June 15, 2023

Daily Market Commentary

Canadian Headlines

  • Prime Minister Justin Trudeau’s government stopped Canada’s work with the Asian Infrastructure Investment Bank while it investigates claims the institution faces substantial interference from the Chinese government. “Canada will immediately halt all government-led activity at the bank,” Finance Minister Chrystia Freeland told reporters Wednesday in Ottawa. “I have instructed the Department of Finance to lead an immediate review of the allegations raised and of Canada’s involvement in the AIIB.” The move comes as Trudeau’s government fends off criticism over its handling of alleged Chinese interference in recent Canadian election campaigns. Freeland made her announcement hours after the resignation of the bank’s global head of communications, Bob Pickard, who is Canadian.

World Headlines

  • European stocks dropped after Federal Reserve officials signaled interest rates will go higher than previously expected, while investors await the European Central Bank decision later on Thursday. The Stoxx Europe 600 Index retreated 0.3%. Miners fell with base metals following data that showed China’s economic activity weakened in May. Consumer products were under pressure as luxury shares declined. Retail shares outperformed, led by gains in Hennes & Mauritz AB after the clothing seller said June has got off to a strong start. Asos Plc surged as much as 16% after returning to profit. European stocks have rallied in June on bets that central banks could signal a pause in the pace of rate hikes. However, with economic data coming in stronger than expected, and progress on inflation slower by some measures, Fed officials this week lifted expectations for how much more they need to do to contain price pressures.
  • Stocks retreated on Thursday, with sentiment subdued by the Federal Reserve’s hawkish tone and weak economic data from China. Futures for US benchmarks slid after Chairman Jerome Powell said nearly all Fed officials expected it would be appropriate to raise interest rates “somewhat further” this year following Wednesday’s pause. The tech-heavy Nasdaq 100 was set to trim some of its 37% advance in 2023. The dollar trimmed its first advance in three days, gains prompted by traders mulling prospects for further US rate hikes. Treasury yields climbed. The euro strengthened ahead of the ECB policy announcement.
  • Asian stocks were mixed, with shares in China advancing after the nation’s central bank ramped up stimulus, while some markets including South Korea and India traded lower. The MSCI Asia Pacific Index was little changed as of 5 p.m. in Singapore, as the weakness in health care offset gains in consumer shares. Hong Kong’s Hang Seng China Enterprises Index jumped 3% to a one-month high. Shares in Japan and Taiwan also gained as a pause in the Federal Reserve’s interest-rate hikes aided sentiment.
  • Oil held losses driven by a big jump in US crude stockpiles and as the Federal Reserve signaled it’s not finished with rate hikes. West Texas Intermediate futures traded near $68 a barrel on Thursday after falling 1.7% in the previous session. Fed officials paused in their run of interest-rate hikes but projected borrowing costs will go higher than previously expected to tame what Chair Jerome Powell called surprising persistent inflation. The outlook led to renewed worries that higher rates will push the US economy into a recession. It followed data that showed crude inventories in the country rose by the most in four months, while stockpiles at the key storage hub in Cushing, Oklahoma, swelled to a two-year high.
  • Gold dropped for a fifth day, its longest losing run since February, after the Federal Reserve paused interest-rate increases but signaled it wasn’t done with monetary tightening just yet. The prospect of more rate hikes, generally negative for the precious metal as it doesn’t offer interest, saw gold break below the $1,940 to $1,980 an ounce trading range that it’s been in this month. The metal is now on track for its lowest close in three months. Spot gold declined 0.6% to $1,931.47 an ounce by 9:29 a.m. in London, and has fallen about 1.7% in five trading sessions. The Bloomberg Dollar Spot Index rose 0.1% after dropping 0.5% in the prior two sessions. Silver, platinum and palladium also slipped.
  • The European Central Bank is poised to deliver what could be the penultimate increase in its unprecedented campaign of interest-rate hikes. Economists and markets overwhelmingly expect the deposit rate to be lifted by a quarter-point to 3.5% on Thursday, leaving them focused on guidance for how much further officials expect to raise borrowing costs with inflation still three times the 2% target. The consensus among analysts is for one last hike next month, bringing monetary tightening since last July to 425 basis points — a scenario many policymakers signal they could support. Money-market pricing implies a final quarter-point move in July or September.
  • Federal Reserve officials paused their series of interest-rate hikes but projected borrowing costs will go higher than previously expected, owing to what Chair Jerome Powell called surprisingly persistent inflation and labor-market strength. Powell, speaking to reporters in a press conference Wednesday, faced the challenging task of explaining two possibly contradictory policies: deciding to leave rates unchanged following 10 straight hikes while also indicating that at least two more increases might be necessary this year, with the first possibly as soon as July. Yet the surprisingly high projections may also reflect a return to the Fed’s strategy of cooling a resilient economy while slowing its tightening campaign from the aggressive pace of last year — a strategy that was derailed by a string of bank collapses in March.
  • SoftwareOne Holding AG’s board said Bain Capital’s 2.93 billion Swiss-franc ($3.2 billion) offer to take the IT services provider private undervalues the company, the latest hurdle in the private equity firm’s attempt to buy a European tech company. The board, excluding founder Daniel von Stockar who recused himself, voted unanimously that the offer was not sufficiently substantiated, SoftwareOne said in a statement on Thursday. Bain said earlier on Thursday that the offer values the Swiss IT services provider at 18.50 francs per share, a 22% premium to Wednesday’s closing price. SoftwareOne’s founding shareholders, who together own 29.1% of the company, backed the proposal, according to the statement.
  • Bain Capital made an non-binding all-cash offer for SoftwareOne Holding AG at 18.50 Swiss francs per share to take the company private. The indicative price of the non-binding offer is a premium of 22% to Wednesday’s closing price of 15.17 francs, according to Bloomberg calculations. The proposal is subject to due diligence and other customary conditions, Bain Capital said in a statement on Thursday. The founding shareholders of SoftwareOne – Daniel von Stockar, B. Curti Holding AG and René Gilli – together hold 29.1% of the company and have given their “full commitment” to the offer.
  • Deutsche Bank AG expects trading revenue to decline by as much as a fifth this quarter, the first major European investment bank to warn of a significant slowdown. Fixed income trading will drop 15% to 20% compared with the bumper quarter a year earlier, when it rose more than 30%, Chief Financial Officer James von Moltke said Thursday. Analysts were expecting a decline of about 12%. “We are seeing the trail-off in macro, but actually still quite encouraging activity despite all the things we’ve been through – debt ceiling and what have you,” von Moltke said at an investor conference hosted by Goldman Sachs Group Inc. in Paris. “But compared to this outstanding” period last year, “we’re naturally going to have a step-back.”
  • The Federal Reserve is now in a “data-dependent” mode before it delivers what may be just one final increase in US borrowing costs next month, former Vice President Richard Clarida said. “I do think that if the data is closer to market expectations versus Fed expectations, that they could be done in July,” Clarida, who is now a global economic advisor at Pacific Investment Management Co. told Bloomberg Television on Thursday. “I really think that for the first time in a long time, the Fed is data dependent.” He spoke a day after the Fed paused its interest-rate-hiking campaign while projecting higher-than-previously-expected borrowing costs amid what Chair Jerome Powell called surprisingly persistent inflation. The US central-bank chief added that the forthcoming decision on July 26 will be a “live” one.
  • A day after snapping its longest-ever winning streak, Tesla Inc. is embarking on a losing run. The stock slid 3.2% as of 7:04 a.m. in New York premarket trading, having fallen 0.7% on Wednesday to halt 13 straight sessions of gains. Tesla rose 41% in a 13-day ascent through Tuesday, pushing the world’s most valuable automaker deep into overbought territory. Its relative strength index rose to 88 earlier this week, far above the level of 70 that signals to some technical analysts that a stock may have risen too far, too fast. The rally was fueled by positive newsflow that included General Motors Co. and Ford Motor Co. making moves to adapt their electric vehicles to Tesla’s Superchargers, Tesla Model 3 sedans becoming eligible for the full US tax credit, and a broader investor hunger for artificial intelligence stocks.
  • Former Prime Minister Boris Johnson committed a “serious contempt” of Parliament, according to a long-awaited probe that found he repeatedly misled lawmakers over rule-breaking parties at his Downing Street office during the COVID-19 lockdowns. “We came to the view that some of Mr. Johnson’s denials and explanations were so disingenuous that they were by their very nature deliberate attempts to mislead the committee and the House,” the seven-strong, majority-Conservative Privileges Committee wrote in its report on the former premier’s representations to the House of Commons over the so-called “partygate” scandal. “He has committed a serious contempt of the House.”  Johnson had repeatedly assured the Commons that no rules were broken, but later apologized to the chamber after he and Prime Minister Rishi Sunak were both fined following a police probe into a series of booze-ridden gatherings in Downing Street during successive coronavirus lockdowns. In all, police issued 126 fines to 83 people for attending rule-breaking gatherings in government buildings.
  • Two crypto lenders with links to South Korea halted withdrawals in quick succession, a reminder of lingering risks even after regulators around the world tightened oversight of the industry. One of the companies, Delio, said that what it called a temporary halt took effect on Wednesday and blamed “market volatility and increased confusion” triggered by the suspension of withdrawals and deposits at the other outfit, Haru Invest.  There was a “sudden surge of withdrawals on our end in the aftermath of Haru Invest’s withdrawal suspension,” said Delio Chief Executive Officer James Jung via LinkedIn. “We have thus temporarily suspended withdrawals to calm the situation.” Jung said it’s too early to say when his firm may resume withdrawals, and couldn’t give an estimate of the size of Delio’s crypto deposits.
  • The Dutch government is set to permanently shut down the Groningen gas field in October after years of earthquakes in the region damaged thousands of houses, according to people familiar with the matter. The closure will take effect from Oct. 1, the people said, speaking on condition of anonymity as the plans are not yet public. The official decision to shut the field will be taken during a cabinet meeting later this month, said a spokesperson for the Dutch State Secretary for Mining. The field has been a key source of gas for much of western Europe, as well as a backbone of Dutch public finances, since production commenced in 1963. Hundreds of earthquakes with magnitudes of up to 3.6 have hit the province since the 1980s.
  • Boeing Co.’s largest supplier is racing to avoid a potentially crippling strike, a disruption that would jeopardize the US planemaker’s effort to hike production of its cash-cow 737 jetliners. Spirit AeroSystems Holdings Inc. is preparing to make a so-called best-and-final offer this week to about 6,000 unionized employees at its Wichita, Kansas, home base. Members of the International Association of Machinists and Aerospace Workers plan a June 21 vote on the proposal and, depending on the outcome, could go on strike at midnight on June 24. The sides are at loggerheads over wages, mandatory overtime and a management plan to gut traditional health-care insurance, said Cornell Beard, president of IAM’s District 70, which represents IAM members across Kansas.
  • AT&T Inc., the biggest US phone company, has 350 offices spread across all 50 states, and many employees have worked from home since the pandemic started. So it came as a shock when Chief Executive Officer John Stankey in May mandated that 60,000 managers must report to work in person—but at offices in just nine locations. Stankey’s demand is a high-stakes game of musical chairs, with team leaders making location assignments to a handful of hubs focused on specific duties. Although the restructuring may yield big savings on real estate and boost collaboration, many employees now facing long commutes or relocations view it as a move to reduce staff. “It’s a layoff wolf in return-to-office sheep’s clothing,” says one AT&T manager who, like others in this story, asked not to be identified for fear of retribution.
  • Bitcoin’s share of total crypto market value is the highest in about 20 months, a sign of the cautious mood in digital assets. The token wavered near $25,000 on Thursday, giving it a capitalization of $484 billion — or 45.8% of the value of the more than 10,000 coins tracked by CoinGecko. That’s the highest percentage since October 2021. The US Securities & Exchange Commission in lawsuits against Binance Holdings Ltd. and Coinbase Global Inc. last week deemed a raft of smaller tokens to be unregistered securities. That designation led to a selloff in such coins as they could become harder to trade.