January 5, 2024

Daily Market Commentary

Canadian Headlines

  • American Tower Corp. agreed to sell its operations in India to an affiliate of Brookfield Asset Management, in a deal worth about $2.5 billion to the US networking company. The deal is expected to close in 2024’s second half, American Tower said. The US company struck a deal to sell the business to an infrastructure investment trust backed by an affiliate of Brookfield’s, it said. The sale lets American Tower focus on its telecommunications tower and data center businesses in markets such as the US. Investment firm Brookfield is betting on growth in India, whose economy is outpacing that of other large countries and where smartphone usage is increasing rapidly. American Tower started operations in India in 2007 and its portfolio in the country has since expanded to more than 75,000 towers, becoming its largest overseas business, according to its website. The company serves all the nation’s major telecom services providers.
  • Endeavour Mining Plc tumbled after announcing it fired Chief Executive Officer Sébastien de Montessus, citing “serious misconduct” and irregularities tied to the sale of a company asset. The London-based gold miner removed de Montessus after discovering an alleged “irregular payment instruction” of $5.9 million related to an asset sale, it said in a statement. The company also revealed it recently conducted an external investigation into the CEO’s personal conduct with colleagues, following whistle-blowing allegations from October. Endeavour, which is backed by Egyptian billionaire Naguib Sawiris, traded 12% lower in London on Friday, after falling 10% in Toronto following the announcement on Thursday. The company has named mining industry veteran and Deputy Chairman Ian Cockerill as CEO.

World Headlines

  • European stocks deepened declines, following Thursday’s brief respite, as investors focus on a crucial US jobs report that will help gauge the timing and pace of Federal Reserve interest-rate cuts. The Stoxx Europe 600 Index extended declines to 1.1% by 10:55 a.m. in London, dragged lower by the retail and consumer products and services sectors. LVMH and Remy Cointreau fell after China announced an anti-dumping probe on European liquor products from Friday. Traders have pared bets on interest-rate cuts from the ECB, with markets pricing 149 basis points in borrowing cost reductions in the euro area in 2024. It’s the first time since mid-December that traders bet on fewer than six quarter-point cuts.
  • Treasuries extended declines, heading for the biggest weekly retreat since October, fueled by speculation that a resilient labor market may delay interest-rate cuts by the Federal Reserve. Stocks sank and the dollar strengthened for a sixth day. Traders are waiting for the US nonfarm payroll report, which is expected to show that employers added 175,000 positions last month. While that’s a slower hiring pace than November, it would still reflect economic strength and add to evidence that wagers on easier monetary policy have gone too far. As a result, investors are backtracking on some of last year’s most popular trades. Futures on the tech-heavy Nasdaq 100 Index slid 0.3% on Friday and the index has lost more than 3% so far this week. The yield on 10-year notes is back above 4%.
  • Asian equities erased gains and headed for their worst start to a year since 2016 as investors remained cautious ahead of the US jobs report later today. The MSCI Asia Pacific Index dropped as much as 0.3%, erasing gains of a similar magnitude, as the measure heads for a weekly loss of about 2.3%. Benchmarks in Korea and China capped their worst first week of trading in at least eight years.  Regional stocks’ lackluster start to the year matches that of global peers as doubts over the Federal Reserve’s scope to cut interest rates and China’s continued weak economic momentum cloud the outlook. The US non-farm payrolls report scheduled later today may provide more clarity on borrowing costs this year.
  • Oil rose, cementing a weekly advance, aided by supply risks in the Middle East and Libya. Brent crude climbed to trade near $78 a barrel as tensions in the Middle East and North Africa ratcheted higher this week. US Secretary of State Antony Blinken heading to the region for the fourth time since the Hamas attack on Israel in early October. Protesters in Libya disrupted supply from the Sharara and El-Feel fields, which could take about 300,000 barrels a day out of the market. Meanwhile, the Houthi militant group in Yemen claimed another attack on a merchant ship in the Red Sea.
  • Gold is set for its first weekly drop in a month as a resilient US labor market fueled investor speculation that the Federal Reserve may delay interest-rate cuts. Swaps traders now see around a 65% chance the Fed will cut rates by its March meeting, down from almost fully pricing such a move a week ago. Minutes from the last central bank meeting released Wednesday showed policymakers agreed that it would be an appropriate to maintain a restrictive stance “for some time.” Data on Thursday showed US companies ramped up hiring in December. The figures precede the government’s jobs report later on Friday, with the trajectory of the labor market being a key driver of the Fed’s rate path. Bullion hit a record early in December on speculation the Fed is set to loosen monetary policy as inflation abates and the labor market cools, which would benefit non-yielding assets.
  • UK house prices defied predictions of a slump in 2023, with a shortage of properties on the market offsetting painfully high mortgage rates, one of the nation’s biggest lenders said. Halifax said Friday the average house price rose to a nine-month high of £287,105 ($363,810) in December, the third consecutive monthly increase and 1.7% above the end of 2022. That was slightly stronger than the 1.8% annual drop Nationwide Building Society announced last week. The figures from Britain’s two leading mortgage lenders underscored the resilience of the property market, which economists at the start of the year anticipated would drop by 10% or more. Instead, prices have essentially stagnated, and most forecasters see a price war among lenders that has been driving down mortgage rates in recent days helping to boost demand from buyers.
  • Tesla Inc. recalled virtually every car it’s ever sold in China due to issues with the driver-assistance system Autopilot that increase the risk of crashes. The carmaker will deploy an over-the-air software fix to more than 1.6 million vehicles produced between August 2014 and December 2023, including locally built Model 3s and Model Ys and imported premium models, the State Administration for Market Regulation said in a statement. Tesla drivers may misuse Autopilot functions, increasing the risk of collisions and posing safety risk, the regulator said. The recall closely mirrors the carmaker’s response last month to the US National Highway Traffic Safety Administration determining that it wasn’t doing enough to ensure drivers were using Autopilot correctly. NHTSA said it would keep open a years-long defect investigation to monitor the efficacy of the company’s fixes to 2 million cars.
  • Secretary of State Antony Blinken left for his fourth trip to the Middle East since the Oct. 7 attack on Israel, as part of US efforts to counter growing risks of a broader regional conflict. The top US diplomat will travel to Turkey, Jordan, Qatar, the United Arab Emirates, Saudi Arabia, Egypt and Israel, with a visit to the West Bank and an additional stop in Greece, State Department spokesman Matthew Miller said Thursday. As Israel pursues its drive to eliminate Hamas, which mounted the October attack and is designated a terrorist group by the US and the European Union, shockwaves from the war are still spreading, from the Red Sea to Lebanon and Iraq.
  • Huawei Technologies Co.’s newest laptop runs on a chip made by Taiwan Semiconductor Manufacturing Co., a teardown of the device showed, quashing talk of another Chinese technological breakthrough. The Qingyun L540 notebook contains a 5-nanometer chip made by the Taiwanese company in 2020, around the time US sanctions cut off Huawei’s access to the chipmaker, research firm TechInsights found after dismantling the device for Bloomberg News. That counters speculation that Huawei’s mainland Chinese chipmaking partner, Semiconductor Manufacturing International Corp., may have achieved a major leap in fabrication technique. Huawei caused a stir in the US and China last August when it released a smartphone with a 7nm processor made by Shanghai-based SMIC. A teardown by the Canada-based research outfit for Bloomberg News showed the Mate 60 Pro’s chip was only a few years behind the cutting edge, a feat that US trade curbs were meant to prevent. That revelation spurred celebration across the Chinese tech scene, and a debate in the US about the effectiveness of sanctions.
  • Stock watchers are paying close attention to Friday’s jobs data as they focus their worry less on inflation and more on the growth prospects in a soft landing. At the start of last year, prognosticators broadly predicted a recession. But consensus that the economy can skirt disaster has steadily grown, with investors citing cooling prices that give the Federal Reserve reason to cautiously believe it has arrested out-of-control inflation. Forecasters are now watching for interest rate cuts, the timing of which could rely heavily on inflation and jobs figures. Yet, while the former has provided somewhat clear signs of progress, employment data has offered more mixed signals. US employers are forecast to add 172,000 jobs in December, according to economists surveyed by Bloomberg. While that’s nearly 30,000 fewer positions compared with the prior month’s report, the unemployment rate sits near a half-century low with more than 2.5 million jobs added so far in 2023.
  • India forecasts growth will outstrip the consensus by a wide margin, as a boom in private and government expenditure keeps the South Asian nation on track to be the world’s fastest-expanding major economy. The first official estimate for gross domestic product released Friday pegged growth at 7.3% in the year through March, faster than the Reserve Bank of India’s 7% projection and the 6.7% estimate in a Bloomberg survey of economists. The economy had grown 7.2% last year. Strong consumer and government spending, a robust services sector and a boost in manufacturing have helped buoy India’s economy in the face of a weaker global economy and six rate hikes by the central bank since 2022. Prime Minister Narendra Modi’s government has ramped up spending on infrastructure, while foreign businesses are investing more in India, especially in tech manufacturing, as they look for alternative locations to China.
  • Apple Inc. is off to its weakest start to a year since 2019, jeopardizing its position as the world’s most valuable stock as fellow technology juggernaut Microsoft Corp. inches closer to $3 trillion in market value.  The Cupertino, California-based company has been the most valuable publicly-listed company since July 2022, but the stock has fallen sharply this year after the technology giant was hit by two ratings downgrades. Analysts are flagging weak macro environment in China pressuring demand for iPhones — its biggest business unit. Shares in the company, which rallied nearly 50% last year, have fallen in every session to start 2024, on track to wipe off about $183 billion in market value, according to data compiled by Bloomberg. While the stock has suffered bigger percentage declines in the first week of January, this is its biggest market value destruction at the start of any year on record.
  • Japan rushed to find 222 people listed as missing from a New Year’s Day earthquake that ripped through a northwest peninsula, as authorities say time is running out to find survivors trapped under rubble. At least 94 people were killed by the 7.6 magnitude quake that flattened buildings on the Noto Peninsula, which is still being shaken by a series of aftershocks hampering rescue efforts. Rain fell on the region Friday, increasing the risks of landslides. A woman in her 80s was rescued Thursday after being trapped under the wreckage of a collapsed house for about three days, according to broadcaster NHK. A 72-hour window mentioned by authorities as the time frame for finding people alive has closed, adding to the urgency of searches by thousands of soldiers, emergency personnel and sniffer dog teams.
  • Netflix has said it plans to be in gaming for years to come. Now the company is trying to figure out how to make money from it, a potential shift in strategy for the streamer. Executives at the streaming giant have had discussions in recent months about how to generate revenue from its games, according to people familiar with the discussions. Netflix games are currently free for all subscribers, part of a strategy to keep users coming back to the streaming service when their favorite shows are between seasons as well as to attract new fans. Some of the ideas that have been discussed include in-app purchases, charging for more sophisticated games it is developing or giving subscribers to its newer ad-supported tier access to games with ads in them, the people said.
  • State and local governments across the US are grappling with a growing problem: Expensive drugs to treat diabetes and obesity are threatening to drain their health-care budgets. State health plans and Medicaid offices are seeing eye-popping bills for Novo Nordisk A/S’s Ozempic, its sister drug Wegovy and similar medications known as GLP-1s. They’re a breakthrough for treating two of the most complex chronic health conditions. But with list prices stretching above $1,000 a month, the costs threaten to empty government coffers. Demand for the drugs is poised to explode. Public attention has focused on the well-off looking for a quick way to lose a few extra pounds, but the reality is that type of customer represents a tiny fraction of the potential market for GLP-1s. More than one in 10 Americans have type 2 diabetes, and upward of 100 million suffer from obesity. Those rates are higher among the 19% of Americans who rely on Medicaid, the public health-insurance program that on average accounts for more than a quarter of state spending.