July 11, 2023

Daily Market Commentary

Canadian Headlines

  • Nutrien Ltd. is curtailing production at a Saskatchewan potash mine because of a dockworkers’ strike in Vancouver, the main hub through which it exports the crop input. The Canadian miner said the strike, lower global potash prices and other factors mean it will fall short of its previous guidance for adjusted earnings before interest, taxes, depreciation and amortization this year. The labor dispute, which began July 1, has forced Nutrien to cut back production at its Cory mine “and if prolonged could also impact production at our other potash mines in Saskatchewan,” Chief Executive Officer Ken Seitz said in a statement. “We urge the parties in this dispute to come to a swift resolution to prevent further damage to the Canadian economy.”
  • TransAlta agrees to buy all of the outstanding common shares of TransAlta Renewables for 1.0337 common shares of TransAlta or C$13.00 per share in cash. Company says consideration payable to shareholders of TransAlta Renewables represents an 18.3% premium based on a closing price of C$10.99 per common share of TransAlta Renewables Inc. as of July 10. Special committee of independent directors of TransAlta Renewables, who conducted an independent and comprehensive review process, supported by the receipt of two fairness opinions, unanimously recommends that the shareholders of TransAlta Renewables Inc. vote in favor of the transaction

World Headlines

  • European shares rallied in choppy trade amid lower volumes, helped by optimism over more economic support in China, while investors brace for earnings season and key US inflation data. The Stoxx 600 Index gained 0.3% as of 10:44 a.m. in London. Construction and mining stocks outperformed, while autos declined as BMW dropped following a rating downgrade and Dowlais Group Plc slid as Citi started coverage with a sell.
  • The stock market kicked off the week on a cautious note, with traders sifting through remarks from a slew of Federal Reserve speakers while awaiting key inflation data and the start of the earnings season. In a very choppy trading session, the S&P 500 closed with a small gain. The market didn’t get much support from the megacap space as Tesla Inc. fell almost 2% and Amazon.com Inc. dropped before its Prime Day event. The Nasdaq 100, which notched a historic first half of a year amid the artificial-intelligence craze, will go through a “special rebalance.” A gauge of big banks pared gains on news about a plan to boost capital requirements. In the run-up to Wednesday’s consumer price index, the market got the latest thinking from a raft of policymakers. Three Fed officials — Michael Barr, Mary Daly and Loretta Mester — said the central bank will need to raise interest rates further this year to bring inflation back to its 2% goal. Meantime, Fed Bank of Atlanta President Raphael Bostic noted officials can be patient amid evidence of an economic slowdown.
  • Asia’s key stock benchmark rose, poised to snap a four-day losing streak, boosted by gains in semiconductor-related shares and China’s latest moves to support its flagging economy and property sector. The MSCI Asia Pacific Index climbed as much as 1.3%, with TSMC the biggest contributor after a better-than-expected sales report amid the boom in artificial intelligence. South Korea, Hong Kong, Taiwan and Australia were among the best-performing markets in the region, while Japanese stocks were mixed. Regional investors are looking for signs that China will do enough to keep its economy from spiraling into deflation, while at the same time gauging risks from the Federal Reserve’s interest rate hikes to cool inflation in the US.
  • Oil steadied as China signaled further economic aid for its ailing property sector, bolstering the outlook for fuel demand in the world’s top crude importer. West Texas Intermediate futures held near $73 a barrel, as Beijing pressured banks to ease terms for property companies and key state-run newspapers indicated that additional support measures may be on the way. China’s sluggish economic rebound from the Covid pandemic has posed headwinds for crude prices this year, along with monetary tightening by central banks and resilient crude flows from producers including Russia and Iran.
  • Gold climbed to the highest in almost three weeks, supported by falling US Treasury yields and a weaker dollar ahead of critical inflation data later this week. Bullion rose above $1,930 an ounce as 10-year Treasury yields extended declines and the greenback hit the lowest since mid-June — typically positives for the non-interest bearing metal. Spot gold climbed 0.6% to $1,936.87 an ounce at 10 a.m. in London. Silver was on course for the seventh gain in eight sessions, while platinum also rose and palladium edged lower.
  • UK wages rose more than expected to a level that Bank of England Governor Andrew Bailey said is fueling inflation, maintaining pressure for higher interest rates. Average weekly earnings excluding bonuses held at 7.3% in the three months through May after figures for the period through April were revised up, the Office for National Statistics said Tuesday. It equaled the highest readings on record last month and in mid-2021, when the figures were distorted by the pandemic. Economists had expected a slowdown to 7.1%. “Today’s data confirm that the labor market is still too hot, as pay growth remains uncomfortably high,” said Yael Selfin, chief economist at KPMG UK. Still, there were signs that firms’ struggle to find workers was beginning to ease, with the unemployment rate unexpectedly ticking up to 4% as more people look for jobs.
  • India is set to sign a naval fighter deal worth nearly €3 billion ($3.3 billion) with France when Prime Minister Narendra Modi visits this week, the latest defense deal for the South Asian nation as it presents itself as a bulwark against China in the Asia Pacific. Nearly three dozen Rafale-Marine fighters will be sold to the Indian Navy for use on its locally manufactured aircraft carrier, the INS Vikrant, according to senior officials familiar with the developments. The deal is a key part of Modi’s two-day visit, which includes talks with French President Emmanuel Macron on Thursday, said the officials who asked not to be identified as the discussions are private. Modi will also attend Bastille Day celebrations on Friday.
  • Daimler Truck Holding AG will buy back €2 billion ($2.2 billion) of its own shares, while raising expectations for the year after improving supply chains and strong demand bolstered sales. The German manufacturer now sees return on sales in the range of 8.5% to 10%, it said late Monday, up from the previous 7.5% to 9%. The repurchase program will start next month and is set to run for as long as two years. The world’s biggest truckmaker is seeking to boost margins to catch up to rivals like Volvo AB. The maker of the Actros big rig, which underwent a historic split from carmaker Mercedes-Benz AG in 2021 to better compete on its own, is holding an investor day later Tuesday.
  • Three Federal Reserve officials on Monday said policymakers will need to raise interest rates further this year to bring inflation back to the central bank’s goal. “We’ve made a lot of progress in monetary policy, the work that we need to do, over the last year,” Federal Reserve Vice Chair for Supervision Michael Barr told a Bipartisan Policy Center meeting on Monday. “I would say we’re close, but we still have a bit of work to do.” The Fed held interest rates steady in June after raising them for 10 straight meetings to a range of 5% to 5.25%. Most policymakers expect to increase rates by a further half percentage point by the end of the year, according to projections released after their June gathering.
  • Turkey agreed to support Sweden’s NATO bid in a major breakthrough for the military alliance’s push to strengthen its defenses following Russia’s invasion of Ukraine. Turkey will ask its parliament to advance Sweden’s membership in the North Atlantic Treaty Organization “as soon as possible,” alliance chief Jens Stoltenberg told reporters Monday in Vilnius. The about-face comes after months of arduous negotiations over Turkey’s demands and on the eve of a critical two-day NATO summit where leaders including US President Joe Biden are eager to show a united front and signal to Vladimir Putin that his war on Ukraine has only strengthened the alliance.
  • A group of Ukraine’s key allies are closing in on an agreement to launch negotiations with Kyiv on a collection of bilateral security commitments aimed at bolstering the country’s ability to defend itself and at deterring future Russian aggression. The announcement is expected to be part of a declaration from most Group of Seven leaders on the sidelines of an ongoing two-day NATO summit in Vilnius, according to people familiar with the plans. The declaration, which aims to provide Ukraine with longer term security guarantees, is still under discussion and the content and signatories could change before it’s announced. The US and other participating nations would each work with Ukraine on specific long-term security commitments through the provision of modern military equipment across air, land and sea, prioritizing air defense systems, artillery, long-range capabilities and armored vehicles, said the people who asked not to be identified because the talks are private.
  • The slump in dealmaking cut pay for investment bankers at almost every level of seniority in London last year, more evidence of the global slowdown in the sector. The highest tier of vice presidents made 13% less, and all but the most junior associates saw their total compensation fall, according to a survey of about 250 bankers by global recruitment consultancy Dartmouth Partners. While base salaries generally continued to rise, bonuses were slashed as staff shared in a smaller pool of deal fees. The M&A drought has continued into this year, resulting in a wave of redundancies across multiple countries.
  • A type of refinancing transaction is becoming more popular in the $1.3 trillion market for collateralized loan obligations, a sign the industry is healing as concerns over surging inflation and a potential recession abate. Known as resets, these transactions can extend the life of CLOs for years. In the past they’ve made up as much as a third of annual issuance, according to data compiled by Bloomberg. But last year’s sharp deterioration in credit conditions all but put the deals on ice. Now, they’re making a comeback. Credit Suisse Asset Management and Oak Hill Advisors have in recent weeks reset liabilities for CLOs that were originally issued during the second half of 2022. Resetting allows the CLOs to essentially cut the costs at which they borrow. That translates to more money leftover for the holders of the riskiest and highest-returning part of the structure, the equity portion, after other note holders have been paid.
  • Tesla Inc. may be in line for a relatively big revenue boost from opening its fast-chargers to competitors, with a more incremental potential increase in earnings, according to a longtime bull. Ford Motor Co., General Motors Co. and at least four other automakers have announced plans to adopt Tesla’s formerly proprietary plug design in exchange for access to the company’s Supercharger network. Baird analyst Ben Kallo sees the deals contributing up to $15.7 billion to Tesla’s top line by 2030, and adding as much as 45 cents to earnings per share.
  • Uber Technologies Inc. Chief Financial Officer Nelson Chai is planning to leave the ride-hailing company, according to people familiar with the matter, marking the most significant executive departure since the company went public in 2019. Chai informed Chief Executive Officer Dara Khosrowshahi of his intentions to move on, though a decision on timing hasn’t been made, the people said, asking not to be named discussing non-public information. “Over the past five years, Nelson has been essential to putting Uber on secure financial footing, steering the company from billions of dollars in losses,” to improved earnings, strong free cash flow and heading toward an operating profit, an Uber spokesman said in a statement. “We are not going to comment on any executive’s potential career decisions during a quiet period.”
  • Saudi Aramco, the world’s largest oil company, has become an unlikely beneficiary of funds earmarked for sustainable investments thanks to a complex web of financial structures it used to raise money from its pipelines. Aramco doesn’t appear to have set out to tap cash originally intended for environmental, social and good governance goals when it started a process to raise $28 billion in 2021. But the fact that ESG investors ended up playing a role in the capital raise of a fossil-fuel behemoth raises questions about a playbook that’s increasingly being used in the Gulf. Amin Nasser, the chief executive of Saudi Aramco, which declined to comment for this story, has criticized ESG in the past. In February, he told investors gathered in Riyadh that ESG-driven policies that have “an automatic bias against any and all conventional energy projects” will result in underinvestment with serious implications for the global economy, energy affordability and energy security.