January 31, 2023
Daily Market Commentary
- Statistics Canada will report gross domestic product for November at 8:30 a.m. Ottawa time, with economists forecasting that the economy likely grew by 0.1%. Oil headed for a third straight monthly loss as traders awaited clues on China’s economic recovery as well as latest guidance from OPEC+ producers and Wednesday’s monetary policy decision from the Federal Reserve.
- Brookfield Asset Management Ltd. is taking over a secondaries business from Deutsche Bank AG’s asset-management unit as part of a broader push into a growing corner of private markets. The arrangement, which confirms an earlier report by Bloomberg News, includes the transfer of DWS Group’s seven-person secondaries team and its $550 million fund to Brookfield, the world’s second-largest alternative investment firm. Terms weren’t disclosed. Secondaries desks typically buy and sell investors’ interests in private equity and other alternative funds. “This is a great tool for us” to expand into a market where the firm sees “tremendous opportunity,” Anuj Ranjan, president of Brookfield’s private equity arm, said in an interview. Ranjan said the move is part of the firm’s strategy for expanding private equity offerings.
- European stocks declined on Tuesday, trimming one of the best starts to the year ever, as investors brace for expected interest rate hikes from central banks in the coming days, while also digesting earnings from large lenders. The Stoxx Europe 600 Index was down 0.7% by 10:18 a.m. in London. In a busy day for bank results, Switzerland’s UBS Group AG retreated after weakness in its equities and wealth management sales. Italy’s UniCredit SpA soared after better-than-expected profit and shareholder returns, driven by higher interest rates. Swedbank AB also gained after its update. Investors have been taking profit on one of the sharpest early-year rallies for European equities, during which the region has strongly outperformed US peers. The Stoxx 600 Index is still about 6% higher this month, set for the biggest January gain since 2015, on hopes of easing inflation and declining gas prices, as well as China’s economic reopening. The Euro Stoxx 50 gauge is up 9% in January, in the best debut to a year on record.
- US equity futures dipped as investors weighed the outlook for corporate earnings against hopes the Federal Reserve will moderate the pace of rate increases as inflation slows. Futures on the S&P 500 and Nasdaq 100 fluctuated before turning lower after a torrid session on Wall Street that dragged the Nasdaq to its worst day since Dec. 22. Treasury yields dipped and the dollar edged higher. Signs of earnings pressure are complicating the picture for investors hopeful that the Fed will ease off on its aggressive rate-hike cycle: According to data compiled by Bloomberg, earnings per share estimates for the S&P 500 have fallen since peaking in June 2022, while revenue projections have flatlined. Margins are coming under pressure as slowing inflation erodes pricing power.
- Asian stocks fell for a second day as mainland Chinese shares pulled back after Monday’s advance, with traders awaiting key decisions from major central banks this week. The MSCI Asia Pacific Index declined as much as 1.2%, dragged lower by technology shares after Samsung Electronics posted weaker-than-expected fourth-quarter results. Equity markets in Hong Kong, South Korea and Taiwan retreated. China’s CSI 300 Index fell even after the latest economic data showed manufacturing and services expanded for the first time in four months as the nation exited from Covid Zero. The benchmark gauge shied away from a bull market after a recent rally fueled by the return of foreign investors took a breather.
- Oil headed for a third straight monthly loss as traders awaited clues on China’s economic recovery, the latest guidance from cautious OPEC+ producers and Wednesday’s monetary policy decision from the Federal Reserve. West Texas Intermediate slid below $77 a barrel on Tuesday to the lowest in almost three weeks, after losing more than 2% the previous session. Investors are positioning ahead of expected rate hikes this week from the US and European central banks, leading to risk-off sentiment in equities and a surge in the dollar. A strengthening dollar makes commodities priced in the greenback more expensive for holders of other currencies, curbing demand.
- Gold extended its retreat from a recent nine-month high as the dollar strengthened ahead of a highly-anticipated Federal Reserve rate decision. Bullion rallied since early November on signs the US central bank was getting less hawkish, but has slipped more than 2% from a peak set last week as weaker risk sentiment sparked gains in the dollar. The currency and gold are typically inversely correlated. Spot gold declined 0.9% to $1,906.36 an ounce as of 8:55 a.m. in London. The Bloomberg Dollar Spot Index rose 0.3%. Silver, platinum and palladium dropped.
- The euro area is on course to avoid a recession after unexpectedly growing at the end of 2022, despite double-digit inflation and Russia’s invasion of Ukraine. Gross domestic product edged up by 0.1% in the final quarter, Eurostat said Tuesday, defying economist estimates for a contraction of 0.1%. While German and Italian output shrank, France and Spain recorded expansion. There was also stronger-than-anticipated data on Monday from Ireland. The euro region, which expanded to 20 countries when Croatia joined on Jan. 1, has struggled with record spike in prices sparked by the war-induced surge in energy costs. Governments have sought to offset the damage for households and firms, however, dispensing billions of euros in aid. A mild winter has also helped to calm energy markets.
- Alibaba Group Holding Ltd.’s biggest selloff in three months is underscoring investor concern that China’s consumer recovery may fail to meet lofty expectations. The e-commerce giant’s 9.1% slump this week has wiped out $28 billion in the tech giant’s market value. The losses have trimmed the month’s gain to about 25%, though that’s still more than double the rebound for the benchmark Hang Seng Index in Hong Kong. Some market participants are fretting about whether Alibaba’s earnings can recover at the pace that’s been priced in. That may undermine the gains, which were fueled by bullish reports from brokers including Citigroup Inc. and Goldman Sachs Group Inc. earlier this month citing further earnings upside for China’s internet sector given the reopening and easing regulatory clampdown.
- Exxon Mobil Corp. dropped almost 4% after signaling investors won’t see any additional rewards from the oil giant’s record $59 billion annual profit. Exxon’s full-year profit, excluding one-time items, jumped 157% from 2021 to $59.1 billion, far exceeding the driller’s prior record of $45.2 billion in 2008, which at the time marked the biggest in US corporate history. But investors looking past the top-line numbers were disappointed the company failed to announce plans to funnel more of that windfall into additional share repurchases. The stock fell almost 4% in pre-market US trading. Exxon’s results Tuesday followed those of US rival Chevron Corp., which posted a surprise earnings miss last week just days after announcing a mammoth $75 billion share-buyback program.
- The International Monetary Fund sees a “turning point” for the global economy as it raised its growth outlook for the first time in a year, with resilient US spending and China’s reopening buttressing demand against a litany of risks. Gross domestic product will likely expand 2.9% in 2023, 0.2 percentage point more than forecast in October, the fund said Tuesday in Singapore in a quarterly update to its World Economic Outlook. While that’s a slowdown from a 3.4% expansion in 2022, the IMF said it expects growth will bottom out this year before accelerating to 3.1% in 2024. Central banks’ interest-rate hikes and Russia’s invasion of Ukraine will continue to weigh on economic activity this year amid a protracted inflation crisis, the Washington-based institution said.
- The first and final 747 jumbo jet models both started with a handshake deal. Back in the mid 1960s, the leaders of Boeing Co. and PanAm came to an agreement that if the US planemaker pushed ahead with the audacious new design, the airline would in turn go ahead and buy the giant jetliner. That gentleman’s agreement would kick-start one of the most successful programs in civil aviation, singlehandedly transforming the way the world flies and giving the Queen of the Skies, as the 747 came to be known, the undisputed reign over the world’s flight paths for decades to come. No other airplane captured the public imagination quite like the hump-backed jumbo jet, nor illustrated the rewards that can flow from breathtaking risk on developing a new aircraft from the ground up. The 747 was an emblem of era when US innovation was defined by pushing technical boundaries with moonshot projects like the Saturn V rocket — another Boeing effort.
- An $11 trillion investor alliance will start requiring members to expand their climate reporting to include assets that aren’t publicly traded. The Net-Zero Asset Owner Alliance, whose signatories include Allianz SE and the California Public Employees’ Retirement System, will expand the list of assets subject to emissions targets to include sovereign debt holdings and private equity, it said on Tuesday. What’s more, members won’t be allowed to use carbon credits to meet near-term climate pledges, it said. NZAOA is following through on a warning issued last year, as the role of private markets in portfolio-decarbonization efforts draws greater scrutiny. The announcement also comes after the United Nations urged voluntary climate finance alliances to step up their act. The finance industry has countered that a lack of data in some markets has complicated its efforts on climate.
- Caterpillar Inc.’s ongoing battle with rising manufacturing costs has taken its toll, with the iconic maker of yellow bulldozers posting lower-than-expected quarterly profit for the first time since the start of the pandemic. The bellwether company’s performance can be a harbinger for the broader economy, since its machinery is key for the construction, mining and energy sectors across every continent. The Caterpillar said Tuesday it had adjusted fourth-quarter earnings of $3.86 a share, missing the $3.97 estimate of analysts polled by Bloomberg for the first time in 11 quarters. Caterpillar’s earnings in the quarter were impacted by higher manufacturing expenses driven by rising raw material cost as well as a goodwill impairment charge tied to its locomotive business, the Irving, Texas-based company said.
- President Joe Biden will take a victory lap Tuesday as officials prepare to begin work on a massive rail plan hard-pressed New York City commuters have waited years for: the Gateway tunnel project. The tunnel is one of a number of efforts to revamp the nation’s roads, rail and bridges that Biden has been touting around the country. But how well the administration delivers on getting the project off the ground will go far in determining the nation’s most prominent train lover’s political legacy on infrastructure. Biden has long touted his affection for passenger rail, especially Amtrak, and his infrastructure chief, Mitch Landrieu, has showcased the effort to construct a new Hudson River tunnel between New York and New Jersey and rehabilitate existing Amtrak and New Jersey Transit track lines as a “cathedral project” for the administration.
- General Motors Co. expects its earnings momentum to grow this year after reporting a better-than-expected profit in the last three months of 2022. The Detroit automaker reported fourth-quarter adjusted profit of $2.12 a share on Tuesday, beating analysts’ projection for $1.67 a share. That surpassed a $1.35 per share a year ago but came in below $2.25 per share in the third quarter. Adjusted earnings before interest and taxes for all of 2022 came to $14.5 billion, at the high end of GM’s November forecast of $13.5 billion to $14.5 billion. For the current year, GM sees adjusted profit in a range of $10.5 billion to $12.5 billion, or $6 to $7 a share — above analysts’ projections for $5.70 per share. The company is counting on continued demand for its highest profit margin SUVs and trucks and increased vehicle production levels as pandemic-era supply chain problems fade. It comes despite signs of a price war in the increasingly competitive market for electric vehicles.
- UBS Group AG reported fourth-quarter profit that beat expectations and said it plans to buy back more than $5 billion of shares this year, as rising interest rates helped offset a slump in trading fees and transaction income at the key wealth management business. The Zurich-based bank reported net income of $1.65 billion on Tuesday, aided by a 35% surge in interest income at the wealth management unit, the margin that the company makes on loans. Earnings for that business broadly met estimates, with the bank reporting $23.3 billion in wealth inflows. Revenues at the investment bank fell by 24% while compensation costs rose. While UBS has stood out among global peers in its confidence that large-scale job cuts seen at Goldman Sachs Group Inc and elsewhere can be avoided, it is still contending with the impact of a slowdown in client activity and volatile markets. Cost pressures playing out across the industry were particularly acute at the investment bank, while wealth management fees fell as clients held back from trading in the final three months of a year in which markets whipsawed.
- Falling values are the latest headache for landlords in Europe who need to refinance their debt. It’s a problem for their lenders too. There’s a gap of €51 billion ($55 billion) between the amount owed by commercial property owners across Germany, France and the UK and the credit likely to be available for refinancing when the borrowings mature, according to research by AEW Europe SA. That includes a shortfall of €32 billion predominantly caused by the decline in prices, an increase of about €8 billion since September, the asset manager said in a report.
- French labor unions are leading a second day of mass strikes and protests on Tuesday against raising the retirement age in a test of the momentum driving defiance to Emmanuel Macron’s signature economic reform. The country’s rail operator, SNCF, expects only one-third of high-speed TGVs to run and urged people to work from home. Subway and commuter trains serving the capital were severely disrupted, with limited service on most lines. Many schools were also set to close. Between three-quarters and all of the workers at TotalEnergies SE’s refineries and fuel depots are striking, Agence France-Presse reported, citing the CGT union. Air France-KLM’s French arm said it had scrapped 10% of short-haul flights.
- Spotify Technology SA, the music streaming giant, reported fourth-quarter subscriber growth and gross margin improvement that beat analysts’ estimates. Paid subscribers increased to 205 million in the fourth quarter, Spotify said Tuesday, exceeding Wall Street’s estimate of 202 million. Quarterly sales rose 18% year-over-year to €3.17 billion ($3.44 billion), in line with the €3.18 billion average of estimates compiled by Bloomberg. The company’s quarterly loss widened to €231 million. The company said it sees premium subscribers increasing to 207 million in the first quarter and that monthly active users are expected to grow by 11 million people to 500 million.
- McDonald’s Corp. shares slipped after the company’s operating-margin forecast fell short of analyst estimates. The fast-food giant expects the measure to be about 45% in 2023, below the average estimate for 46.5% compiled by Bloomberg. The stock was down 2% at 7:31 a.m. New York. Shares have risen 2.8% so far this year, below the 4.6% increase of the S&P 500 Index. McDonald’s reported fourth-quarter sales that exceeded expectations as consumers showed their ability to pay higher prices for burgers and fries despite high inflation and economic uncertainty. Comparable sales rose 12.6% in the quarter ended Dec. 31. That surpassed the average estimate for 8% growth compiled by Bloomberg. Same-store sales topped projections in all of its segments, including the US and international licensed markets.
- United Parcel Service Inc. forecast profit margins in line with Wall Street’s expectations as the courier aims to use cost cuts and efficiency gains to counter softening delivery demand. This year’s operating profit margin will be 12.8% to 13.6%, UPS said Tuesday in a statement that also detailed fourth-quarter results. The midpoint is in line with the 13.2% average of analysts’ estimates compiled by Bloomberg. UPS also forecast sales of $97 billion to $99.4 billion, short of analysts’ projection of about $100 billion. The mixed outlook underscores the uncertainty facing shipping firms, after strong e-commerce demand during the pandemic fades and new questions arise over costs and economic weakness. Chief Executive Officer Carol Tomé has sought to raise rates, lean on technology and push the company to be more selective about the volume it takes.
*All sources from Bloomberg unless otherwise specified