January 4, 2023
- Oil’s rough start to the year worsened as a deteriorating demand outlook came to the fore, buttressed by predictions for a US recession, China’s near-term struggles with Covid-19, and milder winter weather. West Texas Intermediate fell below $75 a barrel. Canfor Corp. said it’s extending sawmill curtailments in British Columbia due to weak market conditions and a lack of economic fibre.
- European equities continued their solid start to 2023, rising for a third day amid optimism around easing inflation pressure as well as China’s economic reopening. The Stoxx Europe 600 index added 0.8% by 9:39 a.m. in London as bond yields eased, following the benchmark’s biggest gain since Nov. 10 on Tuesday. Luxury goods-makers led the advance along with retail and insurance, while energy shares and miners slumped on a deteriorating demand outlook. The three-day rise for Europe’s main stocks benchmark follows its biggest annual fall since 2018, spurred by recession worries as central banks hike interest rates in an effort to tame inflation. However, investors are now hopeful that the pace of price rises and rate increases will continue to ease as data showed today that French inflation unexpectedly slowed in December following yesterday’s report that inflation in Germany moderated for the second consecutive month.
- US futures advanced with stocks as positive reports from China and data from Europe boosted risk appetite. The dollar fell and Treasuries rose. Contracts on the major U.S. gauges rose ahead of minutes from the Federal Reserve’s policy meeting. Tesla Inc. gained in premarket trading, poised for a rebound after Tuesday’s slump, as investor Cathie Wood topped up her holding of shares in the electric-vehicle maker. Salesforce Inc. advanced after announcing job cuts.
- Asian stocks rose for a fourth straight day as a raft of policy moves in China augmented optimism about Asia’s largest economy. The MSCI Asia Pacific Index climbed as much as 1.1%, set for its longest winning streak since mid August. Alibaba jumped more than 8% after regulators approved a plan by Ant Group to raise 10.5 billion yuan ($1.5 billion) for its consumer unit, boosting sentiment for the sector. Stocks in Hong Kong led gains in the region as China plans further support measures to ease the liquidity crunch for bigger developers and regulators resumed approvals for private equity funds to raise money for residential property developments. Meanwhile, easing geopolitical tensions between China and Australia and the US, respectively, also helped sentiment in the region.
- Oil’s rough start to the year worsened as a deteriorating demand outlook came to the fore, buttressed by predictions for a US recession, China’s near-term struggles with Covid-19, and milder winter weather. West Texas Intermediate fell toward $75 a barrel after sinking 4.2% on Tuesday in the biggest drop since November. A rising death toll in China from the swift easing of virus curbs is overwhelming crematoriums, and there are warnings of more casualties heading into the Lunar New Year. Above-average temperatures in the US and Europe, meanwhile, are easing fears of an energy crunch. Crude’s dwindling levels of open interest have left it open to sharp swings in recent months. While sanctions against Moscow over Russia’s war in Ukraine dragged its oil flows to 2022 lows late last month, that’s been of little relief to bulls so far this year.
- European bonds led a global debt rally, extending a strong start to 2023 amid signs that inflation is starting to slow. The 10-year German benchmark gained for a third day, its longest rising streak since November. Italian debt outperformed, taking its yield gap over Germany, a common gauge of risk in the euro region, to the narrowest in three weeks. US Treasuries also rose, led by the belly of the curve. The moves reflect growing confidence that last year’s sharp interest rate hikes have started to tame soaring inflation, which devastated bond returns globally last year. That’s prompted investors to pounce on yields still lingering at multi-year highs, especially as slowing economic growth emerges as another tailwind for sovereign debt.
- Salesforce Inc. said it would cut about 10% of its workforce after the enterprise software company hired too many people in the lead up to the economic downturn and customers became more cautious with spending. The company, which has about 80,000 employees, said in a regulatory filing on Wednesday that it aims to complete the workforce restructuring by the end of fiscal 2024 and real estate reductions in fiscal 2026. The software giant is under pressure from investors including activist Starboard Value to improve margins. Meanwhile, it has projected the slowest revenue growth for the current quarter since going public in 2004 and has seen top executives Co-Chief Executive Officer Bret Taylor and Slack Chief Executive Officer Stewart Butterfield announce their departures.
- Cathie Wood bought Tesla Inc. shares on the day of its biggest plunge since September 2020, reaffirming her conviction in the electric-vehicle producer that many other investors are abandoning. Funds backed by Wood’s firm Ark Investment Management LLC bought more than 176,000 shares of the automaker in the first US trading session of this year, according to Ark’s daily data. The purchases came as Tesla stock plunged 12% after the company missed estimates for quarterly deliveries despite offering hefty incentives. Wood’s exchange-traded funds have acquired slightly more than 938,000 shares of the EV maker since Oct. 3, when they started their latest buying streak, according to Ark trading data compiled by Bloomberg. The October-December period marked the first quarter in seven in which Ark net-bought Tesla stock.
- The White House said there’s no reason Beijing should retaliate against the US and other nations that have imposed Covid restrictions on its travelers, saying the moves were justified on public health grounds as China experiences a surge in cases. “There’s no cause for retaliation here. Just because countries around the world are taking prudent health measures to protect their citizens, that’s what you’re seeing from us and others,” White House Press Secretary Karine Jean-Pierre said at a Tuesday briefing. The US and other countries will require travelers from China to show a negative test before entering. The new US restrictions take effect Thursday. China has said it would hit back at nations that impose new rules on its travelers, dismissing the measures as “political goals.”
- Walmart Inc. and other PhonePe shareholders will have to pay nearly $1 billion in tax after the digital payments company shifted its headquarters to India, according to people familiar with the matter. The bill stems from the relocation and rise in value of PhonePe Pvt, which Walmart took majority ownership of after acquiring parent outfit Flipkart Online Services Pvt. Now separated from Flipkart and re-domiciled from Singapore to India, the fintech firm is raising funds at a $12 billion pre-money valuation from General Atlantic, Qatar Investment Authority and others, triggering the hefty charge, the people said, declining to be named discussing a private matter. Investors including Tiger Global Management have now purchased shares of PhonePe in India at the new price, leading to tax implications of roughly 80 billion rupees for existing shareholders, one of the people said.
- A Tokyo Gas Co. unit is in advanced talks to buy US natural gas producer Rockcliff Energy in a deal worth about $4.6 billion, including debt, a person with knowledge of the matter said. Houston-based TG Natural Resources, which is majority-owned by Tokyo Gas, is discussing purchasing Rockcliff from private equity firm Quantum Energy Partners, said the person, who requested anonymity discussing confidential information. An all-cash deal could be announced as soon as this month, though it’s possible — as with all deals that aren’t finalized — that terms change or talks collapse. Japan’s government is reevaluating how it can enhance energy security in the face of a fuel crunch at home. US gas is attractive to Japanese importers, who want flexible supply that can be shipped to either Asia or Europe depending on prices and demand.
- UK mortgage approvals fell to the lowest level since the start of the pandemic after a jump in borrowing costs choked off demand for property purchases. The Bank of England said 46,075 new loans for house purchases were approved in November, down from 58,997 the month before and the least since June 2020 when the country was in lockdown. Economists had expected 53,000 approvals. The UK central bank has lifted interest rates nine times in the past year to choke off inflation, which is lingering at a four-decade more than high five times the 2% target rate. That’s driven interest rates on mortgages close to 6% from around 1%. Separate figures from the BOE indicated growing strain on household finances. Households tucked away less in savings for the second month running while they took out more credit card debt, in a sign that households are struggling with the rising cost of living.
- French inflation unexpectedly slowed in December, adding to signs of easing price pressure throughout the euro area. With slower energy and services inflation, consumer prices rose 6.7% from a year earlier after record increases of 7.1% in October and November. Economists surveyed by Bloomberg expected an acceleration to 7.3% in the final month of 2022, in part due to the government beginning to phase out fuel discounts. Inflation in Germany also slowed more than anticipated last month, according to figures released on Tuesday, and data on Friday for the entire euro area is expected to show another slowdown to 9.5% from 10.1% previously.
- Passing the peak in European inflation may be good news for consumers, businesses and central bankers, but it’s too soon to sound the all clear. Reports since Friday have shown price gains from Germany to Spain easing more than economists expected in December after natural-gas costs retreated and government aid kicked in. Those falls, however, mask intensifying pressure in gauges that exclude things like energy and food — precisely what the European Central Bank tracks to determine how much to raise borrowing costs.
- Food inflation in UK stores jumped to a record high last month with retailers warning of another year of elevated prices. The British Retail Consortium said Wednesday that food inflation accelerated to 13.3% in December, from 12.4% the previous month, reaching an all-time high for the index, which started in 2005. Shoppers spent over £12 billion ($14 billion) on groceries as a result of higher prices, according to separate numbers published by Kantar — the first time the threshold has been breached. The data company said sales by volume fell 1% compared with December 2021 but inflation drove up revenue.
- Sunac China Holdings Ltd. received bondholder approval for an extension on its domestic debt, according to people familiar with the matter, buying the developer more time to deal with its liquidity crunch amid improved policy support. The company’s Sunac Real Estate unit secured an agreement from debt holders to extend maturities on nine onshore notes and an asset-backed security worth about 16 billion yuan ($2.3 billion) in total, the people said, requesting not to be identified because the matter is private. Sunac offered property assets, including its mega tourism project Sunac Land, to make the deal more attractive, one of the people added.
- Oil’s rough start to the year worsened as a deteriorating demand outlook came to the fore, buttressed by China’s near-term struggles with Covid-19, milder winter weather and US refinery disruption. West Texas Intermediate fell beneath $75 a barrel after sinking 4.2% on Tuesday in the biggest drop since November. Brent, the global benchmark, slid below $80. A rising death toll in China following the swift easing of virus curbs is overwhelming crematoriums, and there are warnings of more casualties heading into the Lunar New Year. Above-average temperatures in the US and Europe, meanwhile, are easing fears of an energy crunch.
- Japan will require more stringent Covid-19 testing from Sunday on visitors coming from China, risking further irritating its neighbor as it tries to prevent a sharp increase in cases that could put new strains on its medical system. Arrivals from the Chinese mainland will be required to undergo a quantitative antigen test or a PCR test, Prime Minister Fumio Kishida told a news conference Wednesday. He added those who come on a direct flight from the Chinese mainland would be required to provide proof of a negative test. Kishida’s government in late December put in place temporary restrictions on visitors from China aimed at preventing an increase in cases coming into Japan. They included travelers from mainland China and those who were there within seven days being subject to a Covid test upon arrival.
- Manhattan’s homebuying market weakened at the end of last year, but didn’t foreshadow a deep freeze heading into 2023. Co-ops and condos traded for a median of $1.1 million in the fourth quarter, a 5.5% drop from the same period in 2021, according to appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. It was the first year-over-year decrease in prices since sales stalled at the beginning of the pandemic, in the second quarter of 2020. Tight inventory is “underpinning” property values and keeping them from falling more dramatically, according to Miller. As is the case across the US, Manhattan sellers are reluctant to settle for discounted prices or give up the low mortgage rates they secured before the Federal Reserve began raising interest rates in early 2022.
*All sources from Bloomberg unless otherwise specified