January 3, 2023

Daily Market Commentary

Canadian Headlines

  • Shopify Inc. spent last year cutting costs. Now, it’s cutting meetings. As employees return from holiday break, the Canadian e-commerce firm said it’s conducting a “calendar purge,” removing all recurring meetings with more than two people “in perpetuity,” while reupping a rule that no meetings at all can be held on Wednesdays. Big meetings of more than 50 people will get shoehorned into a six-hour window on Thursdays, with a limit of one a week. The company’s leaders will also encourage workers to decline other meetings, and remove themselves from large internal chat groups. “The best thing founders can do is subtraction,” Chief Executive Officer Tobi Lutke, who co-founded the company, said in an emailed statement. “It’s much easier to add things than to remove things. If you say yes to a thing, you actually say no to every other thing you could have done with that period of time. As people add things, the set of things that can be done becomes smaller. Then, you end up with more and more people just maintaining the status quo.”
  • Home Capital Group said the go-shop period, provided for in the agreement with Stephen Smith, has expired. During the go-shop period, 38 potential buyers were contacted. Three of the potential buyers entered into confidentiality agreements with Home Capital and were granted access to non-public information

World Headlines

  • European stocks gained for a second day, after their worst annual decline since 2018, on optimism that China’s Covid infections may have peaked. The Stoxx 600 Index was up 1.1% at 12:45 p.m. in London, on course for its biggest two-day jump since November. Travel and leisure as well as banks led gains, while utilities and basic resources lagged behind. While the benchmark index is off to a strong start in 2023, market strategists have warned equities could remain under pressure from lingering concerns around high inflation, hawkish central banks, an energy crisis and the prospect of a recession. Still, bets of a reopening in China from Covid-related restrictions are boosting risk appetite.
  • U.S. futures rose with stocks as signs of China’s recovery stoked optimism about the global economy. Treasuries and the dollar also advanced. Wall Street was poised for gains on the first trading session of 2023 as contracts on all three major U.S. gauges gained. Tesla Inc. dropped 2.6% in premarket trading after fourth-quarter deliveries missed estimates. The Stoxx Europe 600 Index climbed, with a surprise drop in German unemployment signaling resilience in the region’s biggest economy. Investors are also scooping up US government debt, betting the Federal Reserve will slow its pace of interest rate hikes. Treasuries on Tuesday headed for their strongest start to a year in more than two decades
  • Asian stocks erased an initial decline, spurred by a rebound in Chinese equities as traders assessed peaks in China’s Covid-19 infections and the outlook for the economy. The MSCI Asia Pacific ex-Japan Index was 0.2% higher, reversing a drop of as much as 1.5% and poised for a third straight daily gain. Chinese stocks listed in Hong Kong had their best start to a year since 2018 as subway use recovered in nearly a dozen major cities. After a dismal 19% slide in 2022, strategists are expecting the MSCI Asia Pacific Index to outperform US peers this year with a stronger rebound in the second half. China’s full reopening, a pivot in Fed policy and an end to the chip downcycle are among the positive catalysts seen to outweigh a slowdown in global growth.
  • Oil declined under pressure by a stronger dollar, even as traders weighed the outlook for China as the world’s largest crude importer reopens its economy. West Texas Intermediate futures dropped as much as 1.8% to below $79 a barrel, giving up earlier gains. Global benchmark Brent also fell. The dollar rallied 0.9% to the day’s high, making commodities priced in the currency less attractive. In China, official data showed the economy ended the year in a major slump, and President Xi Jinping said that tough challenges remain. However, some measures of mobility in key urban areas have picked up in a sign that a wave of Covid infections may have peaked.
  • Gold rose to the highest in six months as Treasury yields declined, boosting the appeal of the non-yielding asset. The metal gained as much as 1.4%, extending two straight monthly advances that saw it finish 2022 hardly changed. Speculation of the Federal Reserve softening its hawkish stance has supported bullion by bringing down US bond yields and the dollar. Later in the week, traders will examine US jobs data for signs that wage pressures are easing. The tight labor market was a significant driver of inflation last year, spurring the Fed to embark on its most aggressive rate-hiking cycle in decades.
  • Copper climbed on the first trading of the new year as investors looked beyond weak Chinese economic data to the potential for more stimulus to support the world’s second-largest economy. The metal has rebounded in the past two months as a steady stream of supportive policies in China and the abandonment of virus controls boosted the outlook for demand. Economists see a faster recovery once Covid peaks, with growth forecast to accelerate to 4.8% this year from an estimated 3% in 2022. “Investors are trading on high expectations” for a recovery, Zhan Dapeng, an analyst with Everbright Futures Co., said by phone from Shanghai. “The worse the economic data, the stronger the expectations are for stimulus.”
  • 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 $279 million in the week ended Dec. 30, compared with gains of $882.7 million in the previous week, according to data compiled by Bloomberg. So far this year, outflows have totalled $0.
  • Tesla Inc. delivered fewer vehicles than expected last quarter despite offering hefty incentives in its biggest markets, reinforcing demand concerns that contributed to the worst month and year for the electric-car maker’s stock since its 2010 initial public offering. The company handed over 405,278 vehicles to customers in the last three months, short of the 420,760 average estimate compiled by Bloomberg. While the total was a quarterly record for Tesla, the company opened two new assembly plants last year and still came up short of its goal to expand deliveries by 50%. After Chief Executive Officer Elon Musk predicted an “epic” end to the year, Tesla cut vehicle prices and production in China, then offered $7,500 discounts in the US. Concerns about rising interest rates, inflation and other economic headwinds — plus alarm over Musk’s antics on Twitter, which he now owns — sent Tesla shares plunging 37% in December and 65% last year.
  • The dollar posted gains against nearly all its major peers as trading kicked off in 2023 after a seasonal holiday lull. Only the Japanese yen proved stronger than the greenback among Group-of-10 currencies, with the pound, euro and Swiss franc falling sharply. That saw the Bloomberg dollar spot index climb as much as 0.9%, putting it on track for its best day since mid-December. Traders said the moves were exacerbated by thin liquidity. But it was also a reminder that the dollar’s decline in recent months — which is broadly expected to keep going this year — will not be a one-way move.
  • US auto sales likely rose in December and will rebound in the new year as a recovery in vehicle production will more than offset the effects of inflation and rising interest rates. Two years of semiconductor shortages and supply problems have kept vehicle production low and inventories lean. With factories picking up pace again, consumers will buy more vehicles this year even if automakers have to help them manage rising interest rates by cutting today’s lofty prices. The net effect is that the US auto industry is expected to grow by more than 1 million vehicles in 2023 to about 15 million units. That’s below recent years when automakers enjoyed sales of 16 to 17 million vehicles but signals that the industry can weather this year’s expected economic stress.
  • German inflation slowed more than anticipated in December after the government paid some households’ gas bills for the month, offering a temporary respite in the country’s cost-of-living crisis. Consumer-price growth at 9.6% was the weakest since August. Economists anticipated 10.2%, according to the median of 20 forecasts. The decline to single digits in the main rate masks an increase in food costs across Germany at the end of 2022, aggravating a squeeze on the poorest families and stoking the risk of a wage-price spiral. The report provides investors with a possible foretaste of the overall number for the 20-nation euro zone due on Friday. At almost five times the European Central Bank’s goal, the strength of inflation in the region’s largest economy underscores the challenge faced by officials in bringing prices under control.
  • About 18 companies are looking to sell US investment-grade bonds on Tuesday, according to an informal survey of debt underwriters who declined to name the firms. Given the positive market open in the US, most issuers are expected to press forward and sell their bonds. Four trades were announced overnight, while two issuers brought bond sales Tuesday morning in New York. Societe Generale is readying a benchmark five-tranche deal, with an overnight book heard to be just under $4 billion while UBS Group is selling a benchmark two-part trade, with demand reaching $1.9 billion. Commonwealth Bank of Australia is preparing a benchmark two-tranche deal with overnight orders heard to be over $1.3 billion and Sumitomo Mitsui Financial Group is offering a five-tranche trade that received a stellar reception with just under $6 billion in orders.
  • A US economic recession is in the cards because of what the Federal Reserve must do to cool inflation, former New York Fed President William Dudley, but it probably won’t be a severe slowdown. “A recession is pretty likely just because of what the Fed has to do,” he said in an interview on Bloomberg Surveillance Tuesday. “But what’s different this time I think is that if we have a recession, it’s going to be a Fed-induced recession and the Fed can end the recession by subsequently easing monetary policy.”
  • Credit Suisse Group AG’s co-head of investment banking and capital markets for Europe, the Middle East and Africa is departing, according to people familiar with the matter. Veteran dealmaker Cathal Deasy is leaving after more than six years to pursue another opportunity in the industry, the people said, asking not to be identified as the move is private. He’d recently been appointed co-head of investment banking and capital markets for Europe Middle-East and Africa alongside Giuseppe Monarchi after Jens Welter’s departure in September. Monarchi takes over as sole head of investment banking and capital markets for EMEA. Credit Suisse also named Steven Geller as sole head of global IBCM M&A, according to an internal memo obtained by Bloomberg and confirmed by the bank.
  • British rail workers will walk off the job much of this week, paralyzing transport and adding to the troubles piling up for Prime Minister Rishi Sunak’s government. Union workers will strike for five days starting Tuesday, snarling the usual return to work following the holidays and interrupting January sales that are crucial for retailers. The protests stem from growing anger over the tightest cost-of-living squeeze in memory. Inflation reached a four-decade high last year, and wages aren’t keeping pace, especially in public services.
  • Cineworld Group Plc said it hasn’t held talks about selling its theater assets individually as part of its bankruptcy proceedings and denied reports that it’s spoken to rival chain AMC Entertainment Holdings Inc. about its cinemas. Cineworld will run a marketing process focused on proposals for the group as a whole, reaching out to interested parties beginning this month, the company said in a statement on Tuesday. Any transaction for the group as a whole won’t include the sale of Cineworld itself, it said.  AMC said in a regulatory filing last month that it had held talks with Cineworld to acquire the London-based theater chain’s US and European assets, though negotiations with lenders had ended. Cineworld’s creditors had also held early discussions about selling its eastern European operations, Bloomberg reported previously.









*All sources from Bloomberg unless otherwise specified