March 1, 2023
Daily Market Commentary
- Royal Bank of Canada’s capital-markets division — the largest among the country’s banks — gave it a boost last quarter as its trading business rebounded. Revenue from RBC Capital Markets rose 4.3% to C$3.12 billion ($2.3 billion) in the three months through January, the Toronto-based bank said Wednesday. That beat analysts’ C$2.35 billion average estimate. Overall profit for the fiscal first quarter also topped projections. Royal Bank has a major capital-markets presence in both its home market and the US, as well as significant operations outside North America. That helped results last quarter as a surge in bond trading boosted global-markets revenue 17%. Royal Bank is looking to extend its lead in Canada’s retail-banking industry with the C$13.5 billion takeover of HSBC Holdings Plc’s unit in the country. The deal, struck in November, would give Royal Bank an additional 130 branches and C$134 billion in assets while strengthening its dealings with companies and wealthy individuals.
- National Bank of Canada got a lift in its fiscal first quarter as its capital-markets division benefited from increased trading activity. Revenue in the financial-markets unit came in at C$689 million ($507 million) in the period ended Jan. 31, up 4.1% from a year earlier, the Montreal-based bank said Wednesday. Analysts had projected revenue of C$634.9 million for the unit. Overall profit also topped analysts’ estimates. National Bank generates the highest proportion of its revenue from capital markets among Canada’s six largest banks. That helped the company last quarter as volatile markets boosted trading activity, while advisory fees also rebounded.
- Two thirds of Canadians suspect China attempted to interfere in recent elections that returned Prime Minister Justin Trudeau and his Liberals to power, according to a new poll. More than half think the alleged meddling represents a serious threat to Canada’s democracy. A similar proportion says Trudeau’s response to the simmering scandal hasn’t been tough enough. A series of recent media reports that cited secret intelligence documents alleging China attempted to interfere in the 2019 and 2021 votes has brought the issue into the spotlight. Trudeau has so far resisted pressure to call a public inquiry into the matter. While the strongest belief in Chinese interference comes from supporters of the main opposition Conservatives, the survey published Wednesday by the Angus Reid Institute found majority support for the notion among backers of all parties.
- Enbridge Inc. is committing as much as $1 billion to building plants that turn discarded food into renewable natural gas as part of a pledge to reduce its emissions and provide customers with greener products. North America’s largest pipeline company also is investing $80 million in Divert Inc., the company that created the waste-to-gas technology that will be used in the plants, according to a release on Wednesday. Current investor Ara Partners is leading a group that’s investing an additional $20 million. Enbridge would generate a return from the facilities and the gas they’d produce while also making progress on a goal of reducing its emissions intensity 35% by 2030. The partnership with Divert could offset 400,000 metric tons of carbon dioxide emissions a year, according to the statement.
- A breakthrough in contract talks at a mine in Panama is the latest piece of good news for global copper supplies following resumption of operations at a giant Indonesian mine and easing tensions in Peru. Panamanian officials are “very close” to reaching an agreement with First Quantum Minerals Ltd. over a new contract for the Cobre Panama mine, said Ebrahim Asvat, a lawyer advising the government in the negotiations. A deal could be reached within two weeks, he said. That would end a months-long dispute that culminated in the suspension of exports and ore processing at a mine that accounts for about 1.5% of the world’s copper production. The apparent breakthrough would also avoid dire consequences for First Quantum’s bottom line and Panama’s reputation as an investor-friendly jurisdiction.
- European stocks rose, with investors weighing a rush of corporate earnings and a strong recovery in China’s economy against inflation worries. The Stoxx Europe 600 Index was up 0.3% as of 11:12 a.m. in London, with miners and autos leading gains. Real estate stocks dropped, led lower by Inmobiliaria Colonial Socimi SA after its guidance fell short of expectations. Earnings season is entering its final days, with overall results being better than expected. European earnings-per-share will drop 5% in 2023, according to Citigroup Inc. strategist Beata Manthey, who upgraded her forecast from a 10% decline. The Stoxx 600 can make further gains until the end of the year, Manthey said, as the broker’s models suggest the region’s equities already discount the profit contraction.
- US equity futures ticked higher as speculation that central banks are likely to stay hawkish for the coming months weighed on gains. German government bonds fell as traders braced for fresh inflation data. Futures for the S&P 500 and Nasdaq 100 clung to modest gains after a slew of data showed that China’s economy is on track for a stronger recovery. The Stoxx Europe 600 Index bounced 0.3%.
- Asian stocks were off to a strong start for March after China’s factory activity topped a decade high, spurring investor optimism ahead of an upcoming meeting of the nation’s political leaders. The MSCI Asia Pacific Index rose as much as 1.6%, the most since Jan. 9, lifted by communication and consumer discretionary shares. The Hang Seng China Enterprises Index jumped more than 5%, bouncing back from a recent selloff as strong manufacturing data underscores an acceleration in economic recovery. Asian stocks on Tuesday capped their worst month since September amid concerns over higher US interest rates and ongoing geopolitical risks. Traders no longer view the odds of a Federal Reserve rate cut this year as better-than-even, a shift from what they were expecting just a month ago.
- Oil dipped after hot inflation data led traders to anticipate that central bankers are likely to stay hawkish for the coming months, offsetting hopes for higher demand from Asia. West Texas Intermediate dropped below $76.50, reversing earlier reached gains after China and India released strong manufacturing and oil-sales data. Crude has weakened this year as the prospect of tighter US monetary policy and rising inventories counter optimism that Chinese demand will strengthen following the ending of coronavirus lockdowns in the world’s second-biggest economy.
- Gold edged higher after posting its worst monthly performance since mid-2021 as traders waited for more clues on the path of US interest rates. The precious metal rose as the dollar slumped on Wednesday, with Asian markets surging as data showed China’s economy rebounding. That follows bullion’s 5.3% drop in February after hot inflation and jobs prints raised expectations the Federal Reserve will have to keep rates higher for longer. Spot gold added 0.2% to $1,830.99 an ounce as of 10:09 a.m. in London. The Bloomberg Dollar Spot Index fell 0.4%. Silver, platinum and palladium all rose.
- Federal Reserve Chair Jerome Powell and his colleagues confront a “legitimate head scratcher” as they probe how high to raise interest rates in the coming months: Why is wage growth slowing if the jobs market is so tight? The answer will go a long way in determining whether the Fed can bring down inflation without doing that much damage to employment and the economy. If pressure on pay keeps easing even as employers keep hiring, policy makers may feel less compelled to push rates ever deeper into restrictive territory in their drive to return inflation to their 2% goal. The paradox: the US unemployment rate has tumbled to the lowest in more than half a century — seemingly giving workers all the more power to demand higher pay. But a key measure of wages and benefits is decelerating. It results in what White House economist Jared Bernstein calls a real “head scratcher.”
- With earnings and its stock in the ascent, Airbnb Inc. has made a stellar start to 2023. Yet not all analysts are buying it. The home-rental company’s five sell or equivalent recommendations are the most of any Nasdaq 100 company after Intel Corp., Tesla Inc. and Cognizant Technology Solutions Corp. What’s more, the percentage of sell ratings is the highest in more than two years at almost 12%, according to data compiled by Bloomberg. The worry for bears is not so much the company’s performance but its frothy valuation. Results this month showed travel demand running high and profitability improving, stoking a rally in its shares, which have surged 47% this year, adding about $26 billion in market value. That’s pushed the valuation relative to a measure of earnings even further above peers such as Booking Holdings Inc. and Expedia Group Inc.
- Euronext NV has withdrawn an indicative, €5.5 billion ($5.8 billion) offer for investment-platform Allfunds Group Plc after both sides were unable to agree on the terms of a takeover. The board of Allfunds considered the Euronext proposal inadequate, according to a statement Wednesday. Subsequent discussions on terms with Euronext failed to produce an agreement and talks have been terminated, Allfunds said. Euronext, which confirmed the decision to pull the offer, had been in discussions with private equity firm Hellman & Friedman and French bank BNP Paribas SA, who own a combined 46.4% stake in Allfunds, to obtain their support. Bloomberg previously reported that other suitors including rival stock exchange groups have also looked at the asset and could still emerge as competing bidders.
- Saudi Arabia’s Aramco is considering an investment in a liquefied natural gas facility outside the kingdom, as global demand for the fuel soars following Russia’s invasion of Ukraine. The state energy company is in early discussions with LNG plant developers to procure a stake and secure supplies through an off-take agreement, according to people with knowledge of the matter. LNG consumption is set to surge in the coming years as Europe rushes to replace piped gas from Russia and with nations such as China and India expected to increase imports rapidly. The value of global LNG trade doubled last year to more than $450 billion, according to the International Energy Agency.
- January’s optimism about the bond market seems like a long time ago. The best corporate bonds have erased nearly all of their early-year gains as stubborn inflation data lead traders to reverse course on the timing of rate cuts by central banks. Total return from that debt is now just 0.67% since the start of the 2023 following the worst February on record, according to Bloomberg indexes. It’s a remarkable turnaround for high-grade bonds, after a record jump in January in the same metric. Lingering inflation and the fading likelihood of a Federal Reserve rate cut this year risk flipping the “year of the bond” narrative that suggested buyers of the safest credit couldn’t go wrong thanks to the highest yields in about a decade.
- Lowe’s Cos. forecast annual profit that met Wall Street estimates as the home-improvement retailer took a cautious approach amid shaky conditions in the broader housing market. Earnings per share will range between $13.60 and $14 for the full year, the retailer said in a statement Wednesday. That’s in line with the $13.81 average of analyst estimates compiled by Bloomberg.
- Poland’s top cybersecurity official blamed Russia for an attack that disrupted the work of a government tax website. A temporary distributed-denial-of-service attack, or DDoS, knocked offline the podatki.gov.pl portal early on Tuesday, according to Janusz Cieszynski, a government official in charge of cybersecurity. “The Russians are responsible for yesterday’s attack, it must be made clear,“ Cieszynski told broadcaster Polsat News in an interview on Wednesday. “We have information that makes it very likely that this is the adversary.”
- Tesla’s stock tends to do well when the electric-car maker is growing like gangbusters and Elon Musk is thrilling fans about a brighter future. The chief executive officer has shaken off a forgettable 2022 of slower expansion and Twitter diversion by slashing prices and scheduling another showcase of Tesla’s outlook for the next few years. The moves have worked, at least for the time being. Demand picked back up after Tesla discounted models across its lineup by as much as 20%, and the Musk faithful are frenzied about the master plan he’ll deliver Wednesday at the company’s factory in Austin, Texas. Tesla shares have soared from the two-year low they plumbed in early January, adding roughly $310 billion of market value and returning Musk to the top of the Bloomberg Billionaires Index. Never mind that the CEO has warned he may sacrifice profits for volume, or that the company hasn’t accomplished most of what was in his last blueprint of Tesla’s prospects.
- Germany and Italy are threatening to block a European Union ban on new combustion-engine cars, putting its green goals at risk. The countries are demanding the EU executive come up with a promised proposal to exempt vehicles that use climate-neutral synthetic fuels. Poland and Hungary have also signaled their opposition to the plan, which requires carmakers to reach a zero-emissions target by 2035. Member states had provisionally agreed on the plan last year. Germany successfully lobbied for a loophole in the rules, under which the European Commission agreed to make a proposal for registering vehicles running exclusively on CO2-neutral fuel after 2035.
- China’s economy is recovering faster than top officials had expected with the Covid outbreak on reopening passing rapidly through the country, according to a person familiar with the matter, suggesting the government will be restrained in rolling out new stimulus measures this year. The infection wave that followed the abrupt removal of pandemic restrictions ended faster than senior officials had expected, the person said, declining to be identified discussing government matters. The outbreak was expected to last at least through to February or March of this year, but most of the population was already infected by the end of January, the person said, allowing the economy to recover quickly. In another sign of growing comfort with the pace of the recovery, Chinese state media were told to convey at next week’s National People’s Congress — the annual parliamentary gathering — that leaders are satisfied with the economic rebound and the need for stimulus is moderate for now, another person familiar with the plans said. The government is looking to “hold up” the economy rather than give extra support, the person said.
- US mortgage rates increased last week to the highest since mid-November, pushing down a gauge of home-purchase applications to the lowest level in nearly three decades. The contract rate on a 30-year fixed mortgage rose 9 basis points to 6.71%, the highest since the week ended Nov. 11, according to the Mortgage Bankers Association. The group’s index of mortgage applications to buy a home fell for a third week, still the weakest reading since 1995. The MBA’s index of refinancing applications dropped 5.5%, also the third-straight decline. The gauge of overall mortgage applications fell 5.7% to 188.5 in the week ended Feb. 24, the weakest since the start of the year. The data can be volatile around holidays, and the week included Presidents’ Day.
- Kohl’s Corp. reported fourth-quarter sales that fell short of analysts’ estimates and issued a downbeat forecast for the full year, pointing to weakness ahead for the retailer, which has been struggling to attract inflation-strapped shoppers amid management changes. The company sees earnings of $2.10 to $2.70 a share for the full year, compared with analysts’ consensus estimate of $3.20. That comes after Kohl’s withdrew its guidance last quarter, citing macro pressure, volatility in business trends and the departure of former Chief Executive Officer Michelle Gass. Kohl’s shares have taken a dive over the last year, falling 49% amid pressure from activist investors, negotiations for a sale of the company, an uncertain macroeconomic picture and changing management. The fourth-quarter results reflect those challenges, with same-store sales falling 6.6%, compared with the average estimate for a 4.7% drop compiled by Bloomberg.
- Crypto investors are scooping up call options betting on a Bitcoin rebound to $30,000, even as momentum in the digital-asset market stalls. Bitcoin options open interest rose in February to $9 billion, according to Bloomberg Intelligence’s Jamie Coutts, who cited Glassnode data. The last time it was at this level, the coin had been trading around $45,000, whereas it’s currently hovering around $23,700. It’s the largest 14-day rate of change in its history, and is a record high when measured as a percentage of market cap, he said. Meanwhile, most of the open interest is made up of calls with a $30,000 strike price, meaning that investors are betting Bitcoin could hit that level. “This does imply a lot of leverage in the market — but it’s weird, implied volatility is much lower than the last time OI was at this level, which suggests weaker trader interest,” said Noelle Acheson, author of the “Crypto Is Macro Now” newsletter.