July 12, 2023

Daily Market Commentary

Canadian Headlines

  • Canadian Labor Minister Seamus O’Regan said negotiators have made progress toward a deal to end a strike by dockworkers at some of Canada’s busiest ports and he’s asked a mediator to get a final agreement done. The strike, which began July 1, has blocked the flow of goods through major maritime hubs on the Pacific coast, including at the Port of Vancouver and Port of Prince Rupert. The disruption has already hampered the exports of commodities and inbound shipments of manufacturing materials, while fertilizer giant Nutrien Ltd. is curtailing production at a potash mine. “After 11 days of a work stoppage, I have decided that the difference between the employer’s and the union’s positions is not sufficient to justify a continued work stoppage,” O’Regan said in a Twitter post. A deal is within reach and he has asked the senior federal mediator to send a written proposal of settlement terms within 24 hours, he said.
  • Laurentian Bank of Canada, which has been working on a turnaround under a new chief executive officer since late 2020, has started a strategic review that may lead to a sale. The review is intended to “maximize shareholder and stakeholder value,” the bank said Tuesday. It has hired JPMorgan Chase & Co. to approach potential buyers, La Presse and the Globe and Mail separately reported Tuesday. The process started after a rival bank made a bid for Laurentian, the Globe said, citing people it didn’t name. Laurentian hired former Bank of Nova Scotia executive Rania Llewellyn as CEO in October 2020, becoming the first publicly traded Canadian bank to be led by a woman. The firm is Canada’s eighth-largest bank by total assets, according to data compiled by Bloomberg, and has a market capitalization of about C$1.5 billion ($1.1 billion).
  • The Bank of Canada is likely to increase interest rates for a second consecutive meeting, bringing borrowing costs to a level not seen in 22 years. Economists and markets expect Governor Tiff Macklem and his officials to raise the benchmark overnight rate to 5% on Wednesday at 10 a.m. in Ottawa. Most major commercial lenders in Canada predict the hike will be the last in this cycle. Policymakers aren’t likely to explicitly signal that they’re finished. Instead, they may be inclined to leave the threat of more hikes on the table as they assess how the economy is absorbing higher interest payments. That would also avoid a replay of January, when they paused and triggered a wave of market speculation about rate cuts.

World Headlines

  • European stocks advanced, catching up to overnight gains on Wall Street, as investors awaited data that is likely to show a cooling in US inflation. Semiconductor-related shares jumped on bets on an improving earnings outlook spurred by the buzz around artificial intelligence. The Stoxx 600 Index was up 0.8% by 11:20 a.m. in London, with technology and mining stocks leading the gains. Travel and leisure and food and beverage sectors underperformed. ASML Holding NV and other chip-related stocks rallied as Jefferies analysts said the sector had embarked on a new AI-fueled upcycle after more than a year in the doldrums.
  • The dollar weakened, stocks rose and Treasury yields dipped on expectations slowing US inflation will erode the case for more rate hikes. A gauge of the greenback dropped to the lowest since April as traders focus on US consumer price data due later Wednesday, with a Bloomberg survey showing expectations for both core and headline inflation continuing to moderate in the face of the Federal Reserve’s monetary policy onslaught. Futures on the S&P 500 and Nasdaq 100 edged higher after Tuesday’s solid gains. A trend of slowing inflation in the US could be pivotal for policymakers in the months ahead, according to Bloomberg Economics. Officials have warned in recent weeks that higher rates will be needed to ensure price growth slows to the Fed’s 2% target, and a 25-basis-point increase is all but penciled for July 26 after the pause in June. The policy path after that remains an open question.
  • Asian equities rose, poised for a second day of gains, boosted by gathering momentum in Chinese technology stocks while the market awaited key US inflation data due later Wednesday. The MSCI Asia Pacific Index climbed as much as 0.7%, with Tencent and Alibaba among the biggest contributors to the gain. A gauge of tech shares listed in Hong Kong jumped 2% in its third day of advance after China last week signaled an end to its regulatory purge on the sector. Japanese stocks fell as the yen strengthened. Hopes for further Chinese policy stimulus and strong lending data in June have helped Hong Kong stocks pull back from the brink of a bear market since last month. The Hang Seng Index is still down about 17% from its January peak.
  • Brent oil steadied ahead of key US inflation data after rising about 2% Tuesday on signs resilient Russian supply is starting to ease. Futures in London traded near $80 a barrel, a threshold that was last breached in early May. Investors will be watching US consumer price index data later Wednesday for clues on the path forward for monetary tightening. Aggressive interest-rate hikes this year have weighed on the demand outlook. Oil remains marginally lower this year, but OPEC+ heavyweights Saudi Arabia and Russia have pledged supply cuts to prop up prices. The global market is expected to tighten in the second half and stockpiles are forecast to draw through 2024, according to a report by the Energy Information Administration, which is due to release its weekly inventory figures later Wednesday.
  • Gold steadied near the highest in more than three weeks, ahead of key US inflation figures that may provide fresh clues on the Federal Reserve’s monetary-tightening path. Bullion has benefited from the dollar weakening for a four straight sessions, with investors focused on CPI data due later Wednesday that’s expected to show further deceleration in inflation. While that would be unlikely to prevent another rate hike later this month, it could stir optimism that the Fed’s aggressive cycle is reaching an end — which would boost the appeal of non-interest bearing gold. Spot gold added 0.1% to $1,934.87 an ounce at 10:01 a.m. in London, after climbing 0.4% in the previous session. Silver steadied, while platinum and palladium rose.
  • President Joe Biden will cast the NATO summit as a successful result of his global engagement, arguing in a capstone address Wednesday that diligent diplomacy and US aid strengthened security for Ukraine and its allies after Russia’s invasion. For Biden, it’s a case that serves dual purposes: offering a rallying cry for world leaders as the grueling economic and human toll of Russia’s war grows and validating his reelection pitch as a seasoned foreign-policy hand uniquely able to unite a fractured world. Biden’s pitch was bolstered by Turkey’s historic agreement to support Sweden’s membership in the alliance, validating the president’s patience through a contentious ascension process.
  • US mortgage rates rose last week to the highest since November, edging close to levels last seen more than two decades ago. The contract rate on a 30-year fixed mortgage increased 22 basis points to 7.07% in the week ended July 7, according to Mortgage Bankers Association data out Wednesday. The weekly jump during the period that included the Fourth of July holiday was also among the biggest since late last year. Treasuries sold off last week after a slew of reports showed the labor market, while cooling somewhat, remains largely resilient, bolstering bets that the Federal Reserve will resume raising interest rates this month. Wednesday’s release of the June consumer price index will likely solidify those expectations, meaning mortgage rates risk rising further along with other borrowing costs.
  • Tesla Inc. is hiring a leader for its new retail electricity business as it looks to expand into the UK energy market. The company plans to launch a “retail electricity product in the UK” as part of Tesla Electric, which currently sells power to consumers in select markets such as Texas. The company plans to register with the UK industry regulator as a household electricity provider, according to a job advertisement on its website. Tesla’s entrance to the market would follow the collapse of a swathe of suppliers as the energy crisis squeezed the ability of small firms to pass on costs. About 30 UK-based firms went bust after they were unable to manage their trading strategy when prices shot up in summer 2021.
  • The Bank of England said the UK’s eight largest lenders all passed its latest stress test, which examined their resilience to an economic shock worse than the financial crisis. The firms would have enough capital to continue lending through strains to the economy including a housing market crash, surging unemployment and interest rates as high as 6%, according to the results published on Wednesday. “The UK banking system has the capacity to support households and businesses through a period of higher interest rates, even if economic and financial conditions were to be substantially worse than expected,” the BOE said in a statement. “The scenario is considerably more severe than the current macroeconomic outlook.”
  • Rarely has Goldman Sachs Group Inc. worked so hard to unimpress. The Wall Street giant has embraced a new game plan to avoid a third straight quarter of disappointing investors on earnings day. Breaking with its own long-standing convention, Goldman executives have been actively downplaying expectations for results that will be disclosed next week. The outcome: Analysts have slashed their estimates for quarterly profit by almost half since mid-June — the biggest revision before an earnings report under Chief Executive Officer David Solomon. That translates into one of the steepest profit drops among peers, and a return on equity that could slip below 5%.
  • Pacific Investment Management Co. has a decent record of betting on distress. Almost a decade ago, the firm managed to cope with the chaotic departure of its founder Bill Gross because of the fortune it made from snapping up cheap mortgage debt after the financial crisis. Now, as the bond behemoth manages another awkward moment — confronted by choppy fund flows and returns — it wants to repeat the trick. This time it wants to take advantage of finance’s latest craze: private credit. In an interview with Bloomberg News, the man in charge of Pimco’s $162 billion alternative-investment business says he’s been stepping up hiring this year as the firm beefs up its private-lending team to seize opportunities in a credit market that’s braced for carnage from stubbornly high interest rates.
  • The world’s largest meat supplier has filed a registration request to the U.S. Securities and Exchanges Commission and will seek shareholder approval to trade its stock on the New York Stock Exchange through a direct listing, according to a filing. Brazilian depositary receipts backed by JBS shares will be traded on the Sao Paulo stock exchange, where the company is currently listed. JBS has had its sights on a US listing for more than a decade as the company grew into a global juggernaut through aggressive deal making. However, multiple plans for initial public offerings fell apart, foiled by economic downturns and a massive bribery scandal involving members of the company’s ruling family.
  • Domino’s Pizza, hungry to claw back pizza sales now rung up on mobile apps, is reversing its long-held stance against working with food-delivery companies in the U.S. The world’s largest pizza company by sales and stores to announce Wednesday that it has signed a deal with Uber Technologies to list its menus on the ride-share company’s Eats and Postmates food-delivery apps across 28 of the pizza chain’s markets, including the U.S., U.K. and Canada, the companies said. Domino’s Chief Executive Russell Weiner said in an interview that the chain and its operators, which will still deliver the pizzas, aim to generate a billion dollars in new sales by listing its menus on Uber’s apps. Weiner declined to discuss the commissions Uber will charge or other terms of the deal, but said franchisees will profit from those new sales.
  • SBI Holdings Inc., Rakuten Group Inc. and Monex Group Inc. are among brokerages in Japan that sold Credit Suisse’s riskiest bonds to retail investors, highlighting the widening fallout of these products in the country. The operators of the nation’s three major online brokerages offered the Swiss lender’s Additional Tier 1 notes for a minimum purchase amount of $200,000, according to their documents seen by Bloomberg News. The materials obtained also raised questions over whether information over the risks associated with the product was properly disclosed to investors. Switzerland’s decision in March to write down the bonds as part of a government-led rescue of Credit Suisse shocked investors in Japan, who bought around 140 billion yen ($1 billion) worth of the debt. Clients of Mitsubishi UFJ Financial Group Inc.’s securities venture with Morgan Stanley took the lion share of the hit. The debacle in a country that’s trying to push its citizens to invest more has prompted regulators to look into whether the firms properly explained the risks before selling the bonds.