January 7, 2022

Daily Market Commentary

Canadian Headlines

• Canadian equities rose as gains in energy and financial stocks offset steep losses in materials and technology as investors weight the potential for rate hikes. The S&P/TSX Composite rose 0.2 percent at 21,072.20 in Toronto. The move was the biggest since rising 0.5 percent on Dec. 29 and follows the previous session’s decrease of 0.9 percent. Canadian Natural Resources Ltd. contributed the most to the index gain, increasing 5.1 percent. Primaris REIT had the largest increase, rising 9.8 percent.

World Headlines

• European stocks traded near a one-week low, paring earlier losses, as investors awaited U.S. labor data for more clues on the pace of monetary tightening and weighed economic risks from the omicron virus variant. The Stoxx Europe 600 Index was down less than 0.1% by 10:53 a.m. in London, paring an earlier drop of as much as 0.6%. Travel and leisure and real estate sectors underperformed, while miners gained with metals. Stocks in the region have had a bumpy first week of trading in the year, after the main benchmark on Thursday snapped a three-day streak of records on fears of a more hawkish stance from the Federal Reserve. Investors are also monitoring the latest Covid-19 developments, with Germany poised to tighten restrictions on access to restaurants and cafes.
• U.S. equity-index futures rose and the dollar fell as risk-taking returned to markets at the end of a turbulent week, with investors weighing U.S. employment gains against the Federal Reserve’s policy-tightening plans. March contracts on the Nasdaq 100 and S&P 500 indexes climbed 0.3%. Treasuries were steady, with the two-year yield heading for the biggest weekly spike since October 2019. The euro strengthened as record inflation raised the prospect of a hawkish tilt at the European Central Bank. Discovery Inc. rose in New York premarket trading after BofA Global Research recommended the stock. U.S. hiring may have more than doubled in December from the previous month to 447,000 new jobs, projections for nonfarm payrolls show. The release would follow the ADP Research Institute data that showed companies added the most positions in seven months. With Fed officials preparing for aggressive rate hikes and a contraction of the central bank’s balance sheet, markets expect little chance of a change of heart even if Friday’s figures come in below expectations.
• Asian stocks rose, rebounding after a two-day drop, as financials gained amid the outlook for higher U.S. interest rates while traders remained wary of risks from the end of easy-money policies and coronavirus flare-ups. The MSCI Asia Pacific Index pared gains after rising by as much as 0.7%. South Korean chipmakers and Chinese internet giants were among stocks supporting the advance, helping offset drops in Taiwanese and Japanese tech stocks. The regional stock benchmark was poised for a weekly loss of 0.8%, sparked by a more hawkish than expected tone in the Federal Reserve’s December meeting minutes. The prospects of faster-than-expected monetary tightening spooked global investors, triggering a selloff of growth stocks.
• Oil was poised for a third weekly gain as demand remained resilient while supplies are frayed across the OPEC+ coalition and beyond. Futures increased again on Friday to trade near $80 a barrel in New York, bringing this week’s increase to almost 7%. Kazakhstan’s biggest oil producer has altered output at the giant Tengiz field following protests in the country, while Libyan production has also been crimped. Oil’s market structure has firmed in a bullish backwardation structure, signaling growing supply tightness. The OPEC+ alliance this week stuck with a scheduled output boost of 400,000 barrels a day for February, but the group is unlikely to meet that threshold as some members struggle to achieve their targets. Production in Libya has declined amid militia unrest, while Russia also failed to boost volumes last month.
• Gold headed for the biggest weekly decline since late-November after the Federal Reserve indicated it could potentially move to tighten monetary policy faster if inflation remains elevated. Policy makers could start to raise their target interest rate as soon as March and shrink the central bank’s balance sheet as a next step in response to surging inflation, Fed Bank of St. Louis President James Bullard said Thursday. His comments come after minutes released this week from the central bank’s December meeting showed that policy makers were ready to raise rates sooner and faster than previously expected. Yields on 10-year Treasuries climbed to the highest since April, weighing on non-interest bearing bullion.
• Wheat futures fell in Chicago, extending losses to 9% over the past two weeks, as U.S. exports falter and global supply concerns fade. U.S. net export sales last week fell to the lowest since May, as grain from rival origins proves more competitive, government data showed Thursday. Plus, the world crop worries that sent prices spiraling to multi-year highs in November have begun to ease, with estimates rising for the Argentine wheat harvest that’s nearly complete and analysts surveyed by Bloomberg expecting a U.S. report next week to show higher global stockpiles.
• Moderna Inc. Chief Executive Officer Stephane Bancel, said another round of vaccine boosters against Covid-19 will probably be needed this fall. With the pandemic in its third year, global cases of coronavirus have now passed 300 million. In Europe, Germany is poised to tighten restrictions on access to restaurants and cafes in an effort to curb the rapidly spreading omicron strain. U.K. armed forces were deployed to London hospitals to help relieve staff shortages caused by the outbreak of the variant. More than two dozen Hong Kong officials have been ordered to quarantine due to possible Covid exposure, as a scandal over a large birthday party they attended despite the government’s own pandemic warnings widened. Meanwhile, India reported more than 100,000 new cases, the highest daily total since June last year.
• Bitcoin extended a weeks-long drop on Friday, falling below $42,000 to levels not seen since September. The largest cryptocurrency declined as much as 4.9% to $41,008, marking a tumble of about 40% from its record near $69,000 reached Nov. 10. Ether, the second-largest, dropped as much as 9% to its lowest level since Sept. 30. Both of those tokens, as well as others including Binance Coin, Solana, Cardano and XRP are down more than 10% in the past seven days, according to CoinGecko. The retreat comes after minutes from the Federal Reserve’s December meeting, published Wednesday, flagged the chance of earlier- and faster-than-expected rate hikes as well as potential balance-sheet rundown.
• European natural gas erased earlier gains after the Netherlands said it may boost production at its biggest field this year. The announcement halted a rally that’s seen prices jump more than a third this week, topping 100 euros a megawatt-hour early Friday. It brings some relief to a market where benchmark contracts are still almost three times higher than they were just six months ago, with Russia continuing to cap flows to Europe. Output from the Dutch Groningen field may total 7.6 billion cubic meters in the 12 months through September, up from an earlier forecast of 3.9 billion cubic meters, according to data from grid operator Gasunie. The deposit is due to be shut down later this year after decades of extraction triggered earthquakes.
• Inflation in the euro region accelerated beyond already record levels, defying expectations for a slowdown and complicating the task for European Central Bank officials who insist the current spike is temporary. The euro strengthened. Consumer prices jumped 5% from a year earlier in December — faster than the previous month’s 4.9% gain and more than the 4.8% median estimate in a Bloomberg survey of economists. A measure that strips out volatile components such as food and energy came in at 2.6%, matching November’s reading.
• U.K. house prices rose for a sixth month in December, capping the strongest year for residential property since 2004, according to Halifax. The average price rose 1.1% to a record 276,091 pounds ($374,000), the mortgage lender said Friday. In 2021 as a whole, values jumped 9.8%. Housing has defied the plight of the wider economy since the pandemic began, boosted by tax incentives, a shortage of stock and demand for properties outside urban areas with room to work from home. But momentum is set to slow this year as stretched affordability, rising interest rates and a looming cost of living surge put household budgets under strain.
• Carousell Pte, a Singapore-based online classifieds marketplace operator, is in talks to go public through a merger with blank-check company L Catterton Asia Acquisition Corp., according to people familiar with the matter. A transaction could value the combined entity at as much as $1.5 billion, the people said, asking not to be identified because the information is private. Carousell has entered into exclusive talks with the special purpose acquisition company, the people said. The U.S.-listed SPAC is backed by L Catterton, the $30 billion buyout firm minority-owned by Paris-based luxury goods company LVMH Moet Hennessy Louis Vuitton SE and billionaire Bernard Arnault’s investment firm.
• It was just a matter of time before the turbocharged worlds of meme-stock and crypto trading collided in a burst of speculative frenzy. News late Thursday that GameStop Corp., which became emblematic of 2021’s turbulent year of retail investing, is getting into the business of non-fungible tokens sent the stock soaring after hours, and the shares were up about 20% in U.S. premarket trading Friday. The jump followed a sharp retreat since late November. NFTs emerged as the hottest commodity of the crypto universe last year as prices for some digital artworks spiraled into the millions of dollars and celebrities and athletes flocked to the asset class. GameStop’s flirtation with crypto follows that of fellow Reddit-crowd darling AMC Entertainment Holdings Inc., which announced in November that it’s contemplating issuing its own cryptocurrency.
• Beijing’s pledge to ensure economic stability is being tested by renewed turbulence in the nation’s financial markets, prompting officials to take more conspicuous measures in what is a politically crucial year. Investors have had a lot to digest this week. Tencent Holdings Ltd.’s partial divestment of a listed company exacerbated a $1.2 trillion selloff in Chinese tech shares. One of the country’s largest bad-debt managers lost more than half its value in the equity market after a $6.6 billion bailout. China Evergrande Group suspended trading after it was ordered to demolish dozens of apartment blocks. Another developer defaulted on a little-known loan, sending the nation’s junk dollar bonds tumbling. A hawkish Federal Reserve knocked the ever-resilient yuan, prompting a warning from state media. China’s securities watchdog will adopt multiple measures to “firmly” prevent market volatility, Chairman Yi Huiman told state TV in an interview aired Thursday, without elaborating. On the property front, Chinese regulators have asked banks to increase lending to the sector this quarter and eased a key restriction that’s held back acquisition activity.
• Mexico’s inflation provided little relief for the new central bank governor in December, remaining more than double the bank’s target as it slowed a fraction from November. Consumer prices rose 7.36% from a year earlier, compared with the 7.45% median estimate of economists surveyed by Bloomberg and just below November’s 7.37% print. On a monthly basis, prices rose 0.36%, compared with a 0.46% forecast. The central bank, known as Banxico, targets inflation of 3%, plus or minus one percentage point. In less positive news, core annual inflation accelerated to its fastest pace in two decades, at 5.94% from 5.67% in November. The figure, which excludes volatile items like fuel, is closely watched by policy makers in Mexico.
• U.S. hospitals are struggling to get the workers they need to treat patients through the winter’s Covid-19 surge as the virus collides with a historically tight labor market. High demand for labor throughout the economy is making it harder to find replacements for doctors, nurses and support staff who have been sidelined by the omicron variant. It’s especially tough in small towns and rural areas with aging populations and fewer people entering the workforce. Finding sufficient staff is a daily challenge that industry veterans say is harder than any time they can remember. Job openings in health care and social assistance are more than double their pandemic lows, and a record number of people are quitting.
• Latham & Watkins represented issuers in 93 initial public offerings last year valued at more than $42 billion, topping rivals in the global race to help companies issue shares on public markets. Latham’s leading year represented a more than three-fold increase in the value of issuer-side deals the firm advised on in 2020, when it represented 36 issuers raising more than $12 billion, according to data compiled by Bloomberg. The firm represented electric vehicle manufacturer Rivian Automotive Inc., which raised nearly $12 billion, the largest IPO last year. The ability to provide post-IPO services helped Latham get companies’ business, said Ian Schuman, the firm’s global chair of capital markets. “Issuers have really gravitated to firms that can not only execute the IPO but also be all the things they’re going to be needing as a high-growth public company,” he said.
• The New York Times Co. agreed to buy the Athletic, acquiring a sports-news website with more than 1 million subscribers. The newspaper publisher is paying $550 million for the Athletic, which will remain a standalone product, Times Chief Executive Officer Meredith Kopit Levien said Thursday in a statement. The deal is expected to close by the end of March. The Times has more than 8 million paid subscriptions across its digital and print products. The publisher is “now in pursuit of a goal meaningfully larger than 10 million subscriptions” and believes “The Athletic will enable us to expand our addressable market of potential subscribers,” Levien said.

Happy New Year from the MacNicol Team!

*All sources from Bloomberg unless otherwise specified