June 8, 2023
- The Bank of Canada’s decision to resume raising interest rates shook global bond markets and underscored the difficult task faced by central banks as they try to slow economic activity and tamp down inflation. Policymakers led by Governor Tiff Macklem increased the benchmark overnight rate to 4.75%, ending a pause they declared in January after Canada’s economy proved surprisingly strong despite much higher borrowing costs. The central bank said the economy is running too hot to bring inflation back to its 2% target, citing robust consumer demand for goods and services and a pickup in housing activity. But Canada’s situation isn’t unique — and it may be the case that other central banks, including the Federal Reserve, will have to push rates deeper into restrictive territory this time around. The yield on 2-year US Treasuries jumped as high 4.6%, while comparable Canadian government bonds now boast the highest yield since 2007. Traders briefly fully priced in a Fed hike by July.
- This week is just the beginning of what could be a long, smoke-filled summer in North America — and the start of a new seasonal pattern made possible by climate change. The flames that have scorched Canada for weeks, driving thousands from their homes in regions along both coasts, have pumped plumes of caustic smoke south across some of the most densely populated areas of the US. Many of the 436 wildfires raging right now, according to the latest numbers from Canada’s Wildland Fire Information Systems, ignited either before or in the very earliest days of what’s normally a busy season for Canadian fires. June is often the worst month, said Brendan Rogers, a scientist at the Woodwell Climate Research Center in Massachusetts who studies boreal forest fires. Canada is seeing snow that melts out faster in the spring, he said, allowing for an earlier start to the burning season.
- European equities were steady as gains in automotive and banking stocks countered losses in other sectors like technology, which were weighed down by concerns of slowing growth and elevated interest rates. The Stoxx Europe 600 was little changed by 10:17 a.m. in London, with automotive stocks rallying after data showed retail passenger vehicle sales rose in China in May. Bank stocks also advanced amid the prospect of higher rates, while those expectations dragged technology names lower as bond yields rose. Miners were boosted by gains in the price of iron ore. Markets are already prepared for an ECB hike next week, said Joachim Klement, head of strategy, accounting and sustainability at Liberum Capital, adding that a cooling econom — particularly in Germany — is a key factor that’s weighing on markets.
- US futures and stocks were steady on Thursday, while Treasury yields held the sharp move up from the previous session. In US premarket trading, GameStop Corp. plunged 18% after firing its chief executive and reporting sales that fell short of estimates. Nasdaq 100 futures were little changed after the index yesterday posted its worst decline since April. Megacap tech companies had powered the S&P 500 to the brink of a bull market, before rate worries prompted Wednesday’s pullback. Policy decisions are due from the Fed and the ECB next week, with the Fed signaling it may pause rate hikes in June before resuming them later.
- Asian stocks fell as investors boost bets that the Federal Reserve may continue to raise interest rates and keep them at elevated levels for longer. The MSCI Asia Pacific Index dropped as much as 0.8%, dragged by info tech and healthcare shares. Stocks including TSMC, Keyence and Sony Group were among the biggest contributors to the gauge’s decline. Most markets in the region traded lower, while gains in Chinese stocks during afternoon trading helped trim the MSCI gauge’s decline. Benchmark in Hong Kong and mainland China gained, led by financial shares, as regulators vowed to push for more open markets and to guide more equity allocation. The nation’s disappointing export data Wednesday has also raised hopes for more stimulus measures from the government.
- Oil steadied as investors weighed mixed US data on crude and petroleum stockpiles amid persistent concerns over the outlook for demand. West Texas Intermediate futures traded above $72 a barrel after gaining 1.1% Wednesday. Crude inventories at the Cushing storage hub rose for a seventh week, while gasoline stockpiles also gained, according to government figures. However, refinery utilization was at the highest level since 2019, providing some bullish sentiment for summer demand. Oil is still down 10% this year as China’s sluggish economic recovery, interest rate hikes from the Federal Reserve and robust Russian crude flows weigh on prices. Investors will also be watching data on jobless claims later Thursday for clues on the path forward for US monetary policy.
- Gold edged higher after sinking to its lowest close since March, with investors tempering bets on future Federal Reserve rate hikes. Yields on US Treasuries stabilized as traders trimmed expectations for further tightening, after a sharp rise on Wednesday following the Bank of Canada’s unexpected decision to restart its rate-hiking campaign. Markets are still tilting toward higher US rates, which are usually negative for non-interest bearing gold. Spot gold climbed 0.4% to $1,947.06 an ounce as of 1:36 p.m. in Singapore, after falling 1.2% on Wednesday. The Bloomberg Dollar Spot Index slipped 0.2%. Silver rose, while platinum and palladium edged higher.
- ByteDance Ltd.’s TikTok aims to more than quadruple the size of its global e-commerce business to as much as $20 billion in merchandise sales this year, banking on rapid growth in Southeast Asia, according to people familiar with the matter. That would be a speedy increase from last year’s $4.4 billion in gross merchandise value, which represents the total worth of goods sold through its TikTok Shop offering, said the people, who asked not be identified discussing internal data. TikTok is betting on markets such as Indonesia, where influencers sell products from denim jeans to lipstick by showing them off in live-streamed videos. TikTok is working to expand sales in the US and Europe too, though those markets make up a small portion of the $20 billion goal, the people said. The world’s most valuable startup is trying to grab a bigger slice of a $17 trillion online commerce arena as its main revenue driver — its advertising business — slows during an economic downturn.
- Actis LLP and Edra Power Holdings Sdn Bhd revived their interests in buying a major Egyptian power plant, in a deal that may be worth about $2 billion and would boost the North African nation’s troubled economy. Both companies intend to enter offers to purchase as much as full ownership and operate the facility that’s located in Beni Suef, south of Cairo, according to people familiar with the matter, who asked not to be identified as the deliberations are private. The firms expressed interest in 2019 for a mooted sale that didn’t materialize. The plant is one of three co-built by Siemens AG with a total capacity of 14.4 gigawatts that were inaugurated by President Abdel-Fattah El-Sisi in mid-2018 as the latest in a series of ambitious megaprojects. Now it’s on the auction block, as the Middle East’s most populous nation races to shrink the state’s economic footprint and secure badly needed foreign currency.
- Inbound flights to New York’s LaGuardia airport were grounded again due to low visibility as the impact of Canadian wildfires continued Thursday. The Philadelphia region faced the worst air quality in the US, while large swaths of the Northeast and Mid-Atlantic experienced unhealthy levels of pollution, according to the National Weather Service. Air conditions were set to deteriorate as far south as Alabama and Georgia. President Joe Biden offered additional support to fight the blazes, as the effects of the smoke blanketed some cities with an apocalyptic tinge, forcing officials to urge residents to stay indoors. New York state planned to distribute a million N95 masks on Thursday. The Federal Aviation Administration continued to report flight delays due to low visibility.
- GameStop Corp., the struggling video-game retailer, fired Matt Furlong, its chief executive officer for the past two years, and said Chairman Ryan Cohen will take on a new executive role. The shares plunged. Cohen’s responsibilities as executive chairman of the video-game chain will include management oversight and capital allocation, the company said Wednesday in a statement. GameStop’s general counsel, Mark Robinson, will become general manager and principal executive officer. The money-losing retailer also reported fiscal first-quarter sales that fell short of analysts’ estimates. Revenue in the period ended April 29 fell to $1.24 billion, missing estimates of $1.34 billion. The loss in the quarter narrowed to 14 cents and was smaller than the 17 cents analysts projected.
- Manhattan renters snapped up apartments at the quickest rate in nearly a year, settling into new places before the already heated market heads into its traditionally busiest season. Units that found takers last month were listed for an average of 35 days, down from 48 days in April and 52 a year earlier, according to appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. The median rent on newly signed leases reached a record for a third straight month, rising almost 10% from a year earlier to $4,395. Manhattan rents typically peak in the summer months and dip slightly through the winter. This year, though, demand has been so intense that prices kept pushing upward. And they’re expected to continue rising as new graduates flood in and families race to move before school starts again.
- Ukrainian Foreign Minister Dmytro Kuleba laid out his country’s plans to counter Russia’s influence in Africa, while saying he has no indication of what leaders from the continent are proposing in a planned peace initiative. Kuleba, who spoke to African journalists on a conference call on Wednesday, said his country will open 10 new embassies on the continent, starting with Rwanda and Mozambique. It will also seek to boost agricultural exports to the continent and strengthen military relations. “We are eager to build strong partnerships based on the principle of 3M — mutual respect, mutual interest and mutual benefit,” he said. “Ukraine is not a victim and not a beggar coming to ask for help. We come to African friends offering mutually beneficial partnerships.”
- A venture started by Generation Investment Management, the asset manager co-founded and chaired by Al Gore, has raised $1.5 billion for its first climate fund after drawing in some of the world’s biggest institutional investors. California State Teachers’ Retirement System (CalSTRS), Canada’s PSP Investments and a unit of Goldman Sachs Asset Management are among firms allocating capital to the fund launched by Just Climate, according to a company statement issued Thursday. The Climate Assets Fund 1 will invest in growth-stage industrial companies, “which have the potential to deliver transformational climate impact across some of the highest-emitting, hard-to-abate industries,” the firm said. What’s more, investor fees will be set according to performance, and can fall if the fund managers fail to deliver on their greenhouse gas abatement goals.
- A mood of deepening gloom is gripping Russia’s elite about prospects for President Vladimir Putin’s war in Ukraine, with even the most optimistic seeing a “frozen” conflict as the best available outcome now for the Kremlin. Many within the political and business elite are tired of the war and want it to stop, though they doubt Putin will halt the fighting, according to seven people familiar with the situation, who asked not to be identified because the matter is sensitive. While nobody’s willing to stand up to the president over the invasion, absolute belief in his leadership has been shaken by it, four of the people said. The most favorable prospect would be negotiations later in the year that would turn it into a “frozen” conflict and allow Putin to proclaim a Pyrrhic victory to Russians by holding on to some seized Ukrainian territory, two of the people said.
- The odds of a US downturn are rising because the Federal Reserve has already pushed interest rates high enough to stall the economy, according to Campbell Harvey, who is well known for his research on the yield curve as a recession indicator. The likelihood of a soft landing has given way to increased risk of an economic contraction, Harvey, a Duke University finance professor and director of research at Research Affiliates, wrote in a new report. The damage of the Fed’s hiking cycle has already been wrought, he argues, and many investors and economists are currently viewing the state of things with rose-colored glasses. Harvey’s research on the yield curve is highly regarded across Wall Street. His work showed that US recessions have for decades been preceded by an inverted yield curve in which 3-month Treasury rates exceeded 10-year ones. It’s had an eight-out-of-eight track record going back to 1968. And the current inversion is a warning to businesses and consumers that a downturn is likely ahead, he said.
- After dominating bonds and equities investing for years, BlackRock Inc. is looking to become a one-stop destination for clients in private markets, a more lucrative area of finance. The world’s biggest asset manager, which oversees about $9 trillion, wants to serve clients with all types of private-market investing and plans to expand the business rapidly, Brent Patry, global head of BlackRock’s capital markets group, said in an interview. As part of the push, the firm announced the purchase of Kreos Capital, a London-based private debt manager, which has committed more than €5.2 billion ($5.6 billion) in deals since its inception in 1998. Rising interest rates and a lending squeeze caused by banks wary of risks are prompting many businesses to tap other sources of funds. Many asset managers are now pushing into private markets as they try to diversify their offerings and capitalize on the higher fees these products offer as well as stellar returns.
- Electric-vehicle sales are poised to more than double by 2026 but eliminating emissions from road transportation by the middle of this century will require even greater efforts, according to BloombergNEF. The research firm sees shipments of plug-in passenger vehicles surging to around 27 million from 10.5 million last year as sales jump in China and the US. That’s offsetting slower growth in Europe, where tight supply chains and a cost-of-living crisis are weighing on demand. While shipments of combustion-engine passenger cars have peaked six years ago, it’ll take time to replace the roughly 1.3 billion roaming roads today. Some 30% of the global fleet will still burn gasoline and diesel by 2050. Heavier commercial vehicles are expected to be trailing cars with just 32% of the fleet decarbonizing on that timeline.
- Adobe Inc. is planning to sell subscriptions for new artificial intelligence services — including legal assurance against copyright infringement claims. Business customers will be charged a flat-rate subscription for company-wide access to new so-called generative AI tools — the type that can generate content such as text or images from a prompt — across Adobe products, Ashley Still, Adobe senior vice president, said in an interview. Still said pricing will be negotiated with individual customers depending on the size of their organizations. A key part of the offering: Licenses will remove watermarks from generated images, and if a customer is sued for infringement, Adobe will pay damages and help in court, Still said. The company provides a similar service for Adobe Stock, its library of digital images. Adobe’s shares gained 2.8% in pre-market trading on Thursday.
- The artificial intelligence hype that has propelled US technology stocks in the past few weeks is showing signs of fatigue. Tech is the worst-performing industry group in the S&P 500 this month, a sharp contrast to its market-leading 33% gain year to date. Meanwhile, the laggard groups of 2023, such as energy and financials, are leading the gains in June. Investors’ shift out of tech, and growth stocks more broadly, is benefiting value stocks, or those that sell for low multiples of earnings or sales. On Wednesday, a gauge of global value stocks from MSCI Inc. had its largest outperformance against a growth benchmark since May 2022, while the tech-dominated Nasdaq 100 Index recorded its worst day against the S&P 500 since October.