January 8, 2024

Daily Market Commentary

Canadian Headlines

  • Shell Plc. signed a long-term deal to buy liquefied natural gas from a Canadian floating export facility to serve energy markets in Asia. The deal, which calls for 2 million metric tons a year of LNG over 20 years, is the first binding agreement for the proposed Ksi Lisims project, the companies said Monday. The LNG would be lifted on a free-on-board basis by Shell Eastern Trading Pte Ltd. The estimated C$9.9 billion ($7.4 billion) project in remote British Columbia could be ready by 2030, pending a full investment decision. Ksi Lisims LNG is backed by the Nisga’a Nation, a consortium of Canadian gas producers known as Rockies LNG, including Ovintiv Inc. and Tourmaline Oil Corp., and Houston-based Western LNG, led by a former Cheniere Energy Inc. executive. The deal adds to Shell’s existing investment in the country. LNG Canada, of which Shell is a majority stakeholder, is expected to ramp up production by mid-decade as the first major exporter in British Columbia. The project’s partners have not yet decided on expanding to a second phase from the initial 14 million tons of capacity.
  • Lululemon Athletica Inc. raised its guidance for sales and earnings after a strong holiday period for the activewear maker. The company said it expects net revenue of $3.17 billion to $3.19 billion for the fourth fiscal quarter, up from a previous range that topped out at $3.17 billion. It now sees diluted earnings per share of as much as $5, up from a previous high end of $4.93. With its strong end to the year, Lululemon has bucked trends affecting rivals such as Nike Inc., which said in December that it was looking for as much as $2 billion in cost savings amid a weaker sales outlook in China and around the world. Lululemon shares were 3.3% lower in premarket trading as some investors expected a bigger upgrade.
  • Honda Motor Co. is weighing a plan to build an electric vehicle plant in Canada in an investment of as much as $14 billion, Nikkei reported. The company, which is considering several sites including one next to an existing factory in Ontario, is expected to make a decision by the end of the year, Nikkei said, without identifying how it obtained the information.

World Headlines

  • US stock futures and Treasuries posted small moves on Monday as traders recalibrated their bets in the wake of last week’s selloff. Brent crude fell below $77 a barrel. Contracts on the S&P 500 inched down 0.1% and European stocks pared an earlier retreat. Boeing slumped as much as 9.8% in the US premarket after a fuselage section on a 737 Max 9 aircraft ejected during a flight over the weekend. Spirit AeroSystems Holdings Inc., which installed the panel, dropped 21%. Markets are looking for direction after mixed US economic data on Friday capped a week that saw global equities sink the most since October on speculation the Federal Reserve was in no rush to reduce interest rates. Further catalysts may come from the US inflation print due Thursday and the earnings season kicking off Friday with US financial names including JPMorgan Chase & Co and Citigroup Inc.
  • European stocks extended their shaky start to the new year on Monday as traders awaited inflation data later this week that could offer clues on the path ahead for central banks. The Stoxx Europe 600 Index was down 0.3% as of 10:55 a.m. in London as nearly 70% of the constituents were trading in the red. Energy stocks lead declines as oil dropped after Saudi Arabia cut official selling prices for all regions. Shell Plc also declined as the company said it expects 4Q profits from buying and selling oil products and chemicals to be lower. Last week, the Stoxx 600 snapped a seven-week run of gains. Eyes now turn to US inflation print due Thursday for the next major piece of evidence for the Fed’s outlook.
  • Asia stocks fell, weighed by Chinese and Hong Kong shares as concerns over the country’s regulatory developments in the technology space and the broader economy’s growth persisted. The MSCI Asia Pacific excluding Japan Index slipped as much as 1%, with Tencent and Alibaba among the biggest drags. The tech selloff weighed on the broader benchmarks on the mainland and Hong Kong, with a gauge of Chinese stocks listed in the city dropping more than 2% to its lowest level since November 2022. Asian stocks have started this year on a rocky note as investors take profit after a strong rally in the last two months of 2023. Concerns over China’s economy remain as the latest factory activity and home sales data showed few signs of improvement. Japan’s market was closed for a holiday.
  • Oil dropped after Saudi Arabia cut official selling prices for all regions, underscoring a worsening global outlook and outweighing concern over Red Sea tensions and supply disruptions in Libya. Global benchmark Brent fell below $78 a barrel, after rising 2.2% last week. State producer Saudi Aramco lowered its flagship Arab Light price to Asia by a more-than-expected $2 a barrel due to persistent weakness in the global crude market. Its pricing is the lowest since November 2021. The kingdom’s price cuts are a reflection of a lackluster end to the year for crude, in which physical markets generally weakened. As 2024 gets underway, there’s been disruption to flows from Libya and continued attacks in the Red Sea, both of which could help propel crude higher. But Wall Street is expecting more challenges ahead for crude, with major banks already cutting their outlooks for this year.
  • Shell Plc said earnings from gas trading would be significantly higher in the fourth quarter, but profits from buying and selling oil products and chemicals will be lower. The London-based major said it benefited from seasonal shifts in the gas market and higher production of liquefied form of the fuel, which has been a key driver of profits. Shell expects its chemicals and oil products division to make a loss for the period, according to a trading update on Monday. Shell’s earnings met expectations in the prior quarter, in what was a mixed results season for oil majors. The company accelerated the pace of buybacks and Chief Executive Officer Wael Sawan has committed to boosting shareholder returns. Shell is due to report fourth-quarter results on Feb. 1.
  • Amazon.com Inc. shares are poised to resume their gains after a rough start to 2024, putting the stock on track for a long-awaited return to record high levels posted more than two years ago. That, at least, is the view among analysts, with some 97% of those tracked by Bloomberg recommending the cloud-computing and e-commerce giant’s shares. Bank of America Corp., Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and JPMorgan Chase & Co. are among firms naming it their top e-commerce or internet stock for 2024, while Oppenheimer and Roth MKM crowned it their favorite large-cap choice. It’s the kind of bullish consensus that might raise alarm bells for some contrarians, especially after the shares surged 81% last year, the most since 2015. The stock was among the hardest hit among big tech firms in last week’s declines, although it fared better than Apple Inc.
  • The battle between President Joe Biden and House Speaker Mike Johnson over Ukraine aid and immigration policy is coming to a head this week as Congress races to avert a Jan. 20 partial lapse in government funding. Leaders in both parties, concerned about the political fallout from a shutdown, announced the contours of a spending plan Sunday that includes neither $61 billion in aid to Ukraine that Biden has sought nor stringent border protections that conservatives demand. Ukraine is approaching the third year in its war against Russia and is now at its greatest peril of losing US financial support. And a compromise on immigration, with Republicans demanding a once-in-generation overhaul of policies in exchange for their support on Ukraine, remains elusive.
  • Israel killed a Hezbollah commander in south Lebanon, AFP reported, amid rising concerns the war with Hamas will escalate into a wider Middle Eastern conflict. The senior member of the Iran-backed group was killed by a strike on his car, the news agency said Monday, citing a security official who asked not to be identified. AFP did not name the commander. The Israeli shekel, after rallying in November and December on signals the war would largely be contained to Gaza, has started weakening again. It fell 0.9% to 3.71 per dollar as of 2:25 p.m. in Tel Aviv, extending its loss this year to 2.5%, the worst performance among around 150 currencies tracked by Bloomberg. Some of that reverse came after an interest-rate cut on Jan. 1.
  • A series of high-stakes deadlines this week will mark the culmination of a years-long push to launch exchange-traded funds backed by Bitcoin in the US. Would-be Bitcoin ETF issuers have been given until Monday morning in Washington to submit any last-minute revisions to their pending applications, Bloomberg News has reported. The US Securities and Exchange Commission itself has until Jan. 10 to take action on at least one of those applications, and crypto insiders have speculated the regulator will use that date to announce a slew of decisions at once. There are two technical requirements that must be fulfilled before a spot-backed Bitcoin ETF can start trading. First, the SEC must sign off on so-called 19b-4 filings by the exchanges that would list the ETFs. Second, the regulator must approve the relevant S-1 forms, which are the registration applications from the would-be issuers — a list that includes BlackRock and Fidelity.
  • Investors betting on a revival in Chinese stocks in the new year are seeing their resolve tested as the market has deepened its slump in the first few days of trading. Persistent concerns over the nation’s economic recovery and policy uncertainty have pushed an onshore equity benchmark to its lowest in nearly five years. Foreign investors were back selling in earnest Monday, offloading the equivalent of $600 million of mainland shares. Persistent concerns over the nation’s economic recovery and policy uncertainty have pushed an onshore equity benchmark to its lowest in nearly five years. Foreign investors were back selling in earnest Monday, offloading the equivalent of $600 million of mainland shares. Negative news has just kept hitting. Manufacturing data surprised to the downside at the turn of the year, while trade tensions ratcheted up with Europe and the bankruptcy of shadow bank Zhongzhi Enterprise Group highlighted brewing financial risks. A report Monday that the securities regulator has lifted a ban on net selling for local mutual funds also hurt sentiment.
  • US air-safety officials retrieved the fuselage panel that blew off during an Alaska Airlines flight on Jan. 5, as authorities begin piecing together evidence to learn what led to the sudden decompression on the almost-new Boeing Co. 737 Max 9 aircraft. The finding will aid investigators examining what went wrong on Flight 1282, which was carrying 171 passengers from Portland, Oregon, when the accident forced pilots to turn back. Boeing slumped in premarket US trading as investors assess the effect on production and any long-term harm to the planemaker’s outlook and reputation. While no one was seriously injured, National Transportation Safety Board Chair Jennifer Homendy said only luck prevented a more disastrous outcome. The US Federal Aviation Administration has temporarily grounded the Max 9 for safety checks, affecting 171 aircraft around the world, most of which are in the US, where Alaska and United Airlines Holdings Inc. are the biggest operators.
  • Boston Scientific Corp. agreed to pay $71 a share in cash for medical technology firm Axonics Inc., a maker of devices to treat urinary and bowel dysfunction. The purchase price comes to an equity value of about $3.7 billion, Marlborough, Massachusetts-based Boston Scientific said Monday in a statement. It’s about 23% higher than Axonics’ Friday closing price of $57.57 a share. The deal gives Boston Scientific access to a product portfolio that includes a device that delivers electrical stimulation to restore communication between the brain and the bladder. Almost 30 million Americans 40 and older have symptoms of overactive bladder and another 19 million adults have fecal incontinence, with an impact on quality of life, mental health, sleep, productivity and social activities, Boston Scientific said in the statement.
  • Elon Musk’s reported drug use has Tesla Inc. board members facing a familiar quandary: having to decide what, if anything, to do about the chief executive subjecting directors and shareholders alike to great financial and legal risk. The Wall Street Journal’s article describing Musk’s history of recreational drug use and ongoing consumption of ketamine is the latest in a long line of tests for a board packed with the CEO’s acolytes — several of whom agreed less than six months ago to return $735 million to settle a lawsuit alleging they had excessively compensated themselves. Shareholders voiced dissatisfaction with the board last year over Tesla’s succession planning, and accused Musk of being distracted by his commitments to other companies. His chaotic 2022 takeover of Twitter Inc., the social media company he’s renamed X Corp., contributed to Tesla losing $672 billion in market capitalization that year.
  • Johnson & Johnson will pay $2 billion in cash to acquire Ambrx Biopharma Inc., gaining a developer of widely sought drugs that target tumors with lethal drugs. J&J will pay $28 a share for Ambrx, according to a statement Monday, or about double the firm’s Friday closing price of $13.63. Ambrx is developing drugs to target multiple cancers in the prostate, breast and other tissues. The biotech’s shares rose 101% in trading before US markets opened. Drug giant J&J needs to plug a revenue hole that’s approaching in 2025, when its top seller Stelara for psoriasis is expected to face generic competitors. Chief Financial Officer Joe Wolk last year indicated that the company had an appetite for purchases.
  • Abercrombie & Fitch Co. raised its fourth-quarter and full-year sales outlook after better-than-expected holiday sales buoyed the already outperforming retailer. Sales for the fourth quarter are now expected to be up in the high teens percentage, compared with previous guidance for a rise in the low double-digits. For the year, the New Albany, Ohio-based company expects sales growth of as much as 15%, versus previous guidance for growth of as much as 14%. Abercrombie also raised its full-year operating margin outlook to around 11% from around 10% and said the results will help it reach its 2025 financial targets “ahead of schedule,” according to a statement on Monday.
  • Moderna Inc.’s product sales for 2023 modestly beat analyst estimates as it eked out a bigger US market share for Covid shots, though the biotech giant reiterated a downbeat outlook for the year ahead. The company reported $6.7 billion in unaudited Covid vaccine sales in an announcement ahead of its presentation Monday at the JPMorgan Healthcare Conference in San Francisco. That includes includes $6.1 billion from its coronavirus shots — which have a 48% market share in the US — and $600 million in deferred revenue related its work with GAVI, a global health initiative to boost immunization. Analysts had projected $6.3 billion in revenue, including almost $6.2 billion in vaccine sales. Moderna had previously said it expected at least $6 billion in sales in 2023. Full financial results are set to be published on Feb. 22.
  • Sony Group Corp. is planning to call off the merger pact of its India unit with Zee Entertainment Enterprises Ltd., said people familiar with the matter, capping two years of drama and delay in creating a $10 billion media giant. The Japanese conglomerate is looking to cancel the deal due to a standoff over whether Zee’s Chief Executive Officer Punit Goenka, also its founder’s son, would lead the merged entity, the people said, asking not to be named as the information is not public. While the agreement signed in 2021 was that Goenka would lead the new company, Sony no longer wants him as CEO amid a regulatory probe, the people said. Sony plans to file the termination notice before a Jan. 20 extended deadline for closing the deal, saying some of the conditions necessary for the merger had not been met, one of the people said. Goenka has stood his ground in wanting to helm the merged entity, as agreed initially, over prolonged meetings in the past few weeks, according to another person.