July 21, 2023

Daily Market Commentary

Canadian Headlines

  • A union local representing about 3,000 dockworkers on Canada’s west coast says it reached a tentative agreement with the employer. The International Longshore & Warehouse Union Local 502, which covers workers at ports on along British Columbia’s Fraser River stretching out to Roberts Bank, announced the news in a statement on Thursday evening. The workers are among more than 7,000 represented by the International Longshore & Warehouse Union, which walked off the job between July 1 and July 13 and disrupted billions of dollars worth of trade at Canada’s busiest maritime ports
  • Canada’s largest pension fund will seed more start up hedge funds this year as it broadens a program that aims to diversify its investments. The Canada Pension Plan Investment Board, or CPPIB, will spread funding among more firms as part of its emerging manager program by reducing the starting amount they invest with each fund, according to people familiar with the matter. Each will receive amounts starting from $50 million, down from $100 million, said the people, who asked not to be identified because the details are private. The financing offers a lifeline to hedge fund startups capital raising in an environment where an increasing number of investors are migrating toward the largest, most established players in the industry. Multi-strategy hedge funds – that rely on group of traders to produce steady returns – have been among the biggest beneficiaries of the trend, while individual traders striking out on their own are finding capital raising much harder.

World Headlines

  • European shares were little changed on Friday, with sentiment subdued by late declines on Wall Street amid worries about higher-for-longer interest rates. SAP SE dropped on underwhelming results. The Stoxx 600 was flat at 10:47 a.m. in London. Technology stocks declined, with SAP sliding as much as 5.6% in its worst day in a year. Mining shares also dropped, while energy and media outperformed. Europe’s stock rally has moderated in July as investors weigh the possibility of hawkish central banks against signs that US inflation is cooling. Strategists are sticking to their view that the region’s equities will see no further gains by the end of the year, according to a Bloomberg poll. An unexpected pullback in US jobless claims on Thursday supported bets for another Federal Reserve rate hike, while disappointing tech results also weighed on the market.
  • Asian stocks fluctuated Friday after US equities and Treasuries dropped on fresh signs of labor-market resiliency that could support another hike in interest rates this year. Stocks in Japan were mixed, while those in South Korea and Australia fell. Benchmark indexes in Hong Kong and mainland China swung to gains, with consumer-related stocks becoming the best performers in the CSI 300 Index after the Chinese government released some measures to support consumption, including on home appliances and car purchases.
  • US futures signaled a recovery from the steepest drop for tech stocks in five months, while the Bank of Japan’s stance on yield curve control drove the yen to its weakest level in more than a week. Contracts on the tech-heavy Nasdaq 100 index rose 0.5% after the underlying gauge slid more than 2% Thursday. Tesla Inc. gained 1.7% in premarket trading, paring some of its 9.7% slump on Thursday. Netflix Inc. rose 0.6% after an 8.4% drop, its worst this year.
  • Oil headed for a fourth weekly gain amid tentative signs that global markets are tightening. Brent futures advanced 0.6%% in thin trading volumes, holding above $80 a barrel in London. Russia has shown signs of paring crude exports as it belatedly honors a pact with Saudi Arabia and the OPEC+ alliance to help balanace world markets. Prices were also bolstered as China, the world’s biggest crude importer, stepped up efforts to boost its flagging economic recovery. Crude has ticked higher since late June on signs the market is tightening, but remains lower for the year. China’s lackluster recovery has been a major drag on demand, as has the Federal Reserve’s aggressive monetary policy.
  • Gold slipped as the dollar climbed on Friday, paring gains made earlier in the week as easing price pressures in major economies prompted a reassessment of how much tightening central banks have left to do. That picture was clouded a little by data showing applications for US unemployment benefits fell to a two-month low, underscoring labor market resilience. Treasury yields tempered after climbing on Thursday as traders priced in slightly higher odds of more hikes beyond the Federal Reserve’s meeting next week. Spot gold was 0.3% lower at $1,963.86 an ounce as of 12:03 p.m. in London, up 0.4% for the week and set for a third consecutive weekly gain. Silver and platinum were flat, while palladium advanced.
  • Bank of Japan officials see little urgent need to address the side effects of its yield curve control program at this point, though they expect to discuss the issue, according to people familiar with the matter. The central bank looks at the costs and benefits of YCC at every meeting and will reach a final decision at its policy meeting next week after scrutinizing economic data and financial markets up to the last minute, according to the people. The yen extended losses to around 1.3% to 141.94 versus the dollar after the news, with some traders seeing reduced odds for a hawkish surprise at the BOJ’s policy decision next Friday.
  • Some of the forecasters who were first out of the box to predict a US recession are starting to hedge their bets as inflation ebbs and the economy remains resilient. Deutsche Bank Vice Chair of Research Peter Hooper and Fannie Mae chief economist Doug Duncan now say it’s essentially a toss-up whether the economy suffers a recession or enjoys a soft landing and keeps growing, though both still believe a downturn is more likely than not. The sentiment was echoed in Bloomberg’s July survey of economists, in which estimates for gross domestic product were revised higher for the second and third quarter. However, forecasters still say there’s a 60% chance the US will fall into recession in the next 12 months.
  • Microsoft Corp.’s success fighting the Federal Trade Commission’s challenge to its $69 billion Activision Blizzard Inc. acquisition could ease the path to more deals at a time when Wall Street has been confronting a severe merger drought. Stiffer enforcement by the FTC and Justice Department under the Biden administration has deterred a number of deals in recent years, but those regulators’ losing record in the courtroom will likely weaken that effect, experts said. Krishna Veeraraghavan, a mergers and acquisitions partner at New York’s Paul Weiss Rifkind Wharton & Garrison, also said the Microsoft-Activision ruling could remove obstacles to dealmaking. “I’m expecting this will give people more certainty in evaluating deals,” he said, “and when you have certainty, it makes it easier for deals to happen.”
  • A fragile case for buying AT&T shares has been further dented by the potential risk of liabilities over lead-clad cables in parts of its nationwide network, amid uncertainty over the size of clean up costs. The 130-year-old company is the most exposed to an industry-wide issue, according to Moody’s Investors Service Inc., which warned of “very significant” potential costs to remove the old wires. The latest headwind for the sector is a further deterrent for dip buyers, dragging down shares while raising concerns about dividend payments.
  • A potential strike by 340,000 unionized workers at United Parcel Service Inc. threatens to unravel progress in tackling two of the US economy’s biggest hurdles in decades: inflation and supply-chain disruptions. In the absence of a labor deal by Aug. 1, a walkout by members of the International Brotherhood of Teamsters would snarl shipments of the 19 million packages that UPS moves daily in the US. It would also enable competitors such as FedEx Corp. to raise prices to help throttle some of the parcels that would pour into its networks. Economists say the strike might raise the inflation rate — which the Federal Reserve has sought to curb via an aggressive tightening campaign after it reached a four-decade high of 9.1% last year. And if the Teamsters’ demand for much-higher wages is met, this could be a harbinger for other outsized salary increases, further complicating the Fed’s effort to get price growth to its 2% annual target.
  • The threat of Russian aggression towards Ukraine’s Black Sea ports and ships will force the country to export its enormous quantities of grain by river, road and rail — all of which are fraught with challenges. After exiting the Black Sea grain export deal earlier this week, Russia announced that all ships headed to Ukrainian ports will now be considered military vessels. With harvests coming in, that means Ukrainian farmers will no longer be able to rely on the route that was used to move about half of last. The Black Sea historically ushered the vast majority of Ukraine’s grain exports abroad and helped the country become one of the world’s top suppliers. Cutting off the ports will reduce Ukraine’s monthly export capacity from about 7-8 million tons to a maximum of about 4 million tons, estimated Alexandre Marie, chief analyst at Agritel, the agriculture analytics arm of Argus Media.season’s crops.
  • Bankrupt FTX Trading Ltd. will try to claw back millions of dollars in cash and unwind more than $1 billion in questionable transactions as part of a new lawsuit filed against company founder and alleged fraudster Sam Bankman-Fried and his top lieutenants. The suit targets Bankman-Fried, FTX co-founder Gary Wang, who was also the chief technology officer; Nishad Singh, the former director of engineering; and Caroline Ellison, who was the co-chief executive of Alameda Research LLC, a key FTX unit. They are accused of various fraudulent transfers that benefited them personally, but did nothing for FTX. For example, the complaint alleges that Bankman-Fried and Wang of took $546 million from Alameda in May 2022 to acquire shares in Robinhood Markets Inc. Bankman-Fried and Wang provided Alameda with allegedly sham loans that didn’t require the executives post any collateral and offered interest rates below commercial market rates. The only authorization for Alameda to extend the loans came from Ellison, the according to the suit.
  • AutoNation Inc., one of the biggest car dealership chains in the US, posted second-quarter earnings that exceeded expectations on rising new car sales and record growth in its repair, financing and insurance units. On Friday, the company reported adjusted earnings of $6.29 a share that topped the $5.89 average estimate of analysts. Revenue was flat at $6.89 billion, but better than the $6.75 billion projected by Wall Street. Inventory constraints began to ease in the quarter as new vehicle shipments from automakers increased, helping boost revenue from new car sales by 12% to $3.3 billion. Used-vehicle deliveries fell 11%, causing a 17% drop in revenue to $2.1 billion.
  • Glencore Plc said it expects annual profit of $3.5 billion to $4 billion from its commodity trading business, reiterating that the unit remains on track to beat its long-term target for a fourth straight year. The forecast, while still strong by historical levels, provides the latest evidence of how business is getting closer to normal at the companies that buy, sell and transport the world’s natural resources, as the surging prices and volatility that traders thrive on have eased since last year’s chaos caused by Russia’s invasion of Ukraine. Glencore said in April it expected another bumper year from its traders, even as calmer commodity markets mean the industry is unlikely to replicate last year’s blowout earnings. The company’s latest forecast falls short of the record $6.4 billion in core profit from the trading unit in 2022, but it is still well above its longstanding guidance range of $2.2 billion to $3.2 billion