The Daily – June 19, 2023

June 17, 2023

Daily Market Commentary

Canadian Headlines

• Oil held steady as investors tracked China’s plans to support its economy while a prior rally in wider markets ran out of steam. WTI was around $71.50 a barrel. The Greater Toronto Airports Authority reached a four-year agreement with Unifor, the union representing more 1,200 employees at Pearson airport. Statistics Canada reports industrial and raw materials prices at 8:30 a.m. Ottawa time.

World Headlines

• European stocks fell after their best week since April, as delays to a widely expected stimulus rollout in China stoked concern about a potential global recession. The Stoxx 600 was down 0.6% at 11:25 a.m. in London. Investors had been primed for China’s cabinet to possibly announce new support measures for the economy after a meeting on Friday, but it stopped short of releasing any specific proposals. All subgroups were in the red in Europe except banks, with chemicals and construction sectors leading declines. Among individual movers, Sartorius AG slumped 15% after issuing a bigger-than-expected profit warning. The trading volume on the Stoxx 600 was about 24% lower than the 30-day average, with the US equity market closed for a holiday.
• Global stocks fell Monday, striking a more cautious note after Wall Street’s powerful second-quarter rally lost steam at the end of last week. Wall Street’s rally has now erased more than a year of Fed-induced losses, with stocks, volatility and the dollar shaking off the impact of 10 rate hikes. But with the path of rates increasingly uncertain, traders are vacillating between the lure of the rally and concerns it’s exhausted and the market has become overbought. Despite the pressure of an $4.2 trillion options expiry at the end of last week, the S&P 500 index capped a fifth straight week of gains and is now higher than it was the day the Federal Reserve kicked off its campaign. US stock and bond markets are closed Monday for a holiday. Futures contracts on the S&P 500 and Nasdaq 100 traded little changed.
• Asia stocks fell as excitement over China’s stimulus measures lost steam, although it was partially offset by optimism on geopolitical relations between the world’s second-largest economy and the US. The MSCI Asia Pacific Index fell as much 0.9%, trimming losses as Chinese President Xi Jinping met with US Secretary of State Antony Blinken after some major markets had closed. A measure of Chinese companies listed in Hong Kong closed 0.8% lower, reversing half of its losses for the day. Still, heavyweight Chinese tech shares Tencent and Alibaba were among the biggest drags on the regional gauge, even after e-commerce pioneer Jack Ma made a rare appearance at an event co-organized by the latter.
• Oil held steady as investors tracked China’s plans to support its economy while a prior rally in wider markets ran out of steam. Benchmark Brent futures traded near $76.50 a barrel after climbing more than 2% last week as China cut interest rates and hinted that further support would be delivered. Still, Friday’s State Council meeting in Beijing ended with little detail on any new measures to revive the world’s largest crude importer. Crude trading volumes, especially for West Texas Intermediate, may be lower than usual on Monday as the US marks the Juneteenth holiday. Despite Monday’s lackluster price movement, there have been steady gains for gasoline and diesel as a spate of refinery outages ramps up premiums for the fuels. That’s also helping to boost demand for some Middle Eastern crudes.
• Gold extended its first weekly decline in three as the prospect of more monetary tightening and ebbing haven demand kept prices subdued. Bullion dipped 0.2% last week on signs the Federal Reserve and the European Central Bank will keep raising interest rates, a negative for non-interest-bearing gold. The precious metal has mainly traded in a narrow range between $1,940 and $1,980 an ounce this month. Spot gold declined 0.4% to $1,949.43 an ounce as of 12:40 pm. in London. The Bloomberg Dollar Spot Index strengthened 0.2% after falling 1% last week. Silver, platinum and palladium all fell.
• Chinese President Xi Jinping told Secretary of State Antony Blinken it was “very good” the US and China had made progress in steadying bilateral ties between the world’s two largest economies during his trip to Beijing. “I hope that through this visit, Mr. Secretary, you will make more positive contributions to stabilizing China-US relations,” Xi told the US diplomat on Monday, according to a Chinese Foreign Ministry statement. Chinese Foreign Ministry spokeswoman Hua Chunying attended the meeting, along with other senior officials including US Ambassador to China Nicholas Burns and Chinese Foreign Minister Qin Gang.
• Hearst Communications Inc., the century-old media conglomerate, is among final bidders competing to acquire Ascential Plc’s consumer trend-spotting unit, people with knowledge of the matter said. The data analytics firm’s WGSN business has also attracted offers from private equity firms BC Partners and Apax Partners, according to the people, who asked not to be identified discussing confidential information. Ascential could pick a winning bidder in the coming weeks, they said. WGSN, which offers paid-for subscriptions and bespoke consultancy services to help companies understand customer trends, may fetch about $1 billion or more, the people said.
• Germany and Intel Corp. sealed an agreement for the US company to receive subsidies worth €10 billion ($10.9 billion) for a semiconductor manufacturing facility in the eastern part of the country, according to people familiar with the deal. Chancellor Olaf Scholz and Intel Chief Executive Officer Pat Gelsinger will attend a signing ceremony for the accord at 2:45 p.m. in Berlin, the German government said Monday in an emailed statement. There were no details about the agreement in the statement beyond the information that it will be signed by Scholz’s top economic adviser, Joerg Kukies, and Keyvan Esfarjani, Intel’s executive vice president, chief global operations officer and general manager of manufacturing, supply chain and operations.
• Barclays Plc has ramped up the business of financing trades for investors in Asia, part of a global plan to expand its markets franchise as rivals have scaled back. The financing business’ share of overall Asian market revenue almost doubled from a year ago and is now close to matching the overall 32% contribution the business has globally, according to people familiar with the matter. The region’s global markets revenue, which includes intermediation business, has doubled since 2019 after increasing the headcount in sales and trading by 20% as of December last year, one of the people said. The people asked not to be identified because the firm doesn’t break out the businesses numbers.
• The French government said it has identified at least €10 billion ($10.9 billion) of savings as part of efforts to restore public finances after years of increased spending during the Covid pandemic and energy crisis. It is targeting a budget deficit of 4.9% of gross domestic product this year, dropping to 4.4% next year and falling below 3%, the limit set under European Union rules, by the end of Emmanuel Macron’s second term as president in 2027. The first step would be to withdraw energy support for businesses and households. The shield for gas prices ends this month, while the equivalent measure for electricity will be abolished at the end of 2024.
• SVB Financial Group agreed to sell SVB Securities, its investment banking business, to the management team bidder group led by SVB Securities Chief Executive Officer Jeff Leerink. The group will acquire SVB Securities for a combination of cash, repayment of an intercompany note, assumption of certain liabilities and a 5% equity instrument in the buyer entity, SVB Financial Group said in a statement on Sunday. The securities branch will then be rebranded as Leerink Partners.
• Secretary of State Antony Blinken said the US-China relationship had taken a “positive step” forward during his two-day trip to Beijing, putting ties between the world’s largest economies on more stable footing. “My hope and expectation is we’ll have better communications, better engagement going forward,” the US diplomat said at a press conference in Beijing on Monday, hours after meeting President Xi Jinping. “It’s in the interest of the United States to do that. It’s in the interest of China to that it’s in the interest of the world.”  The Chinese leader earlier had rare praise for Blinken’s visit, saying it was “very good” the two sides made progress on stabilizing the relationship. “The two sides have also made progress and reached agreements on some specific issues,” Xi said, without elaborating, according the US State Department.
• Aviation executives arrived in Paris for the first air show in the city in four years. The industry’s biggest conclave is expected to yield a bounty of jetliner orders for Boeing Co. and Airbus SE, with India’s IndiGo, Mexico’s Grupo Viva and Saudi carrier Flynas among the airlines looking to bulk up on aircraft. The industry is struggling to manage a surge of growth after travelers stormed back to the skies in force after the Covid-19 pandemic. Chief among the challenges are persistent supply chain kinks that have slowed output. That’s left some airline executives wondering when they’ll finally get the jets they’re ordering at the show, while Airbus and Boeing are pushing to raise production as fast they can to help alleviate the bottleneck.
• The squeeze on finances for thousands of British homeowners is set to intensify after a key rate on mortgage borrowing climbed to its highest level since December. The average two-year fixed-rate home loan jumped to 6.01% on Monday, edging closer to the 14-year highs reached at the end of 2022, according to Moneyfacts Group Plc. The average five-year fixed-rate deal climbed to 5.67% after breaching 5.5% for the first time since January last week. The UK housing market is under pressure from a triple whammy of pricey borrowing, economic uncertainty and the worst cost-of-living crisis in a generation. That’s prompted some of the biggest lenders — including HSBC Holdings Plc and Banco Santander SA — to temporarily pull products from the market this month as bond yields rise to levels last seen in 2008.