January 6, 2022
Daily Market Commentary
Canadian Headlines
- Canadian equities slumped, weighed down by technology and real estate stocks, after Federal Reserve minutes signaled the potential for earlier and faster interest rate hikes. The S&P/TSX Composite fell 0.9 percent to 21,039.866 in Toronto. The decline was the biggest since a 1 percent drop on Dec. 20 and follows the previous session’s increase of 0.1 percent. Brookfield Asset Management Inc. contributed the most to the index decline, decreasing 4.1 percent. Docebo Inc. had the largest drop, falling 12.7 percent.
- Toronto, a city of more than 6.5 million people, has just 3,200 homes left for sale to start the year after a real-estate frenzy fueled by low interest rates drove the market to record levels. More than 121,000 homes were sold in Canada’s biggest city in 2021, up 28% from the previous year and smashing the previous high set in 2016, according to data released Thursday by the Toronto Regional Real Estate Board. Buyers competed for the dwindling number of properties by bidding up prices: the average selling price for the year was nearly C$1.1 million (about $862,000) in Toronto, also a record and up 18% from a year earlier, the board said. Sales got weaker in the second half as supply dried up.
World Headlines
- European equities trimmed their declines on Thursday amid tentative signs that a rout is U.S. stocks that was fueled by fears over more aggressive policy tightening is starting to ease. The Stoxx Europe 600 dropped 1% as of 10:56 a.m. in London, paring earlier losses of as much as 1.6% and retreating from three successive record highs. S&P 500 futures erased declines, following Wednesday’s selloff, when the Nasdaq 100 fell the most since March amid fears that the Federal Reserve may tighten policy more quickly than anticipated. Technology was the biggest drag on European gauges on Thursday, as higher rates mean a bigger discount for the present value of future profits, hurting growth stocks with the highest valuations and boosting cheap or so-called value shares. Banks and automakers outperformed today.
- A selloff in U.S. equity-index futures subsided and European stocks pared a decline as investors bet the Federal Reserve’s faster-than-expected policy tightening will still leave opportunities for equity gains. Treasury yields extended a spike. Contracts on the Nasdaq 100 Index were littel changed after falling as much as 0.9%, while S&P 500 futures traded marginally higher. Minutes from the Fed’s December meeting showed officials’ increasing preference for a faster path of rate hikes and a shrinking of the bank’s $8.8 trillion balance sheet. That could bring curtains down on unprecedented policy accommodation which underwrote asset prices through the worst of the pandemic. The Fed is now at the core of the investment outlook for 2022, overriding continuing concerns such as slowing global growth, China’s regulatory crackdown and supply bottlenecks.
- A fresh bout of selling hit Asian stocks on Thursday as the risk of accelerated interest-rate hikes by the Federal Reserve sparked a broad decline from industrials to the technology sector. The MSCI Asia Pacific Index extended losses to 1.7%, on track to fall for a second day, as tech and industrial names led the slump. Fed officials warned of a “potentially faster pace of policy rate normalization” in the minutes of its December meeting, a move that investors fear could snuff out a global recovery and hurt corporate earnings. Japan’s benchmark Nikkei 225 slid the most in the region, plunging almost 3%, while measures in Australia and China also fell. Sony Group and Taiwan Semiconductor Manufacturing Co. were among the biggest decliners on the regional measure, while a gauge of communication stocks traded at its lowest since June 2020.
- Oil steadied as supply constraints from OPEC+ to the U.S. offset concerns over the impact of a severe Covid-19 outbreak in China and the prospect of tightening monetary policy. Futures held near $78 a barrel in New York after recouping earlier losses. A deep-freeze in Canada and Northern U.S. is disrupting oil flows, causing a surge in prices just as American stockpiles decline. Furthermore, a growing premium for prompt barrels suggests that supply troubles across the OPEC+ coalition — which was able to provide only part of last month’s planned production increase — are delaying the onset of oversupply.
- Gold and base metals slid for a second day after minutes from the Federal Reserve highlighted prospects of faster monetary tightening. A strengthening U.S. economy and higher inflation could lead to earlier and faster interest-rate increases, with some policy makers also favoring starting to shrink the balance sheet soon after, according to minutes of the Fed’s Dec. 14-15 meeting released Wednesday. Gold slid as much 0.9% on Thursday as Treasury yields climbed to the highest since April, pressuring non-interest bearing assets. The hawkish turn from the Fed is a blow for bullion, which had endured similar pivots last year and was beginning to garner investor interest. Gold exchange-traded funds boosted their holdings for seven straight days through till Wednesday, while money managers trading the Comex had also recently raised their bullish bets.
- China advised people to avoid long-distance trips during the upcoming Lunar New Year holidays and introduced new restrictions for people traveling from the U.S. Excess deaths in South Africa’s fell for the first week in the last three, adding to evidence that the omicron-driven wave of coronavirus infections has been shorter and less severe than those from previous variants. Tennis star Novak Djokovic remained in immigration detention, the Associated Press reported, after being refused entry into Australia. The case followed furor over a vaccine exemption he received to play in the upcoming Australian Open tournament.
- Societe Generale SA said Thursday that its vehicle-leasing subsidiary ALD SA has agreed to acquire peer LeasePlan for a total consideration of 4.9 billion euros ($5.54 billion) in cash and shares. Under the agreement with LeasePlan’s current owners, a consortium led by London-based TDR Capital, ALD will acquire 100% of the fleet-management company, the French bank said. The new entity will have a combined fleet of around 3.5 million vehicles, SocGen added. The acquisition will be paid with EUR2 billion in cash, with LeasePlan shareholders also receiving a 30.75% stake in ALD, the bank said. ALD will finance the cash part with a rights issue amounting to EUR1.3 billion and EUR700 million in surplus cash.
- President Joe Biden plans a blistering critique of Donald Trumpas he marks the one-year anniversary of the Jan. 6 riot at the U.S. Capitol with a speech that will warn of the dangers of misinformation and subverting democracy. The president on Thursday morning will also call on lawmakers to pass voting rights legislation intended to rebut changes sought by Trump loyalists in state governments across the nation that would limit access to absentee voting and strengthen identification requirements. “Are we going to be a nation that accepts political violence as a norm? Are we going to be a nation where we allow partisan election officials to overturn the legally expressed will of the people?” Biden will say in his speech, according to excerpts provided by the White House. “We cannot allow ourselves to be that kind of nation.”
- Global food prices declined from near a record high at the end of last year, offering some respite to consumers and governments facing a wave of inflationary pressures. A United Nations index tracking everything from grains to meat fell 0.9% in December, potentially helping to ease the run-up in prices of grocery store products. Still, the gauge remains near 2011’s all-time high and average prices jumped about 28% in 2021, the most in 14 years. Prices have surged on the back of harvest setbacks and high freight rates, as well as labor shortages and an energy crisis that hit supply chains. Those issues will remain at the fore as farmers face uncertain weather and the prospect of fertilizer shortages in the months ahead. The costs have trickled through to supermarkets, piling pressure on officials and household budgets and worsening hunger, particularly in poor nations.
- Bitcoin was down more than 8% Thursday, and the cryptocurrency market was a sea of red, after minutes revealed the Federal Reserve could soon start rapidly cutting back its support for the economy. Bitcoin, the world’s biggest cryptocurrency by market value, was 8.6% lower over the 24 hours to 4.50 a.m. ET on the Coinbase exchange, trading at $42,776. The sharp drop put BTC more than 35% below a record high of close to $69,000 touched in November. Ethereum, the second-biggest token, plunged more than 12% to $3,336. Binance coin slumped around 8%, solana dropped roughly 13%, and XRP was about 8% lower. The crypto sell-off began Wednesday after the Fed released “hawkish” minutes from its December meeting, which showed the US central bank could tighten monetary policy faster than previously expected.
- U.K. automakers expect sales to rebound this year as the semiconductor shortage eases and demand for battery-powered vehicles grows. The Society of Motor Manufacturers and Traders estimates new-car registrations in Britain will climb 19% to 1.96 million in 2022. The group said it will update that forecast — formulated shortly before the emergence of the highly transmissible omicron coronavirus variant — again later this month. The global chip shortage hit the industry hard last year and halted vehicle manufacturing across several regions. Automakers from Vauxhall owner Stellantis NV to Mini maker BMW AG are hoping the bottleneck will gradually ease this year but have warned supply will remain tight in the first half.
- A proposal to get Switzerland’s central bank to give out 53 billion francs ($58 billion) in “helicopter money” has stalled. The measure envisioned giving tax-free 7,500 francs to all citizens from SNBcoffers but the initiative appears unlikely to get enough signatures to move it forward for a national vote. Swiss newspaper Blick reported that only about half of the necessary 100,000 signatures had been collected with an end of April deadline looming. The initiative was launched in late 2020 when the SNB and many of its peers around the world were battling weak inflation. The notion of getting central banks to create cash out of thin air and distributing it directly to the people — known as helicopter money — has gained popularity in certain circles as a way of boosting the supply of money to the economy.
- A member of Boris Johnson’s cabinet urged the prime minister to ditch a 12-billion-pound ($16 billion) rise in national insurance amid concerns about the rising cost of living in the U.K. Leader of the House of Commons Jacob Rees-Mogg, who oversees the Parliamentary timetable, told the cabinet on Wednesday that the 1.25% rise in the payroll tax should be shelved as inflation and energy bills surge, according to a person familiar with the matter, who spoke anonymously about private deliberations. The increase is designed to help pay for the state-run National Health Service and the growing cost of social care. The sign of unrest in Johnson’s cabinet ratchets up pressure on the prime minister to alleviate the impact on ordinary Britons of inflation that’s soared to the highest in a decade and is projected to rise further. The cost-of-living crisis is set to come to a head in April when the planned tax rise comes in and energy bills are also due to rise.
- Russia and its allies pledged to send troops to help Kazakh President Kassym-Jomart Tokayev quell protests that have led the central bank to temporarily halt financial market operations as violent clashes with anti-government demonstrators pose the biggest challenge to the central Asian country’s leadership in decades. The announcement, made in the early hours Thursday, came after Kazakh authorities imposed a nationwide state of emergency and sent military units to fight what Tokayev called “terrorist bands.” In the country’s largest city and former capital, Almaty, demonstrators had seized the international airport and set fire to the presidential residence and city hall. Authorities later said the airport had been retaken, Interfax reported.
- Saudi Arabia cut oil prices for buyers in Asia, signaling that extra supplies from OPEC and its partners could loosen the market amid the rapid spread of coronavirus. Saudi Aramco, the world’s biggest oil company, reduced February’s prices for all crude grades that will be shipped to Asia, its main market. It lowered the key Arab Light grade by $1.10 from January to $2.20 a barrel above the benchmark it uses. The move was smaller than expected. Traders in Asia were forecasting a $1.25 cut for the grade, according to a Bloomberg survey last week.
- The U.S. and Lithuania agreed to cooperate on ways to counter what they called China’s “economic coercion,” comments that ratchet up simmering diplomatic tensions. U.S. Trade Representative Katherine Tai told Lithuanian Foreign Minister Gabrielius Landsbergis on Wednesday that the Baltic nation had Washington’s support during a call that was held amid a dispute over Taiwan opening a representative office in Vilnius under its own name. The two officials pointed out that the U.S. and European Union “as democratic market economies, share a number of core values and principles that we need to defend internationally.” Lithuania faces unofficial trade hurdles and a downgrade of diplomatic ties with China after it allowed the office to open in its capital, a move Beijing deems a violation of its one-China principle. China also recalled its ambassador, though it denies it’s blocking the nation’s exports. The EU has raised the issue with the World Trade Organization.
- Federal Reserve officials have begun debating how to approach shrinking a stockpile of more than $8 trillion of bonds as a key element of a policy-normalization campaign in the wake of unprecedented moves to shore up the economy during the pandemic. While there was a consensus that current conditions are notably different to the last time that the Fed embarked on scaling down its balance sheet, a diversity of views emerged at the Fed’s Dec. 14-15 meeting, minutes of that session showed on Wednesday. The discussion last month began with a presentation by Fed staff members on the last policy-normalization campaign, which started with raising the key overnight interest-rate target and then two years later was complemented by shrinking the central bank’s bond portfolio.
- Brazil’s industrial production fell in November for the sixth consecutive month, raising concerns about the extent of the recession in Latin America’s largest economy. Output fell 0.2% from the month prior, compared with the median estimate for a 0.1% gain from economists in a Bloomberg survey. From a year ago, productionwas down 4.4%, the national statistics agency reported on Thursday. Double-digit inflation and aggressive interest rate hikes have sapped momentum from Brazil’s industry and also the nation’s overall post-pandemic recovery. At the same time, problems in global supply chains and extreme weather swings, from droughts to floods, have worsened growth prospects, prompting some economists to warn of an extended recession in 2022.
- Walgreens Boots Alliance Inc. crushed Wall Street’s adjusted earnings and sales estimates for the fiscal first quarter and raised its annual forecast amid heightened U.S. demand for Covid boosters and tests alongside cough and cold medicines. Walgreens earned $1.68 a share on an adjusted basis, beating the $1.36 a share analysts polled by Bloomberg were expecting. Sales reached $33.9 billion in the quarter ending Nov. 30, exceeding the consensus estimate of $33 billion.
- ViacomCBS Inc. and AT&T Inc.’s WarnerMedia unit are considering a sale of all or part of the CW TV network, according to people familiar with the discussions. The sale is not a given, according to the people, who asked not to be identified because the talks are private. The discussions have been going on for months. Among the possible buyers is Nextstar Media Group Inc., a large TV station owner with many CW affiliates. A spokesman for Nextstar declined to comment. Founded 15 years ago as a joint venture between the two media giants, the CW is a free, over-the-air network focusing on teens and young adults. Its hits include a number of DC Comics superhero shows as well as “All American,” a high school football drama.
- A long-simmering dispute over a promising new wireless technology burst into the public eye in the past week and threatened to further disrupt a travel season already hobbled by the new omicron Covid variant. The fight over whether a new service for mobile phones would interfere with the electronics airline pilots need to land their planes pitted some of the nation’s most powerful corporations and industries against each other and reached the Oval Office before a truce was called earlier this week. While the public feud seemed to erupt out of nowhere, the battle had been quietly brewing for years in a tangle of contradictory filings and mutual mistrust. The federal agencies that are supposed to mediate such disputes let it fester.
- Chrysler, the 96-year-old brand owned by Stellantis NV, will add sport utility vehicles to its line up as it becomes fully electric by 2028, brand head Chris Feuell said. “You can expect to see us come out with a utility vehicle or two for sure,” Feuell, who became chief executive officer of the Chrysler brand in September, said in an interview from Las Vegas. “I’m really pushing our team to redefine the segments that we are playing in.” Large sedans and a fully electric minivan could also be in the works, she said. The entire vehicle lineup will be fully electric by 2028, with the first EV due in 2025. Chrysler, which pioneered the first minivans in the early 1980s, has been limping along with just a few nameplates — the hybrid Pacifica minivan, the more budget-conscious Voyager, and the 300 sedan. But the merger of Fiat Chrysler and PSA Group a year ago has brought new resources, and Chief Executive Officer Carlos Tavares has given Chrysler and Stellantis’ 13 other brands a decade to prove their mettle.
- Early January is when many investors give their portfolios a checkup, and this year a sting awaits from the bond market. While equity returns dazzled in 2021, “safe” government bonds registered their first negative return since 2013. Professional investors are of course accustomed to the idea that even so-called risk-free bonds lose money when interest rates rise—or are expected to rise. Those taking a diversified approach with their nest eggs are accustomed to think of Treasuries and high-quality bonds as conservative and safe investments that provide a consistent, if modest, positive return. Except the sanctuary of government bonds cracked last year, with the Bloomberg Treasury index providing a total return of –2.3%. A broader exposure to fixed income that includes debt from high-quality companies, the Vanguard Total Bond Market Index Fund, lost 1.67% last year, its first down year since 2018—the last time the central bank raised its key overnight interest rate.
- Goldman Sachs Group Inc. is “extremely bullish” on commodities, amid a supercycle that has the potential to last for a decade, according to Jeff Currie, the bank’s global head of commodities research. The new year has started against a backdrop that includes record dislocations in energy, metals and agriculture, and significant amounts of money in the system, Currie said in a Bloomberg Television interview. In addition, investment positions in commodities are low, he added. Goldman stated in October 2020 that commodities were beginning a supercycle that could last years and possibly a decade. The oil market in particular could tighten, even with the OPEC+ alliance incrementally adding supplies to the market, as the pandemic continues to threaten demand and investment.
Happy New Year from the MacNicol Team!
*All sources from Bloomberg unless otherwise specified