June 14, 2023

Daily Market Commentary

Canadian Headlines

  • Executives at Canaccord Genuity Group Inc. walked away from a plan to take the company private after they couldn’t get speedy approval from regulators for the deal. A group led by Chief Executive Officer Dan Daviau and Chairman David Kassie in January offered about C$1.1 billion ($825 million) for the Canadian financial firm, with the support of a large outside shareholder. But the company warned last month that it was dealing with an “ongoing regulatory matter” at one of its foreign divisions that would prevent it from getting regulators’ consent for the leveraged buyout by the June 13 expiry. A committee of Canaccord’s board had asked the management group to consider extending it, but instead they decided to let it lapse, according to a statement Wednesday. Canaccord shares closed at C$8.55 on Tuesday; the take-private offer was for C$11.25.
  • The operator of the Toronto Stock Exchange is developing plans for a new trading platform targeting early-stage companies and alternative asset classes in an effort to spur activity as competition mounts. The plan includes a “new, highly differentiated exchange” targeting growth companies, TMX Group, which operates the TSX and TSX Venture exchanges said in a white paper released Wednesday. The company hasn’t settled on exactly which asset classes will trade on the new exchange but is considering cryptocurrencies, NFTs, securitized real estate and stakes in private companies, according to Venture’s chief Tim Babcock. While TMX Group is still the country’s largest stock exchange operator, it faces competition from Cboe Global Markets Inc., which bought the NEO Exchange a year ago and now operates as Cboe Canada. The Cboe unit claims about a 15% share of all volume traded in Canadian-listed securities and specifically markets to growth-stage companies as well as exchange-traded funds and special-purpose acquisition companies (SPACs).
  • One of Canada’s biggest pension funds bought a luxury resort in the Rocky Mountains as tourism’s recovery continues to defy predictions of an economic slowdown. Oxford Properties, the real estate arm of the pension representing municipal workers in Ontario, has purchased the Rimrock Resort Hotel in Canada’s Banff National Park, according to a statement seen by Bloomberg News. The firm is paying C$170 million ($128 million) for the property, said a person familiar with the matter, who asked not to be identified citing private information. An Oxford spokesperson declined to comment on the price. After grinding to a near halt during the Covid-19 pandemic, global tourism has rebounded as consumers prove eager to spend savings on long-delayed experiences and travel. That pent-up demand has so far helped many owners weather historic increases in interest rates over the past year by central banks trying to tamp down inflation.
  • Cenovus Energy reached separate agreements with Hutchison Whampoa Europe Investments and L.F. Investments to buy back 45.5m warrants for C$711m. The company has negotiated payment terms that provide flexibility to work within its shareholder returns framework, with no expected impact to Cenovus’s ability to achieve its C$4b net debt target

World Headlines

  • European stocks gained as miners rallied for a second day, while investors awaited the Federal Reserve’s policy decision for clues on the path of interest-rate hikes. The Stoxx Europe 600 Index was up 0.6% by 10:51 a.m. in London. Miners gained 1.8% as optimism around stimulus in China kept iron ore prices near a two-month high. Barclays Plc strategists upgraded their rating on the sector to overweight, saying bets on the stimulus would boost cyclical sectors in the second half. After sliding last month, European stocks have recovered in June amid prospects of stimulus in China and bets that central banks could signal a pause in the pace of rate hikes. After data on Tuesday showed US inflation slowed in May, all eyes turn to the Fed’s policy meeting, where it’s expected to keep rates unchanged.
  • Stocks climbed on Wednesday, with markets positioned for Federal Reserve Chairman Jerome Powell to announce a pause in the US central bank’s interest-rate hiking campaign later. In corporate news, Google parent Alphabet Inc. slipped in US premarket trading as the European Union accused the unit of abusing its dominance over advertising technology. Advanced Micro Devices Inc. rose after the chipmaker showed off its planned line of artificial intelligence processors, while Tesla Inc. was set for a record 14th consecutive session of gains.  Global investors embraced Tuesday’s data showing a slowdown in US inflation as confirmation that the Federal Open Market Committee will hold rates in the 5%-5.25% range. Swap traders put the odds of an increase at only 10%, while still seeing the potential for a July move, given that inflation is still more than twice the central bank’s goal.
  • An index of Asian equities rose for a fourth day amid bets for supportive monetary policy from central banks in China and Japan and a pause in interest rate hikes from the Federal Reserve. Japan’s Topix rallied more than 1% as it extended its three-decade high. Australia’s benchmark gauge also advanced. Shares in Hong Kong and Shanghai were mixed amid debate over how much stimulus can do to truly reinvigorate the Chinese economy. The gains in Asia followed the S&P 500’s fourth consecutive increase — its longest winning run since early April. It is approaching the 4,400 mark, a level it hasn’t traded at for more than a year. Futures for US stocks were little changed Wednesday, while those for Europe ticked lower.
  • Oil rose for a second session as China’s new crude import quotas helped cut recent pessimism over demand. Benchmark Brent crude topped $75 a barrel, while West Texas Intermediate hit $70. The large batch of Chinese quotas added to an improved outlook for consumption in the world’s second-largest economy, a day after Beijing was said to be considering a broad range of measures to revive a flagging recovery. The dollar also dropped, making commodities priced in the currency more attractive. Equities climbed in anticipation the US Federal Reserve will announce a pause in its run of interest-rate hikes, which contributed to the bullish sentiment. Crude has been largely rangebound since the start of May as stubbornly high Russian supplies and concern about global demand counteract Saudi-led OPEC+ efforts to curb production. Slowing US inflation and stimulus in China have improved the market outlook in recent days, while America is planning to buy about 12 million barrels of oil this year to refill its depleted emergency reserves.
  • Gold edged up after three days of declines, boosted by a slight fall in Treasury yields ahead of a likely pause in the Federal Reserve’s aggressive monetary-tightening cycle. Data Tuesday showed US inflation slowing to the lowest since March 2021, solidifying bets the Fed will keep interest rates steady later Wednesday. Swaps traders still see a high chance of at least one more hike later in 2023. Gold remains within a range around $1,950 that’s held for most of the month as investors wait decisive new drivers. Official data has continued to paint a mixed picture of the economy, making the outlook for monetary policy uncertain. Spot gold was 0.3% higher at $1,950.38 an ounce as of 10:05 a.m. in London, after closing 0.7% lower in the previous session. The Bloomberg Dollar Spot Index weakened slightly. Silver and palladium rose, while platinum edged lower.
  • The UK economy bounced back in April as strong growth in the retail and creative industries sectors offset a slowdown in construction and manufacturing. Gross domestic product rose 0.2% after a 0.3% decline in March, when heavy rains and strikes kept consumers at home, the Office for National Statistics said Wednesday. The figures left the economy 0.3% bigger than before the coronavirus hit in 2020. The positive start to the second quarter reduces the risk of recession for now. However, bets that the Bank of England will keep raising interest rates through the summer are adding to the prospect of a downturn later in the year as policy makers seek to tame inflation that’s running at more than four times the 2% target.
  • Google was accused of abusing its dominance over advertising technology to crush competition, as the European Union fired off an antitrust charge sheet that strikes at the heart of the US firm’s sales model and threatens a selloff of the lucrative business. Margrethe Vestager, the EU’s competition commissioner, said the Alphabet Inc. unit had favored its own ad exchange program over its rivals and bolstered the company’s central role in the ad tech supply chain as well as Google’s ability to charge a high fee for its service. Should the commission decide that Google acted illegally it may be forced to divest part its ad sales services, she said at a press conference Wednesday.  Crucially, the European Commission said that a potential order for Google to implement behavioral remedies may not be sufficient in correcting the abusive conduct, opening the door for a potential order against Google to break up its ad tech business from its core services.
  • HSBC Holdings Plc told brokers it will raise prices on UK residential and buy-to-let mortgages starting Thursday, its second increase in under a week. The bank said in an email that it will remove its current new business residential products from sale via brokers at 5 p.m. local time on Wednesday “in order to maintain service levels.” The changes will affect certain two-, three- and five-year fixed products. “We’re firmly focused on supporting customers through current pressures and providing access to good deals,” a representative for HSBC said in an email. But since the cost of funds has increased in recent days, “we have had to reflect that in our mortgage rates” like other banks, the lender said.
  • Shell Plc will increase its dividend 15% and boost natural gas production as new Chief Executive Officer Wael Sawan refocuses on the fossil fuels that drove record profits last year. It’s part of a pivot by the European oil major to expand the most profitable parts of its business, even if they are carbon intensive, while scaling back ventures that don’t make high enough returns. The company reiterated its pledge to achieve net-zero emissions by 2050, but didn’t present a clear plan to achieve that target. “We will invest in the models that work — those with the highest returns that play to our strengths,” Sawan said in a statement. The CEO and his management team will lay out more details of the plan to shareholders at a presentation in New York later on Wednesday.
  • Some of the world’s biggest fund managers are piling in to a quirky Chilean business model that offers guaranteed long-term prices for power produced by tiny renewable plants. BlackRock Inc. and Brookfield Corp. are among firms buying portfolios of small generators known as PMGDs for their Spanish initials. The mainly solar farms give environment-focused investors access to stable prices in a market characterized by renewable supply gluts that can mean large producers get nothing for their spot sales at times. The money flowing in to PMGDs is part of a clean-energy boom in Chile, with the South American nation’s abundance of wind and sunshine helping it top BloombergNEF’s ranking of most attractive emerging markets for renewable investments. But like other markets, transmission investments haven’t kept up with the generation boom. PMGDs afford some protection from the ensuing bottlenecks and price distortions.
  • The market for wagers on the course of Federal Reserve policy shows that traders now expect the US central bank’s policy rate will peak in September, where they previously looked for it to crest in July. The Fed’s target range for the federal funds rate  — which it is expected to leave unchanged at 5%-5.25% at the meeting that concludes at 2 p.m. in Washington — has resulted in an actual rate of 5.08%. The highest rate on swap contracts for future meetings was about 5.29% in September on Wednesday morning, with the July contract’s rate 5.28%. As recently as Tuesday the July contract’s rate was higher, anticipating no rate increases after that point. Meetings are scheduled for July 26 and Sept. 20. The minority view that the Fed might raise rates in June got beaten up Tuesday by May inflation data that showed more deceleration than expected. However the view that rate cuts are possible during the second half of the year was also damaged, as inflation remains well above the Fed’s 2% target. The December contract’s rate at 5.15% continues to price in about half of a rate cut from the expected peak.
  • UnitedHealth Group Inc. shares fell after an executive said a recent increase in surgeries and other medical care might push expenses higher than anticipated. The health insurer is seeing more patients seek behavioral health care and procedures like joint replacements, Chief Financial Officer John Rex said Tuesday at a conference, and the amount of premium revenue spent on care for the second quarter may be at the high end of or “moderately above” expectations.  The shares dropped 5.4% before US markets opened Wednesday, setting them up for the biggest fall since Feb. 2, if the move persists during regular trading hours. Rivals followed suit, with Humana Inc. down 7.3% and CVS Health Corp. tumbling 3.2%.
  • Microsoft Corp.’s $69 billion acquisition of Activision Blizzard Inc. was temporarily blocked by a federal judge in California who said a temporary restraining order was necessary to maintain the status quo while the Federal Trade Commission challenges the deal. The FTC, which sought to block the deal in its in-house court, filed an emergency motion to halt the merger on Monday. The ruling holds the two companies apart until five days after the court rules on a more permanent pause on the deal, US District Judge Edward J. Davila wrote.  An evidentiary hearing on the longer-term injunction is set to be held in San Francisco on June 22 and 23.
  • Riskier bonds issued by banks are recovering further from the turmoil caused by US regional lenders and Credit Suisse Group AG’s crisis, offering some of the best gains in debt markets and as demand returns for new deals. Prices of such capital securities, including the riskiest Additional Tier 1 notes, climbed on Tuesday to their highest since Silicon Valley Bank’s collapse on March 10, a Bloomberg index shows. The notes have returned 12% since Credit Suisse’s rescue later that month triggered a $17 billion writedown of its AT1 debt.    Meantime, two European banks on Tuesday sold the first publicly-syndicated AT1 bonds on the continent since the Swiss lender’s crisis.