January 27, 2023

Daily Market Commentary

Canadian Headlines

  • Hedge fund manager Anson Funds is backing an activist investor who’s fighting for control of First Capital Real Estate Investment Trust. TotalEnergies EP Canada took a further 6.7% stake in the Fort Hills oil-sand project for C$312 million ($234 million). Ahead Friday, watch for earnings from Real Matters Inc. Crude oil was up for the third straight day, while natural gas slipped for the fourth straight session.

World Headlines

  • European equities were steady on Friday as investors assessed the outlook for earnings this year amid a challenging economic environment while mulling the path of monetary policy. The Stoxx Europe 600 was up less than 0.1% by 10:40 a.m. in London. Energy and construction shares outperformed while travel and leisure lagged behind. European stocks are poised for the best January since 2015 as China’s reopening, cooling inflation and an easing energy crisis fuel investor optimism. The focus is now mainly on earnings updates and outlooks as corporates show how they’re navigating headwinds like slowing demand and higher interest rates.
  • Global equity momentum fizzled on Friday, after chipmaker Intel Corp.’s grim quarterly forecast added to investors’ trepidation over company earnings, and a robust set of US economic data raised the possibility of continued rate hikes from the Federal Reserve. US stocks remain on track for their best month since July, while the Stoxx index has gained almost 7% so far, but caution has seeped in as company earnings trickle out. On Friday, French distiller Remy Cointreau SA and luxury goods firm LVMH posted slower sales growth, sending their shares lower. Data on Thursday also showed US gross domestic product expanded at a faster-than-forecast pace into the end of 2022. That encouraged hopes the world’s biggest economy can achieve a soft landing, but could temper expectations of a Federal Reserve pivot towards rate cuts later this year.
  • Asian stocks advanced for a sixth straight day, supported by mild risk-on sentiment ahead of US consumer spending data that would offer further clues on the Federal Reserve’s policy path. The MSCI Asia Pacific Index climbed as much as 0.6%, headed for its highest close since April. India’s benchmarks fell the most in the region, dragged by Adani Group shares. Hong Kong’s Hang Seng Index climbed despite increasing restrictions against China’s semiconductor industry. The gains in broader Asia track overnight moves in US markets, where stocks jumped as data showed that America’s economic growth is cooling somewhat and as tech shares rallied. Investors are awaiting data on US personal income and consumption as well as home sales later in the day, among the final set of data the Fed will analyze before setting rates next week.
  • Oil rose along with many other commodities as optimism over Chinese demand countered concerns over a global economic slowdown. West Texas Intermediate increased as much as 1.5% on Friday, and were heading for a third straight weekly gain. Spain’s economy expanded more than expected last quarter, adding to bullish sentiments a day after similar data from the US helped ease fears over a recession. Trafigura Group sees “a lot of upside” for oil markets as pent-up demand is unleashed, especially as Chinese consumption rebounds. Crude has recovered from a steep slump at the start of the year and liquidity is returning to the futures market. A lot of the optimism is because of China, which reported higher mobility with a 120% jump in trips out of the country in the first six days of the Lunar New Year holiday this week compared with last year. It’s bringing some confidence about a rebound in the world’s biggest oil importer after it exited strict Covid restrictions.
  • Gold extended a decline as the dollar strengthened ahead of US inflation data that could impact the Federal Reserve’s monetary tightening. The metal is close to unchanged this week after US gross domestic product grew faster than expected in the fourth quarter. The figures stoked hopes the Fed can engineer a soft landing for the world’s largest economy, avoiding the need for a rapid return to rate cuts later this year. The US central bank’s aggressive monetary tightening weighed on gold through most of 2022, though its recovered rapidly since early November on bets of a pivot in policy. Later on Friday traders will eye the personal consumption expenditure deflator — an inflation metric favored by the Fed — to see if price pressures are continuing to ease.
  • President Vladimir Putin demanded his government to come up with a plan for re-jigging Russia’s oil levies in a move to offset the effects from western energy sanctions on the nation’s budget revenues. Officials were asked to prepare suggestions for a new method of assessing prices of Russian crude oil and products by March 1. The monthly price assessments are used to determine the level of oil taxes. The updated approach should “minimize negative effects on the federal budget revenues” amid international sanctions, according to an order published on the Kremlin website. Russia’s federal budget deficit widened to a record in December amid plunging revenues from the oil and gas industry and growing spending on the invasion of Ukraine. The government has already started reducing or delaying non-war spending and is discussing higher taxes for some big companies to help cover the shortfall.
  • Chevron Corp. pushed full-year profit to a record on the back of surging commodity prices and domestic oil production, generating unprecedented cash flow that will underpin a mammoth $75 billion share-buyback program. Adjusted 2022 earnings more than doubled to $36.5 billion from a year earlier while oil and natural gas output from the company’s US fields climbed almost 4% to the equivalent of 1.181 million barrels a day, Chevron said in a statement on Friday. The blockbuster profit report is likely to irk oil-industry critics in the White House and Congress already incensed by the second-largest US oil explorer’s announcement just days ago of plans to repurchase $75 billion of its own stock. The amount devoted to buybacks would be enough to buy Occidental Petroleum Corp. or almost any other domestic competitor.
  • American Express Co. said customer spending on its network climbed to a record last quarter, and the credit-card giant predicted that revenue and earnings for this year will surge well above what analysts expected. While total volume on AmEx’s network increased less than expected in the final three months of the year, the record number of new cardholders AmEx added in 2022 should help revenue climb as much as 17% in 2023, the company said. That’s higher than the 11% analysts in a Bloomberg survey were expecting. “Our performance demonstrates that our strategy is working, and our business is in an even stronger position today than before the pandemic,” Chief Executive Officer Stephen Squeri said in a statement Friday.
  • Bed Bath & Beyond Inc. edged closer to a bankruptcy filing on Thursday after the retailer said it had received a default notice from JPMorgan Chase & Co., its loan agent, and warned it didn’t have enough funds to make payments. Creditors are demanding immediate repayment of the company’s debt after it breached the terms of a credit line, according to a regulatory filing Thursday. Bed Bath & Beyond listed around $2.1 billion of obligations it owed as of November. Bed Bath & Beyond stock rose as much 4% in premarket trading in New York on Friday before falling back. Earlier on Thursday the shares closed down 22%, the biggest drop since Jan. 13.
  • The recent decline in temporary jobs — often a harbinger of recession — is actually raising hopes among Federal Reserve policymakers that their bid for a soft landing is working. The number of US temp workers fell for the fifth straight month in December from a record high in July. The drop is being viewed as an indication that the Fed is making progress in its bid to ease a taut jobs market just enough to head off inflationary wage increases without triggering widespread layoffs. The risk, however, is that the 3.5% decrease in temp jobs since July — when those payrolls hit a record in data back to 1990 — portends not the cool down of the labor market that Fed officials are hoping for, but rather a coming collapse.
  • Intel Corp. gave one of the gloomiest quarterly forecasts in its history after a personal-computer slump ravaged the chipmaker’s business, sending shares tumbling and further setting back turnaround efforts. The company predicted a surprise loss in the current period and a sales range that missed analysts’ estimates by billions of dollars. At the low end of Intel’s projections, revenue would be the smallest quarterly total since 2010. It’s a painful admission for a company that has been attempting a multiyear comeback under Chief Executive Officer Pat Gelsinger, who took the helm in 2021. A post-pandemic downturn for Intel’s main business, PC chips, has torpedoed efforts to get the company’s financial performance back on course. Instead, it’s only losing more ground.
  • Japan and the Netherlands are poised to join the US in limiting China’s access to advanced semiconductor machinery, forging a powerful alliance that will undercut Beijing’s ambitions to build its own domestic chip capabilities, according to people familiar with the negotiations. US, Dutch and Japanese officials are set to conclude talks as soon as Friday US time on a new set of limits to what can be supplied to Chinese companies, the people said, asking not to be named because the talks are private. Negotiations were ongoing as of late Thursday in Washington. There is no plan for a public announcement of restrictions that will likely be just implemented, the people said. The Netherlands will expand restrictions on ASML Holding NV, which will prevent it from selling at least some of its so-called deep ultraviolet lithography machines, crucial to making some types of advanced chips and without which attempts to set up production lines may be impossible. Japan will set similar limits on Nikon Corp.
  • Japan will make wearing masks optional when it reclassifies Covid-19 in coming months, bringing it in line with seasonal influenza as the country pushes forward with its transition to living with the virus. The government will downgrade the virus from May 8 and mask wearing decisions should be left to individuals, Prime Minister Fumio Kishida said in Tokyo on Friday. The timing of the change will follow the ‘Golden Week’ holiday period that begins in late April. Covid had previously been designated in the same group as dangerous diseases like avian influenza and tuberculosis, enabling officials to deploy restrictions like sending Covid-positive people to isolation, while also requiring the government to pay for medical costs. The downgrade will free up space at hospitals and other facilities, and shift some of the treatment costs to individual patients.
  • For all the talk of a slowdown in the technology and media industries, one heavyweight is poised to buck the trend: Sony Corp.’s shares are surging as investors anticipate that its earnings will show stronger videogame sales and robust demand for its smartphone chips. The stock has jumped 16% in January, beating the benchmark Topix by more than 10 percentage points, as PlayStation sales gather pace. Supply shortages of the console have eased along with Covid-related chip and logistics snarls. Analysts have raised their earnings per share estimates for the coming year by 3.7% from a bottom in early November, compared with declines for gauges of domestic and global tech peers. Operating profit in the fiscal third quarter, due to be announced Thursday, probably fell 19% from a year ago when it got a boost from a hit Spider-Man movie.
  • December’s personal consumption expenditure deflator is likely to show a strong near-term disinflationary impulse in the economy – as CPI, PPI, and other surveys suggested. That impulse is somewhat stronger than what FOMC officials foresaw at the December FOMC meeting, and will set the ground for the Fed to downshift the pace of rate hikes to 25 basis points at the Jan. 31-Feb. 1 meeting.
  • Hasbro shares sink as much as 5.3% in US premarket trading after the toy and game maker reported weaker 4Q sales that fell short of analyst estimates. Jefferies says the quarter is just a “painful period” in the firm’s transformation, which will see it cut 1,000 jobs and reshuffle management. Truist Securities says the results raise concerns around the firm’s ability to grow in 2023.
  • Visa shares rise as much as 1% in US premarket trading after the payments company’s earnings beat expectations, prompting analysts to raise their targets on the stock in the hope that the firm will be able to weather a weaker economic environment as travel rebounds and foreign exchange pressures ease.
  • Nearly a year into an invasion that was supposed to take weeks, Vladimir Putin is preparing a new offensive in Ukraine, at the same time steeling his country for a conflict with the US and its allies that he expects to last for years. The Kremlin aims to demonstrate that its forces can regain the initiative after months of losing ground, putting pressure on Kyiv and its backers to agree to some kind of truce that leaves Russia in control of the territory it now occupies, according to officials, advisers and others familiar with the situation.  Even Putin can’t deny the weaknesses of the military that he’s spent decades building up after his troops lost more than half their initial gains in Ukraine, the people said, speaking on condition of anonymity to discuss matters that aren’t public. The persistent setbacks have led many in the Kremlin to be more realistic about their immediate ambitions, recognizing that even holding the current front line would be an achievement.
  • Elon Musk’s response to wavering demand and recession risk is pretty clear: slash prices, keep increasing capacity and try to continue growing even if it means sacrificing profit margin in the short term. Hence, Tesla’s announcement this week of $3.6 billion more investment in Nevada, where it’s partnered for years with Panasonic at one of the world’s highest-volume battery plants. The carmaker said the splurge will go to 4 million square feet of manufacturing space that eventually will make 100 gigawatt-hours of cells (enough for roughly 1.5 million Model 3 or Y vehicles), as well as Semi trucks. Musk has repeatedly referred to battery supply as the limiting factor for Tesla’s growth, and he’s far from the only auto CEO concerned about shortages. What makes him unique is his willingness to take on more risk than other executives can stomach.
  • South Korea’s financial regulator has fined US-based Citadel Securities almost $10 million over its use of high-frequency trades that allegedly disrupted the market, Yonhap News reported, citing officials at the authority it didn’t name. The Securities and Futures Commission fined the firm a total of 11.9 billion won ($9.7 million) after determining some equity transactions it made via Merrill Lynch International’s Seoul branch between October 2017 and May 2018 disturbed market order, Yonhap reported, citing the officials. The Financial Services Commission, the SFC’s parent, said in a statement Thursday a foreign securities company had been fined over its use of high-frequency trades, but didn’t name of the firm. A spokesman for the regulator declined to confirm the name when contacted by Bloomberg.
  • Officials in Switzerland are pushing back against borrowing from FIFA after the football governing body’s loans, totaling 1.8 billion Swiss francs ($2 billion) to the capital Bern, drew criticism. Councilors in Bern tabled a motion on Thursday that would require the city to draw up and apply governance rules on how — and from whom — it borrows, following reports detailing its loans from Zurich-based FIFA, including 35 financing deals since 2017. The city must ask itself if it’s comfortable “when it finances its expenses with money from a source like FIFA that has been repeatedly confronted with corruption allegations,” Milena Daphinoff, one of two municipal councilors pushing for an overhaul of Bern’s borrowing rules, said in an interview. The government is borrowing based on the cheapest offer “and that’s not acceptable in the 21st-century,” she said.







*All sources from Bloomberg unless otherwise specified