The Daily – June 12, 2023

June 12, 2023

Daily Market Commentary

Canadian Headlines

• Glencore Plc proposed buying Teck Resources Ltd.’s coal business as an alternative to its $23 billion takeover bid that the Canadian miner has repeatedly rejected, presenting the last twist in a fight that has transfixed the mining world for months. Glencore has offered to buy the unit for cash, combine it with its own coal assets and then create a separate company within a year or two after paying down debt. Teck confirmed it was engaging with Glencore on the preliminary, nonbinding proposal, among others, while Glencore reiterated its bid for all of Teck remains on the table. The discussions represent a potential dialing back of hostilities after the two companies have been engaged for months in a public and acrimonious battle over Glencore’s unsolicited bid to buy Teck and then split the combined businesses into metals- and coal-focused companies. Teck has repeatedly insisted Glencore’s offer was a non-starter, and had so far refused to enter talks this year.

World Headlines

• European stocks rallied as investors were bullish ahead of key central bank meetings later this week, while a slew of corporate deals boosted confidence. The Stoxx 600 Index was up 0.5% at 8:05 a.m. in London. Consumer products and services subindex led gains, with Adidas AG rising 3.7% after Bernstein upgraded to outperform. Luxury goods stocks LVMH and Kering SA gained 1%. Europe’s main equity benchmark has been muted since a decline last month, with investors awaiting meetings of the Federal Reserve and the European Central Bank this week. Consensus is for the Fed to pause its hikes.
• Stocks inched higher as traders prepared for a week packed with interest-rate decisions from major central banks. Tesla Inc. was poised to set a record winning streak. Modest gains in US futures signaled a further advance into bull-market territory for the S&P 500 as bets on a Federal Reserve pause after 10 straight rate hikes buoyed contracts for the tech-heavy Nasdaq 100. Tesla is on course for a 12th day of gains as its electric-car chargers become the industry standard. A busy calendar for investors kicks off with the US consumer price data on Tuesday and the Fed’s latest policy decision the next day. With the pace of inflation still proving sticky, positioning in rates markets suggests one more hike in July.
• Asian stocks gained as Japanese shares rose on the back of a weaker yen, while investors awaited central bank meetings from Europe, Japan and the US this week. The MSCI Asia Pacific Index climbed as much as 0.4% to a four-month high, lifted by technology and health-care shares. Benchmarks in Japan and Taiwan rose, while South Korea declined. Australia was closed for a holiday. Chinese shares fluctuated amid ongoing growth concerns. Some Wall Street bulls have dialed back their targets recently, and an expected L-shaped recovery in the nation’s ailing real estate industry in the coming years may drag on the economy, according to Goldman Sachs.
• Oil extended losses amid persistent concerns around the demand outlook as Goldman Sachs Group Inc. cut its price forecast again. Brent futures traded below $73 a barrel after capping the biggest weekly drop since early May last week. Goldman made its third downward price revision for the global benchmark in six months, trimming its estimate to $86 for the end of the year on rising supplies and waning demand. Oil in London is around 15% lower this year as fears of a US slowdown, China’s anemic economic recovery and robust Russian crude flows weigh on the outlook. Even a recent pledge by Saudi Arabia to cut more production in July failed to keep prices elevated, with traders less and less responsive. On Monday, Brent’s nearest timespread was nearing a flip into a bearish contango structure, which signals oversupply.
• Gold steadied before a Federal Reserve meeting this week at which policymakers are expected to pause interest-rate hikes to take stock of economic headwinds and banking strains. Bullion has held onto most of its 1.3% jump on Thursday, when a surge in unemployment claims in the US curbed bets for another rate increase this week. But there’s likely to be a strong signal from the June 13-14 meeting that the Fed is prepared to keep tightening policy if needed. The metal has traded around $1,950 an ounce this month as investors await more decisive signals on the outlook for monetary policy. Lower interest rates over the long term typically benefit non-yielding gold.
• Iron ore fell for the first time in nine sessions as Goldman Sachs Group Inc. warned that property weakness would likely be a multiyear growth drag for China’s economy. The steel-making staple dropped almost 5% in Singapore after the investment bank said in a note that it sees persistent problems in Chinese real estate, mainly related to lower-tier cities and private developer financing. There was no quick fix and the property recovery was likely to be “L-shaped,” according to Goldman. The warning comes after iron ore jumped 14% over the previous eight sessions as authorities stepped up wider measures to revive the stalled recovery, and also on hopes for more targeted policy to improve the property market. However, Goldman said it didn’t expect more housing-specific stimulus and suggested Beijing would likely seek to reduce economic and fiscal reliance on the sector.
• Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week, ending five weeks of outflows that reached $1.81 billion. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.59 billion in the week ended June 9, compared with losses of $1.07 billion 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 $9 billion.
• Swiss industrial company Georg Fischer AG has made the strongest bid so far for Uponor Oyj by offering €28.85 ($31) per share to acquire the Finnish plumbing-equipment manufacturer. Schaffhausen, Switzerland-based Georg Fischer said the board of directors of Uponor recommends that the shareholders accept the offer, which represents a 12% premium over a rejected offer by Belgium’s Aliaxis SA. The total equity value of the deal is about €2.1 billion ($2.3 billion). In May, Bloomberg News reported the Swiss company was exploring a potential offer for the Finnish manufacturer. That followed an improved €1.9 billion cash offer from Aliaxis, which had been rejected as being too low. The Belgian firm made a first approach in May 2022 and eventually went public with its interest after negotiations failed to lead to an agreement.
• Nasdaq Inc. falls 5.1% in premarket trading after the firm said it will acquire Adenza from Thoma Bravo, a leading software investment firm, for $10.5 billion in cash and shares of common stock. The deal comprises of $5.75 billion in cash and 85.6 million shares of Nasdaq common stock, the company said in a statement. Nasdaq has obtained fully committed bridge financing for the cash portion of the consideration and plans to issue approximately $5.9 billion of debt between signing and closing and use the proceeds to replace the bridge commitment
• Federal Reserve officials are rethinking their view that wage gains are fueling inflation, a key intellectual shift that bolsters the case for a pause in their tightening campaign this week. Until recently, many top policymakers at the US central bank maintained that the road to lower inflation ran through the job market. The idea was that, because labor costs make up a substantial portion of the cost of providing services — an area where price pressures have been especially persistent — workers would need to feel some “pain” in the form of smaller wage increases for inflation to be brought under control. But new research and commentary from officials and economists suggest the link between wages and prices may not be so direct. And it’s arriving just as the Fed is nearing the likely end of what has been a historic cycle of interest-rate increases over the past 15 months.
• Mary Callahan Erdoes has watched one star executive after another climb to the highest rungs at JPMorgan Chase & Co. and then leave, either seizing other opportunities, retiring or getting shoved out. But the bank’s asset- and wealth-management boss has remained a part of Jamie Dimon’s inner orbit — and JPMorgan’s powerful operating committee — longer than anyone else aside from the CEO himself. In April, the board praised her as it made her the firm’s highest-paid top executive after Dimon and the bank’s president Daniel Pinto. Erdoes is contending with a drip-drip of unearthed emails from JPMorgan’s dealings with Jeffrey Epstein, a man who’s name alone is synonymous with a sordid group of ultra-connected and ultra-rich people.
• President Vladimir Putin’s invasion of Ukraine has cost Russia tens of billions of dollars as sanctions squeeze its economy and government revenue slumps. Now with the conflict crossing into Russian territory, the price of war is likely to grow even further. The damage pales in comparison to the enormous loss of life and economic devastation that Russia has inflicted upon Ukraine. Still, an outbreak of full-scale hostilities in regions bordering Ukraine may cut Russia’s already meager growth forecast to 0.8% in 2023, according to Bloomberg Economics estimates. Belgorod region has repeatedly come under fire and faced incursions from Ukraine by fighters who’ve engaged in lengthy battles with Russian troops. Drone strikes have been reported in cities including Kursk, Krasnodar and Voronezh in addition to the large-scale attack that targeted Moscow last month.
• UBS Group AG completed the deal to acquire former rival Credit Suisse Group AG, sealing the biggest merger in banking since the 2008 financial crisis and creating a global wealth-management titan. The Swiss bank announced the closing of the deal in an open letter in local and international newspapers on Monday. The takeover of Credit Suisse ends the lender’s 167-year independent existence. The announcement caps more than two months of uncertainty for employees after UBS finalized negotiations with the Swiss government over a 9 billion Swiss franc ($10 billion) guarantee against potential losses on Credit Suisse assets. The deal sets UBS up for a windfall gain in the tens of billions of dollars and begins a period of complex integration likely to involve thousands of job cuts.
• Russian metal industry veteran Artem Volynets’ blank check firm agreed to acquire two Brazilian mines for $1 billion including debt in a bid to tap demand from electric-vehicle makers. London-listed ACG Acquisition Co. is buying the assets from private equity firm Appian Capital Advisory, according to a statement Monday confirming an earlier Bloomberg News report. Volkswagen AG’s battery arm will support the deal with a $100 million prepayment for future nickel deliveries, while commodities trader Glencore Plc will buy $100 million of ACG stock. The transaction includes a nickel sulphide mine in Santa Rita, known as Atlantic Nickel, as well as the Mineraçao Vale Verde copper mine in Serrote. Chrysler owner Stellantis NV and La Mancha Resource Capital have agreed to buy $100 million of ACG stock apiece, according to the statement.
• Cryptocurrencies resumed losses Monday, though staying above their weekend lows, as last week’s regulatory crackdown by the US Securities and Exchange Commission weighed on sentiment. Bitcoin dropped 1.1% to $25,844 as of 2:55 p.m. in Singapore after tumbling as much as 3.9% on Saturday. Polygon’s MATIC slid 3.3% and Chainlink’s LINK dropped 2.7%. Both MATIC and LINK had slumped more than 10% Saturday. The SEC launched lawsuits last week against market leaders Binance Holdings Ltd. and Coinbase Global Inc., and flagged a number of altcoins as unregistered securities, including MATIC, Solana’s SOL and Cardano’s ADA. An index created by CryptoQuant that tracks tokens listed as securities by the SEC has tumbled by 28% since June 4, compared with a 4% drop in a combined index of Bitcoin and Ether. The tokens have lost around $23 billion in market capitalization since the SEC lawsuits last week.
• It was classic Boris Johnson to be on a trip to Cairo when he lobbed yet another political grenade at his enemies in the UK Conservative Party. Since he was ousted by them almost a year ago, the former premier has been determined to retain the clout of a leader and expand the narrative of betrayal — pocketing hundreds of thousands for appearances in the process. His dramatic resignation from Parliament late Friday had it all — the “witch-hunt” led by politicians still angry at Brexit and an ungrateful Tory party wasting Johnson’s achievements under Prime Minister Rishi Sunak. Motivated by self-preservation and revenge, the announcement appeared timed to inflict maximum damage on the current occupant of 10 Downing Street. Johnson’s move does represent an immediate, significant challenge for Sunak. His Tories now face potentially tricky elections for three Parliament seats — two Johnson allies, Nadine Dorries and Nigel Adams, also quit — and Sunak will be desperate to avoid adding losses to the poor showing in local elections so close to a national vote expected in 2024.
• Qatar is targeting more investment in new frontiers and sectors like technology and health care, as high demand for its natural resources and the end of a $300 billion World Cup splurge bring the promise of extra cash to burn. That has the roughly $450 billion Qatar Investment Authority looking beyond its traditional hunting grounds in Europe and penchant for trophy assets as it searches for new places to write its next big checks, the sovereign wealth fund’s top dealmakers said in an interview with Bloomberg News.  “There is a clear mandate to prepare the institution to handle more inflows in the coming years,” said QIA Chief Executive Officer Mansoor Ebrahim Al-Mahmoud, who rarely speaks to the media. That means increased spending in Asia and the US, where QIA plans to invest across climate change, infrastructure and digitization.
• Novartis AG agreed to buy Chinook Therapeutics Inc. for as much as $3.5 billion to add two promising treatments in advanced tests for a rare kidney disease. The Swiss drug company will pay $40 a share in cash for Seattle-based Chinook, 67% more than Friday’s close, it said in a statement. Another $4 a share could be paid later if the medicines achieve certain regulatory milestones. Chief Executive Officer Vas Narasimhan had been more active in slimming Novartis down rather than boosting its drug pipeline through acquisitions before Monday’s announcement. The two Chinook medicines could pay off quickly if they’re successful, with one expected to report key results as early as this year.