January 4, 2024

Daily Market Commentary

Canadian Headlines

  • Toronto’s housing market sprung to life in December with sales surging the most in eight months as lower prices and borrowing costs lured back buyers. The number of homes changing hands in Canada’s largest city rose 21% to more than 6,000 transactions on a seasonally adjusted basis last month, the biggest monthly increase since April, according to data released Thursday by the Toronto Regional Real Estate Board. But a buildup of inventory meant that prices fell for the fifth straight month. The benchmark price of a home in Toronto dropped 1.3% in December to C$1.09 million ($816,000) — ending the year almost unchanged from where it began. The unexpected boost in buyer activity during December comes as some financial pressures begin to ease. Long-term borrowing costs in the bond market have fallen and traders are expecting the Bank of Canada will begin cutting its policy interest rate this year.

World Headlines

  • European stocks staged a partial rebound after wiping out $163 billion in the first two sessions of the year, with oil shares leading gains as crude prices pushed higher amid increased Middle East tensions. The Stoxx 600 Index was 0.4% higher by 8:24 a.m. in London. Oil majors Shell Plc and BP Plc were among the largest contributors to the gains as oil added to its jump of more than 3% on Wednesday. European stocks had a rocky start at the beginning of this year as traders pared back rate cut expectations and awaited more definitive signals from central banks they are ready to pivot to easier policy. The focus will be on the US jobs report due tomorrow for clues about Fed policy. Meanwhile, investors will monitor the euro-zone inflation report also due on Friday which is expected to show a bump.
  • After a rough start to the year, markets took a breather on Thursday, with US equity futures posting small gains and Treasury yields edging closer to 4%. S&P 500 futures added 0.1% after the index capped a three-day selloff yesterday. Apple Inc. dipped as Piper Sandler flagged concern about iPhone inventory levels. Tesla Inc. climbed as Cathie Wood started buying the company’s shares after selling them for most of last year. Oil extended a rally on supply disruptions in Libya and conflict in the Middle East. European stocks rose, helped by gains in energy shares. The consensus from investors is that markets have been overdue a pullback after stocks soared at the end of last year. The Nasdaq 100 Index slid almost 3% in two days of the month and swaps traders have been reining in their bets on rate cuts.
  • Asian equities reversed losses and were set to halt two days of declines, boosted by shares in Japan and India. The MSCI Asia Pacific Index climbed as much as 0.3%, erasing a 0.4% dip, with Toyota, Takeda and Daiichi Sankyo giving the biggest boosts. Japan’s Topix Index closed higher on its first trading day of the year. India’s stock benchmark traded close to a record high as energy and bank shares advanced. Stocks in Hong Kong ended flat, while the mainland’s CSI 300 Index fell for a third consecutive session amid a lack of enthusiasm for Beijing’s efforts to spur the economy. After strong rallies in many global markets last year, the first week of trading in 2024 has seen a risk-off tone as investors assess the pace of US monetary easing and China’s economic recovery. Traders will scour US initial jobless claims data later today and nonfarm payrolls figures on Friday for clues on US economic growth.
  • Oil advanced  — after jumping more than 3% on Wednesday — as supply disruptions in Libya and attacks in the Middle East ratcheted up tensions in the key crude-producing region. Global benchmark Brent traded near $79 a barrel. Protesters in Libya halted output from the OPEC producer’s Sharara and El-Feel fields, which together normally pump about 365,000 barrels a day. Traders also continue to watch the volatile situation in the Red Sea. Houthi militants claimed to have attacked another merchant ship this week. That came as Iran said explosions that killed almost 100 people in the central part of the country were carried out to punish its stance against Israel, although the US said neither Israel nor itself were involved.
  • Gold rose for the first time in five days as Federal Reserve policymakers pushed back against expectations for aggressive monetary easing early this year. Minutes from the central bank’s December meeting released Wednesday showed policymakers agreed that it would be appropriate to maintain a restrictive stance “for some time,” while acknowledging they were probably at the peak rate and would begin cutting in 2024. Higher interest rates are typically negative for non-interest bearing gold. The metal has pulled back after rallying late last month on expectations for rapid monetary loosening this year as the economy cools. The focus is now on US data which will guide the pace of the Fed’s rate cuts. Later in the session, traders will look at purchasing managers indexes and jobs figures ahead of the headline employment report on Friday. Gold rose 0.4% to $2,048.92 an ounce as of 10:20 a.m. in London after closing down 0.9% in the previous session. The Bloomberg Dollar Spot Index weakened 0.2%. Palladium gained, while silver and platinum were steady.
  • European natural gas futures rose for a second day as a cold snap is poised to sweep in from the north and the recent flare-up of tensions in the Middle East is stoking concern over supplies. Benchmark contracts rose as much as 5.2% to the highest in a week, as temperatures across western Europe are set to drop below seasonal norms in the next few days, boosting gas demand for heating and from power plants burning the fuel.
  • Bitcoin struggled to rebound from a precipitous drop which sent the largest cryptocurrency falling as much as 9.22% earlier in the week. The token was little changed on Thursday morning London time, trading at around $43,056 and marking a partial recovery from Wednesday’s low, but still 6.2% away from the year’s high. Bitcoin had rallied to a 21-month high on Jan.2, ahead of 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.
  • Novo Nordisk A/S, the drugmaker behind the hit obesity treatment Wegovy, signed research deals with a pair of biotechs backed by Flagship Pioneering, agreeing to pay as much as $1.1 billion to develop new technologies to tackle diseases linked to weight.  The first project, with Omega Therapeutics Inc., aims to use the body’s mechanisms for controlling how genes work to treat obesity by boosting metabolism, instead of reducing the appetite. The second, with Cellarity Inc., will target a drug for an obesity-related liver disease called metabolic dysfunction-associated steatohepatitis, or MASH. Both projects are early research, far from reaching patients. They’re part of Novo’s effort to broaden its experimental pipeline, as the Danish drugmaker seeks to maintain its lead in the fast-growing field of obesity drugs.
  • Congressional Republicans are putting President Joe Biden’s $400 billion green bank in their crosshairs, seeking a repeat of the political victory they scored in 2011 with the scandal over collapsed solar company Solyndra. The probe of the Energy Department’s green lending arm threatens to slow the rollout of new clean energy technology that can replace fossil fuels, a key piece of Biden’s climate agenda. If Republicans succeed in finding a Solyndra-like failure, it could be a political blow for the president in an election year. Barrasso and Representative Cathy McMorris Rodgers of Washington, who chairs the House’s Energy and Commerce Committee, have requested reams of documents from the Energy Department relating to the Loan Programs Office, which is flush with capital thanks to an infusion from the Democrats’ 2022 climate law.
  • APA Corp. agreed to acquire shale explorer Callon Petroleum Co. for $4.5 billion including debt, the latest in a wave of buyouts reshaping the US oil landscape. The all-stock transaction equates to $38.31 per share for Callon and has been unanimously approved by both boards of directors, the companies said in a statement on Thursday. It is expected to close during the second quarter. The takeover comes as investors are pushing oil producers to maintain generous buybacks and dividends even as growth slows in US shale basins. With the number of top-tier production sites dwindling, companies are increasingly buying rivals to secure new places to drill.
  • Morgan Stanley cut forecasts for Brent crude prices this year by about 9% to around $77 a barrel on Wednesday — implying very little upside potential from current levels. In Europe, UBS Group AG has also downgraded its outlook, a few weeks after Goldman Sachs Group Inc. did the same. Analysts expect that surging supplies from outside the OPEC cartel, led by US shale drillers, will be enough to satisfy growth in global oil demand, which is set to slow markedly this year as the post-pandemic rebound loses steam. Brent futures traded near $79 a barrel on Thursday, and just capped their first annual decline since 2020. Among five big Wall Street banks, only Bank of America Corp. now anticipates significant gains this year, forecasting an average of $90 a barrel. Citigroup Inc. remains the most bearish, predicting an average of about $75 a barrel. An average of the five annual projections comes to about $81.
  • The US Supreme Court will chart the nation’s political future as it confronts a potentially stark choice over efforts to remove Donald Trump from this year’s presidential ballot for trying to overturn his 2020 election loss. The court’s options include putting the kibosh on challenges to Trump’s candidacy with a ruling that keeps him on the ballot nationwide. Under another scenario, the court rules against the former president and paves the way for a year of unprecedented constitutional turbulence. Either outcome is plausible as the justices weigh calls from both sides to review a Colorado Supreme Court ruling that said Trump forfeited his right to run again by engaging in an insurrection. The ruling, which said Trump incited the Jan. 6 Capitol riot, was the first ever to invoke the Constitution’s insurrection clause against an ex-president.
  • Iran said blasts that killed almost 100 people in a central province were aimed at punishing its stance against Israel’s invasion of Gaza, building on signs the war against Hamas could tip into a broader regional conflict. No group immediately claimed responsibility for the twin explosions in Kerman on Wednesday, which targeted a crowd marking the anniversary of the death of Qassem Soleimani, one of Iran’s most powerful generals killed by the US in a 2020 drone strike. Tehran said at least 84 people were dead and 220 others wounded. Only hours after the blasts — the Islamic Republic’s deadliest since its founding in 1979 — more than a dozen countries led by the US increased their pressure on Tehran. They issued a warning against Houthi militants, an Iranian proxy force in Yemen, against continuing their attacks on shipping in the Red Sea, which have disrupted global commerce and triggered a build up of Western naval power in the area.
  • Apple Inc. was already the least-loved big tech stock on Wall Street. Growing concerns over iPhone sales have now triggered a second downgrade this week, cementing analysts’ cautious approach. Piper Sandler & Co.’s Harsh Kumar cut his Apple rating on Thursday, citing a weak macro environment in China that will dampen demand for iPhones. Coming into 2024, Apple was already the big tech stock with the least number of bullish recommendations, according to data compiled by Bloomberg. Piper Sandler’s downgrade now pushes the company’s buy-equivalent ratio down even further — with the percentage of analysts bullish on the company at a three-year low.
  • As speculation about the upcoming approval or denial of spot-Bitcoin ETFs reaches a fever pitch, a group of former Citigroup Inc. executives is starting to offer securities backed by the oldest cryptocurrency that they say don’t need the blessing of US regulators. The new offering, called Bitcoin depositary receipts, will be similar to American depositary receipts that represent foreign stocks. The startup, called Receipts Depositary Corporation, or RDC, said it plans to issue the first Bitcoin depositary receipts to qualified global institutional investors in transactions exempt from registration under the Securities Act of 1933. Known as BTC DRs, the offering will give institutions access to Bitcoin securities through US regulated market infrastructure and cleared through the Depository Trust Co., according to a release from the company.
  • Walgreens Boots Alliance Inc. reported fiscal first-quarter earnings and sales ahead of Wall Street expectations as its new chief executive slashed the troubled drugstore chain’s dividend and said the company is looking at further changes. Walgreens will almost halve its quarterly dividend to 25 cents a share, CEO Tim Wentworth said Thursday. The move will help increase cash flow, freeing up capital to invest in the pharmacy and health-care businesses, he said. “We are evaluating all strategic options to drive sustainable long-term shareholder value,” Wentworth said Thursday in a statement, “focusing on swift actions to right-size costs and increase cash flow, with a balanced approach to capital allocation priorities.”
  • ByteDance Ltd.’s TikTok aims to grow the size of its US e-commerce business tenfold to as much as $17.5 billion this year, according to people familiar with the matter, posing a bigger threat to Amazon.com Inc. The 2024 merchandise volume goal for the US version of TikTok Shop — which melds online entertainment with impulse buying — was discussed in internal meetings in recent weeks and may still change depending on how the business goes, said the people, who asked not to be named discussing private information. TikTok’s ambitious target sets up a clash not just with Amazon but also fellow Chinese-owned outfits Temu and Shein, who’ve been making big strides among younger American shoppers. Unlike its two rival discounters, TikTok is counting on its social media reach and the appeal of viral videos to hook buyers.
  • Mark Zuckerberg sold nearly half a billion dollars of Meta Platforms Inc. shares in the final two months of 2023 after a two-year hiatus in which the company’s stock price hit its lowest in seven years. The Meta chief executive sold shares on every trading day between Nov. 1 and the end of the year, unloading nearly 1.28 million shares for about $428 million, according to a Tuesday regulatory filing. Before this period, Zuckerberg had not sold Meta shares since November 2021. The company’s share price rebounded 194% last year from a seven-year low near the end of 2022. Meta shares outperformed those of every other major tech giant except Nvidia Corp. last year and is now near its September 2021 record high.