The Daily – July, 4, 2023

July 4, 2023

Daily Market Commentary

Canadian Headlines

• Royal Bank of Canada has hired three new employees to its European debt capital markets team, looking to expand its euro currency primary product offering. Pipeline operator TC Energy Corp. is evaluating appeal options after a Delaware court held it liable to investors for allowing certain fiduciary breaches to occur during the $13 billion merger with Columbia Pipeline Group Inc. Ahead Tuesday, Bloomberg Nanos Canadian Confidence Index data will be released at 8 a.m. Ottawa time.

World Headlines

• European stocks edged higher Tuesday in thin trading, led by gains in real estate and health-care shares as investors looked ahead to the monthly report on US employment for clues to how high interest rates will rise this year. The Stoxx Europe 600 Index gained 0.2% by 11:25 a.m. in London. US markets are closed for the Independence Day holiday, which is likely to lead to lower volumes of trading. Real estate stocks led gains while automakers declined. While European equities rallied almost 9% in the first half of the year, driven by resilient earnings and bets on cooling inflation leading to central banks slowing the pace of interest rate increases, strategists have shown concern on how the second half could be hit by recessionary headwinds and hawkish monetary policy. The jobs report on Friday will give clues as to the pace of Federal Reserve rate increases.
• Asian stocks were mixed after Monday’s gains as weak US economic data kept sentiment in check as a selloff in Japanese shares weighed on the region. The MSCI Asia Pacific Index dropped as much as 0.4% but erased the declines to trade little changed. Health and industrials stocks were among worst performers. Australia’s key benchmark reversed losses after the central bank kept interest rates unchanged. Gauges in Hong Kong posted modest gains, while advances in mainland stocks were dented by new export restrictions placed by Beijing. Cooling signals in the US economy from weak manufacturing data released Monday weighed on broader sentiment, with the S&P 500 closing just 0.1% higher. Traders will also closely watch minutes from the Federal Open Market Committee’s June policy meeting on Wednesday.
• Oil edged higher as traders assessed the latest efforts from OPEC+ linchpins Saudi Arabia and Russia to prop up prices by curbing supply. West Texas Intermediate climbed above $70 a barrel, clawing back some of the 1.2% loss in the previous session even as the cuts were announced. Volumes were subdued due to the July 4 holiday in the US. In a flurry of announcements Monday, Saudi Arabia said that it will prolong a unilateral 1 million barrel-a-day supply reduction into August, a move traders had widely expected. Russia announced a reduction in exports, while Algeria planned to make more modest curbs.
• Gold edged higher and copper fell with trading subdued by a US holiday, as investors weighed weak manufacturing data that offered more evidence of an economic slowdown. US factory activity fell to its weakest level in more than three years, while production and new orders data also suggested a pullback. Monday’s figures followed a report last week that showed inflation easing, boosting optimism that the Federal Reserve may be nearing the end of its monetary tightening cycle. Spot gold climbed 0.4% to $1,929.13 an ounce as of 12:14 p.m. in London, on track for a fourth straight daily gain. The Bloomberg Dollar Spot Index lost 0.1%. Platinum, palladium and silver rose.
• The bosses of the biggest UK banks have been called to a meeting later this week with the Financial Conduct Authority over concerns their firms are being too slow to pass interest rate increases on to savers. Top executives from lenders including Lloyds Banking Group Plc, HSBC Holdings Plc, Barclays Plc and NatWest Group Plc are expected to attend a meeting with the regulator on Thursday, according to a person familiar with the matter. The agenda will cover the market for easy-access cash savings and how banks communicate with their customers. The UK is trying to put pressure on lenders to ensure they’re passing on changes in interest rates as quickly to savers as they are doing to mortgage holders and other borrowers. On Tuesday, the average two-year fixed-rate home loan was 6.47% while the average easy access savings rate was 2.45%, according to Moneyfacts Group Plc.
• President Emmanuel Macron will meet with more than 200 mayors to assess the riots that have rocked France as a massive police deployment led to a continued drop in the level of unrest overnight. French employers’ lobby Medef estimated the cost of violence since the police shooting of Nahel, a 17-year-old of North African descent, last Tuesday at more than €1 billion ($1.1 billion), with 200 businesses looted, and 300 bank branches and 250 tobacco stores destroyed. The estimate covers businesses and doesn’t include damage to schools, town halls or community centers. The violence has underscored long-running tensions over racism and inequality in the country, especially in ethnically mixed neighborhoods around cities and towns. The opposition at both ends of the political spectrum has seized on the crisis as evidence that the government is failing to ensure public safety and narrow economic disparity.
• A clutch of big tech firms including Amazon.com Inc. and Apple Inc. have told the European Union they meet the requirements to be subject to the bloc’s landmark digital antitrust rules, which could have a major impact on how they operate.  The group also includes Meta Platforms Inc., Alphabet Inc.’s Google, Microsoft Corp., Samsung Electronics Co. and Bytedance, EU industry commissioner Thierry Breton said in a tweet on Tuesday. The seven platforms had notified the EU they meet thresholds to be designated as a so-called gatekeeper, which includes having a sales across the bloc of at least €7.5 billion ($8.2 billion) or a market capitalization of €75 billion or more. Once designated as gatekeeper platform, the commission must confirm the specific service each company provides, and whether that service should come under the scope of the rules. To qualify, such core platform services will need to have more than 45 million monthly active end-users and more than 10,000 yearly active business users in the bloc.
• Alphabet Inc.’s Google is set to appoint a manufacturing and policy veteran as its top government affairs executive in India to tackle legal challenges and expand hardware assembly to the country. Sreenivasa Reddy, currently a senior engineering executive at Microsoft Corp., is likely to join Google toward the end of this year, people familiar with the matter said, asking not to be identified as the matter is private. He previously worked in senior positions at Apple Inc.’s India regulatory team and headed government relations at the local unit of Swedish telecom-gear maker Ericsson AB, helping to drive domestic manufacturing at both companies. Reddy’s experience will come in handy at Google, which is scouting for partners in India to assemble its Pixel range of smartphones as it seeks to diversify beyond China. Pixel’s production in India could lead to the local manufacturing of other Google hardware products, such as speakers.
• China’s decision to restrict critical mineral exports will hit key sectors in the European Union’s effort to decarbonize its economy, and demonstrates the limits of western aspirations to shift supply chains beyond the reach of policymakers in Beijing. China is the largest global producer of the two minerals, gallium and germanium, which will be subject to export restrictions next month and that are crucial to the semiconductor, telecommunications and electric-vehicle industries. The EU gets 71% of its gallium from China and 45% of its germanium. The move comes weeks after the EU unveiled a new economic security strategy, which seeks oversight of critical technology exports and may curb outbound investments in the name of national security. The proposal is part of a growing push within the bloc to strengthen security tools as countries such as China and Russia increasingly use trade and the control of critical supply lines to advance political and even military goals.
• The US is preparing to curtail Chinese companies’ access to cloud computing services including Amazon.com Inc.’s and Microsoft Corp.’s, the Wall Street Journal reported, citing people familiar with the situation. Washington is considering requiring cloud providers to seek government permission before serving Chinese firms that employ such platforms to train AI models, the Journal reported. Microsoft Azure and Amazon Web Services are the global leaders in the business of providing internet computing to enterprises, and compete in China with the likes of Alibaba Group Holding Ltd. through local, state-affiliated datacenter partners. The Biden administration plans to tighten export controls announced in October to restrict sales of some artificial-intelligence chips to China, seeking to contain its rival’s development of a technology considered key to the country’s geopolitical and economic future. Part of the measures under discussion included restricting cloud access for Chinese AI developers, which was first reported by the Journal last week.
• The Russian government is taking steps that will allow its Eurobonds denominated in foreign currencies to be substituted for new notes in rubles, potentially allowing some investors to sidestep sanctions on the securities. The Finance Ministry has prepared budget amendments that will allow the new debt to be serviced via Russia’s local financial architecture, away from foreign banks and settlement systems where payments are thwarted by the international penalties, according to a statement Tuesday. The authorities will take individual decisions for each bond issue, the ministry said. The move may allow Russia to replace about $10 billion of debt with local notes registered at the National Settlement Depository, according to an estimate by analysts at Moscow-based brokerage BCS.
• Tesla Inc.’s China output increased almost 20% in June, contributing to the company’s record quarterly sales. The US electric-vehicle maker led by Elon Musk shipped a total of 93,680 cars from its factory in Shanghai last month, preliminary data from China’s Passenger Car Association showed on Tuesday. That compares with 78,906 units in June 2022, and 77,695 vehicles in May.  The electric-car manufacturer gained momentum at the start of the year when it slashed prices of its locally built Model 3 sedans and Model Y sport utility vehicles. It quickly faced pressure from local competitors, which followed suit with discounts. After a price war leading into the Shanghai auto show in April, deliveries started to pick up again and the overall market for new-energy vehicles remained strong.