained 0.5%, with all emerging-nation currencies except the Brazilian real trading lower against the greenback. The yen weakened against almost all of its Group-of-10 peers in thin trading as investors monitored conditions after an earthquake in Japan on Monday.
  • Asian equities declined the most in nearly three weeks after key markets returned from the New Year holiday, as sentiment soured after weak economic data from China. The MSCI AC Asia Pacific Excluding Japan Index fell as much as 0.7%, with Alibaba Group, AIA Group and MediaTek among the biggest drags. Mainland and Hong Kong stocks were the worst performers in the region after China’s factory activity shrank in December to the lowest in six months. Markets in Japan and New Zealand remained closed for a holiday. Chinese shares also took a hit amid worries over a resurgence in geopolitical tensions as ASML Holding canceled shipments of chip manufacturing equipment to China at the request of the US. A gauge of semiconductor stocks in the region declined as much as 0.8% before paring the loss.
  • Oil rose in New Year trading after Iran sent a warship into the Red Sea, escalating Middle East tensions, and as the outlook for Chinese crude demand brightened. Brent crude climbed more than 2% to near $79. The deployment of an Iranian warship comes after the US Navy said it was fired upon when responding to a distress call from a vessel in the Red Sea, the latest flashpoint on the key maritime corridor over the past few weeks. Defense and shipping stocks were also trading higher on Tuesday. Attacks on merchant shipping in the region have led to diversions of everything from container ships to gas carriers. The most recent came as two crude tankers diverted away from loading in Sudan, though one was replaced by a different vessel. Still, even as some companies and shipowners stay away, the wider impact on supply has been contained for now.
  • Gold rose, after notching up its first annual gain in three years as investors increased bets that the Federal Reserve will start to cut interest rates in the months ahead. Bullion ended 2023 up 13% — hitting a record in early December — amid speculation the central bank is set to loosen monetary policy as inflation abates, which would benefit non-yielding assets. Swaps traders now see six rate cuts over the next year, despite officials pushing back against rapid loosening. Traders will look to US data releases later this week, including employment figures, that may influence the Fed’s monetary policy stance. The median economist forecast is for a cooling in the jobs market, which could help turn the outlook more dovish.
  • Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the eighth straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.34 billion in the week ended Dec. 29, compared with gains of $4.05 billion in the previous week, according to data compiled by Bloomberg. So far this year, outflows have totalled $0.
  • ASML Holding NV canceled shipments of some of its machines to China at the request of US President Joe Biden’s administration, weeks before export bans on the high-end chipmaking equipment came into effect, people familiar with the matter said. The Dutch manufacturer had licenses to ship three top-of-the-line deep ultraviolet lithography machines to Chinese firms until January when new Dutch restrictions take full effect. However, US officials reached out to ASML to ask them to immediately halt pre-scheduled shipments of some of the machines to Chinese customers, according to people familiar with the matter, who asked not to be identified because the discussions were confidential.
  • Iberdrola SA’s US unit has terminated a $4.3 billion agreement to buy a local rival, ending three years of legal and regulatory wrangling over the deal. The 2020 deal to buy New Mexico-based PNM Resources Inc. was terminated because all final regulatory approvals were not received by Dec. 31, Iberdrola’s Avangrid Inc. said in a statement Tuesday. There was still no clear timing on when a resolution might occur, it added. The collapse of the deal puts a major break of Iberdrola’s ambitions to expand its operations in the US. Still, the Spanish company’s management has repeatedly said it would be open to looking for other options if it couldn’t acquire PNM.
  • Britain’s push to become a “space superpower” is being undermined by political disarray and weak domestic investment, while showing how the nation needs international partners more than ever post-Brexit. In a case study of UK industrial strategy after leaving the European Union, Britain is embracing collaboration and mergers, while targeting niche roles in the booming space economy like curbing space junk and launching small rockets, instead of large-scale ownership or leadership, top-ranking officials and executives told Bloomberg News. The US’s close strategic ally is settling for the supporting role at a time of geopolitical turmoil and economic headwinds. In 2023, Britain’s top satellite operators — Inmarsat Group Holdings Ltd. and OneWeb Global Ltd. — were absorbed by overseas rivals who are bulking up against Elon Musk’s fast-growing Starlink, while launch projects have been sidelined by bankruptcy or delays. German startup HyImpulse Technologies GmbH delayed plans for a launch from a new Scottish spaceport last year after slow progress there led the firm to seek alternative sites, Chief Executive Officer Mario Kobald said in an interview.
  • Ukraine said at least four people were killed in Russian missile strikes in the early hours of Tuesday that mainly targeted the country’s largest cities, Kyiv and Kharkiv. Another 92 people were wounded, though the casualties would have been in the hundreds if Ukraine’s partners hadn’t helped boost the country’s air defenses, President Volodymyr Zelenskiy said on social media platform X. Ukraine has come under intense attacks since a missile claimed a large Russian landing ship at the eastern Crimean port of Feodosia last week. A deadly strike on Belgorod, a Russian city near the Ukrainian border, prompted warnings from President Vladimir Putin on Monday that more attacks would follow.
  • Global government bonds got off to a cautious start as traders pared bets on deep interest-rate cuts from major central banks this year. Germany’s 10-year yield jumped as much as nine basis points to 2.11%, the highest in more than two weeks, while the equivalent UK rate rose 13 basis points. US Treasury yields were up at least six basis points across the curve, putting the Bloomberg Dollar Spot Index on track for its biggest daily advance in almost three months. The moves reflect doubts that policymakers will deliver the extent of monetary easing that’s priced by money markets. While central banks have indicated that they’ve likely delivered the final hikes of this cycle, they will also be reluctant to give up the fight against inflation too soon.
  • Lazard Inc. hired two managing directors for its restructuring practice as part of a plan to diversify offerings and boost the investment bank’s revenue. Jason New, who most recently co-founded crypto firm NovaWulf Digital Management and was chief executive officer of Onex Credit, will be vice chairman of investment banking, according to a Lazard spokesperson. Kevin Glodowski joins Lazard from Rothschild & Co., where he spent more than a decade and was most recently managing director in the restructuring and debt-advisory group. Both will be based in New York. The addition of New and Glodowski kicks off Lazard CEO Peter Orszag’s goal to bring in 10 new managing directors in financial advisory this year and also bolster Lazard’s restructuring and liability-management business. The hirings come as more companies buckle under higher financing costs and explore options to remain stable.
  • Apple Inc. got itself a new bear as expectations of soft demand for its latest iPhone prompted analysts at Barclays Plc to downgrade the stock. Barclays analysts led by Tim Long cut their rating on Apple to underweight and price target to $160 from $161, implying a 17% decline over the next year. The stock dropped as much as 1.4% in US premarket trading on Tuesday. “We expect reversion after a year when most quarters were missed and the stock outperformed,” the analysts wrote in a note on Tuesday. “Our checks remain negative on volumes and mix for iPhone 15, and we see no features or upgrades that are likely to make the iPhone 16 more compelling.” Apple’s shares rose around 50% to a record last year and saw its market value hit $3 trillion as investors bet that its flagship device will withstand a sluggish economy. However, doubts have emerged whether the stock will be able to repeat such hefty gains given rising competition from the likes of Huawei Technologies Co. and a Chinese government crackdown on foreign-made devices.
  • Bitcoin surpassed $45,000 for the first time in nearly two years as anticipation of an approval of an exchange-traded fund investing directly in the biggest token intensified. The cryptocurrency jumped as much as 5.2% to its highest level since April 2022 and traded at $45,443 as of 7 a.m. New York time. Other tokens also advanced with Ether, the second biggest, rising as much as 4.1%. Bitcoin has risen almost 20% since the start of December as a Jan. 10 deadline for the US Securities and Exchange Commission to give its blessing for a spot ETF Bitcoin draws closer.
  • All 379 people aboard a Japan Airlines Co. flight managed to escape after the Airbus jetliner burst into flames following a collision with a smaller plane after landing at Haneda Airport in Tokyo, while most of the crew aboard the other aircraft were killed. Passengers and crew were safely evacuated from the Airbus A350-900, an airline spokesperson said. Five of the six crew on a Japanese coast guard plane that collided with the bigger jetliner have died, according to the government. Footage from the airfield outside the Haneda airport building appeared to show the Airbus jet colliding with the other aircraft just after touching down after dark, then skidding on in a trail of flames. The JAL jet could be seen tilted forward with a collapsed front landing gear, flames licking from its windows and smoke billowing over the fuselage as fire services battled the blaze.
  • The People’s Bank of China injected nearly $50 billion worth of low-cost funds into policy-oriented banks last month, suggesting the central bank may be ramping up financing for housing and infrastructure projects to support the economy. The outstanding amount of the PBOC’s Pledged Supplemental Lending program to policy banks climbed to 3.25 trillion yuan ($456 billion) at the end of December from 2.9 trillion yuan in the previous month, the central bank said in a Tuesday statement. The net injection of 350 billion yuan was the largest increase via the tool since November 2022. The PSL program is seen as an important tool in Beijing’s arsenal, which the government can use to shore up the property sector and stabilize growth this year. Markets have been expecting the central bank to use the money to drive construction of public housing in a bid to alleviate a multi-year property slump that’s hammered consumer confidence.
  • Airbus SE managed to beat its annual delivery target in 2023 as the planemaker ramped up output in December, according to a website that tracks aircraft handovers. The world’s largest maker of commercial aircraft likely handed over 733 planes to customers last year, according to preliminary data from Aviation Flights Group. Of those, 579 were for its bestselling A320neo family of single-aisle jets, the data show. Widebody A350 aircraft accounted for 57 units, according to Aviation Flights Group. A person familiar with Airbus’s numbers also said the company exceeded its goal, delivering more than 730 aircraft to customers. Airbus, which had a target of 720 deliveries for the year, declined to comment.