March 21, 2022

Daily Market Commentary

Canadian Headlines

  • A work stoppage at one of Canada’s two largest railways must end quickly, given increased pressure on already strained supply chains, Labor Minister Seamus O’Regan said. But O’Regan said he’s still hoping for a negotiated solution between Canadian Pacific Railway Ltd. and the Teamsters Canada Rail Conference, rather than legislation that would force the railway back into operation. “Nobody’s left the table, I think that that’s incredibly important,” he said in a phone interview about the work stoppage that began early Sunday morning when a deal couldn’t be reached between the railway and the union, which represents about 3,000 of CP’s locomotive engineers and conductors.

World Headlines

  • European stocks were little changed on Monday after a strong rebound last week, which erased losses following Russia’s invasion of Ukraine, as investors monitored the peace talks. The Stoxx 600 Index was up less than 0.1% by 9:19 a.m. in London after posting its best week since November 2020 on Friday. Energy stocks surged with oil, while travel and leisure and technology sectors underperformed.  The benchmark has recouped all of its losses triggered by Russia’s invasion of Ukraine nearly a month ago on optimism around peace negotiations and on bets that economic growth can overcome any fallout from sanctions. An upbeat outlook by the Federal Reserve has also helped boost risk appetite, although a rally in oil prices continues to pose an upside risk for inflation.
  • U.S. equity futures and European equities stocks turned higher Monday as crude oil extended a climb and investors monitored diplomatic efforts to bring an end to Russia’s almost month-old war in Ukraine. S&P 500 and Nasdaq 100 contracts erased an earlier loss as did the Stoxx Europe 600 Index with the mood becoming more risk-on following the best week since November 2020 for major bourses. A key question is whether last week’s stock rebound and drop in volatility are durable. European equities have recouped all of their losses triggered by Russia’s invasion of Ukraine nearly a month ago as optimism around peace negotiations and the lure of cheapened valuations draw investors back.
  • Asia stocks fell as investors assessed stimulus prospects in China, after lenders in the world’s second-largest economy kept borrowing costs unchanged. The MSCI Asia Pacific Index was down 0.5% as of 5:43 p.m. in Singapore, erasing an earlier gain of 0.4%, weighed by declines in financials and communication services. The regional benchmark’s bumpy day followed its best week since February 2021. Tencent and Meituan were among the biggest drags on the measure. Stocks climbed last week as China pledged to stabilize its markets and some traders had expected a boost from banks’ loan prime rate announcement Monday. Talks between Xi Jinping and Joe Biden held Friday failed to excite investors, although China’s top envoy to Washington pledged his country “will do everything” to de-escalate the war in Ukraine.
  • Oil surged for a third day as the war in Ukraine neared the one-month mark with no conclusion in sight. Brent topped $111 a barrel, up 14% since its close last Wednesday. The European Union will consider a Russian oil embargo this week, with U.S. President Joe Biden due in the region for NATO, Group of 7 and EU summits, Reuters reported. The Kremlin said any such ban would harm everyone.  In studying new sanctions, “it is unavoidable to talk about the energy sector,” Lithuanian Foreign Minister Gabrielius Landsbergis said before a meeting of EU foreign and defense ministers in Brussels. The group will talk about oil because it’s “quite easily replaceable” and generates the most revenue for the Russian budget, he said.
  • Gold was stable on Monday after its biggest weekly drop since June as investors weighed monetary policy tightening in the U.S. against the impact of Russia’s war in Ukraine. The metal fell 3.4% last week as the Federal Reserve raised interest rates for the first time since 2018. Several officials urged a faster pace of policy tightening to curb the hottest inflation in 40 years. The Fed will need to raise borrowing costs higher than officials are currently projecting — to 4% to 5% — if it’s to wrestle inflation back under control, former U.S. Treasury Secretary Lawrence Summers said. Elevated interest rates typically weigh on non-interest bearing gold. Chair Jerome Powell will address the annual meeting of the National Association for Business Economics Monday.
  • Berkshire Hathaway Inc. is buying Alleghany Corp. for $11.6 billion in cash, as Warren Buffett returns to the dealmaking he has shied away from in recent years. Berkshire Hathaway will acquire all outstanding Alleghany shares for $848.02 per share in cash, according to a statement Monday. The transaction represents a 29% premium to Alleghany’s average stock price over the last 30 days and a 16% premium to Alleghany’s 52-week high closing price, the statement said. Buffett is diving deeper into the world of insurance with the Alleghany deal, an industry that has been key to the growth of Berkshire into a conglomerate with a market value of more than $750 billion. With Alleghany, Berkshire gains a large property-casualty insurer that also has reinsurance operations through its Transatlantic Holdings Inc. unit. The business is run by Joseph Brandon, who previously used to be chief executive officer of a Berkshire insurer, General Re.
  • Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.51 billion in the week ended March 18, compared with losses of $162.4 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $11.4 billion.
  • Firms across the globe are ditching fund-raising deals at a quickening pace, as volatility destabilizes credit markets following Russia’s invasion of Ukraine. Electric car giant Tesla Inc. is the latest big name firm to scrap financing plans, as it postponed a $1 billion offering of bonds backed by leases on its vehicles last week. Almost 80 companies, nearly half from the U.S., have put at least $25 billion of deals on hold since the start of the war nearly a month ago. “There has been a severe jolt to investor confidence since the invasion of Ukraine as sanctions have been slapped on Russia and commodity prices roared upwards,” said Susannah Streeter, senior investment and markets analyst with Hargreaves Lansdown Plc.
  • One year after Wells Fargo & Co. became one of the last big U.S. banks to make a net-zero promise, essentially marking its enormous oil and gas loan business for extinction, the bankers who dole out billions of dollars to fossil fuel aren’t panicking. The specialists in oil and gas have worked through a streak of ­money-burning years capped by a brutal pandemic. Now the hydro­carbon business is roaring back, and Wells Fargo’s lenders sit right at the top. No one in the world put together more fossil fuel loans last year as book­runner, according to data Bloomberg compiled: The bank’s 2021 tally in the sector topped $28 billion; it’s racked up more than $188 billion in oil and gas loans since late 2015, when the landmark Paris Agreement was adopted. That sum is more than the market capitalization of BP, Marathon Petroleum, and Valero Energy—combined.
  • The recent rebound in U.S. stocks is a good opportunity to sell and position more defensively, according to one of Wall Street’s most vocal bears. “Last week was nothing more than a vicious bear market rally,” Morgan Stanley’s chief U.S. equity strategist Michael Wilson wrote in a note. “While it may not be completely finished, it is a rally to sell.” The pessimistic outlook follows a rebound that saw the S&P 500 index gain 6.2% last week, the steepest weekly advance since November 2020, even as the Federal Reserve raised rates and confirmed its hawkish turn, while the war in Ukraine continued to rage. Still, the main U.S. equities benchmark is down more than 6% this year, following a ferocious rally in 2021 that catapulted it to successive record highs.
  • The European Union looks set to reinforce the U.S. warning to China that Beijing would face serious consequences if it tried to cushion the blow of sanctions against Russia or provide Moscow with military support. The EU and the U.S. have been coordinating closely ahead of a virtual EU-China summit on April 1 and will continue to do so in the days ahead, according to people familiar with the matter and diplomatic correspondence seen by Bloomberg. Communication with Beijing is set to be one of the topics that Joe Biden will discuss with EU leaders when they meet in Brussels Thursday and the U.S. president will be looking to agree on a common message.  Ambassadors from several major EU countries meeting last week pushed for the bloc to emphasize that the war in Ukraine is potentially a defining moment for the EU-China relationship as well as for Beijing’s image as a global power, according to a document seen by Bloomberg. The bloc wants to encourage China to take a responsible stance by highlighting its role in defending a rules-based international system.
  • Russia’s increasingly brutal attacks on Ukraine has driven 10 million people — nearly a quarter of the population — from their homes, according to the United Nations, with growing numbers expected to head to western Europe. Mykhailo Podolyak, President Volodymyr Zelenskiy’s chief of staff, put the number of displaced people at as high as 12 million. While most have stayed in Ukraine, about 3.4 million — mainly women, children and elderly people — have sought refuge in other countries, including more than 2 million people in Poland, according to UN data. Russia’s invasion of Ukraine is approaching its one-month mark and attacks on civilian targets are showing no signs of abating, raising the risks that more people will seek to flee. The besieged southern city of Mariupol has been under heavy bombardment, and Ukraine has accused Russian forces of blocking humanitarian aid.
  • London Stock Exchange Group Plc has reached a $1.1 billion deal to sell a wealth technology platform to Motive Partners and Clearlake Capital Group, and said it plans a buyback to return a “significant proportion” of the net proceeds to shareholders. SEG is selling BETA, Maxit and Digital Investora — together known as BETA+ — and provide back-office services to the wealth management industry, including securities processing and tax reporting, according to a statement Monday. The businesses had revenue of approximately $300 million, primarily linked to US markets, in 2021. The deal will allow the bourse to “reposition our wealth business to focus on LSEG’s core strengths,” said Sabrina Bailey, global head of Wealth, Data & Analytics at the group.
  • Enel SpA, Italy’s largest utility, will exit from its Russia operations in a “matter of months,” Chief Executive Officer Francesco Starace said on Monday. The Italian company joins the world’s biggest energy companies, including BP Plc, Shell Plc and Italy’s Eni SpA, that have announced plans to stop investing in Russia amid a swathe of sanctions against the country after its invasion of Ukraine. Finnish utility Fortum Oyj said earlier this month that it will halt all new investments in Russia without committing to a full exit. Established in 2004, Enel Russia PJSC contributes just over 1% of the company’s overall gross operating profit, according to Bloomberg Intelligence. Enel had already begun reducing its presence in Russia, and is in the process of selling its thermal generation assets due to the difficulty in reducing carbon emissions within the Russian power system, Starace said on Bloomberg TV.
  • Centricus Asset Management Ltd. partnered with Cheyne Capital’s Jonathan Lourie and Talis Capital’s Bob Finch to join the bidding for Chelsea Football Club, one of European sport’s most prized assets. The offer from Centricus values Chelsea at more than 3 billion pounds ($3.9 billion), including commitments for further investment, a person familiar with the matter said, asking not to be identified discussing confidential information. Centricus co-founder Nizar Al-Bassam and Chief Executive Officer Garth Ritchie sent their offer in with Lourie and Finch to The Raine Group, the New York-based investment bank sifting through all bids for Chelsea, another person said Sunday. Raine could decide on a shortlist of final bidders as soon as Monday, people said.
  • A Boeing Co. 737-800 NG plane operated by China Eastern Airlines Corp. crashed Monday in the southwestern Chinese province of Guangxi.  There were 132 people on board — 123 passengers and 9 crew — and the plane went down in a mountainous area near the city of Wuzhou, according to the Civil Aviation Administration of China. China Eastern said it will ground all of its Boeing 737-800 jets starting Tuesday. An emergency telephone assistance line for family was set up and the carrier expressed deep condolences to passengers and crew members onboard.
  • Indian coal prices have surged in auctions held by the country’s state-run miner, with domestic buyers rushing to secure supplies as global disruptions push up the cost of imported fuels. Customers paid Coal India Ltd. an average premium of more than 340% above baseline prices in two sales this month, according to people familiar with the results, who requested anonymity as they are not permitted to speak publicly. That compares to premiums of about 100% in auctions in January.  Coal India, the world’s top producer of the fuel, sells about 15% to 20% of its output through an online auction system in which consumers make offers above a minimum set price. Rates paid are typically far higher than the long-term contracts that account for the majority of sales.
  • China’s ambassador to Sri Lanka said his country is considering up to $2.5 billion in fresh assistance to the South Asian nation, the latest efforts  to firm up finances as it struggles with a worsening economic crisis. The development comes one week after Sri Lanka started talks with International Monetary Fund for a potential aid package as its foreign exchange reserves shrink and it struggles to import basic goods. The ambassador, Qi Zhenhong, told reporters in Colombo on Monday that China is considering a $1 billion loan and a $1.5 billion credit line to purchase goods from China, both of which would be new lines of financing. He had said earlier in the same briefing that Sri Lanka was seeking a $1.5 billion credit facility. He provided no details on when an agreement would be finalized and in what form.
  • Judge Ketanji Brown Jackson will make history Monday as she goes before a Senate panel considering her nomination to be the first Black woman on the U.S. Supreme Court. Barring a major mishap, the Democrats’ narrow control of the Senate means confirmation is all but assured. Though she won’t shift the ideological balance on the conservative-controlled court, the 51-year-old Jackson would add a fresh voice to its outnumbered liberal wing and potentially serve for decades. In the first of four days of hearings, Jackson will listen as senators give opening statements geared as much toward this year’s elections as to her confirmation. Democrats are likely to extol her qualifications and criticize the court, while Republicans will seek to use her criminal-defense background as a way to question President Joe Biden’s commitment to law and order.
  • Ramp, a startup that offers corporate cards and other finance tools to businesses, raised $750 million in a funding round that valued the fintech at $8.1 billion.  An equity raise led by Founders Fund generated $200 million from existing investors and new ones including General Catalyst and Avenir Growth Capital, Ramp said Monday in a statement. An additional $550 million in debt financing came from firms including Citigroup Inc. and Goldman Sachs Group Inc. Founded in 2019, Ramp has been building its finance platform for businesses, including a corporate card that tracks employees’ expenses and a bill-pay service that’s its fastest-growing product. The company bought procurement platform Buyer last year, and now handles more than $5 billion of payments volume on its platform annually, with revenue growing almost 10-fold last year.
  • President Joe Biden’s administration will brief banks, energy companies and other firms Monday on the impact of Russia’s invasion of Ukraine and ensuing sanctions. Treasury Secretary Janet Yellen, National Security Advisor Jake Sullivan and other top officials will host an off-record discussion with companies across several industries, an official said, speaking on condition of anonymity. They include firms in the energy, refining, financial services and manufacturing sectors, the official said. The U.S. has led a global push to sanction Russia as a response to its invasion, upending supply chains, commodities markets and exacerbating inflationary pressures.

“If life were predictable it would cease to be life and be without flavor.” –Eleanor Roosevelt

*All sources from Bloomberg unless otherwise specified