July 15, 2023

Daily Market Commentary

Canadian Headlines

  • Canadian wildfires have scorched more than 10 million hectares (25 million acres) this summer, an area about the size of Iceland, with no end to the burning expected anytime soon. About 900 active fires were reported as of Saturday, most of which remain out of control, according to the Canadian Interagency Forest Fire Center. British Columbia is currently getting the brunt of the burn, following massive fires in Alberta and Quebec earlier that have impacted oil, logging and mining operations.

World Headlines

  • European stocks fell on Monday as weak economic data from China hit risk sentiment, while investors turned to corporate earnings for clues on the impact of slowing global growth. The Stoxx 600 was down 0.6% as of 11:03 a.m. in London, after closing out its best week since March on Friday. Luxury goods makers LVMH and Hermes International dropped as data showed China’s economic growth trailed expectations in the second quarter, with signs of a slowdown in consumer spending and ongoing pain in the property market prompting calls for Beijing to do more to support the recovery. After a strong rally in the first half, Europe’s benchmark index has retreated in July as investors weigh the outlook for economic growth against expectations of hawkish-for-longer central banks. Sentiment was boosted last week as US inflation cooled more than expected.
  • Asia stocks declined as a slower-than-expected growth in China’s economy weighed on mainland equities. Trading in Hong Kong was canceled due to a typhoon. The MSCI Asia Pacific excluding Japan Index fell as much as 0.4%, on course to end the gauge’s five-day winning streak. Samsung SDI and BHP were the biggest drags on the index. Japan was closed for a holiday while Hong Kong scrapped trading on Monday because of typhoon Talim. Monday’s weakness came after the MSCI Asia Pacific Index capped its best weekly rally since November last week, thanks to big gains in North Asia. Analysts said Asian stocks will likely resume gains after Monday’s breather, driven by the recovery in tech cycle and China’s stimulus hopes.
  • Oil traded near $79 a barrel in London as traders weighed disappointing Chinese economic data and restarting Libyan supplies against signs of a tightening market. Global benchmark Brent briefly spiked when Reuters News reported an extension of Saudi Arabia’s oil-supply cuts to the end of next year, which the agency later retracted. Futures were down 1.5%. China’s economy expanded more slowly than expected in the second quarter, with consumer spending easing notably in June, according to data released on Monday. Still, apparent oil demand in the world’s top crude importer grew 14% last month from a year earlier.
  • Gold steadied after its best week since April, as traders looked ahead to more US economic data for guidance on the Federal Reserve’s rate path. The metal is trading near the highest since mid-June, following last week’s 1.6% advance that was buoyed by a weaker dollar and data that suggested US inflation was slowing. Still, a gauge showing consumer sentiment soaring weighed on bullion on Friday. Spot gold added 0.2% to $1,959.31 an ounce by 11:17 a.m. in London. The Bloomberg Dollar Spot Index weakened slightly, following its worst week since November. Silver, palladium and platinum all declined.
  • Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the sixth straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.48 billion in the week ended July 14, compared with gains of $1.02 million in the previous week, according to data compiled by Bloomberg. This was the biggest weekly inflow since Jan. 27. So far this year, inflows have totalled $10.5 billion.
  • Former Federal Reserve Vice Chairman Richard Clarida said market wagers on US interest-rate cuts in March are understandable given a scenario where there’s a “softish landing” and the central bank is confident it’s reined in inflation. “A cut in March or at least a strong indication at the March meeting that cuts are imminent, you know, makes sense,” Clarida, who is now global economic advisor at Pacific Investment Management Co., said in an interview in Singapore. At the same time, Clarida said the economic dynamics may change, with a more rapid slowdown in inflation bringing forward the prospect of rate cuts, while stubborn price pressures may delay them until much later in the year or even further away.
  • The biggest US banks are facing tougher competition for deposits and shelling out more to keep them. That doesn’t bode well for their smaller peers. America’s regional lenders begin reporting second-quarter earnings this week after months of upheaval laid bare a collection of balance sheet weaknesses that took a handful of them down. Some, like KeyCorp and Zions Bancorp, have already warned of revenue declines amid deposit pricing pressures, but the acknowledgment Friday by JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. that they’re facing such pressures underscores the toll it could take on their smaller, often less-diversified rivals. Regional banks have been in a battle with higher interest rates that’s forced them to pay more on customer funds while eroding the value of bonds they once saw as a reliable source of liquidity. For some, the pressures were too much: Silicon Valley Bank, Signature Bank and First Republic failed while others scrambled to shore up funds as spooked depositors yanked their cash. PacWest Bancorp, for one, embarked on a series of asset sales as it weighed strategic options.
  • US Climate Envoy John Kerry opened his first major climate talks with Chinese officials in almost a year, as both sides pledged to work for tangible results despite deep tensions between the rival superpowers. China is seeking “substantial” dialogue this week, the country’s climate envoy Xie Zhenhua said Monday, as officials gathered in Beijing to begin three days of talks. Those exchanges on climate and the green transition could make a contribution “to improving our bilateral relations,” he added. Kerry, who arrived in Beijing on Sunday, said he hoped China and the US would take “big steps that will send a signal to the world” about how seriously both sides take the common threat to humanity.
  • Group of 20 finance ministers and central bank governors begin two days of meetings Monday, with participants set to discuss items including reform of multilateral development banks, debt relief for stressed developing nations and sustainable finance. The gathering in Gandhinagar, capital of Indian Prime Minister Narendra Modi’s home state of Gujarat, is also serving as a setting for a raft of bilateral meetings. Treasury Secretary Janet Yellen on Monday engaged with her Indian counterpart, Nirmala Sitharaman — part of a broader push by the US to strengthen ties with the nation. The meetings occur against a backdrop of tensions among G-20 members, capped off by US-China geostrategic rivalry and divisions over Russia’s invasion of Ukraine. The group’s finance chiefs haven’t agreed on a communique since February 2022, on the eve of the war.
  • Russia ended the Ukraine grain-export deal nearly a year into the agreement, heightening uncertainty over global food supplies and escalating tensions in the region. Moscow had repeatedly threatened to leave the pact, citing obstacles to its own exports. It last agreed to a two-month extension in May, which ends Monday. The corridor’s shutdown will hit key buyers like China, Spain and Egypt. The move jeopardizes a key trade route from Ukraine, one of the world’s top grain and vegetable oil shippers, just as its next harvest kicks off. It also comes after Russia on Monday said Ukrainian drones damaged a key bridge to Crimea.
  • Belgian telecommunications operator Proximus Group has agreed to buy a majority stake in Indian cloud communication service provider Route Mobile Ltd. for 59.22 billion rupees ($721 million) to gain a foothold into high-growth markets. The Brussels-based company will buy about 58% stake in Route Mobile at 1,626.40 rupees ($19.8) a share through its unit Proximus Opal, and will make a tender offer for an additional 26% stake at the same price to comply with Indian rules. Some of the founding shareholders of Route Mobile will reinvest $336 million in Proximus Opal for as much as 14.5% stake, according to a statement to stock exchanges. Route Mobile fell as much as 9.3% in Mumbai, the most since May 2022, reversing early gains of as much as 8.3%. At the stock’s Friday close of 1,625.35 rupees, it had surged nearly five times from its initial share sale price in September 2020.
  • The panel which oversees the credit-default swap market has ruled that UBS Group AG will become the reference entity for Credit Suisse Group AG’s contracts. The Credit Derivatives Determinations Committees said that UBS Group is the “sole successor” to Credit Suisse Group, according to a notice on its website on Monday. Credit-default swaps tied to the debt of the two banks have been converging in recent months as investors bet on this outcome. Credit Suisse’s five-year senior swaps contracts were indicated at 90.8 basis points as of 10:55 a.m. in London, while UBS’ equivalent swaps were indicated at 92.7 basis points, according to ICE Services data. Credit Suisse’s swaps surged to over 900 basis points as crisis hit the Swiss lender in March, before falling back after the Swiss government brokered a deal for UBS to take over its rival.
  • Parts of the crypto market saw frenzied trading following a break in the regulatory clouds surrounding the US digital-asset sector. The spike stemmed from a July 13 court decision in the Securities & Exchange Commission’s case against Ripple Labs Inc. The ruling served to dent the SEC’s argument that most tokens are securities that fall under its strict purview. Spot trading volume in XRP, the coin associated with Ripple and which was at the heart of the SEC lawsuit, jumped more than 1,700% to $11.3 billion on July 14 from $614 million a day earlier, according to data from CoinGecko.
  • BlackRock Inc. plans to give millions of US investors more voting power at shareholder meetings after taking heat from both ends of the political spectrum that the firm has too much sway over ESG issues. The world’s largest asset manager intends to let shareholders of its S&P 500 ETF pick from a set of voting policies for the 2024 proxy season, the New York-based firm said in a statement Monday. Pensions, endowments and other institutional clients with a combined $555 billion of assets at the end of March already participated in BlackRock’s “voting choice” program. “BlackRock is committed to a future where every investor can have the choice to participate in the shareholder voting process,” Joud Abdel Majeid, global head of BlackRock Investment Stewardship, said in the statement. While many clients wish to continue to rely on BlackRock to vote at thousands of corporate meetings, “others want the choice to participate in proxy voting more directly,” she said.
  • China’s disappointing economic growth figures prompted several economists to downgrade their forecasts for the year, citing major weaknesses in the recovery and Beijing’s relatively muted stimulus response. JPMorgan Chase & Co., Morgan Stanley and Citigroup Inc. were among banks to cut their projections for economic growth this year to 5%, putting Beijing’s official gross domestic product target of around 5% at risk. Official figures released Monday showed the economy lost momentum in the second quarter, with consumer spending growth weakening notably in June and property investment contracting.
  • Paramount Global shares decline 2.2% in premarket trading after Mission: Impossible — Dead Reckoning Part One, the seventh installment of the action franchise starring Tom Cruise, took in less than projected at the box office over its debut weekend in the US and Canada. The film earned $56.2 million in theaters this weekend, which is lower than projections of $61 million to $75 million in ticket sales for the Friday-to-Sunday period from Boxoffice Pro. Over the five days since its release on July 12, the film generated $80 million, which is lower than the $90 million projected by the film’s distributor, Paramount Pictures
  • Expedia Group Inc. is launching a long-awaited loyalty program across three of its flagship brands, capitalizing on a global travel boom amid increasing competition from Google and Booking Holdings Inc. The new offering, called One Key, will allow travelers to use and earn rewards across the platform, for example, building up points on vacation-rental platform Vrbo and use them to book a flight on Expedia.com or a room on Hotels.com. People in the US who have rewards from earlier Expedia programs, including Hotels.com stamps, will have them automatically converted to OneKeyCash, which can be used across Expedia’s marketplace, including for car rentals, cruises and activities. The program is starting in the US and will roll out globally beginning in 2024, Expedia said.