March 10, 2022

Daily Market Commentary

Canadian Headlines

  • Canadian equities reversed two days of losses, climbing as technology and consumer discretionary stocks rallied. The S&P/TSX Composite rose 1.2% at 21,493.23 in Toronto. The move was the biggest since rising 1.7% on Feb. 25 and follows the previous session’s decrease of 0.3%. Shopify Inc. contributed the most to the index gain, increasing 13.6%. Nuvei Corp. had the largest increase, rising 13.8%.
  • Brookfield Asset Management Inc. is in talks to acquire one of Australia’s largest non-bank lenders, La Trobe Financial, from Blackstone Inc., according to people familiar with the matter.  The two private equity firms are in advanced discussions about a deal for Blackstone’s controlling stake in the Melbourne-based credit asset manager, according to the people, who asked not to be identified as they weren’t authorized to speak publicly.  Deliberations are ongoing and a transaction isn’t guaranteed, said the people, who asked not to be identified as the information is private. Representatives for Blackstone and Brookfield declined to comment on Thursday. A representative for La Trobe did not immediately respond to a request for comment.

World Headlines

  • European stocks resumed declines on Thursday, failing to build on their biggest one-day rally in two years, as investors braced for the European Central Bank’s rate decision and comments on what it may do to shield the region’s economy from the consequences of the war in Ukraine. The Stoxx Europe 600 was down 1.7% at 12:05 p.m. in London after surging 4.7% on Wednesday on optimism that risks from the war in Ukraine are now priced in. Automotive and banking stocks were down the most among sectors.
  • U.S. equity-index futures fell amid concerns the nation’s inflation accelerated for a sixth successive month and that the Russian attack on Ukraine will continue. Contracts expiring this month on the S&P 500 and Nasdaq 100 indexes slid at least 0.8% each after U.S. stocks rallied on Wednesday by the most since June 2020. U.S. stocks rallied Wednesday after a top foreign policy aide to Ukraine’s president said the country was open to discussing Russia’s demand for neutrality as long as it was given security guarantees. Hours later, The United Arab Emirates said it will call on the OPEC+ alliance to boost oil output faster, though the energy minister later appeared to temper that message.
  • Asian stocks headed for their best daily performance since June 2020 following an overnight retreat in oil prices that helped ease investor worries over global inflation.  The MSCI Asia Pacific Index climbed as much as 2.6%, bolstered by gains in the information-technology and financial sectors. TSMC, Sony Group and Toyota were among the largest contributors to Thursday’s rally. The stock benchmark is headed for a second-straight gain following a slump that had pushed the measure into a technical bear market.
  • Brent crude rebounded after slumping the most in almost two years as the fallout from Russia’s invasion of Ukraine continues to rattle what one analyst called a “panic-stricken” market. Futures in London topped $117, while those in New York rose near $114 a barrel. Markets have been panicky since war broke out, seeing sharp intraday swings on headlines from Ukraine and OPEC+ members. On Thursday, the foreign ministers of Russia and Ukraine will talk in Turkey as both sides repeat their demands in order to call a halt to the fighting. That follows the first signs of disunity in OPEC+ after the United Arab Emirates called on the group Wednesday to boost output faster than planned. The nation’s energy minister appeared to temper that message a few hours later. OPEC+, which counts Russia as a key member, has resisted calls from consumers to pump more, arguing that the surge in prices is driven by geopolitical tensions rather than a supply shortage.
  • Gold erased losses to trade above $2,000 an ounce after talks between Ukraine and Russia failed to make progress in halting the war. Bullion had earlier extended its biggest decline in 14 months on hopes that talks between the countries’ foreign ministers could lead to a diplomatic solution. Ukrainian Foreign Minister Dmytro Kuleba said Russia indicated it will continue attacks until its goals are met, a sign of how far apart the two sides remain. Moscow has said it wants the demilitarization of Ukraine and the recognition of separatist territories as independent. It has periodically called for regime change in Kyiv. President Volodymyr Zelenskiy has said he’s willing to consider some compromises, but Ukraine has ruled out ceding any territory and is pushing for security guarantees from the U.S. and Germany.
  • Russian oil and gas producer Rosneft PJSC repaid a $2 billion bond amid concern about such payments because of government restrictions introduced in response to sanctions, according to people familiar with the matter.  The bondholders received the cash, including accrued interest, in dollars, the people said, declining to be identified because they aren’t authorized to speak publicly about the payment. The company didn’t reply to several requests for comment. The settlement was thrown into question over the weekend, when President Vladimir Putin issued a decree that payments to bondholders from so-called hostile nations should only be made in rubles. It’s possible that the payment was transferred before the decree. On Monday, energy giant Gazprom PJSCrepaid a $1.3 billion bond in dollars, though people with knowledge of the matter said that process had started before the new rules.
  • Hong Kong’s Covid-19 outbreak likely peaked last week at about 50,000 cases a day, officials said, with more than 31,000 new infections reported Thursday. The government is adding about thousands of new isolation units for the infected, and it won’t reopen to international travel until the crisis has passed.  The city has identified nine sites to be used as isolation facilities, leader Carrie Lam said as she resumed daily virus briefings for the media as Hong Kong went from virus-free to having the highest death rate in the world in just a few months.  Greater Bay Airlines — a Hong Kong-based rival to Cathay Pacific Airways Ltd. — expects the city to start reopening its borders in a few months as the outbreak settles, Chief Executive Officer Algernon Yau said on Bloomberg TV.
  • The House passed a long-delayed $1.5 trillion spending bill that would fund the U.S. government through the rest of the fiscal year and provide $13.6 billion to respond to Russia’s invasion of Ukraine. The vote, on Wednesday night, followed a day of political drama that saw emergency coronavirus funding stricken from the measure, which passed just in time for Democrats to depart for their previously planned retreat in Philadelphia.  The 2,741-page bill was approved in two tranches, with the defense portion passing on a 361 to 69 vote and the domestic agency funding passing on a 260 to 171 vote.
  • A stock split and a massive buyback could just be the boost Inc. needs to break out of a spell of prolonged share price weakness.  Amazon said late Wednesday it intends to boost its outstanding shares by a 20-to-1 ratio, the e-commerce giant’s first stock split in more than two decades. That news, combined with a $10 billion share-buyback proposal, saw the stock advance 6.7% in premarket trading Thursday. Amazon shares fell to levels not seen since mid-2020 earlier this week, the only laggard among trillion-dollar tech companies in the past year. The stock slid almost 9% in 12 months, compared with rallies of between 24% and 36% for Apple Inc., Alphabet Inc. and Microsoft Corp.
  • Royal Boskalis Westminster NV, the Dutch marine conglomerate known for its crucial role in re-floating the Ever Given in the Suez Canal, has received a 4.2 billion euro ($4.6 billion) takeover bid from the investors HAL Trust. HAL, which has been a shareholder of the dredging company since 1989 and currently holds 46.2% of issued Boskalis shares, said it is committed to the long term interests of the company and its stakeholders. In a Thursday statement, HAL said it has no plans to change the management or governance. HAL’s offer implies a premium of around 28% to Boskalis close on March 9 and it is not subject to a minimum threshold. Boskalis rose as much 31% at open to 33.04 euros apiece on Thursday in Amsterdam. HAL’s shares were up 4.9% as of 9:15 a.m. local time.
  • Soaring U.S. energy prices are hitting all modes of transport, squeezing smaller shipping lines amid already-volatile ocean rates, as well as truckers who have to contend with delays in clawing back higher costs. Crude surged to the highest in almost 14 years this week after the U.S. and the U.K. said they will ban Russian oil imports as President Vladimir Putin continues with his invasion of Ukraine. The average price for a gallon of regular gasoline climbed to a record on Wednesday just as Americans are already paying higher prices on household products. Higher fuel prices are feeding inflation, which is running at the fastest pace in four decades. Price growth is forecast to have accelerated to 7.9% last month, the most since 1982. The data are due out later Thursday.
  • General Electric Co. reiterated its 2022 financial targets that include generating as much as $6.5 billion in free cash flow even as Russia’s invasion of Ukraine has plunged global markets into uncertainty. The maker of jet engines, hospital systems and power-generation equipment said Thursday that profit margins will expand and adjusted earnings for the year will be in a range with $3.15 a share at the midpoint, reaffirming its prior forecast. “We’re running GE’s businesses better, creating value for shareholders today and tomorrow,” Chief Executive Officer Larry Culpsaid in a statement ahead of investor presentations Thursday. “We’re poised to deliver sustainable operational and financial improvements.”
  • The U.K. froze the assets of Chelsea Football Club owner Roman Abramovich, as Boris Johnson’s government dramatically stepped up its sanctions against prominent Russians over the invasion of Ukraine. Abramovich and six others face a full asset freeze and travel ban, and are prohibited from transacting with U.K. citizens or businesses, the Foreign Office said in a statement Thursday. The move effectively derails Abramovich’s plan to try to sell Chelsea, which plays in England’s highest soccer league, and raises major questions about the future of the club. Chelsea can’t sell new tickets for matches, including games in the European Champions League, and the club’s merchandise stores will be closed, according to the U.K. Treasury. Player transfers are banned, as are new contracts.
  • Pacific Investment Management Co. built up billions of exposure to Russian debt, opening up its funds to losses as markets price in a default by the sovereign. The Newport Beach, California-based asset manager had at least $1.5 billion of sovereign debt, according to the latest fund filings compiled by Bloomberg. It had also placed about $1 billion of bets on Russia via the credit-default swap market as of Dec. 31, according to fund documents on its website. The Financial Times reported the holdings earlier on Thursday and said Pimco faces billions of dollars of losses should Russia default on its debt.
  • Joe Biden may have a new friend in Asia, with South Korea’s presidential-elect preparing a foreign policy reboot that more closely aligns with the U.S. president’s views of China. Conservative Yoon Suk-yeol’s election win this week is well-timed for Biden, who is seeking to rally allies to counter Russia’s invasion of Ukraine, China’s assertiveness over disputed territory and North Korea’s tests of longer-range missiles and nuclear weapons. Outgoing President Moon Jae-in’s feud with Japan and efforts to court China frustrated American efforts to stitch together a stronger coalition in Asia. Yoon and his conservative People Power Party signaled a tougher line against Beijing and Pyongyang throughout his campaign. The former top prosecutor and foreign policy novice vowed Thursday to make sure South Korea was “reborn” as a “pivotal country that contributes to freedom, peace and prosperity.”
  • The liquefied natural gas market is primed for a global battle for supply with far-reaching repercussions as the threat of Russia cutting off Europe sends the continent scrambling for alternatives. Russia pumps enough gas into Europe every day to cover a third of the continent’s consumption. To replace most of that supply by the end of the year, the bloc drew up a plan that requires new sources of LNG nearly equivalent to annual deliveries to South Korea, the market’s third-largest buyer. It’s a rerouting of trade flows that would shred the market’s current structure. Global demand would by far outstrip additional LNG supply available this year, causing Europe to steal shipments from Asia’s closest producers and send already eye-watering prices soaring further.
  • Deutsche Bank AG’s Christian Sewing vowed to raise profitability and flagged 8 billion euros ($8.8 billion) in potential capital distributions as he seeks to attract shareholders following his turnaround of Germany’s largest lender. The chief executive officer is targeting a return on equity of more than 10% by 2025, up from 8% this year, along with annual revenue growth of around 4%. The new targets unveiled Thursday in Frankfurt also include a commitment to pay out half of the bank’s net income to investors in four years’ time. Sewing’s strategy update comes three years after he embarked on an extensive restructuring to end a crisis of confidence in the bank’s business model. He cut thousands of jobs and quit equities trading, while a market rally fueled a rebound in revenue. But Russia’s invasion of Ukraine has abruptly stopped the nascent recovery for Europe’s banks, by saddling them with souring loans and delaying a much-anticipated increase in interest rates.
  • Russia’s government moved closer to seizing and even nationalizing foreign-owned companies that are leaving the market over the invasion of Ukraine while planning measures to coax others into staying. In the first explicit response to the exodus of foreign businesses from Ikea to McDonald’s Corp., the Economy Ministry has outlined new policies to take temporary control of departing companies where foreign ownership exceeds 25%.  Under the proposals, a Moscow court would consider requests from board members and others to bring in external managers. The court could then freeze shares of foreign-owned companies as part of an effort to preserve property and employees.
  • Manhattan apartment rents soared to an all-time record last month.  Tenants paid a median of $3,630 in February, the most for any month in more than a decade of data-keeping and up 28% from a year earlier, according to a report Thursday by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. Leasing costs are now 2.5% higher than the previous record, set in April 2020, before the rental market collapsed and New York City became the U.S. epicenter of the Covid-19 pandemic. Demand for apartments has been intense, even without a mass return to the office. The freebies landlords relied on to fill units while so many New Yorkers were fleeing the city are now rarer than they were before the pandemic hit. Many renters who stayed and took advantage of sweet deals may be forced to move or absorb substantially higher costs when their leases come up for renewal.
  • Bitcoin dropped back below $40,000, erasing almost all the gains sparked by optimism about U.S. President Joe Biden’s executive order to put more focus on the crypto sector. The largest cryptocurrency declined as much as 7.2% to $38,894 on Thursday, falling for the first time in three days. Ether dropped as much as 5% to $2,574. Most of the top cryptocurrencies were down at least slightly in the 24 hours to 4:15 p.m. Hong Kong time, according to pricing from CoinGecko. Bitcoin jumped as much as 11% on Wednesday amid optimism about the trajectory of U.S. regulation of digital assets, as the framing of Biden’s executive order on cryptocurrencies was made clear. Those gains proved fleeting as traders digested the news, and the token is again trading near the middle of the range where it’s spent most of the past two months.
  • Sony’s Playstations, Uniqlo attire, McDonald’s burgers. The list of global brands disappearing from Russian outlets keeps growing as some of the world’s biggest businesses, from energy to consumer goods and electronics, suspend operations in the country. International sanctions, the closure of airspace and transport links, financial restrictions on SWIFT and capital controls have made it difficult if not impossible for many companies to supply parts, make payments and deliver goods in Russia. Added to that, the potential consumer backlash against any company perceived as supporting Vladimir Putin’s two-week-old invasion of Ukraine has turned the corporate exodus into a stampede.
  • If the swap market is to be believed, Russia is going to default on foreign debt, and insurance is going to pay out. Trading on credit-default swaps, used to insure against non-payment, has skyrocketed this week despite the myriad of questions over whether Russia’s plan to repay some foreign bondholders in rubles could ultimately be judged as a default. There are even concerns that international sanctions and existing bond terms could complicate any settlement of the $39.7 billion of outstanding contracts. And yet, the swaps suggest a record 71% chance of default within one year and 81% within five years, according to ICE Data Services. It costs $5.8 million upfront and $100,000 annually to insure $10 million of Russia’s debt for one year. That compares with about $3.8 million in advance last week up from just $300,000 annually — about 300 basis points — before Russia’s invasion of Ukraine. Credit-default swaps switch to upfront pricing when perceptions of default are imminent.

“The greatest glory in living lies not in never falling, but in rising every time we fall.” -Nelson Mandela

*All sources from Bloomberg unless otherwise specified