January 9, 2023

Daily Market Commentary

Canadian Headlines

  • Canaccord Genuity Group Inc.’s management group is seeking to take the firm private in a C$1.13 billion (about $840 million) deal, taking advantage of a plunge in the share price after last year’s turmoil in capital markets. The management group — which includes the firm’s chief executive officer, chairman and more than a dozen other senior executives — owns a combined 21% of the shares, the group said Monday in a statement. Canaccord’s largest outside shareholder also supports the bid of C$11.25 per share, according to the statement. Canaccord’s stock has fallen by 48% since a pandemic-era peak in November 2021, as volatile markets and plunging global equity prices put a chill in the initial public offerings and other transactions the firm specializes in. The deal would return the company — which was founded as a regional brokerage in 1950 — to private markets after 18 years.
  • Mexican President Andres Manuel Lopez Obrador will welcome US President Joe Biden and Canadian Prime Minister Justin Trudeau to Mexico City on Monday for a summit aimed in part at easing tensions over migration and drug smuggling. Central banks aren’t giving up their inflation fight yet with the peak in interest rates still to come in most economies, but pauses and pivots will come at some point in 2023, according to Bloomberg Economics forecasts.
  • Nuvei agreed to buy Paya at $9.75 per share in cash for enterprise value of about $1.3b, according to a statement. Price represents a 25% premium to the Jan. 6 closing price and a 30% premium to the 90-day volume-weighted average share price. Nuvei expects to finance acquisition with cash on hand, existing credit facility and a new committed $600m first lien secured credit facility
  • Noranda Income Fund announced today that it has entered into an arrangement agreement with Glencore Canada Corporation by which Glencore will acquire all of the issued and outstanding priority units of the Fund for C$1.42 per unit, by way of a court approved plan of arrangement, for total consideration of approximately C$53.2 million. The purchase price of C$1.42 per unit represents a 45% premium on the closing price on the Toronto Stock Exchange on January 6, 2023, the last trading day prior to announcement, and a 62% premium on the 20-day volume weighted average price per priority unit on the TSX for the period ending on January 6, 2023. Glencore currently holds 100% of the Fund’s special fund units, representing 25% of all issued and outstanding units of the Fund.

World Headlines

  • European stocks extended their gains after posting the best week since March over optimism from China’s reopening, an easing energy crisis and signs of cooling inflation. The Stoxx Europe 600 rose 0.5% by 9:33 a.m. in London. Construction, mining and financial services sectors led the advance, while food and beverages lagged. AstraZeneca Plc fell after agreeing to buy US biotech CinCor Pharma Inc. for as much as $1.8 billion in cash to gain new treatments for hypertension and kidney disease. The benchmark surged last week after French and German inflation growth eased, while Wall Street rallied on Friday as traders bet that the Federal Reserve will slow rate hikes with the Institute for Supply Management’s index of services in contraction territory and wage growth slowing. France’s CAC 40 closed in a bull market on Friday.
  • Stocks extended global gains in risk assets, driven by China’s reopening trade and expectations of slower rate hikes. The dollar weakened and oil rallied. Wall Street equity futures pointed to further gains after the S&P 500 and Nasdaq 100 jumped in excess of 2% on Friday. In premarket trading, Lululemon Athletica Inc. dropped after the athletic apparel maker forecast a weaker gross margin. The dollar extended Friday’s drop as traders bet that the Federal Reserve will slow rate hikes, with the Institute for Supply Management’s index of services in contraction territory and wage growth slowing. Yields on benchmark 10-year Treasuries climbed. The US December inflation report due Thursday will be front of mind for traders after last week’s jobs data failed to offer a clear picture, with unemployment at its lowest level in decades, while wage gains were weak.
  • Asia’s benchmark stock index was on track to enter a bull market, as China’s reopening and a weakening dollar lure investors back to the region.  The MSCI Asia Pacific Index climbed as much as 1.9% on Monday, taking its advance from an Oct. 24 low to more than 20%. Gauges in Hong Kong, Taiwan and South Korea led gains in the session, while Japan was closed for a holiday. Strategists have predicted a better year for Asian equities after a dismal 2022, especially as stocks in China, which carry the second-highest weighting in the regional gauge after Japan, turned a corner in November following the nation’s shift away from stringent virus curbs. The bull market milestone comes after the MSCI Asia gauge tumbled nearly 40% from a peak in early 2021.
  • Oil rallied at the start of the week amid optimism about China’s demand recovery and gains in wider markets. West Texas Intermediate futures surged above $76 a barrel Monday, rebounding from last week’s 8.1% drop, as China issued a fresh batch of crude oil import quotas. A Chinese central bank official also said the nation’s growth would be back on track soon as Beijing provides more financial support to households and companies, according to an interview with People’s Daily, the Chinese Communist Party mouthpiece.
  • Gold extended its advance after US data added to signs the Federal Reserve will become less hawkish this year. Bullion traded just shy of $1,880 an ounce after jumping 1.8% Friday as the US reported an unexpected contraction in services activity and a slowdown in wage growth. The dollar deepened a slump Monday on strong risk sentiment in equity markets, boosting gold. Monetary tightening by the Fed weighed on gold in 2022, causing it to slump for seven consecutive months. Weaker economic data and cooler-than-expected inflation have spurred bets on a pivot to more dovish policy, driving gold’s recovery since November.
  • Some Americans could end up paying more for their gasoline thanks to a plan by seven Midwestern state governors to boost the use of corn-based ethanol. Their request is under review by the federal government. If adopted, it could be good news for corn farmers throughout the region, including the politically important state of Iowa. But it would also force oil refiners supplying the Midwest to provide a specialized gasoline grade and construct new storage tanks and other infrastructure. That has the potential to increase costs, which would likely be passed on to consumers already squeezed by soaring inflation. Prices at the pump are seen rising by at least 2 cents per gallon in affected states, according to a study by consultancy MathPro Inc., though some industry groups say the costs could be much higher, especially if the change is implemented this summer leaving little time to provide adequate inventory.
  • US equities face much sharper declines than many pessimists expect with the specter of recession likely to compound their biggest annual slump since the global financial crisis, according to Morgan Stanley strategists. Michael Wilson — long one of the most vocal bears on US stocks — said while investors are generally pessimistic about the outlook for economic growth, corporate profit estimates are still too high and the equity risk premium is at its lowest since the run-up to 2008. That suggests the S&P 500 could fall much lower than the 3,500 to 3,600 points the market is currently estimating in the event of a mild recession, he said. “The consensus could be right directionally, but wrong in terms of magnitude,” Wilson said, warning that the benchmark could bottom around 3,000 points — about 22% below current levels.
  • Goldman Sachs Group Inc. is embarking on one of its biggest rounds of job cuts ever as it locks in on a plan to eliminate about 3,200 positions this week, with the bank’s leadership going deeper than rivals to shed jobs. The firm is expected to start the process mid-week and the total number of people affected will not exceed 3,200, according to a person with knowledge of the matter. More than a third of those will likely be from within its core trading and banking units, indicating the broad nature of the cuts. The bank is also poised to unveil financials tied to a new unit that houses its credit card and installment-lending business, which will record more than $2 billion in pretax losses, the people said, asking not to be identified discussing private information.
  • Mexican President Andres Manuel Lopez Obrador will welcome US President Joe Biden and Canadian Prime Minister Justin Trudeau to Mexico City on Monday for a summit aimed in part at easing tensions over migration and drug smuggling. Biden, who faces continuing political pressure over a surge of unauthorized migration from Latin America since he took office, arrived in Mexico on Sunday after a confrontation with Texas Governor Greg Abbott in El Paso, Texas, during his first visit to the border as president. And the summit’s agenda threatens to be overshadowed by events in Brazil, where supporters of defeated former President Jair Bolsonaro stormed the country’s capital on Sunday in a riot reminiscent of the Jan. 6, 2021, insurrection at the US Capitol. Biden called the incident “outrageous;” Bolsonaro is believed to have been in Florida since before his successor Luiz Inacio Lula da Silva’s inauguration.
  • AstraZeneca Plc agreed to buy US biotech CinCor Pharma Inc. for as much as $1.8 billion to gain a promising new treatment for hypertension and kidney disease. Investors will receive $26 in cash for each CinCor share, plus a non-tradeable right to a $10 per share payment that’s contingent on the company making a regulatory submission for its lead therapy baxdrostat, Astra said Monday.  The deal is the first sizable one for Astra since the $39 billion takeover of rare-disease specialist Alexion Pharmaceuticals Inc. in 2021, and it’s in keeping with Chief Executive Officer Pascal Soriot’s strategy to beef up the UK drugmaker’s pipeline.
  • Norway will be able to sustain gas production at last year’s elevated level until at least 2026 thanks to 300 billion Norwegian kroner ($30 billion) of investment in new offshore fields. “Only rarely have we seen so much oil and gas produced on the Norwegian shelf as was the case last year – and only rarely have we seen such significant investment decisions,” the Norwegian Petroleum Directorate said Monday in its annual report. “Norway has fortified its role as a predictable, long-term supplier of energy to Europe.” Norway has become the most important supplier of natural gas to Europe, following Russia’s decision to squeeze gas supplies to the continent after its invasion of Ukraine. The Nordic country’s output rose 8% in 2022 to 122 billion cubic meters, the highest in five years, according to the NPD. It will stay at similar levels for the next four to five years, the directorate said, adding that the fuel now accounts for more than half the production from the Norwegian continental shelf.
  • Switzerland’s government will not receive a payout from the Swiss National Bank for 2022, as the central bank projects the biggest loss in its 116-year history. The SNB expects an annual loss of about 132 billion francs ($143 billion), more than five times the previous record, it said Monday in preliminary results. The largest part of this, 131 billion francs, stems from collapsed valuations of its large pile of holdings in foreign currencies, accrued as a result of decade-long purchases to weaken the franc. The value of the SNB’s foreign-exchange reserves fell some 17% last year. As of December, it held 784 billion francs, down from 945 billion francs a year earlier. Still, the year-end number exceeds the gross domestic product of Saudi Arabia.
  • There was jubilation and heartache in cities across China as the long-awaited border reopening — the final step in country’s dismantling of Covid Zero  — sparked a homecoming rush for many diaspora. Gu Tingting was looking forward to seeing her grandfather and eating local cuisine in Beijing after a three-year absence in London, where she works for an energy company. Starting Sunday, China no longer requires quarantine for arrivals after authorities ditched the policy that, along with the exorbitant cost of air fares amid severe capacity constraints, was a major deterrent for travelers. While anyone wanting to enter the country will still need a 48-hour negative Covid test result, the substantial easing in border controls just two weeks before the Lunar New Year holiday marks an end to Beijing’s efforts to keep out the virus.
  • Lululemon Athletica Inc. shares plunged after the maker of fitness wear lowered its guidance for gross profit margin in the fiscal fourth quarter on increasing costs. Gross margin will shrink by 90-110 basis points, compared with a previous forecast for an increase of 10-20 basis points, the Vancouver-based company said in a statement on Monday. Its annual reporting period ends in January. Lululemon shares fell as much as 15% to $279.47 before the start of regular trading in New York.
  • The operational chaos that engulfed Southwest Airlines Co. over the busy holiday period was a crisis decades in the making. In the aftermath of a meltdown that led to 16,700 flight cancellations and may cost the airline more than $800 million, blame has fallen on an outmoded crew scheduling system and an unusual point-to-point route network. Southwest was overwhelmed and unable to adapt as a severe storm swept the US. But behind those specific issues is an insular management team that critics say lacks the imagination and technology expertise to help avoid such crises. While the bootstrap culture instilled by co-founder Herb Kelleher turned Southwest into one of the nation’s largest carriers, the size of the company now demands new ways of thinking and investment in innovation.
  • Chinese officials are considering a record quota for special local government bonds this year and widening the budget deficit target as they ramp up support for the world’s second-largest economy, according to people familiar with the matter. The authorities are discussing a special local government bond quota of up to 3.8 trillion yuan ($560 billion), higher than the previous record of 3.75 trillion yuan, said the people, who asked not to be identified because the talks are private.  The annual quota limits the amount of new bond sales that can be sold each year. However, last year was an exception when the actual issuance of special bonds exceeded the original quota because local governments were allowed to tap some of the unused quota from previous years.
  • CVS Health Corp. said its revenue for all of fiscal 2022 exceeded its guidance that topped out at $314 billion. Adjusted earnings per share for the year were close to the top end of its guidance of $8.55 to $8.65 a share, the company said Monday in a filing of preliminary results. Analysts had estimated $8.63 a share on average. CVS is planning to present the results at the JPMorgan Healthcare Conference in San Francisco, where some 48,000 investors and executives are gathering inside and on the sidelines of the meeting this week.



*All sources from Bloomberg unless otherwise specified