January 24, 2023
- Canadian stocks rose to their highest level since June 2022 on Monday as investors continue to pile into value stocks amid optimism on China’s reopening. The S&P/TSX Composite Index rose above its 20-, 50- and 100-day moving averages this month, extending a positive run for one of the few major global indexes that has remained in a bull market, even as the S&P 500 fell into a bear market in 2022. At that time, the Canadian index beat the S&P 500 by the most since 2005. Toronto’s key stocks gauge along with European indexes has been outperforming the US benchmark.
- European stocks fell for the first time in three days as investors assessed the extent of recent gains amid mixed corporate earnings. The Stoxx 600 Index fell 0.3% at 11:43 a.m. in London. Commodity-tied stocks fell the most, while insurance and utilities outperformed. A report Tuesday showed the euro area’s private-sector economy unexpectedly returned to growth at the start of 2023, suggesting the region may be set for a soft landing. The Stoxx 600 has rallied a little under 7% in January, setting it on course for one of its strongest starts to the year ever, boosted by lower natural gas prices and China reopening bets. It has also extended a record lead over the S&P 500 as investors turn more positive about regional stocks amid cheaper valuations and a relatively better earnings outlook.
- US equity futures ticked lower after the best two-day rally since November for the tech-heavy Nasdaq 100. The year-to-date rebound in risk assets will be tested this week by a wave of US corporate earnings from tech giants such as Microsoft Corp. and Texas Instruments Inc. as well as industrials such as GE. While some traders are bracing for the worst tech earnings slump since 2016 — Microsoft for instance is projected to report the smallest sales increase in six years — easing inflation and cost-cutting drives have encouraged expectations that some companies might escape a deeper slump. The greenback held just above nine-month lows plumbed on Monday against a basket of currencies, with the euro slipping against the greenback for the first time in five sessions. Yields on 10-year German and British government bonds fell, with the latter weighed down by a particularly poor business activity reading.
- Asian stocks extended their recent rise in holiday thinned trading, as investors looked beyond expected near-term earnings weakness and rising US interest rates. The MSCI Asia Pacific Index rose 0.8%, poised for a third straight day of gains, driven by industrial and technology shares. Japan led the advance for a second session, with China and much of the region still shut for Lunar New Year. Major Asian tech stocks reporting results this week include South Korean EV battery maker LG Energy Solution and Japanese robot maker Fanuc. In addition to the rebound in global peers, local shares have also gained on optimism over China’s reopening and easing corporate crackdowns.
- Oil was stable as traders waited for fresh signals on the state of Chinese crude demand after the nation ditched Covid curbs. West Texas Intermediate for March delivery was little changed above $81 a barrel after swinging between gains and losses on Monday. Futures trading volumes are likely to remain subdued during Asian hours, with many investors across the region on breaks to mark the Lunar New Year. Oil has been driven higher over the past two weeks on expectations that the swift pivot in the world’s largest crude importer may spur daily consumption to hit a record in 2023 as mobility and industrial activity pick up. Traders are also tracking the impact of tighter curbs on Russian energy flows imposed by the European Union and US following the invasion of Ukraine.
- Gold extended a gain on a weaker dollar as traders awaited US data for further indicators of how the economy is performing under high interest rates. The greenback declined even as risk sentiment in equity markets remained muted, boosting gold. The metal has risen more than 6% this year on bets the Federal Reserve will cut rates as the US economy weakens. Spot gold rose 0.4% to $1,938.59 an ounce at 8:38 a.m. in London after rising 0.3% in the previous session. The Bloomberg Dollar Spot Index fell 0.4%. Silver — which plunged as much as 4.9% on Monday before paring losses to 2% — rose. Platinum edged higher while palladium was steady.
- British companies signaled output dropped at the fastest pace since the start of the pandemic as the government budget deficit widened to a record, adding to evidence that the economy may be in a shallow recession. S&P Global said its index of sentiment from purchasing managers fell more sharply than expected in January, led by a deterioration in services that had previously propped up the economy. The Office for National Statistics reported the highest ever December shortfall after soaring interest rates jacked up the cost of debt service. The figures eat away at hopes that the UK may avoid a slump. It adds to pressure on Prime Minister Rishi Sunak to come up with a growth program and defuse some of the labor and trade disputes that have brought some sectors to a standstill.
- The Biden administration has confronted China’s government with evidence that suggests some Chinese state-owned companies may be providing assistance for Russia’s war effort in Ukraine, as it tries to ascertain if Beijing is aware of those activities, according to people familiar with the matter. The people, who asked not to be identified discussing private deliberations, declined to detail the support except to say that it consists of non-lethal military and economic assistance that stops short of wholesale evasion of the sanctions regime the US and its allies imposed after Russian forces invaded Ukraine. The trend is worrying enough that US officials have raised the matter with their Chinese counterparts and warned about the implications of supplying material support for the war, the people said, though they declined to provide details of those contacts. President Xi Jinping has avoided criticizing Russia over the war but has also offered to play a role in peace talks and come out against the use of nuclear weapons in the conflict.
- General Electric Co. expects profit and cash flow to climb this year as the slimmed-down manufacturer strengthens its focus on aerospace amid sustained air-travel demand. Adjusted earnings will be as much as $2 a share in 2023, up from 77 cents last year, the company said Tuesday in a statement that also detailed fourth-quarter results. Free cash flow will be in the range of $3.4 billion to $4.2 billion. The figures reflect the company’s “confidence in the strength of GE Aerospace as the worldwide commercial aviation industry continues its post-pandemic recovery,” GE said in the statement. It also expects military-related sales growth to “yield significant profit growth” this year.
- Humana Inc., UnitedHealth Group Inc. and other big insurers are set for a clash with US officials over up to $3 billion in potential penalties for the industry threatened by an obscure, years-late regulation. Cigna Corp., CVS Health Corp. and Centene Corp. also face potential clawbacks of Medicare payments booked a decade or longer ago, according to a report from the research firm Veda Partners. Insurers say they’re preparing to go to court if administrators for the senior-health program don’t make the final version of the rule expected by the beginning of February more lenient than a draft proposed more than four years ago. The government has been developing a way to recoup funds from companies that overcharge for administering health-care plans for the elderly, called Medicare Advantage, that constitute a big, growing source of industry profit. Insurers have fought the 2018 proposal, which details how the Centers for Medicare and Medicaid Services would determine whether companies are exaggerating how sick their members are and, if so, reclaim payouts.
- Johnson & Johnson, which is in the process of splitting off its consumer division, guided to stronger earnings for 2023 than analysts were expecting after a fourth quarter in which the pharma division suffered because of waning demand for its unpopular Covid-19 shot. Adjusted earnings at the diversified health-care company were $2.35 a share, compared to estimates for $2.23. Revenue of $23.7 billion was just shy of the average analyst estimate of $23.9 billion. Those quarterly sales were down 4.4% from a year earlier. The company forecast 2023 adjusted earnings of $10.45 to $10.65 a share, above analysts’ average estimate of $10.35 a share. Revenue for the year will be in the range of $96.9 billion to $97.9 billion, J&J said, while analysts had expected $98 billion.
- Serta Simmons Bedding is seeking bankruptcy protection in an effort to trim its debt load following an earlier out-of-court restructuring. The Atlanta-based mattress maker filed in the Southern District of Texas on Monday. The Chapter 11 filing allows Serta to continue operating while implementing a deal, backed by a majority of lenders and shareholders, to cut its debt to $300 million from $1.9 billion, the company said in a statement. The firm also obtained a $125 million debtor-in-possession ABL credit facility, it said. Facing financial distress amid the pandemic, Serta agreed on a previous restructuring with creditors in 2020 that added $200 million of fresh capital while allowing some lenders to jump to the front of the repayment line. Other lenders were pushed back, a process known as priming. A group of funds including Angelo Gordon & Co. and Apollo Global Management sued Serta and rival lenders in the hopes of invalidating the transaction.
- European natural gas dropped with fuller-than-normal stockpiles protecting against any supply curbs, while the demand outlook eased with an icy blast forecast to end soon. Benchmark futures fell as much as 11%, extending Monday’s decline. The frigid weather has raised gas usage for heating, but high storage levels and strong deliveries of liquefied natural gas are calming nerves and helping to keep prices in check. The market could ease further in the coming days with temperatures in northwest Europe turning milder and the warmer weather expected to last through to the first week of February, according to forecaster Maxar Technologies Inc.
- Apple Inc. is looking to boost production in India to about a quarter of its global total, one of the country’s top government officials said, as the US tech giant seeks to diversify from its main manufacturing hub in China. “They are already at about 5-7% of their manufacturing in India,” said Piyush Goyal, India’s trade and industry minister, at a public event Monday. “If I am not mistaken, they are targeting to go up to 25% of their manufacturing.” Goyal’s comments are somewhat more aggressive than what Apple’s contract manufacturers have told New Delhi previously. Apple’s three key Taiwanese suppliers — Foxconn Technology Group, Pegatron Corp. and Wistron Corp. — applied for and won financial incentives to ramp up Indian smartphone production and exports.
- The Qatar Investment Authority boosted its stake in Credit Suisse Group AG to 6.87% from about 5.6% previously, according to a filing from the sovereign wealth fund. With the purchase, QIA becomes the Swiss bank’s second largest shareholder — just behind the Saudi National Bank — after Credit Suisse issued new shares as part of a 4 billion Swiss franc ($4.3 billion) capital raise it completed in December. Earlier this month, the Swiss lender’s longtime largest shareholder Harris Associates, which once held a stake of about 10%, reported a holding of below 3%. The Saudi National Bank, 37% owned by the nation’s sovereign wealth fund, was an anchor investor in Credit Suisse’s capital raise and now holds a near 10% stake in the firm, making it the top shareholder.
- Debt sales in Europe have broken through €240 billion ($260 billion), beating a previous record for January set in 2020. Offerings from the UK and European Union on Tuesday pushed marketwide sales this month to at least €244 billion, with the final tally set to move even higher once final terms are set on Tuesday’s eight offerings, according to data compiled by Bloomberg. It beats a previous record of just under €239 billion notched up in the same month three years ago. Borrowers have been piling in to public debt markets during a start-of-year global credit rally that’s boosting corporate bond returns and driving down funding costs. Financial institutions in particular have been active, rushing to plug a funding gap as they prepare to shortly repay more of the pandemic-era cheap loans made available by the European Central Bank.
- Verizon Communications Inc.’s profit outlook trailed Wall Street estimates in a sign that consumer wireless business continues to weigh down performance as the company turns to costly phone giveaways to compete with its peers. The largest US wireless carrier said Tuesday that it expects 2023 earnings per share, excluding some items, to be in the range of $4.55 to $4.85. Analysts were looking for $4.97, on average. The company added 217,000 new wireless phone subscribers in the fourth quarter, topping the 209,600 analyst projection. Profit and sales in the quarter were in-line with estimates compiled by Bloomberg.
- OPEC+ delegates said they expect an advisory committee of ministers to recommend keeping oil production levels unchanged when they meet next week amid a tentative recovery in global demand. Saudi Arabia and its partners will hold a review of output levels on Feb. 1, after agreeing significant cutbacks late last year to keep world crude markets in balance. Delegates from the group said privately that they expect the panel of ministers to maintain the status quo, as they await clarity on the recovery in consumption in China and the impact of sanctions on Russian supply. International oil prices have climbed in the past two weeks, nearing $90 a barrel as China — the world’s biggest oil importer — abandons almost three years of strict anti-Covid restrictions. Still, the path of recovery remains uncertain as the country faces a resurgence of virus cases, prompting the Organization of Petroleum Exporting Countries and its allies to stay conservative.
*All sources from Bloomberg unless otherwise specified