July 7, 2023

Daily Market Commentary

Canadian Headlines

  • A law that props up the news industry has turned Canada into the latest battleground for global tech giants that are pushing back against governments trying to curb their dominance. The Online News Act, passed into law last month by Prime Minister Justin Trudeau’s government, requires companies including Meta Platforms Inc. and Alphabet Inc.’s Google to negotiate commercial deals with local news organizations for featuring news on their platforms. It’s meant to help outlets that have seen their advertising revenue decimated in the digital era. But strong opposition from tech firms — including Meta’s intention to permanently end the availability of news on Facebook and Instagram in Canada, and Google’s plan to remove links to Canadian news — is more than just a reaction to the law itself. The platforms may see it as a precedent-setter for jurisdictions from California to Indonesia that are trying to force them to pay for news.
  • Hudbay Minerals will consider acquisitions offers if the price is adequate, Reuters reports, citing an interview with the company’s CEO Peter Kukielski. Kukielski told the media outlet that both the management and the board are not against offers, but a proposal undervaluing the company would be a waste of time

World Headlines

  • European shares were little changed on Friday as investors awaited key US jobs data for further clues on the trajectory of interest rates. The Stoxx 600 Index erased earlier declines of as much as 0.5% to trade steady as of 11:30 a.m in London, with utilities and media dropping the most, while miners and banks outperformed. Some UK homebuilder stocks including Crest Nicholson Holdings Plc and Barratt Developments Plc declined. Mortgage lender Halifax said UK house prices are falling at their fastest annual pace since 2011 as the property market buckles in the face of rising borrowing costs.
  • Stocks were subdued as investors prepared for another round of US jobs numbers to gauge if they will back new bets for more Federal Reserve interest rate hikes. US equity futures steadied after Thursday’s losses in the S&P 500 and Nasdaq 100 benchmarks triggered by stronger-than-expected private hiring data. Shares in Europe erased early declines, but were still on course for their worst week since the middle of March. Traders added to wagers of more rate hikes as ADP Research Institute data on Thursday showed US companies added the most jobs in more than a year in June. Friday’s US nonfarm payrolls and unemployment reports will be key to any more revisions in rate-hike expectations after the blowout ADP numbers prompted a spike in Treasury yields.
  • Asian stocks fell as traders weighed greater US rate-hike expectations and pressure mounted for China to deliver stimulus to prop up its economy. The MSCI Asia Pacific Index was on track for a weekly fall, dropping as much as 0.9% Friday to the lowest in a month, dragged by information technology and financial stocks. Australia and Korea gauges led declines, with most major markets in the red. The Hang Seng Index dropped, edging closer to a bear market. Swap contracts signaled a growing likelihood of an additional move up in the Fed funds rate by year-end, after ADP Research Institute data showed US companies added the most jobs in more than a year in June. Stocks across Asia have been losing ground in July after a strong first half of the year as hawkishness from central banks damps hopes of a soft landing for the global economy.
  • The oil market is finally starting to show signs of tightening, a relief for traders who have grappled with fading optimism around China’s recovery and concerns over the global demand outlook. A series of supply cuts by OPEC+ and its defacto leader Saudi Arabia over the last few months have failed to dispel the gloom, but there are indications that the latest reductions are having an impact. Across the derivatives market, key gauges have turned more bullish over the past few days. Swaps contracts tied to physical supplies have been rallying, while in options markets, the premium of bearish puts over bullish calls has narrowed. Prompt spreads for benchmark futures have also climbed out of a contango structure that reflects oversupply, as trading of real-world oil shows some strength.
  • Gold was on track for its fourth consecutive weekly loss, with the dollar-denominated metal pressured by expectations of further rate hikes in the US ahead key employment data. Since climbing to a near record in early May, bullion has slid about 7% as a raft of US data indicates the Federal Reserve has a way to go to get inflation under control. Higher interest rates are typically negative for non-yielding bullion. Gold was steady on Friday ahead of the release of nonfarm payrolls, which Bloomberg Economics sees maintaining pressure on the Fed to keep interest rates high. The central bank’s challenge was underscored on Thursday, with fresh figures from the world’s biggest economy showing companies added the most jobs in over a year during June.
  • The market is signaling lingering concern that Rakuten Group Inc. isn’t doing enough to reduce debt risk and make its key mobile business profitable, judging by the tepid response to its latest fundraising step. The Japanese e-commerce firm’s perpetual dollar bonds fell for a ninth day Thursday, following news on Tuesday that Rakuten’s brokerage arm had applied to go public in Tokyo. And the cost to insure its debt against nonpayment using credit-default swaps stayed around record levels, CMA data showed. Rakuten’s stock has rebounded 2.7% since Tuesday, but is declining 0.5% in early Tokyo trading Friday. It remains about 26% below this year’s peak in February, despite prospects the group will get more cash via a share sale by unit Rakuten Securities Holdings Inc. The stock has been weak at a time when the Topix index was hitting three-decade highs.
  • US Treasury Secretary Janet Yellen said competition between the world’s biggest economies is not a “winner-take-all” situation, and called for both sides to manage their rivalry with a fair set of rules. Yellen’s comments were delivered Friday during a meeting with Chinese Premier Li Qiang as she made a long-anticipated trip to Beijing, aimed at finding some common ground between the two superpowers sparring on everything from trade to Taiwan’s security.  “We seek healthy economic competition that is not winner-take-all but that, with a fair set of rules, can benefit both countries over time,” the Treasury chief told China’s No. 2 official, adding that US actions to protect national security should be “targeted.”
  • Apple Inc. is planning a retail launch of its Vision Pro headset with appointments and in-store promotion in select US markets early next year, underscoring the niche and complex nature of the mixed-reality device. The company will designate special areas in the stores with seating, headset demo units and tools to size accessories for buyers. While the device will be sold at all of Apple’s roughly 270 US locations, the company is planning the sections for the Vision Pro initially at stores in major areas — such as New York and Los Angeles — before rolling them out nationwide, according to people with knowledge of the plans. Apple said it will offer the headset in other countries at the end of 2024. The company is discussing the UK and Canada as two of its first international markets with Asia and Europe soon after, although a final decision hasn’t been made, according to the people, who asked not to be named discussing internal matters. Apple engineers are working to localize the device for France, Germany, Australia, China, Hong Kong, Japan and Korea, the people said.
  • Bond investors are bracing for fresh signs of strength in the US labor market on Friday after Treasuries tanked on fears the Federal Reserve will hike interest rates higher than previously assumed. Benchmark Treasury yields rocketed back through 4% this week as a report Thursday showed US companies added almost half a million jobs in June. Next up is the US Labor Department’s snapshot of employment conditions in June. Sustained evidence of a robust US economy has repeatedly wrong-footed investors who previously bought bonds on the bet that growth would slow down after the Fed spent a year yanking up rates.
  • A group of banks led by JPMorgan Chase & Co. and Goldman Sachs Group Inc. are lining up around $9.4 billion of debt to back GTCR’s purchase of a majority stake in Worldpay Inc., in what would be the largest buyout financing in over a year. The financing will include $8.4 billion of leveraged loans and high yield bonds, denominated primarily in dollars but also in euros, according to people with knowledge of the matter who asked not to be identified because the details are private. The funding package will also include a roughly $1 billion revolving credit facility, one of the people said. Private equity firm GTCR on Thursday agreed to purchase a 55% stake in payment processor Worldpay, the Fidelity National Information Services Inc. unit that handles card payments for global businesses, valuing the company at $18.5 billion. FIS will retain a 45% stake.
  • Shell Plc’s earnings from natural gas trading will be significantly lower in the second quarter due to seasonal shifts in the market. Oil and gas production will also be down compared with the first three months of the year due to field maintenance, while the company’s chemicals business is expected to post a loss, Shell said in an update ahead of its full results later this month. Trading helped Shell deliver record profits last year amid volatility in European natural gas prices, with the unit driving as much as a quarter of overall profitability. That strong performance continued into this year, helping deliver the company’s best-ever first quarter, but conditions were less advantageous in the following months.
  • Alibaba Group Holding Ltd. soared on a report that China is preparing to announce a fine of more than $1.1 billion on its fintech affiliate, signaling a wide-ranging probe that has weighed on Jack Ma’s empire for years may finally be drawing to a close. China’s central bank is expected to disclose the fine against Ant Group Co. as soon as Friday, Reuters said, citing people with knowledge of the matter. That will allow Ant to seek a financial holding company license, revive growth and eventually resurrect plans for an initial public offering, it added. Alibaba’s shares rose 3.4% in Hong Kong on Friday. The company’s American Depositary Receipts rose about 2.6% in premarket trading before New York exchanges opened.
  • Chinese authorities are weighing plans to support cash-strapped cities and counties by allowing additional local bond issuance to help pay down hidden debt in higher-risk areas, according to people familiar with the matter. The proposals, which were submitted to senior leaders for discussion and are subject to change, could help address one of the biggest financial worries in the world’s second-largest economy: strains in debts at local-government financing vehicles. Provincial governments would be allowed to tap unused bond quotas and use the cash to help pay the hidden debts of local borrowers, the people said, asking not to be identified discussing private deliberations.
  • Samsung Electronics Co. reported its worst decline in quarterly revenue since at least 2009, stoking uncertainty over when a year-long electronics and memory chip demand slump will end. The stock slid 2.4% in Seoul, the most in three months, after Samsung reported a larger-than-anticipated 22% decline in sales to 60 trillion won ($46 billion). Operating profit plunged 96% in the three months ended June, though at 600 billion won that surpassed average estimates. Samsung has borne the brunt of a slowdown gripping the $160 billion global memory industry, reflecting a wider downturn after a Covid-era boom in online activity waned. Inflation and recession fears last year triggered a rapid pullback on consumer and business spending that’s since hammered sales of electronics worldwide.
  • President Joe Biden will announce steps his administration is taking to help lower health care costs, including the targeting of so-called junk insurance plans and surprise medical bills, part of an effort to rein in high prices for consumers that have been a persistent political liability. The administration will propose rules that would close loopholes on insurance plans that often provide reduced coverage, including undoing Trump administration rules on short-term policies. Those plans provide cheaper alternatives but critics say they leave consumers lacking comprehensive coverage and at risk for high bills in a medical emergency. Neera Tanden, the president’s top domestic policy adviser, said the proposals are intended to prevent consumers from unexpectedly incurring medical bills after signing up for misleading insurance plans. The administration will also release guidance intended to prevent providers from evading billing regulations by contracting with hospitals defined as out-of-network.
  • European football teams, media like Le Monde and Agence France-Presse and other organizations on the continent have found a way to get Meta Platforms Inc.’s new Threads app, even though the company hasn’t launched it in the European Union. Verified accounts for French media companies Le Figaro and Liberation were posting on the app the day it went live on Thursday as well as left wing French lawmaker Francois Ruffin, who deleted an initial post. German football club RB Leipzig and French peer Saint-Etienne also started posting on Threads, as well as a verified account for Real Madrid player Eduardo Camavinga. Threads, which according to Mark Zuckerberg had already garnered more than 30 million users after it went live on Thursday morning, won’t be available in app stores in the 27 European Union countries while the company works out how the bloc’s regulations around data use will affect the app, a person familiar with the matter has said.