March 13, 2023
Daily Market Commentary
- A group of investors including Silver Lake and the Canada Pension Plan Investment Board has agreed to buy software developer Qualtrics International Inc. at a $12.5 billion valuation. Chief Executive Officer Zig Serafin will continue to steer the company, which will get delisted after the deal, SAP said in a statement. SAP SE will offload its entire stake in the company as part of the deal. The money-losing Qualtrics, based in Provo, Utah, entered the public markets in January 2021 after being spun off from SAP and has lost roughly half its value in the past two years.
- Canada’s banking regulator seized control of SVB Financial Group’s branch in the country Sunday and said it will seek a legal order to wind up the operation. Peter Routledge, the country’s financial superintendent, “took this action to preserve the value of the assets held at the branch” after US regulators shut down the California-based parent bank on Friday, his office said in a statement. Finance Minister Chrystia Freeland spoke with banking executives and Bank of Canada officials on Sunday evening, and said the government continues to watch the situation. “Canada’s well-regulated banking system is sound and resilient,” she said via Twitter. SVB received a license to open a foreign bank office in Toronto in 2019. It doesn’t take commercial or retail deposits, and it’s a small part of the bank. The branch ended last year with C$864 million ($627 million) in assets, including C$435 million in secured loans, according to regulatory filings.
- There’s an outlier in Canadian real estate that has yet to see a pinch from rising interest rates: farmland. The average cost of farmland in Canada rose nearly 13% in 2022, the biggest increase since 2014, according to a new report from government-owned agricultural lender Farm Credit Canada. While higher interest rates and pricier fertilizer costs for farmers were expected to hamper land prices and sales, demand was “robust,” the report said. “We’re not yet seeing the full impact of higher interest rates on the demand for farmland,” said J.P. Gervais, Farm Credit Canada’s chief economist, noting tight supplies is a big driver of the gains. Canada’s housing market slowed last year as the central bank embarked on its round of interest rates hikes, pressuring home sales and fueling a drop in prices. Farmland in Ontario, meanwhile, saw the biggest gains in the country, with prices jumping 19% amid strong demand from large farm operations and investors, Farm Credit Canada said.
- European equities slumped the most since mid-December, extending Friday’s declines, as investors weighed the repercussions from Silicon Valley Bank’s collapse while also bracing for this week’s key US inflation data. The Stoxx Europe 600 Index was 2.6% lower by 9:36 a.m. in London. Banking stocks retreated nearly 6% after tumbling the most since June on Friday. Biggest fallers included Commerzbank AG, BAWAG Group AG and Banco BPM SpA. Credit Suisse Group AG slumped more than 8%. Italy’s FTSE MIB Index underperformed other regional benchmarks due to its large exposure to banks. Insurance and financial services sectors also paced the retreat. European stocks slid at the end of last week, led by a slump in financials as SVB’s demise spurred concern about wider issues facing the banking sector, though analysts played down the systemic risks. Over the weekend US authorities took extraordinary measures to shore up confidence in the financial system, introducing a new backstop for banks that Federal Reserve officials said was big enough to protect the nation’s deposits.
- Nasdaq 100 futures rose and Treasury yields plunged as investors dialed back bets on Federal Reserve rate hikes as the collapse of Silicon Valley Bank continued to reverberate through trading desks on Monday. Futures on the rate-sensitive Nasdaq climbed just shy of 1% while those on the S&P 500 steadied after erasing a rally amid a rout in banking shares. Stocks in Europe pared a drop of almost 3% to trade about 1.7% lower. Treasury two-year yields fell 33 basis points to 4.26%, heading for their steepest three-day decline since Black Monday of October 1987. The 10-year yield fell to a one-month low and the dollar extended a decline against major peers. The yield on two-year German debt plunged 38 basis points to 2.72%, putting them on course for the steepest two-day fall on record.
- Asian stocks erased earlier declines as bond yields slid after Goldman Sachs Group Inc. said the Federal Reserve will stand pat next week. Equities in China and Hong Kong rallied the most. The MSCI Asia Pacific Index advanced as much as 0.6%, reversing a loss of up to 0.9%. Chinese shares led the charge higher as traders bet on policy continuity after the nation retained several familiar faces in its economic leadership team, including the central bank governor. Asia’s benchmark stock gauge is trying to recover from last week’s 2% drop as SVB’s downfall highlighted the impact of higher interest rates on the US economy and financial system.
- Oil fell as the fallout from the collapse of Silicon Valley Bank — the worst since the 2008 financial crisis — rippled across markets. The turbulence has added further volatility to oil, which has been whipsawed this year by concerns over America’s tightening monetary policy and optimism around China’s economic recovery. Many market watchers are still bullish on the longer term outlook, with Saudi Aramco forecasting consumption will probably hit a record of 102 million barrels a day by the end of 2023. “Crude oil prices continue to ebb and flow with the general level of risk sentiment,” said Ole Hansen, head of commodities strategy at Saxo Bank. While the response to the SVB crisis will support commodities, “the risk of a US recession has strengthened on the back of these developments and with that in mind the short-term outlook points to continued range-bound trading” for oil.
- Gold extended gains as the collapse of a US bank curbed expectations for more aggressive rate hikes by the Federal Reserve, while also stoking haven demand. Bullion climbed to a one-month high as the dollar and Treasury yields slumped on speculation the Fed will slow the pace of interest-rate hikes. Economists at Goldman Sachs Group Inc. no longer expect an increase from the central bank at its March meeting, given stresses in the banking system. Spot gold rose 0.9% to $1,885.11 an ounce as of 10:16 a.m. in London. It has climbed about 4% since Wednesday’s close as concern over SVB grew. The Bloomberg Dollar Spot Index declined 0.4%. Silver, platinum and palladium gained.
- European natural gas dropped after last week’s price surge as a spell of warm weather and a jump in wind generation is reducing consumption over the next few days. Both prompt prices and futures retreated, with benchmark Dutch front-month contracts losing as much as 9.2% after jumping 21% on Friday. German and French power also declined. With the heating season nearing its end, the risk of spikes similar to last week’s are greatly reduced. Healthy gas-storage levels across the region is another bearish factor for the market where prices have plunged more than 85% since the hight of the energy crisis in the summer. Germany’s wind output is expected to top 50 gigawatts on Monday, potentially matching or even exceeding a record from January, according to Bloomberg’s weather model. Britain’s wind farms are also boosting production, currently covering around 60% of the country’s total power generation.
- Less than a week after Federal Reserve Chair Jerome Powell opened the door to a re-acceleration in the pace of interest-rate hikes, traders slammed it shut again amid the sudden eruption of financial strains at US regional banks. Goldman Sachs Group Inc. economists said they no longer expect the Fed to deliver a rate increase next week, even after US authorities moved to contain a crisis spurred by the exodus of depositors from Silicon Valley Bank and Signature Bank. Treasury two-year yields dropped 18 basis points to 4.34%, heading for their steepest three-day decline since October 1987, when the Black Monday equities rout stunned markets. Just as that shock interrupted a tightening cycle, traders are now rapidly shifting back to betting on Fed rate cuts for the second half of this year.
- Sanofi agreed to buy Provention Bio Inc. in a $2.9 billion deal intended to bolster the French drugmaker’s portfolio of diabetes medicines with a new therapy recently approved in the US. The takeover builds on an agreement between the two companies for the commercialization of the drug, a monoclonal antibody for the delay of clinical type 1 diabetes developed by Provention. The deal gives Sanofi a new medicine to complement a handful of its older diabetes therapies based on insulin. The move would help diversify its basket of fast-growing products beyond blockbuster skin treatment Dupixent. Sanofi used to be a leader in diabetes until its best-selling insulin Lantus faced generic competition. The US Food and Drug Administration approved Provention’s TZIELD in November to delay the onset of type 1 diabetes in adults and children 8 years and older whose have abnormal blood sugar levels but who haven’t yet received a clinical diagnosis.
- Pfizer Inc. agreed to purchase cancer-drug maker Seagen Inc. for an enterprise value of $43 billion, gaining the company’s antibody drugs that fight tumors. Pfizer will pay $229 a share in cash for Seagen, according a statement Monday, about a third more than the drugmaker’s closing share price Friday. Seagen is a leader in developing a type of medicine called antibody-drug conjugates, or ADCs. These precision medicines deliver cancer-killing drugs so potent they might otherwise be too toxic to use. The new delivery mechanism uses antibodies to deposit a strong concentration of drug directly at a tumor site, which may increase efficacy with fewer side effects. Pfizer has been under pressure to show it can capitalize on its Covid-19 windfall, after vaccine revenue almost doubled its sales in a single year. While the Seagen deal is smaller than some of Pfizer’s megadeals of the past, it’s a bid for an expanded platform in a field, oncology, that will be the industry’s biggest growth market, Chief Executive Officer Albert Bourla said Monday.
- Chinese President Xi Jinping may visit Moscow as early as next week and speak to Ukrainian President Volodymyr Zelenskiy afterward in what would be their first conversation since Russia’s invasion, The Wall Street Journal reported. There was no immediate official confirmation from any of the countries. Reuters reported the planned visit to Moscow earlier Monday. The conversation between Xi and Zelenskiy would take place virtually, the Journal said, citing people familiar with the matter. Russia and China had said for weeks that a Xi visit was in the works as China seeks to position itself as a broker to end the war in Ukraine while it maintains close ties to the Kremlin. Putin said in February he was looking forward to hosting Xi in Moscow, and China’s annual National People’s Congress legislative session wrapped up on Monday.
- Government bonds across the world staged a historic rally in a rush for havens as investors bet the collapse of three US lenders will compel policymakers to slow the pace of monetary tightening. Yields on two-year Treasury notes — the most sensitive to changes in policy — headed for the biggest two-day slide since 1987, while equivalent German rates were on course for a record drop Monday. A gauge of the dollar lost as much as 1% as the yen and Swiss franc rallied. Money markets briefly bet the Federal Reserve was done with hiking this cycle. Traders are now pricing just a single quarter-point rate increase by June, compared with expectations for as much as 110 basis points as recently as Thursday. The picture also shifted in Europe, with a peak for the European Central Bank seen below 3.50%, versus 4.20% last week.
- HSBC Holdings Plc is buying the UK arm of Silicon Valley Bank, the culmination of a frantic weekend where ministers and bankers explored various ways to avert the SVB unit’s collapse. The London-listed lender’s “ring-fenced subsidiary, HSBC UK Bank plc, is acquiring Silicon Valley Bank UK Limited (SVB UK) for £1,” HSBC said in a statement Monday. The deal completes immediately and will be funded from existing resources. The Bank of England said in a statement Monday that “all depositors’ money with SVB UK is safe and secure as a result of this transaction.” The central bank said all SVB services “will continue to operate as normal and customers should not notice any changes,” and “no other UK banks are directly materially affected by these actions.”
- President Joe Biden is limiting oil leasing in Arctic waters and sensitive areas of Alaska, taking steps to expand conservation as his administration prepares to approve a mammoth ConocoPhillips oil development in the region. Biden is expanding an Obama-era ban on new oil and gas leasing in US Arctic waters and will write new rules barring the sale of new drilling rights across much of the National Petroleum Reserve-Alaska, where ConocoPhillips’s 600 million-barrel Willow venture is planned, the Interior Department said in a news release. Environmentalists have been imploring the administration to go further and reject the ConocoPhillips project, citing International Energy Agency warnings that the world must forsake developing new oil and gas fields to avoid the worst consequences of global warming and shift to net zero emissions by 2050.