January 3, 2024

Daily Market Commentary

Canadian Headlines

  • The head of Evercore’s Canadian unit said private equity firms will face rising pressure to sell assets and return capital to investors after two years of sluggish dealmaking. Suncor Energy said fourth quarter upstream production was 808,000 barrels per day, the second highest quarter in its history.

World Headlines

  • European stocks slipped on Wednesday in a cautious start to the new year as investors watched for further clues as to whether more dovish central bank leanings could support 2023’s year-end rally further. The Stoxx Europe 600 Index was down 0.3% by 09:36 a.m. London time, reversing earlier tentative gains as miners and technology stocks fell. The move lower comes ahead of the release of the latest Federal Reserve minutes later in the day. European equities have seen a slow start to the year as investors question whether a ferocious rally, which kicked off at the end of October, can be sustained in 2024, especially with the fourth-quarter results season around the corner. Over the past two months the Stoxx 600 Index has gained around 10%, driven by real estate and technology stocks after the Federal Reserve signaled that its hiking campaign could be over.
  • US bonds and stock futures extended their drop as traders braced for a swathe of data that could show whether bets on interest-rate cuts this year are justified. Ten-year Treasury yields rose to 3.97% and S&P 500 futures slid 0.4%. The dollar strengthened for a fourth day, the longest run since November. Nvidia Corp. slid in US premarket trading as investors continued their retreat from tech stocks. US markets are set to extend their declines from Tuesday, which registered as the biggest global slump since 1999 for the first full day of trading in a year. Minutes from the Federal Reserve’s last meeting and economic data on manufacturing and job openings are due later today.
  • Shares in Asian markets gearing up for elections early this year are better placed than their American peers to tackle any surge in volatility due to the political events. That’s the view among some investors and strategists including those at Robeco Hong Kong Ltd. and Tellimer, who cite better prospects for policy continuity, robust economic growth and relatively low valuations in Asia. Korea’s equity index’s valuation discount to the S&P 500 has widened to more than 80%, while India’s premium to the US has almost vanished from a high of 17% in January last year, data compiled by Bloomberg show.
  • Oil held onto an early-year drop as trader optimism about interest rate cuts faded, undermining concerns about escalating conflict in the Red Sea. US benchmark West Texas Intermediate fell below $70 a barrel. Traders are paring back bets on the scale of interest-rate cuts from major central banks, leading to one of the worst-ever concerted slumps in stocks and bonds in a year’s first session. The shift in broader market sentiment outweighed developments in the Middle East. Iran’s dispatch of a warship to the Red Sea represents its most audacious move to challenge US forces in the key trade route and may embolden Houthi militants that have disrupted shipping in the waterway to protest Israel’s invasion of Gaza. Even so, oil flows have been relatively lightly affected so far. Traders are assessing whether strong non-OPEC supply will remain a dominant oil-market theme in again 2024. Higher output from outside of the producer group has so far countered its efforts to tighten the market — but extended curbs take effect this week.
  • Gold fell for a a fourth session, under pressure from a strengthening dollar as investors began the year in bearish mood. The metal hit a record in early December and ended 2023 up 13% on speculation the US Federal Reserve is set to loosen monetary policy in 2024 as inflation abates, which would benefit non-yielding assets. Swaps traders still see six rate cuts over the next year, despite officials pushing back against rapid easing. Gold declined 0.2% to $2,055.18 an ounce at 11:01 a.m. in London, after dipping 0.2% on Tuesday. The Bloomberg Dollar Spot Index strengthened, after gaining 0.7% in the previous session. Silver, platinum and palladium fell.
  • The world’s largest green hydrogen project will take nearly two years longer to reach full capacity as its Chinese operator struggles with the technology seen as key to cutting emissions from heavy industry. China Petroleum & Chemical Corp. said last week that its Kuqa project in Xinjiang province would only reach its full annual capacity of 20,000 tons in the fourth quarter of 2025, after previously saying it expected to hit that rate upon completion. The state-owned refiner better known as Sinopec announced a full commissioning pf the project at the end of August, with 260 megawatts of electrolyzers powered by renewable energy producing the carbon-free gas that would be sent to the nearby Tahe oil refinery.
  • Walt Disney Co. said it’s won the support of ValueAct Capital Management for its board nominees and will consult with the activist investor on strategy, as the world’s largest entertainment company responds to pressure to boost performance. ValueAct has signed a confidentiality agreement that enables Disney to provide the firm with additional information, the two companies said in a statement on Wednesday. ValueAct’s backing may strengthen Disney Chief Executive Officer Bob Iger’s stance against billionaire activist Nelson Peltz, who’s proposed that he and ex-Disney Chief Financial Officer Jay Rasulo join the board. Peltz’s Trian Fund Management LP said last month that Disney must address “compensation misalignment, governance and succession issues that have plagued the company for decades.”
  • Starbucks Corp. is expanding its food lineup in its latest attempt to bring its coffee-loving customers in the door outside of the peak morning hours. The chain will add a chicken, maple butter and egg sandwich to its permanent menu starting Wednesday, as well as a potato, cheddar and chive bake, according to a statement. It’s also launching a vanilla-bean custard danish as a seasonal offering. Starbucks wants to bolster its afternoon business as part of a broader strategy to drive growth by launching new beverages, creating products designed to appeal to customers at specific times of the day and nudging guests to add food to their orders. The Frappuccino giant has previously attempted to sell more grub with its beverages, but it has run up against challenges including complaints about high prices and cold pastries. Lately, more guests have been adding food to their orders, thanks in part to seasonal items like a baked apple croissant.
  • US auto sales softened at the end of last year as higher financing costs and near-record prices took their toll on would-be buyers. Pent-up demand that propped up sales in the wake of the pandemic has been sated, and shoppers are now balking at 10% interest rates on car loans and average prices around $48,000. Sales likely slipped to a seasonally adjusted annual rate of about 15.4 million vehicles in the final month of 2023, down from about 15.5 million in the prior two quarters, according to estimates compiled by Bloomberg. While 2023 was a marked improvement over an inventory-constrained 2022, the challenges seen at the end of the year are expected to persist. Cox Automotive predicts US auto sales will be up less than 2% in 2024. That means the figure is unlikely to top 17 million anytime soon, as they did for five consecutive years prior to the pandemic.
  • For the second year in a row, global banks made more money underwriting bonds and providing loans for green projects than they earned from financing oil, gas and coal activities. The world’s biggest lenders generated a total of about $3 billion in fees last year from lining up debt for deals marketed as environmentally friendly, according to data compiled by Bloomberg. By comparison, the sector brought in less than $2.7 billion in aggregate earnings from fossil-fuel deals, the data show. European banks led the transition, with BNP Paribas SA topping Bloomberg’s green debt league table. Meanwhile, Wall Street dominated fossil finance, with Wells Fargo & Co. and JPMorgan Chase & Co. generating the biggest earnings from oil and gas deals. The development coincides with stricter regulations in Europe, where both the European Central Bank and the region’s top banking authority have made clear they want the finance industry to speed up its green transition. Lenders in Europe now face the threat of fines and higher capital requirements if they mismanage climate exposures. In response, many banks are imposing explicit restrictions on fossil finance.
  • The Italian government is considering a €930 million ($1 billion) plan to encourage people to turn in their gasoline or diesel cars and buy electric vehicles instead, according to a draft document seen by Bloomberg. The package, under discussion by the industry ministry, would include financial incentives worth as much as €13,750 to allow citizens with an annual income lower than €30,000 to scrap their Euro 2 models, which are more than 20 years old, in favor of new electric cars. The aim, according to the document, would be to “change Italy’s vehicle fleet, which is one the oldest in Europe, with at least 11 million EURO 3 cars or lower-grade vehicles.” The plan would also “support low-income families and the purchase of cars made in the country”.
  • A slump in Bitcoin on Wednesday saw the cryptocurrency erase all gains it had made so far this year, bucking a long-running upswing that outperformed a global malaise in traditional assets. The world’s largest token fell as much as 9.2% to dip below $41,000 shortly after 7 a.m. in New York, a day after the digital asset had topped the $45,000 mark in a 21-month high. The volatility also spilled over into crypto-linked stocks, with shares in crypto exchange Coinbase Global Inc. falling 6.7%. Bitcoin has been on a tear ahead of an upcoming Jan. 10 deadline that could see the US Securities and Exchange Commission approve the first exchange-traded fund tied directly to the asset’s spot price. The cryptocurrency’s value rose almost 160% in 2023, alongside a broader rally in digital-asset fortunes.
  • Abu Dhabi’s largest listed company, led by a key member of the emirate’s royal family, is setting up a new holding firm with assets worth 100 billion dirhams ($27 billion) across sectors ranging from financial services to mining. The new firm, called 2PointZero, will be transferred into Abu Dhabi’s $239 billion International Holding Co. Its holdings will include portions of Sheikh Tahnoon bin Zayed Al Nahyan’s sprawling empire, according to a statement late Tuesday. Lunate, Abu Dhabi’s newest fund, will be part of 2PointZero. International Resources Holding, which last month invested more than $1 billion in Zambia’s Mopani copper mine, will also be transferred into the vehicle. Other holdings will include private investment firm Chimera, Egypt’s Beltone Financial, crypto miner Citadel Technologies and Middle East-focused Sagasse Investments.
  • Manhattan home prices rose for the first time in more than a year, as surging high-end sales propelled the market and lower mortgage rates set the stage for a broader recovery in 2024. Purchases closed at a median of $1.16 million in the fourth quarter, up 5.1% from a year earlier, according to appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. It was the first annual increase since the third quarter of 2022, the firms’ data show. While the overall number of transactions declined, sales at or above $5 million jumped in the fourth quarter. In a period when mortgage rates were climbing toward 8%, more than two-thirds of Manhattan buyers paid cash, the highest share since Miller Samuel started tracking the metric in 2014.