January 5, 2023
- Home-sales activity slowed to a crawl in Canada’s largest city in December, with just 3,117 homes trading hands to end a year that saw prices decline by a record amount. The benchmark price of a home in Toronto fell 0.8% in December from the month before to C$1.08 million (about $802,000), not adjusted for seasonality, according to the city’s real estate board. That brought the one-year price decline to 8.9%, the biggest drop for a calendar year since the benchmark was first compiled in 2005, the data show. Just as ultra-low pandemic interest rates triggered a record home-buying frenzy in 2021, a sharp rise in borrowing costs turned the market in the other direction in 2022. With inflation still running near 7% and the Bank of Canada signaling that rate hikes might not be over, the housing market in Toronto and other Canadian cities may be under more pressure in 2023.
- For a currency that has traditionally had one of the highest Sharpe Ratios, the Canadian dollar has been pretty choppy of late. That will give way to gains this year, though. The currency has also seen outsized moves this week, caught in a tug-of-war between sliding crude prices and an improved outlook on a fundamental basis. If the loonie’s travails last year were underpinned by widening inflation-adjusted rate differentials in favor of the US dollar, this year may mark a comeback should the Fed stop after raising rates to circa 5.25% and the Bank of Canada do likewise in the vicinity of 4.50%-4.75%.
- European stocks were steady after a three-day winning streak as minutes from the Federal Reserve’s meeting sounded a cautious tone on interest rates, offsetting optimism about China’s reopening. The Stoxx 600 Index erased earlier losses to trade flat by 10:10 a.m. in London, having just posted the biggest three-day gain since early October. Media and insurance stocks fell the most, while retailers led gains, boosted by Next Plc raising its profit forecast. Thursday marks the one-year anniversary of the Stoxx 600’s record high. After slumping nearly 13% last year in the worst performance since 2018, the benchmark index has started the new year on a roll amid bets that a sustained reopening in China will fuel an economic recovery and on optimism that price growth is slowing.
- US equity futures edged higher and European shares were steady as investors awaited data on the labor market after cautious commentary from the Federal Reserve’s last meeting. Oil snapped a two-day drop. Contracts on the S&P 500 rose 0.2% and those on the tech-heavy Nasdaq 100 were up 0.3%, as Amazon.com Inc. rose in premarket trading after saying it will lay off more than 18,000 employees. The Stoxx Europe 600 Index was also positive, erasing earlier losses, with retailers leading gains after Next Plc raised its profit forecast. Investors are looking to a private US jobs report later today and nonfarm payrolls on Friday for clues on the labor market and its implications for monetary policy, after Fed minutes showed officials cautioned against underestimating their will to keep interest rates high for some time. While US stocks pared gains after the minutes, traders are still pricing in rate cuts by end-2023.
- Chinese equities climbed for a third straight day this year as the nation’s pivot toward market-friendly policies and expectations of an economic revival kept investors enthused. The Hang Seng China Enterprises Index rose 1.5% on Thursday, with technology shares being the biggest contributors to gains. The gauge has jumped 7% in three sessions, marking its best start to a calendar year since 2009. On the mainland, the benchmark CSI 300 Index climbed 1.9%, the most in a month. The uncertainty clouding China’s outlook is dissipating amid a growing conviction that the relaxation of virus curbs will eventually fuel a revival in consumption. Signs that a crackdown on Jack Ma’s Ant Group Co. is easing, warmer US-China relations and increasing support for the property sector suggest a turn by policy makers after years of crackdowns on private enterprises.
- Oil rebounded from a drop of about 9% over the previous two sessions, with traders assessing the outlook for China’s demand and the impact of cold US weather on inventories. West Texas Intermediate futures climbed toward $75 a barrel, snapping the biggest two-day decline since March. A surge in Covid-19 cases across China is clouding the near-term demand outlook, overshadowing optimism that commodity consumption in the world’s top importer will eventually rebound. Crude’s gloomy start to the year has come with futures curves continuing to signal a market that is oversupplied. Inventory figures later Thursday will give a first insight into the impact of pre-Christmas cold weather on US stockpiles, after the American Petroleum Institute reported a build on Wednesday.
- Gold eased from a six-month high as Treasury yields rebounded following Federal Reserve minutes that indicated interest rates may stay high for a long time. In an unusually blunt warning to investors, US central bank officials cautioned against underestimating their will to keep interest rates high. Yields on benchmark 10-year government bonds rose Thursday, following a run of declines that drove bullion to the highest since June this week. Still, in the minutes many officials highlighted the need to curb inflation without slowing the economy too much. Pricing in financial futures continues to show investors betting the Fed will cut rates this year. Aggressive tightening weighed on gold for most of 2022 by pushing up bond yields and the dollar, though data showing price gains cooling helped spark a rally in bullion from November.
- Natural gas prices in Europe fluctuated as traders weigh historically mild weather and the risk that the market could still tighten this winter. Benchmark Dutch futures resumed their dramatic slide, trading below €64 per megawatt-hour after rising earlier. The contract on Wednesday settled at the lowest level since October 2021. Europe is poised for the warmest January on record, easing its energy crisis. Still, gas prices are higher than normal and the continent is exposed to any further supply disruptions, with global markets fundamentally short of the fuel this year amid lower Russian exports.
- Amazon.com Inc. is laying off more than 18,000 employees — the biggest reduction in its history — in the latest sign that a tech-industry slump is deepening. Chief Executive Officer Andy Jassy announced the cuts, which represent about 1% of Amazon’s employees, in a memo to staff Wednesday, saying it followed the company’s annual planning process. The eliminations began last year and were previously expected to affect about 10,000 people. The move is concentrated in the firm’s corporate ranks, mostly Amazon’s retail division and human resources functions, like recruiting. Though the prospect of layoffs has loomed over Amazon for months — the company has acknowledged that it hired too many people during the pandemic — the increasing total suggests the company’s outlook has darkened. It joins other tech giants in making major cuts. Earlier Wednesday, Salesforce Inc. announced plans to eliminate about 10% of its workforce and reduce its real estate holdings.
- California faces heavy rain and ferocious winds as a powerful storm system adds to recent downpours that have burst levees and triggered mudslides. The deluge is set to continue in parts of the state on Thursday, and “considerable flooding impacts are likely,” the National Weather Service said in a statement. Heavy snowfall in some mountain areas could make travel impossible at times, it added. Officials evacuated low-lying neighborhoods in a handful of communities and urged Californians to stay off the roads, saying the storm could be one of the biggest in five years. While drought-stricken California desperately needs rain and snow, the last two weeks have brought a parade of storms that’s unleashed more water than some areas can handle. The storms are refilling depleted reservoirs and boosting the state’s mountain snowpack, but they’re also causing chaos on roads and have led to at least one death.
- Credit Suisse Group AG is seeking sterling funding after raising $3.75 billion in the US bond market on Wednesday amid a deluge of global debt sales this week. The Swiss bank’s London branch is offering a benchmark-sized pound note due in just over three years, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it. Initial price talk of about 435 basis points over the UK Treasury benchmark suggests it’s paying up for the funding. It’s the lender’s first debt sale in the currency since August last year, when Credit Suisse Group AG sold a 1.5-billion pound ($1.8 billion) two-part bond, according to data compiled by Bloomberg. The bank’s London branch last offered notes in the currency in May 2021, which have since dropped in price.
- China may be reopening, allowing its 1.4 billion people to come and go largely without restrictions, but just as it is, more and more countries are tightening measures for travelers from the world’s second-biggest economy, concerned the tsunami of virus cases there may spawn new Covid variants. In early December, China did away with almost all domestic Covid restrictions in one fell swoop. That’s seen the virus run wild and unchecked through its population, with almost 37 million people possibly having been infected on a single day in late December. From Jan. 8, China will also scrap its quarantine requirement for inbound travelers, a step that’s seen as making it more likely for people to travel abroad after almost three years of total isolation.
- Some of London’s biggest railway stations are shut on Thursday while airports such as Gatwick are also deprived of any train services, as workers strike again and union bosses warn of more industrial action to come. Commuter services into the capital run by Thameslink, Southern and Southeastern came to a complete halt. Train drivers represented by the Aslef union are walking out following a long dispute over pay. Whelan said he’d be meeting ministers on Monday and urged them to play a bigger part in negotiations. The government has said it’s ultimately down to train companies and unions to find a compromise.
- The presidents of China and the Philippines agreed to resume talks on oil and gas exploration in the South China Sea and discuss maritime differences amicably after meeting in Beijing on Wednesday, a move that potentially paves the way for easing of recent tensions. “China is willing to properly handle maritime issues with the Philippines side through friendly consultation, and restart negotiations on oil and gas exploration,” China Central Television quoted President Xi Jinping as saying. Xi also promised to find a compromise after Philippine President Ferdinand Marcos Jr. brought up Filipino fishermen’s plight in the disputed sea, according to a statement from the Philippines’ presidential communications office. The two sides decided to establish a link for diplomats to talk on maritime issues.
- Silvergate Capital Corp. slumped in early trading after the bank said the crypto industry’s meltdown triggered a run on deposits, prompting the company to sell assets at a steep loss and fire 40% of its staff. Customers withdrew about $8.1 billion of digital-asset deposits from the La Jolla, California-based bank during the fourth quarter, which forced it to sell assets at a loss of $718 million, according to a statement Thursday. “In response to the rapid changes in the digital asset industry during the fourth quarter, we took commensurate steps to ensure that we were maintaining cash liquidity in order to satisfy potential deposit outflows, and we currently maintain a cash position in excess of our digital asset related deposits,” Chief Executive Officer Alan Lane said in the statement.
- Credit Suisse Group AG is paying up to raise billions of dollars in the US and UK as the troubled lender relies on attractive terms to keep funding plans in place. The embattled Swiss lender’s New York branch sold $3.75 billion of two-year and five-year notes on Wednesday to yield 370 basis points over Treasuries, according to a person with knowledge of the matter. That’s much higher than average risk premiums across investment grade credit. Its London branch is offering a benchmark-sized pound note on Thursday, meaning at least £250 million ($300 million), due in just over three years, according to another person familiar. Initial price talk of about 435 basis points over the UK Treasury benchmark suggests it’s similarly paying up for that funding.
- Walgreens Boots Alliance Inc. raised its yearly sales forecast as currency exchange rates eased and the drugstore chain’s first-quarter revenue beat expectations. Sales for the year will be $133.5 billion to $137.5 billion, Walgreens said Thursday in a statement, up from a previous estimate of $130.5 to $134 billion. Adjusted earnings for the quarter that ended Nov. 30 were $1.16 a share, beating Wall Street analysts’ average estimate of $1.14. Revenue was $33.4 billion, ahead of Wall Street expectations by $1 billion. Walgreens left unchanged its forecast for fiscal 2023 adjusted earnings of $4.45 to $4.65 a share.
- A rebellion by Republican hard-liners that’s blocking Kevin McCarthy’s bid to become House speaker has been brewing for years, fueled by anger at party leadership and deep suspicions of the veteran lawmaker. An entrenched and adamant group of 20 dissident Republicans, many of them long at odds with their leaders, this week are opposing McCarthy’s ascension to the top congressional post over a list of grievances about House rules, ire over compromises with Democrats and a lack of trust in the Californian’s claim to conservative credentials.
- After US employment bounced back to its pre-pandemic level in 2022, the trajectory entering this year suggests payroll growth will level out or reverse course altogether. Employers added 4.31 million jobs last year through November — second only to 2021’s surge, and data to be released Friday are projected to show that payrolls rose another 200,000 in December. The return to pre-Covid payrolls was uneven. Industries like transportation and warehousing are now way above where they were before the pandemic, while hundreds of thousands of jobs are still missing in government as well as leisure and hospitality.
- Chipmakers with more exposure to the automotive industry were among the best-performing technology stocks in 2022 as tight supplies kept carmakers hungry for components. With an economic slowdown expected to sap demand for vehicles in 2023, things are looking a lot less bright. The three top performers in the Philadelphia Semiconductor Index last year — Analog Devices Inc., ON Semiconductor Corp. and Texas Instruments Inc. — generate sizable sales from carmakers. Analog Devices and ON’s shares fell less than 10% in 2022, while the benchmark dropped by more than a third.
*All sources from Bloomberg unless otherwise specified