June 23, 2023

Daily Market Commentary

Canadian Headlines

  • Ontario Municipal Employees Retirement System is nearing a deal to buy 20% of a holding company that owns a stake in Toronto’s professional hockey and basketball teams, according to people familiar with the matter. The Ontario pension fund plans to acquire a minority interest in a private holding company of Canadian businessman Larry Tanenbaum. That firm owns 25% of Maple Leaf Sports & Entertainment Ltd., which holds the Toronto Maple Leafs, Toronto Raptors and other assets. The deal implies a value of about $8 billion for Maple Leaf Sports, one of the people said, a number first reported by Sportico on Wednesday. The Raptors, which won the National Basketball Association championship in 2019, are worth about $3.1 billion, according to a Forbes magazine valuation last year.
  • China’s shipments of electric vehicles to Canada soared in May, as Tesla Inc. started to deliver its Shanghai-produced models to the country for the first time. Car manufacturers in China exported a record $250 million of EVs, or 6,214 units, to Canada in May, up from only 88 units in the same period last year, according to the latest Chinese customs data.

World Headlines

  • European stocks were lower for a fifth day, extending their longest losing streak of the year, with Siemens Energy AG dragging down industry peers after scrapping its profit guidance. The Stoxx 600 Index was down 0.1% as of 9:15 a.m. in London, heading for its worst weekly drop since mid-March amid hawkish central-bank signals. Energy and banks led declines, while defensive sectors like healthcare outperformed as Evotec SE climbed following a rating upgrade. The UK’s commodity-heavy FTSE 100 briefly erased year-to-date gains. Following a strong start to the year and a recovery after the banking-lead March rout, European shares are 6.7% higher so far in 2023 and, on average, strategists believe that will be as good as it gets. The benchmark index is set to fall to 451 points by year-end, according to the average of 16 forecasts in a Bloomberg survey, implying a small drop.
  • US equity futures retreated, with the benchmark index heading for its worst week since March, as hawkish signals from the Federal Reserve and other major central banks reignited fears of a recession. S&P 500 contracts slid 0.5% as of 5:19 a.m. in New York, set to extend this week’s drop for the gauge to 1%. Futures for the tech-heavy Nasdaq 100 gauge were down 0.7%.
  • Asia stocks headed for a fifth straight day of declines, the longest losing streak this year, led by an extended selloff in Hong Kong-listed Chinese shares. Japanese equities also slumped. The MSCI Asia Pacific Index dropped as much as 1.6%, with Tencent and Toyota Motor among the biggest drags. The Hang Seng China Enterprises Index slid 1.7% as trading resumed after a holiday. The gauge had its worst week since March as the stimulus trade fizzled amid modest policy support from authorities. Shares in Japan, the market with the highest weighting in the MSCI measure, were among the biggest losers in the region. The Nikkei 225 had its first weekly drop in 11, falling amid a report that Japan’s consumer prices rose at a faster pace than expected in May.
  • Oil extended Thursday’s sharp selloff after the Federal Reserve signaled that further rate hikes were needed, bruising appetite for risk, fortifying the dollar, and raising anxiety over the prospect of economic slowdown. West Texas Intermediate fell toward $68 a barrel after tumbling 4.2% on Thursday and Brent fell through $73. In testimony this week, Fed Chair Jerome Powell signaled further monetary tightening was likely in the second half. Data on Friday showed German economic activity lost much more momentum than anticipated in June, while France’s economy likely contracted in the second quarter. The pace of moves in the oil market has also been exacerbated by technical trading in recent days, with both Brent and WTI falling away sharply after testing the upper ends of the bands in which they had been stuck since early May.
  • Gold headed for its biggest weekly loss since early February after major central banks signaled they’d need to stay hawkish for longer to bring down inflation. Bullion was steady Friday after a run of four daily losses that’s pushed it down 2.2% this week. Federal Reserve Chair Jerome Powell reiterated on Thursday that one or two more rate hikes would be needed this year. That pushed the yield on two-year Treasuries to a three-month high, a headwind for gold, which doesn’t offer interest.
  • Economic momentum in the euro area almost came to a halt in June, signaling an end to the revival the bloc demonstrated since its winter downturn. A purchasing managers index compiled by S&P Global and published Friday fell to a five-month low of 50.3, missing analyst estimates for a slight decline from May to 52.5. The slump was led by France, which has been battered by strikes, though Germany’s struggling factories also played a role. The euro maintained a 0.9% decline to $1.0857, while German two-year yields — among the most sensitive to changes in monetary policy — fell the most in seven weeks, dropping 11 basis points to 3.11%. Money markets eased interest-rate hike wagers, pricing the deposit rate to peak at just below 4% by the end of the year. That compares with bets on a 4.07% terminal rate on Thursday.
  • Siemens Energy AG slumped by a record over escalating issues at Siemens Gamesa Renewable Energy SA, the latest in a long line of costly problems uncovered at the wind turbine unit. The shares plummeted as much as 36% after the Spanish division found worse-than-expected quality flaws at its onshore wind turbines, delaying turnaround efforts. Siemens Energy, scrapping its annual profit guidance, warned that additional costs may exceed €1 billion ($1.1 billion). The German manufacturer has had years of troubles with Gamesa. The unit fell deep into the red due to rising costs of steel and other key raw materials as well as a string of technical problems with installed and unfinished wind turbines — complex products that contain hundreds of moving parts.
  • Thyssenkrupp AG’s Nucera hydrogen unit is seeking to raise as much as €566 million ($615 million) in an initial public offering as it attempts to navigate a tricky market for European listings. Thyssenkrupp and Nucera’s other shareholder, Italy’s Industrie De Nora SpA, will sell as much as €85 million combined if there’s enough demand in the Frankfurt listing to place additional shares with investors, according to statements from the companies. The offering would value the company at as much as €2.7 billion. The IPO drew two big name investors: Saudi Arabia’s Public Investment Fund may take as much as €163 million of the offering, while BNP Paribas Asset Management is buying up to €85 million of the share sale for its energy transition fund.
  • Treasury Secretary Janet Yellen sees diminishing risk for the US to fall into recession, and suggested that a slowdown in consumer spending may be the price to pay for finishing the campaign to contain inflation. On the chance of a recession, Yellen said “my odds of it, if anything, have gone down — because look at the resilience of the labor market, and inflation is coming down.” She spoke in an interview with Bloomberg News Thursday. Yellen’s latest assessment of the US economy follows a May employment report that showed job gains beating all economists’ forecasts. Home construction and retail sales for last month have also shown surprising resilience in the face of the Fed’s aggressive monetary tightening.
  • Elon Musk’s Twitter needs to put more resources toward addressing sensitive content if it wants to comply with strict new European regulations ahead of a deadline in August, according to Thierry Breton, the bloc’s internal market commissioner. There are a few “critical” areas that Twitter needs to focus on immediately, especially around child abuse and controlling disinformation around elections, Breton said. The commissioner is touring Silicon Valley to explain the EU’s upcoming requirements on content regulation and draft rules on artificial intelligence, meeting with execs at companies from Twitter to OpenAI and Meta Platforms Inc. On Thursday, an EU team conducted a stress test of Twitter’s compliance systems. While promising, Breton said there are certain areas Twitter needs to focus on in order to comply in just six weeks.
  • Carlsberg A/S, the Danish brewer, signed an agreement to sell its operations in Russia, more than a year after deciding to exit the country. The agreement is subject to regulatory approval and fulfillment of certain conditions in a number of jurisdictions, making the timing of completion uncertain, said Carlsberg, which owned the biggest brewery in Russia. The Danish company, which announced that it would exit Russia completely in March last year, said the separation of the Russian business from the rest of the group has been “very complicated.”
  • Italian energy giant Eni SpA expanded the reach of its natural gas business through the joint acquisition of explorer Neptune Energy Group Ltd. for $4.9 billion. The deal, done in conjunction with Eni-controlled Norwegian producer Var Energi ASA, adds assets from North Africa to the North Sea and boosts the companies’ production of natural gas at a time when Europe is in desperate need of the fuel. “We see the transaction adding around 4 billion cubic meters of gas supply for European consumers,” Eni Chief Executive Officer Claudio Descalzi said in a statement on Friday.
  • Investors bet the Bank of England will raise interest rates to the highest level in more than two decades, a move that will likely inflict damage on the UK housing market, squeeze borrowers and hurt the economy. The repricing comes after officials accelerated the pace of increases this week in the face of faster-than-expected inflation. Money markets priced a terminal policy rate of 6.25% in February, according to interest-rate derivatives, which implies one-and-a-quarter points of further tightening