June 16, 2023

Daily Market Commentary

Canadian Headlines

  • The S&P/TSX Composite was little changed, with four of 11 sectors higher and seven lower. As of market close, 116 of 232 stocks fell, while 108 rose. Sandstorm Gold Ltd. led the declines, falling 4.6%, while First Quantum Minerals Ltd. increased 7.6%.
  • A single Tweet alleging Communist Party interference was all it took for Canada to freeze ties with a China-led development bank this week. The question now is whether the US and other allies will join Canada — and would Beijing even care? The controversy over the Asian Infrastructure Investment Bank began Wednesday, when Bob Pickard — its former global head of communications — declared on Twitter that he was quitting his job because the lender was “dominated by Communist Party members and also has one of the most toxic cultures imaginable.” Within hours, Canadian Finance Minister Chrystia Freeland announced it would halt all activities with the bank while the government conducts a review. The AIIB quickly denied the claims, with Vice President and Corporate Secretary Ludger Schuknecht telling Bloomberg the bank welcomed Canada’s review because “we have nothing to hide.” China called the whole thing a “a sensational publicity stunt and a complete lie.”

World Headlines

  • European shares edged higher on Friday, set for the best weekly gain in two months, as sentiment was boosted by China stimulus bets. The Stoxx 600 Index was 0.4% higher as of 9:30 a.m. in London, with consumer products and travel stocks outperforming. The benchmark is 1.4% up in the week. Tesco Plc shares dropped even as sales at Britain’s biggest supermarket rose 9% in the first quarter, while Travis Perkins Plc slumped after warning that full-year profit will be hurt by lower volumes. Central banks have been in focus this week. The Federal Reserve left borrowing costs unchanged and the European Central Bank raised interest rates, signaling that its monetary tightening campaign isn’t over as inflation pressures persist.
  • Global stocks were headed for the best week in more than two months, buoyed by bets on Chinese stimulus and exuberance surrounding artificial intelligence firms.  Investors’ fervor will face a big test on Friday, with the expiration of a massive amount of options contracts tied to stocks and indexes. The event, known as OpEx, generally sees traders either rolling over existing positions or starting new ones. That usually involves portfolio adjustments that lead to a spike in volume and sudden price swings.
  • Asian stocks headed for their best week in five months amid expectations for more stimulus from the Chinese government, and as the Federal Reserve paused its interest rate hikes. The MSCI Asia Pacific Index rose as much as 1.1% Friday, poised for a third straight week of gains. Most sub-sectors advanced apart from technology hardware. Hong Kong stocks led increases around the region, with a focus on a China State Council meeting that is expected to discuss a broad package of stimulus proposals. Key Japan indexes erased an earlier loss after the nation’s central bank stuck with its stimulus settings. Investors are bracing for further steps by Chinese policymakers to revive the faltering economy, following a slew of policy rate cuts this week. Potential measures include extra new infrastructure spending and looser rules for property purchases, according to a Wall Street Journal report.
  • Oil was steady after jumping the most in six weeks on Thursday as a weaker dollar and expectations for more stimulus in China outweighed concerns over higher interest rates in the US and Europe. West Texas Intermediate held above $70 a barrel after jumping 3.4% in the previous session, putting it on course for a modest weekly gain. In a volatile week for prices that has seen crude move by more than $2 on three occasions, the market continues to send mixed signals. On the one hand, there has been a rally in refined fuels, particularly in the US where gasoline’s premium over crude hit an 11-month high. On the other, key timespreads for US crude and the Brent benchmark are now in a bearish contango structure, an indication of oversupply.
  • Gold was poised to end the week close to where it started after being buffeted by the Federal Reserve and the European Central Bank. Bullion edged higher to trade above $1,960, extending Thursday’s gain after ECB President Christine Lagarde said a hike next month was very likely. The dollar weakened initially, boosting the precious metal. Gold fell earlier in the week after the Fed paused its tightening cycle, but said more hikes were likely later this year. Higher interest rates are generally negative for bullion, which doesn’t offer any interest. Spot gold rose 0.3% to $1,964.10 an ounce as of 10:16 a.m. in London and was up 0.1% for the week. The Bloomberg Dollar Spot Index was little changed after falling 0.7% on Thursday. Silver climbed, while platinum and palladium were steady.
  • Industrial materials from copper to iron ore headed for a third straight weekly advance amid increasing bets on more government stimulus measures in China, the biggest consumer of metals. Iron ore has surged 15% in June and is trading around the highest level in about two months, helped by stimulus expectations, improving mill margins and low port inventories. Copper held gains in London on Friday after closing at the highest level in more than a month. China will speed up work to draft and roll out policies to boost consumption, National Development and Reform Commission spokeswoman Meng Wei said at a monthly briefing. The People’s Bank of China on Thursday reduced the rate on its one-year loans. Data this week showed real estate investment, industrial output and retail sales growth either slowed or missed expectations.
  • Bundesbank President Joachim Nagel kicked off warnings from hawkish officials that the European Central Bank’s historic campaign of interest-rate hikes may need to extend into the fall. “As I see it, we still have more ground to cover,” Nagel said Friday in a speech. “We may need to keep raising rates after the summer break.” That prospect was backed by policymakers from Austria, Slovenia and Lithuania. Belgian central bank chief Pierre Wunsch even suggested monetary tightening might need to persist beyond September.
  • Amazon.com Inc.’s proposed $1.7 billion deal to buy robot vacuum firm iRobot Corp. was given the all-clear by the UK’s antitrust agency, sending pre-market shares in the Bedford, Massachusetts firm soaring. The Competition and Markets Authority said the deal would not lead to competition concerns in the UK market after an initial review, according to a statement Friday. Shares of Amazon were little changed in pre-market trading as the deal still faces an in-depth review by the Federal Trade Commission in the US and a review by the European Commission in Brussels. The EU will decide on whether to start a phase 2 probe by July 6.
  • The gravity-defying bull market is handing stock investors a fresh conundrum as an unusually big pile of options expires Friday: Chase gains via bullish derivatives or hedge with bearish bets? It’s a decision traders face every month, but the stakes are higher this time. About $4.2 trillion of contracts tied to stocks and indexes are scheduled to mature, according to an estimate by Rocky Fishman, founder of derivatives analytical firm Asym 500. That’s 20% more than a year ago. The event known as OpEx generally sees Wall Street managers either roll over existing positions or start new ones. This month it also happens to coincide with the quarterly expiration of index futures and the rebalancing of benchmark indexes including the S&P 500. The process is ominously dubbed triple witching and is known for causing spikes in trading volume as well as sudden price swings.
  • Airbus SE said near-term efficiency gains will come from improving existing jets and infrastructure rather than an entirely new model, suggesting the manufacturer remains years away from going all-in on future technologies. “There’s no new aircraft program,” Airbus Chief Commercial Officer Christian Scherer said Friday on a panel tied to the Paris Air Show. “What we’re working on today is to play with the cards we have in our hands, and there are plenty.” Scherer said that about 75% of the world’s fleet still runs on older engines rather than the current models like the A320neo or the Boeing Co. 737 Max. Shifting to the newer powerplants would provide a “huge leap forward” to reduce the industry’s carbon footprint, Scherer said.
  • Intel Corp. plans to invest as much as 20 billion zloty ($4.9 billion) to build a plant in western Poland, according to a post on Polish Prime Minister Mateusz Morawiecki’s Twitter page. The project marks Intel’s latest in the European Union as the bloc seeks to boost chip production amid rising geopolitical tensions. Intel has an existing wafer fabrication facility in Ireland and plans to build a major chip complex in eastern Germany, as it seeks to create an end-to-end semiconductor manufacturing value chain in Europe. The announcement comes as the German government is prepared to increase subsidies for the planned plant there to about €10 billion ($10.9 billion), Bloomberg reported Thursday, citing unidentified people familiar with the negotiations. The projected cost of that complex has swelled from €17 billion to €30 billion, they said.
  • Banks in the euro area will hand back €29.5 billion ($32.3 billion) in cheap long-term funding to the European Central Bank, on top of €477 billion that’s due at the end of the month. Firms have already returned about a trillion euros in such loans since the ECB toughened the terms of the program last year. This month’s repayments will shrink the outstanding amount to about €600 billion. The unwinding of the so-called TLTRO loans, which the ECB designed to keep credit flowing during the pandemic, has been the key driver of the central bank’s balance-sheet reduction in recent months. Most of the repayments have happened on a voluntary basis so far.
  • Federal Reserve Governor Christopher Waller said it’s not clear that recent banking strains will lead to significantly tighter lending conditions in the US, adding that officials should not allow worries about a few lenders to interfere with their inflation fight. “Let me state unequivocally: The Fed’s job is to use monetary policy to achieve its dual mandate, and right now that means raising rates to fight inflation,” Waller said Friday. “I do not support altering the stance of monetary policy over worries of ineffectual management at a few banks,” rebutting the argument by some critics that the Fed should take into consideration the losses on banks’ balance sheets spurred in part by higher rates. Waller commented in remarks prepared for an event in Oslo organized by the Norges Bank and the International Monetary Fund.
  • Trafigura Group is being sued by the billionaire Reuben brothers, as the fallout of a massive nickel fraud reverberates through global metal markets and ensnares some of the industry’s best-known figures. Legal filings seen by Bloomberg News shed new light on the case that shocked the market earlier this year, when Trafigura said it expected to lose nearly $600 million in what it called a “systematic fraud” perpetrated by Indian businessman Prateek Gupta. In them, Hyphen Trading Ltd., the company owned by the Reuben brothers which is bringing the legal proceedings, alleges that the fraud didn’t just involve thousands of tons of missing nickel, but also counterfeit shipping documents — which ended up being used to obtain financing from leading commodity bank ICBC Standard Bank Plc. It describes how containers supposedly holding nickel were shipped back and forth around the world, apparently to avoid having to open them and reveal their true contents.
  • Crispin Odey has stepped back from an investment fund focused on the Lloyd’s of London insurance market in a sign of the fallout from sexual harassment allegations against the hedge fund founder spreading to his other holdings. Odey, 64, resigned as a director on Thursday from three firms behind Insurance Capital Partners, a provider of funds for underwriting activity in the world’s oldest insurance market, according to UK registry filings. Odey owns a roughly 11% stake in the Lincolnshire, England-based firm, which forecast underwriting capacity of £103.9 million ($133 million) for 2022, according to its 2021 full-year accounts.
  • Iran is shipping the most crude in almost five years, fortifying its re-emergence on the geopolitical stage while posing risks for a fragile global crude market. Exports have surged to the highest level since US sanctions were re-imposed in 2018, according to a range of analysts including Kpler Ltd., SVB Energy International, FGE and the International Energy Agency. The vast majority is flowing to China, as the world’s biggest importer scoops up cut-price barrels from the Islamic Republic.  Rebounding sales are the most tangible sign yet that the country — while still reeling financially from years of isolation — is reasserting itself, having started to repair ties with regional rivals, fostered relations with Asia’s leading power, and even begun a tentative diplomatic engagement with Washington.