January 9, 2024

Daily Market Commentary

Canadian Headlines

  • A climate activist group is urging securities regulators to investigate Canada’s biggest banks over their green-finance claims and whether “inadequate or misleading” disclosures could be putting investors at risk. In a complaint set to be filed Tuesday with the Ontario Securities Commission and Quebec’s Autorite des Marches Financiers and seen by Bloomberg News, Investors for Paris Compliance alleges that the country’s five largest banks — Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal and Canadian Imperial Bank of Commerce — have failed to make clear disclosures about the carbon-emissions impact of their green-lending activities. The group also argues that, in some cases, the banks have made investments under the sustainable-finance umbrella that could actually increase greenhouse gas emissions, citing examples of loans and bond underwriting for oil and gas companies or utilities that have elsewhere been expanding their fossil-fuel operations or exposures. Royal Bank, Toronto-Dominion, Scotiabank, Bank of Montreal and CIBC have collectively pledged to invest almost C$2 trillion ($1.5 trillion) in sustainable finance in coming years, with targets of between 2025 and 2030 for deploying those funds.

World Headlines

  • European equities steadied after a mixed start to the new year with investors still focused on the path of interest rates. The Stoxx Europe 600 Index edged 0.1% lower by 9:41 a.m. in London, with technology and mining stocks leading losses while energy gains. Among individual movers, Grifols SA tumbled as much as 43% after short seller Gotham City Research LLC published a report criticizing the Spanish firm’s financial reporting. London-based recruiter Hays Plc slumped after it cut guidance citing a “clear” slowdown in December. European stocks had a rocky start to 2024 after a sharp fourth-quarter rally as traders re-assessed the outlook for interest-rate cuts. Investors are bracing for the earnings season while also weighing the path of economic growth. Economic sentiment remains deeply negative in Europe, with the latest reading in the Sentix showing only moderate improvement, which is at odds with the recent gains in the region’s equities.
  • Stocks and bonds retreated as a tech-fueled bounce faded and investors went back to worrying about risks from inflation to bond volatility. US stock futures dropped with Europe’s Stoxx 600 benchmark as tech shares gave up some of Monday’s rally. Shares and bonds of Spanish blood plasma firm Grifols SA tumbled after short seller Gotham City Research LLC published a report criticizing the company’s financial reporting. The release of the US inflation report on Thursday and the start of the earnings season Friday is keeping investors sidelined. At the same time, many are making room in their portfolios to absorb Tuesday’s tsunami of debt supply expected to tally at least €43.2 billion ($47 billion), beating 2023’s record, according to data compiled by Bloomberg. The US benchmark 10-year yield held above 4%, a level former bond king Bill Gross called “overvalued” even after it surged 17 basis points last week as robust labor-market data spurred traders to pare bets on rapid Fed easing.
  • Asian equities posted modest gains amid supportive commentary on interest-rate cuts from policymakers in the US and China. The MSCI Asia Pacific Index climbed as much as 0.9% before paring the advance, with Tokyo Electron and Hitachi hauling up the gauge. Japan’s Nikkei 225 led gains in the region after Federal Reserve Governor Michelle Bowman said inflation could fall toward the Fed’s 2% target with interest rates held at current levels, and offered potential backing for lowering borrowing costs. In China, the domestic central bank signaled that it’s prepared to keep policy loose by lowering the amount of money banks must keep in reserve. China’s benchmark CSI 300 eked out small gains while benchmarks in Hong Kong closed lower. Asian stocks have had a weak start to the year as investors reassess the Fed’s monetary policy stance and as China’s economy shows little signs of improvement. A modest 0.2% rise on Tuesday has the MSCI Asia index headed for its best day this year. The gauge has fallen more than 2% in 2024.
  • Oil recovered from its biggest drop in a month but struggled to break out of a broad trading range, as sluggish physical markets counter supply risks in the Red Sea and Libya. Global benchmark Brent traded above $77 a barrel after tumbling 3.4% on Monday to unwind all of the previous week’s gains. Saudi Arabia reduced its prices more than had been expected, a nod to recent weakness in physical markets. An recent outage at Libya’s largest field offered some support, however. Despite choppy moves in crude over recent days, futures have been trading in a broad range since the start of December. A relatively lackluster physical market has been offset by the attacks on merchant shipping in the Red Sea and the field shutdown in Libya.
  • Gold edged higher after falling almost 1% on Monday as investors pushed back bets on when the Federal Reserve will start cutting interest rates. Recent US economic data and the latest Fed minutes have the market rethinking how early the central bank will be able to lower borrowing costs, which are typically positive for bullion that doesn’t offer any interest. Swaps traders now see a 57% chance of a March rate cut, compared with 67% at the end of last week. The precious metal has held above the $2,000 an ounce level since mid-December on signs the Fed’s aggressive rate-hike campaign is over, but how soon it can start to cut remains to be seen. The US inflation print, due Thursday, may provide clues
  • Boeing Co. took the first step toward returning its grounded 737 Max 9 jetliners to service, issuing guidance to airlines on what inspections are needed to prevent another midair fuselage blowout like the one on Alaska Airlines late last week. But as initial maintenance checks begin, United Airlines Holdings Inc. said it had uncovered signs of “installation issues” in some of its aircraft, underscoring the scrutiny that Boeing and one of its largest suppliers face as investigators hunt for the cause of the accident. Before the Federal Aviation Administration will allow the planes to return to the air, carriers must “complete enhanced inspections which include both left and right cabin door exit plugs, door components, and fasteners,” the FAA said in a statement. “Operators must also complete corrective action requirements based on findings from the inspections prior to bringing any aircraft back into service.”
  • The US Department of Labor is set to release a final rule Tuesday that will make it harder for companies to classify workers as independent contractors, a policy change that’s being closely followed by major gig economy players including Uber Technologies Inc. and Lyft Inc. The rule, which could also have sweeping impacts across construction, trucking, and health care, changes how the DOL determines whether a worker is an employee or an independent contractor under the Fair Labor Standards Act. Contractors in business for themselves don’t qualify for the same minimum wage or overtime pay protections afforded to employees, among other rights under federal labor laws. Businesses and worker advocates have clashed over this worker classification dilemma for years, sparking litigation against a wide swath of industries under various employment laws. Legislative and ballot fights at the state and local levels have also persisted, drawing heavy opposition from gig companies seeking to avoid laws that would require them to classify their workers as employees.
  • Eversource Energy is in advanced talks to unload its share in three offshore wind projects that it planned to build with Orsted A/S, and will take a fourth-quarter charge of as much as $1.6 billion. The US firm is in exclusive negotiations to sell its 50% stakes in the developments to a “global private infrastructure investor,” it said Monday in a statement. The move follows writedowns by Orsted across its American portfolio in 2023, which helped send the company’s shares to the lowest level in years. The fledgling US offshore wind industry has been hammered by soaring inflation and supply-chain snarls that have driven up costs for developers. A number are canceling contracts and walking away from planned projects, posing a threat to President Joe Biden’s ambitious offshore-wind target of 30 gigawatts by 2030.
  • Battery maker LG Energy Solution Ltd. badly missed fourth-quarter earnings estimates amid weaker demand for electric vehicles and a drop in lithium prices that hurt revenue. Shares were little changed in Seoul. Operating profit for three months ended Dec. 31 rose 42% year-on-year to 338.2 billion won ($258 million), LG Energy Solution said in a filing Tuesday. But that compared to a 607.7 billion won median estimate analysts were looking for. LG Energy’s earnings included a tax credit of around $191 million stemming from President Joe Biden’s Inflation Reduction Act. The US law grants domestic battery manufacturers a tax credit of $35 per kilowatt-hour for battery cells. The company’s operating profit excluding the US tax credit was just 88.1 billion won.
  • Russia’s seaborne crude shipments began 2024 exactly in line with Moscow’s pledge to cut the country’s exports as part of the wider OPEC+ effort to stabilize global oil markets. About 3.34 million barrels a day of crude were shipped from Russian ports in the four weeks to Jan. 7, tanker-tracking data monitored by Bloomberg show. That was down by 120,000 barrels a day from the period to Dec. 31. The more volatile weekly average fell by 500,000 barrels a day to 3.28 million. That was 300,000 barrels below the average export level seen by Bloomberg during May and June, which is the baseline period used by Moscow for the reduction in crude exports that it has pledged to its OPEC+ partners in the first quarter of 2024.
  • Saudi Arabia sold $12 billion of debt in its largest borrowing abroad since 2017 amid a record start to a year for emerging-market countries. The kingdom added to the almost $25 billion of bonds that developing nations had sold since the start of the year, the biggest of those being a $7.5 billion offering from Mexico. The Saudi deal is equivalent to more than half the fiscal deficit the government is projecting for this year. Many borrowers are seeking to lock in lower funding costs following a steep drop in US Treasury yields since October. While the Federal Reserve is widely expected to start cutting interest rates this year, pushing down yields even more, that probably won’t happen for several months.
  • War over Taiwan would have a cost in blood and treasure so vast that even those unhappiest with the status quo have reason not to risk it. Bloomberg Economics estimate the price tag at around $10 trillion, equal to about 10% of global GDP — dwarfing the blow from the war in Ukraine, Covid pandemic and Global Financial Crisis. China’s rising economic and military heft, Taiwan’s burgeoning sense of national identity, and fractious relations between Beijing and Washington mean the conditions for a crisis are in place. With cross-Strait relations on the ballot, Taiwan’s Jan. 13 election is a potential flashpoint.  Few put a high probability on an imminent Chinese invasion. The People’s Liberation Army isn’t massing troops on the coast. Reports of corruption in China’s military cast doubts on President Xi Jinping’s ability to wage a successful campaign. US officials say tensions eased somewhat at the November summit between President Joe Biden and Xi, who pledged “heart-warming” measures to woo foreign investors.
  • President Emmanuel Macron appointed a 34-year-old ally as France’s prime minister in a bid to bring fresh impetus to his administration just months ahead of European Parliament elections. Gabriel Attal, whose latest post was education minister, becomes the first out gay man to head the government in France and the youngest to hold the post in modern history. A rising star of French politics, he takes on the role after a bruising year for Macron that saw divisive battles over pensions and immigration that tested the president’s ability to push through reforms.
  • Last week’s accident involving a Boeing Co. 737 Max 9 not only resulted in the grounding of scores of jets, but could complicate a deferred prosecution agreement that Boeing struck with the Justice Department in 2021 that was set to expire over the weekend. That deal resolved a probe into Boeing following the crashes of Lion Air Flight 610 in October 2018 and Ethiopian Airlines Flight 302 in March of 2019, which together killed 346 passengers and crew. The agreement allowed the DOJ to dismiss a criminal charge against Boeing if the company demonstrated that it had beefed up its compliance programs. The deferred prosecution pact was a victory for Boeing, which faced significant legal exposure, especially after the Ethiopian Airlines crash. That disaster, which took place five months after the Lion Air accident, raised questions about what the company’s senior executives had known about the 737 Max flight control system and what they’d told regulators, their customers and the public.
  • Bitcoin traded just below the $47,000 mark on Tuesday, as investors await a decision from regulators on whether to approve the US’s first exchange-traded fund tied directly to the token. The world’s largest cryptocurrency briefly swung above $47,000 late on Monday boosted by excitement over several filings revealing what potential ETF issuers planned to charge in fees for the products, should they gain the green light. Bitcoin hovered around $46,643 at 7:00 a.m. in New York, a decline of roughly 1% in the last 24 hours. The US Securities and Exchange Commission is expected to make a decision on some Bitcoin ETF applications by Wednesday, with spectators anticipating a slew of rulings to avoid awarding a first-mover advantage. Bitwise emerged from the pack on Monday as offering the cheapest fee for its planned ETF at 0.24% after an introductory no-fee period, while Grayscale’s planned Bitcoin Trust was the most expensive at 1.5%.
  • Microsoft Corp.’s $13 billion investment into OpenAI Inc. risks a full-blown investigation by European Union deals watchdogs, after a mutiny at the ChatGPT creator laid bare deep ties between the two companies. The European Commission said on Tuesday that it’s examining whether Microsoft’s involvement should be vetted under the bloc’s merger rules — paving the way for a formal probe and even a potential unwinding if it’s found to hamper fair competition. The EU move, part of a broader look at artificial intelligence, follows a similar step by the UK’s Competition and Markets Authority. Microsoft has benefited richly from its outlay on OpenAI. By integrating OpenAI’s products into virtually every corner of its core businesses, the software giant very quickly established itself as the undisputed leader of AI among big tech firms. Rival Alphabet Inc.’s Google has been racing to catch up ever since.
  • GSK Plc agreed to buy the closely held US biotech Aiolos Bio Inc., spending as much as $1.4 billion to gain a promising respiratory medicine. Aiolos has an experimental drug ready to enter mid-stage tests for adults with asthma, although the monoclonal antibody has potential in other diseases related to inflammation such as chronic rhinosinusitis and nasal polyps, GSK said Tuesday. GSK is moving swiftly to bolster its pipeline after Chief Executive Officer Emma Walmsley signaled she was looking for acquisitions in areas such as infectious diseases and cancer. The UK drugmaker raised its profit and sales guidance for a second time in November as demand surged for its vaccine to prevent a common respiratory virus.