January 25, 2023
- Finance Minister Chrystia Freeland is facing significant pressure to spend more on clean-energy subsidies and health care, even as a possible recession looms. Canadian National Railway Co. beat analysts’ forecasts in the fourth quarter but said a “softer economic outlook” will hurt growth in 2023. Ahead Wednesday, watch for an interest rate decision from the Bank of Canada.
- Canada’s antitrust watchdog said it won’t pursue a further appeal after it lost a court ruling over the proposed Rogers Communications takeover of Shaw Communications. “We accept the decision of the Federal Court of Appeal and we will not be pursuing a further appeal in this matter,” Commissioner of Competition Matthew Boswell said in a statement
- European shares dropped on Wednesday, pausing this year’s strong rally as investors parsed earnings reports for signs of slowing economic growth weighing on corporate results. The Stoxx Europe 600 Index was down 0.7% at 10:10 a.m in London, with almost all sectors declining. Tech stocks lagged behind as Microsoft Corp. said revenue growth in its Azure cloud-computing business will decelerate in the current period and warned of a further slowdown in corporate software sale. European stocks are enjoying a stellar start to the year, with the Stoxx 600 set for its best January gain since 2015 on lower natural gas prices, cooling inflation and China’s reopening. Still, some investors are reluctant to chase the rally and see too much optimism, with the Stoxx 600’s 14-day relative strength index rising into overbought territory last week.
- US equity futures slumped on Wednesday, after Microsoft Corp. and a slew of other major firms forecast slower earnings and fears grew that Berlin’s decision to approve the re-export of German-made tanks would provoke an escalation in the Ukraine war. Contracts for the Nasdaq 100 fell more than 1%, after a two-day rally in the underlying index ground to a halt on Tuesday when Microsoft warned of decelerating revenue growth in its cloud-computing business. Earnings reports from companies such 3M Co. and chipmaker Texas Instruments Inc. also reinforced concerns about the health of corporate America and added to investors’ jitters as they await updates from the likes of Tesla Inc. and IBM Corp.
- Asian stocks headed for a fourth straight daily gain as tech stocks rose amid lighter trading volumes and holidays in China and Hong Kong. The MSCI Asia Pacific Index advanced as much as 0.4% to its highest since early June. Samsung Electronics and SK Hynix were among the biggest contributors to the gauge’s advance as Korea traders returned from the Lunar New Year holidays. Trading volumes have been light in Asia this week as markets in China, Hong Kong, Taiwan and Vietnam remain closed for the new-year break. A blackout period on communications ahead of the Federal Open Market Committee’s policy meeting next week has supported risk appetite, with the MSCI Asia gauge up about 25% from an October low.
- Oil held steady as investors weighed the extent of China’s demand recovery and fears a global slowdown with drag down consumption. West Texas Intermediate futures were $80 a barrel after declining 1.8% on Tuesday as mixed company earnings and weaker business activity spurred concerns about the US economy. While there’s expectation that China’s oil demand will rise after it ditched restrictive Covid rules, there’s still uncertainty about the strength of the rebound. Crude is largely unchanged so far this month after a weak start to the year with recession fears running through the market. The outlook for China and a weaker dollar — which makes commodities priced in the currency more attractive — have helped oil claw back some ground. More uncertainty lies ahead with sanctions and price caps on Russian petroleum products set to kick in next month.
- Gold declined from the highest close in nine months as investors digested the latest US data that spotlighted growing recessionary fears even as inflationary pressures persist. Bullion has risen more than 5% this year on bets the Federal Reserve will soon start to rein in its aggressive rate-hike policy as the US economy weakens. On Tuesday, data showed business activity contracted for a seventh month, though at a more moderate pace, while a measure of input prices firmed in a sign of lingering inflationary pressure. Spot gold fell 0.5% to $1,928.59 an ounce at 9:55 a.m. in London, after closing 0.3% higher in the previous session. The Bloomberg Dollar Spot Index weakened slightly. Silver, palladium and platinum also declined.
- ASML Holding NV Chief Executive Officer Peter Wennink warned excessive control measures could lead to higher costs for chipmakers, as the US asks allies from Japan to the Netherlands to help limit China’s access to critical semiconductor technologies. The Netherlands and Japan, home to key suppliers of semiconductor manufacturing equipment, are close to joining a Biden administration-led effort to curb exports of the technology to China, Bloomberg News has reported. ASML potentially faces more limitations on its sales to Chinese customers as the US seeks to undermine Beijing’s ambition to build a self-sufficient supply chain.
- When it comes to forecasting a recession, economists today have a wealth of tools and data. Even so, it’s still more of an art than a science. Most economists predict a downturn in the US this year, precipitated by the Federal Reserve’s barrage of interest-rate hikes aimed at combating inflation. Among those surveyed by Bloomberg, the consensus is that the effects of tighter credit on corporate investment and hiring, as well as consumer spending, won’t translate into a contraction in gross domestic product until the second quarter. Yet many anticipate the damage—at least from a jobs perspective—will be slight compared with earlier episodes. Many countries define a recession as two consecutive quarters of negative growth for GDP, but the US delegates this assessment to a group of elite academics who meet in secret and typically take about a year to make a call. The verdict comes almost always well after Wall Street has widely recognized a recession.
- Slowly but surely, investment bankers from New York to London are chipping away at the tens of billions of dollars in leveraged buyout debt that remains famously stuck on their balance sheets. As loan prices in the US and Europe stage a spirited rebound, global banks are managing to sell down small chunks of risky financing packages that powered debt-fueled acquisitions in the low-rate era. That’s no mean feat given the diminished investor appetite for the obligations just a month ago. Underwriters for the buyout of Citrix Systems Inc. have offloaded another sliver of a massive debt package that they were left saddled with during last year’s market slump. Other Wall Street institutions are eyeing loan sales for the buyout of Roper Technologies Inc., while a roughly $2 billion loan for NielsenIQ is expected to start pre-marketing soon.
- Germany pledged to supply Ukraine with more than 100 Leopard 2 battle tanks in a joint effort with European allies, providing Kyiv’s forces with a significant upgrade in the firepower they can deploy against their Russian invaders. In a first step, Germany will make a company of 14 Leopard 2 A6 tanks available from stocks held by its armed forces, Chancellor Olaf Scholz’s government said Wednesday in an emailed statement. Defense Minister Boris Pistorius told reporters in Berlin that the first German tanks could arrive in Ukraine within three months, possibly too late to counter a Russian offensive that defense officials have warned could come as soon as next month. The aim is for German and its partners to supply two battalions totaling 112 Leopards and the government in Berlin will give allies the required authorization to supply their tanks, according to the statement. The package includes training in Germany for Ukrainian troops, logistics, ammunition and maintenance.
- A plan by Britain’s financial watchdog to impose a labeling system on funds claiming to pursue environmental, social and governance investing strategies is on track to meaningfully reduce the size of the country’s $70 billion impact fund market, according to senior industry representatives. Bella Landymore, joint interim chief executive of the London-based Impact Investing Institute, praised the introduction of formal rules to help build trust in the ESG fund industry as a “significant step.” However, there’s now a concern that even some of the best impact investing products available in the UK “would struggle to be eligible” within the new proposed framework, she said. Impact funds, which oversee about $1 trillion globally, have traditionally been seen as some of the cleanest vehicles through which to target ESG. But the UK’s planned rules raise questions about the effectiveness of some forms of impact investing, such as those relying on publicly traded stocks. The Global Impact Investing Network’s most recent survey shows that roughly a fifth of impact investors rely on strategies that use listed equities.
- Broadcom Inc.’s proposed $61 billion takeover of cloud-computing company VMware Inc. is being probed by the UK’s antitrust agency and faces an in-depth investigation. The Competition and Markets Authority said Wednesday it kicked off the first stage of its merger inquiry into the chipmaker’s purchase of the cloud computing firm. The transaction marked the biggest-ever takeover for a semiconductor maker and extended an acquisition spree for Broadcom chief executive officer Hock Tan, who has built one of the largest and most diversified companies in the industry. Broadcom’s acquisition is already under scrutiny from European regulators and faces an extended review in Brussels. EU antitrust chief Margrethe Vestager said the deal could allow Broadcom to prevent its hardware rivals interoperating with VMware’s software.
- The economy is headed for a downturn at a time stocks are rallying, setting the stage for a selloff, according to JPMorgan Chase & Co.’s Marko Kolanovic. “Fundamentals are deteriorating, and the market has been moving up. So that has to clash at some point,” the bank’s chief global markets strategist and co-head of global research said in a TV interview with CNBC. He expects a recession in the US and Europe, as interest rates rise and consumers become less resilient. The S&P 500 is headed for the best January since 2019 after a new year rally was driven by expectations that the Federal Reserve will moderate its interest rate hikes. Still, global stocks have outperformed the US market as investors flock to cheaper corners and seek exposure to China’s reopening.
- Boeing Co. reported a loss to end 2022 as the planemaker grappled with high costs that threaten to slow its recovery. Adjusted earnings were negative $1.75 a share in the fourth quarter, the Arlington, Virginia-based company said Wednesday in a statement. Revenue was about $20 billion, roughly in line with the average estimate compiled by Bloomberg. The results underscore the work Boeing still has to do to return its factories to full gear and fully capitalize on soaring demand for air travel. The US aviation titan has already endured a difficult few years marked by the grounding of the cash-cow 737 Max and Covid-19 pandemic, before recent signs of recovery.
- Microsoft Corp. shares declined after the company warned that revenue growth in its cloud-computing business will decelerate in the coming months and corporate software sales will slow, fueling concern about demand for the products that have driven its momentum in recent years. Shares fell as much as 2.7% to $235.51 in pre-market trading. Chief Financial Officer Amy Hood said in a call with investors Tuesday that Azure sales in the current period will slow by 4 or 5 points from the end of the fiscal second quarter, when gains were in the mid-30s percentage-wise. That business had marked a bright spot in a lackluster earnings report for Microsoft, whose other divisions were held back by a slump in sales related to personal computer software and video games. Shareholders had initially sent the stock up more than 4%, encouraged by signs of resilience in Microsoft’s cloud business even in a weaker overall market for software and other technology products. But the company’s downbeat forecast brought the focus back to the software giant’s challenges as corporate customers hit the brakes on spending. Revenue growth of 2% in the second quarter was the slowest in six years, and Microsoft last week said it’s firing 10,000 workers.
- AT&T Inc.’s profit and free cash flow forecast for 2023 missed analyst estimates, sending the second signal this week that high costs are dampening prospects for the wireless industry. The company expects earnings excluding special items in the range of $2.35 to $2.45 a share, trailing the $2.54 average estimate. The outlook for free cash flow of at least $16 billion is $1 billion lower than analysts had projected. AT&T also took a nearly $25 billion non-cash goodwill impairment charge in the fourth quarter related to higher interest rates and declining value of its landline business and its wireless operations in Mexico. Excluding that charge and other adjustments, profit came in ahead of estimates.
- Traders are betting the Bank of England will reverse course and cut its key interest rate later this year to shore up a flagging economy. For the first time since August, money-market wagers show a quarter-point rate cut is fully priced in by year-end. Rates are still expected to increase next month before peaking at around 4.5% in the summer. The repricing comes after a string of economic data pointed to growth stalling and inflation easing, and shows the market is beginning to doubt that the UK central bank will be able to keep rates that lofty for long. The bank’s policy rate currently sits at 3.5%, the highest in more than a decade.
- Rupert Murdoch’s News Corp. is in talks to sell its Move Inc. online real estate business to CoStar Group Inc. Move is the parent of Realtor.com and other real estate-related websites. The deal is worth about $3 billion, according to people familiar with the matter, who asked not to be identified because the discussions are private. The sale could be announced within days, one of the people said. News Corp. confirmed the discussions with CoStar in a statement, saying they are part of an ongoing effort to assess opportunities that will maximize shareholder value. A spokesperson for CoStar said it continually evaluates acquisition opportunities, but doesn’t comment on market speculation.
- For startups that rode the tech boom to soaring valuations, few things are harder to swallow than the dreaded down round. It happens when backers throw fresh money at a fast-growing business and demand more equity than previous investors got for a similar amount of cash. The result is a decline in value—sometimes by an embarrassing amount. It’s such a badge of dishonor in Silicon Valley (not to mention alarming to employees with stock options) that private companies and investors are coming up with inventive workarounds. Private markets have few disclosure requirements, so most of the maneuvers aren’t made public. “What they try to do is sort of defeat reality,” Tom Slater, a Baillie Gifford fund manager whose firm buys stakes in private companies, said at a conference earlier this month. “Do you want to accept reality that your valuation has fallen by 50%? Because that’s potentially quite disruptive internally.”
- Tesla Inc. investors badly bruised by last year’s 65% rout are looking for clarity from Wednesday’s earnings report on demand for its electric vehicles, how recent price cuts will impact profitability and how many cars the company plans to make in 2023. It’s been an eventful three months since Tesla last reported earnings and Elon Musk spoke with Wall Street analysts. The chief executive officer closed his $44 billion acquisition of Twitter Inc. in late October, then offloaded $3.58 billion of Tesla stock in mid-December. Early this month, Tesla reported fourth-quarter deliveries that fell well short of expectations, then slashed prices in the US and Europe. Analysts expect adjusted earnings of $1.12 a share on revenue of $24 billion, according to estimates compiled by Bloomberg. There’s been a decrease in analysts’ consensus for both profit and revenue since Tesla disclosed delivery figures on Jan. 2.
*All sources from Bloomberg unless otherwise specified