July 25, 2023
Daily Market Commentary
Canadian Headlines
- As the global battle to tame inflation enters its next phase, Canada’s housing market offers a glimpse of what could play out for many other developed nations: a game of chicken between central bankers and consumers. It started when the Bank of Canada paused its campaign of interest-rate hikes earlier this year, dutifully warning they could go higher still and would at least stay elevated for some time. But no one seemed to believe it. House hunters promptly swarmed back into the market. Even the financial market pros expected the same: At the time, trading in interest-rate swaps put the odds of the Bank of Canada cutting rates by the end of the year at around 100%, according to Bloomberg calculations. But in June, after the broader economy rebounded along with home prices, the central bank ended up raising rates again to slow down everything. It followed up that hike with another one this month, singling out the housing market as a source of persistent inflation.
- India’s move to ban certain rice exports has sparked some panic buying in various countries, with videos on social media showing bags of the staple food flying off the shelves and long lines outside grocery stores. From the US to Canada and Australia, reports of overseas Indians stocking up are going viral. Some shops have imposed buying limits, while others hiked prices to cash in on the frenzy. Indian restaurants worry about a shortage. Rice is vital to the diets of billions in Asia and Africa. India’s restrictions, which apply to shipments of non-basmati white rice, are aimed at controlling local prices, but they add to strains on global food markets that have already been roiled by bad weather and the worsening conflict in Ukraine.
World Headlines
- European shares also edged higher, lifted by resources firms such as Anglo American Plc and Rio Tinto Plc that benefited from Chinese authorities’ latest stimulus pledge. Among individual movers, consumer-goods giant Unilever Plc stood out, gaining as much as 5.6% after beating sales estimates, while spirits group Remy Cointreau SA surged after Chinese sales helped it surpass forecasts. European market sentiment was dampened by a euro-area bank lending survey which showed a record plunge in loan demand from the bloc’s companies. Alongside a dismal business outlook reading from Germany, the data raise questions over the ECB’s capacity to hike interest rates much beyond the 25 basis points priced for this Thursday’s meeting.
- US equity futures edged higher in cautious trade Tuesday, hemmed in by risks including upcoming earnings from technology megacaps and this week’s Federal Reserve meeting. Contracts on the Nasdaq 100 index gained as much as 0.4%, after a weak session Monday, with Microsoft Corp. and Alphabet Inc. due to report their first earnings since artificial-intelligence fever broke out. Shares in both companies were about 0.5% higher in New York pre-market trading as investors waited to see if the results justify the companies’ hefty year-to-date share gains.
- Asian stocks advanced, lifted by Chinese shares after the country’s top leadership signaled fresh support for the ailing economy, while investors braced for key central bank meetings this week. The MSCI Asia Pacific Index rose as much as 1.3%, led by material and communication services shares. Most regional markets rallied, with technology and property stocks propelling mainland Chinese and Hong Kong benchmarks. The CSI 300 Index jumped almost 3% to cap its best day in eight months. China’s top leaders on Monday pledged to boost consumption and offer more support for the troubled property sector to help revive a slowing economy. The statement from the Politburo meeting was taken positively by investors, who say the outcome was better than expected.
- Oil steadied after climbing to a three-month high as China signaled further measures to bolster economic growth and global crude markets continued to tighten. Brent crude futures held above $82 a barrel in London on Tuesday, having gained 4% in the previous three sessions. Top leaders in China, the largest crude importer, indicated more support for the real estate sector alongside pledges to boost consumption, although they eschewed major fiscal or monetary loosening. Oil has pushed higher this month after the Organization of Petroleum Exporting Countries and its allies cut production to drain global inventories. That’s offset the drag from Federal Reserve Chair Jerome Powell’s campaign of monetary tightening, which is expected to continue with another rate hike this week.
- Gold edged higher as the dollar weakened while traders speculated over the Federal Reserve’s next interest rate move beyond July. US policymakers are widely expected to raise interest rates by 25 basis points this week — a scenario that’s already been priced in for gold — though the greater focus will be on the Fed’s messaging on the trajectory after this month. Spot gold climbed 0.3% to $1,960.51 an ounce at 11:51 a.m. in London, after falling 0.4% in the previous session. The Bloomberg Dollar Spot Index edged lower. Silver, platinum and palladium all rallied.
- China removed Qin Gang as foreign minister just seven months into the job, marking the shortest-ever tenure for the role after the diplomat mysteriously disappeared from public view in June. Qin will be replaced by his predecessor Wang Yi, state media reported, without giving an explanation for the abrupt personnel change. The nation’s top legislative body made the announcement at a snap meeting Tuesday. Qin’s removal follows a month of speculation over his official status, after the former Chinese ambassador to the US dropped from public view without explanation.
- The Federal Reserve is reaching a pivotal moment in its fight against inflation. After more than a year of solid agreement that higher interest rates were needed, differences among policymakers have started to deepen as they weigh when to stop hiking and how long to keep rates elevated. The participants on the Federal Open Market Committee are clustered into three main groups. The hawks are ready to tighten policy and are on the sharp lookout for inflation. The doves are inclined toward an easy policy that favors job creation. And finally, the centrists are seeking a middle ground. The increasing split between them is clouding the outlook for rates and threatens the unity Fed Chair Jerome Powell has maintained during his tenure, which in turn could undermine the central bank’s credibility on inflation and communications with investors and the public.
- General Motors Co. raised its profit target for the year by at least $1 billion and said its second-quarter earnings beat analysts estimates on stronger-than-expected US sales, especially its largest and most profitable models. The results show that while investors eagerly await progress in GM’s electric-vehicle program, its legacy business making gasoline and diesel-fueled SUVs and trucks are allowing it to crank out big profits. Consumers are buying the thirstiest and most expensive models despite rising interest rates and elevated sticker prices. The Detroit automaker projected 2023 earnings before interest and taxes to reach between $12 billion and $14 billion, compared to its previous guidance that peaked at $13 billion. GM also forecast earnings per share for the full year of between $7.15 and $8.15, up from a maximum of $7.35 a share previously.
- UBS Group AG will pay a total of about $387 million in fines related to misconduct by Credit Suisse Group AG in its dealings with Archegos Capital Management as the new owner of the collapsed Swiss rival starts picking up its legal tab. In a consent order with the Federal Reserve, UBS agreed to pay $268.5 million for “unsafe and unsound counterparty credit-risk management practices” at Credit Suisse, which UBS acquired in June. The Bank of England’s Prudential Regulation Authority fined the bank £87 million ($112 million), which it said was its largest penalty to date. UBS’s acquisition of its stricken rival closed last month, handing Chief Executive Officer Sergio Ermotti a potential windfall gain in the tens of billions of dollars after the government-brokered rescue. At the same time, UBS has previously guided that legal liabilities related to Credit Suisse could run to as much as $4 billion over 12 months, and asset mark-downs could come in at some $13 billion.
- Verizon Communications Inc. beat analysts’ estimates for profit and subscribers, in an earnings report that was a bright spot amid concerns over customer growth and potentially high costs related to cleanup from lead-covered cables in parts of its network. The largest US wireless carrier reported adjusted earnings per share of $1.21, according to a statement Tuesday. Revenue was $32.6 billion, down 3.5% from a year earlier. Analysts predicted earnings, excluding special items, of $1.16 a share on sales of $33.3 billion. Verizon, like other landline carriers including AT&T Inc. and Lumen Technologies Inc., faces spending potentially billions of dollars after a Wall Street Journal story earlier this month reported lead contamination in more than 2,000 network cables at locations across the country, including at playgrounds, bus stops and waterways.
- L’Occitane International SA’s controlling shareholder is considering a move to take the skin-care company private, people with knowledge of the matter said. Billionaire Chairman Reinold Geiger is studying the possibility of buying out minority shareholders of the Hong Kong-listed group, the people said, asking not to be identified because the information is private. He’s been exploring various financing options for the potential deal, according to the people. Shares of L’Occitane have fallen 20% over the past 12 months, giving the company a market value of about HK$30.9 billion ($4 billion). A vehicle ultimately controlled by Geiger owns more than 70% of L’Occitane, exchange filings show.
- Elon Musk on Monday explained his decision to strip Twitter of its famous blue-bird logo as a move to remake the business into a broad platform for communications and financial transactions, a target he’s described as the everything app. “This is not simply a company renaming itself, but doing the same thing,” Musk said about the apparently spontaneous move over the weekend to crowdsource a logo from fans and adopt it as Twitter’s new insignia. “The Twitter name made sense when it was just 140 character messages going back and forth – like birds tweeting.” The billionaire owner’s envisioned X app — which will connect Twitter’s underlying infrastructure with x.com, a web address that now functions as a routing service to Twitter — is one that layers communication, multimedia and “the ability to conduct your entire financial world.”
- Morgan Stanley is seeking to launch its next wave of exchange-traded funds after re-entering the industry in February, nearly three decades after helping to birth the now-$7.5 trillion industry. Applications for the Eaton Vance Ultra-Short Income ETF, the Eaton Vance High Yield ETF and the Eaton Vance Intermediate Municipal Income ETF landed with the Securities and Exchange Commission on Monday, filings show, in addition to applications for the Parametric Dividend Premium Income ETF and the Parametric Hedged Equity ETF. Morgan Stanley’s purchase of Eaton Vance — and thus, Parametric Portfolio Associates — closed in 2021. Morgan Stanley was one of a handful of major financial firms without a presence in the ETF arena up until this February, when it launched its first six modern-day ETFs after being home to some of the world’s first such products in the 1990s. Those debuts were the “first step in a series,” Morgan Stanley global head of ETFs Anthony Rochte said at the time, leading to Monday’s applications. So far, its six environmental, social and governance-focused ETFs have accumulated nearly $400 million in assets.
- Biogen Inc. said it would cut 1,000 jobs and reduce operating expenses by an additional $700 million by 2025 as it reported sales and earnings that beat analyst expectations. Second-quarter sales of $2.46 billion beat analyst estimates for $2.37 billion, as contract manufacturing and other non-product sales doubled, while revenues from its multiple sclerosis drug franchise shrank 15% from the previous year. Adjusted earnings for the quarter were $4.02 a share, compared with the average analyst estimate of $3.76 a share. Biogen is in a transition period as it attempts to broaden its focus and come up with new growth sources to replace aging multiple sclerosis drugs, which remain its biggest drug category. Chief Executive Officer Christopher Viehbacher, who took over last year, has promised to redesign the company and reduce its dependence on risky neurology research, without eliminating its ability to pursue hard diseases like Alzheimer’s.