March 23, 2022

Daily Market Commentary

Canadian Headlines

  • Canadian stocks closed at a record high for the fourth consecutive session as technology and financials stocks pulled the index higher even as energy and materials sunk. The S&P/TSX Composite rose for the sixth day, climbing 0.3%, or 65.22 to 22,074.35 in Toronto. Shopify Inc. contributed the most to the index gain, increasing 6.0%. Lightspeed Commerce Inc. had the largest increase, rising 7.9%.
  • Bank of Montreal is selling about C$2.7 billion ($2.1 billion) in shares to help fund its purchase of Bank of the West from BNP Paribas SA. The Toronto-based bank will sell about 18.1 million common shares at C$149 apiece, according to a statement Tuesday. Underwriters will have the option to buy an additional C$405 million in stock within 30 days after closing. The equity offering is a key piece of the financing for Bank of Montreal’s $16.3 billion purchase of Bank of the West, which will extend its retail footprint into the western U.S. and bulk up its commercial business. The remainder of the transaction is being funded primarily through excess capital on the banks’ balance sheets.

World Headlines

  • European equities dipped on Wednesday, as a selloff in bond markets showed tentative signs of easing, while investors continued to weigh risks from the war raging in Ukraine and record inflation prints. The Stoxx 600 Europe Index was down 0.2% as of 9:35 a.m. in London, reversing its earlier gains and snapping a five-day winning streak. Energy was the top-performing sector, as oil prices rose, while banks and real estate underperformed after climbing yesterday.  The main European equities benchmark has recouped the losses suffered after the start of Russia’s invasion of Ukraine, amid bets that the impact of sanctions targeting one of the bedrocks of global commodity supply will be manageable. While the gauge is still down for the year on concerns that rising rates will drain some of the liquidity that fueled the post-pandemic rebound, surging prices are seen as a bigger threat to bonds, rather than equities.
  • Stocks drifted lower with U.S. equity futures Wednesday as global bond markets stabilized from an unprecedented rout. Contracts on the S&P 500 pointed lower after the index clawed back half the decline that started in January. Benchmark 10-year Treasury yields slipped to 2.36% after surging to highs unseen since mid-2019. Bonds are taking the brunt of central-bank calls for tougher action to curb inflation as investors hold up stocks as an inflation hedge, spurring the S&P 500 to rally in five of the last six sessions. Investors have fled from bonds as the Fed promises higher rates to tame rampant inflation and the war on Ukraine drives commodity prices up 26% this year.
  • Asian equities rose for a second day as Chinese tech shares extended a rally on prospects of more buybacks and as continued yen weakness boosted stocks in Japan. The MSCI Asia Pacific Index climbed as much as 1.4% to its highest since March 3, led by the consumer discretionary and tech sectors. Alibaba was among the top contributors to the benchmark’s gains. Investors are expecting Tencent to follow Alibaba and Xiaomi in announcing share-repurchase plans after it released earnings late Wednesday. The recent global equity rebound has come despite the Federal Reserve’s signal of higher rates to quell the hottest inflation in decades, taking many investors by surprise. While some are attributing the gains to expectations that companies will be able to pass on rising costs to consumers, others are warning that markets may be underestimating inflation risks.
  • Brent oil will likely hit $150 a barrel this year as the supply shock from the war in Europe coincides with resilient demand from people keen to travel after the virus, according to veteran commodities trader Doug King. The world has few options to pump more crude, and there’s little sign that consumption is under threat, said King, who runs the $425 million Merchant Commodity Fund, which returned 28% in the first two months of this year. Oil was already elevated before Russia invaded Ukraine as supply struggled to keep up with the demand rebound from the pandemic. The ensuing financial penalties on the country, one of the biggest crude producers, and self-sanctioning by much of the industry saw Brent — the global benchmark — flirt with $140 a barrel in early March, although it’s now eased back to near $115.
  • Gold rose as bond yields eased after gaining on growing calls from Federal Reserve officials to raise interest rates faster. The metal rose as much as 0.6% after dropping Tuesday when benchmark Treasury yields climbed to the highest since May 2019. Global bond markets have suffered as central banks including the Fed look to tighten policy, putting pressure on non-interest bearing gold. Doves like San Francisco Fed President Mary Daly now back robust action to curb inflation. St. Louis Fed President James Bullard and Cleveland’s Loretta Mester also favor speedier tightening. Their comments came after Chair Jerome Powell said on Monday the Fed is prepared to raise rates by a half percentage-point at its next meeting if needed, which triggered a selloff in Treasuries.
  • Russia will restart trading in some local equities, ending the nation’s record long shutdown that was meant to shield domestic investors from the impact of tough sanctions over its invasion of Ukraine. The Moscow Exchange will resume trading in 33 Russian equities, including Gazprom PJSC and Sberbank PJSC, on March 24 between 9:50 a.m. and 2 p.m. local time, the Bank of Russia said in a statement. A ban on short selling will apply, it said. Local stock trading has been halted from Feb. 28, marking the longest closure in the country’s modern history.
  • Cresco Labs Inc. plans to buy Columbia Care Inc. for about $2 billion in one of the largest cannabis industry mergers yet. The deal will combine Cresco’s well-recognized marijuana brands with New York-based Columbia Care’s retail footprint to create the largest U.S. multi-state operator by revenue, Cresco Chief Executive Officer Charles Bachtell said in an interview. Bachtell, who will lead the combined company, said the transaction will expand Cresco’s presence to 17 states, plus the District of Columbia, up from 10 states. It will also give Chicago-based Cresco the top market share in Illinois, Pennsylvania, Colorado and Virginia.
  • Morgan Stanley analysts expect $82 billion of foreign money to flow into Middle Eastern equities as the region continues to sharply outperform international share markets this year. Flows are set to pick up as global emerging-market funds increase their exposure to the region and as its weighting increases in MSCI Inc.’s gauge of developing-nation stocks, a team of analysts and strategists including Marina Zavolock wrote in a note. Shares listed in the Persian Gulf have surged this year, tracking commodity prices and rising rates to top most major gauges in the world. Morgan Stanley turned overweight on Qatar as they see the country benefiting from a tight gas market and the 2022 World Cup, which it hosts later this year. The analysts are also overweight on Saudi Arabia, the United Arab Emirates and Kuwait.
  • Nickel jumped by the 15% daily limit on the London Metal Exchange, adding to a string of sharp price moves as the market seeks to reset following an unprecedented short squeeze and week-long trading halt. Prices were 14% higher after briefly hitting the new intraday limit that the LME introduced this month to help stabilize the market. While nickel futures reopened on March 16, trading had been effectively frozen until yesterday, as the metal plunged by the limit at the open each morning. Nickel prices soared 250% over two trading sessions in early March, touching a record $101,365 a ton amid a short squeeze focused on China’s Tsingshan Holding Group Co. Following a series of interventions by the exchange, including the weeklong suspension and the cancelation of billions of dollars of trades at the highest prices, the market then plunged. It is now down about 70% from the record high, but up more than 30% from the start of the month.
  • A major Black Sea export terminal for oil from Kazakhstan halted loadings and faces weeks of disruption, likely depriving the European market of millions of barrels of crude at a time when petroleum deliveries from Russia are already in jeopardy. The Caspian Pipeline Consortium sea terminal, located near Novorossiysk on Russia’s Black Sea coast, said on its website that two out of three moorings sustained significant damage in recent bad weather. The Tass news agency reported Wednesday that all CPC loadings have stopped, citing the consortium’s CEO. It wasn’t immediately clear how long the facility will remain fully halted.
  • President Joe Biden faces a crucial test of his ability to project power and reassurance amid the biggest European security crisis in decades, as he seeks to rally U.S. allies around harder-hitting sanctions to punish Russia for invading Ukraine. Biden will join back-to-back summits Thursday with NATO, the Group of Seven and the European Union in Brussels, where the over-arching need to paper over cracks in international support for Ukraine will collide with disagreements over how far to target energy, given Europe’s reliance on Russian gas. The desire to showcase a common resolve against Russian President Vladimir Putin can’t hide the reality that for all the strong words, there is no will to intervene militarily into a bloody conflict at NATO’s door. The stakes have been raised by the fear that Putin could resort to deploying weapons of mass destruction, as well as unease over the role of China and how Russia’s most powerful diplomatic ally may seek to exploit the crisis.
  • Global bond markets have suffered unprecedented losses since peaking last year, as central banks including the Federal Reserve look to tighten policy to combat surging inflation. The Bloomberg Global Aggregate Index, a benchmark for government and corporate debt total returns, has fallen 11% from a high in January 2021. That’s the biggest decline from a peak in data stretching back to 1990, surpassing a 10.8% drawdown during the financial crisis in 2008. It equates to a drop in the index market value of about $2.6 trillion, worse than about $2 trillion in 2008. While there were signs the brutal selloff was easing on Wednesday, rising inflationary pressure around the world is fueling concerns about the ability of the global economy to weather any sustained period of higher financing costs. For investors, it means the allure of holding debt — even safe government bonds — is diminishing given how sensitive valuations are to interest rates, a measure referred to as duration.
  • Britain’s inflation rate surged to a new 30-year high of 6.2%, adding to pressure on Chancellor of the Exchequer Rishi Sunakto protect consumers from a tightening squeeze on living standards. Hours before Sunak is due to add to the 21 billion pounds ($28 billion) he’s already set out to cushion households from a surge in costs, the Office for National Statistics released figures showing price increases are broadening out across much of the U.K. economy. The surge in prices has exceeded the forecasts of the Bank of England and Treasury, fanning concerns that shortages of workers following the end of the pandemic, along with the war in Ukraine, will lead to inflation spiraling further upward.
  • Tesla Chief Executive Officer Elon Musk handed over the first made-in-Germany Model Y vehicles Tuesday at the company’s new factoryoutside Berlin. It’s a big milestone for Tesla, which now has auto plants on three continents: in North America, home to its first assembly in Fremont, California; in Asia, its second facility in Shanghai; and now in Europe. In a few weeks, Tesla will celebrate the opening of a fourth auto factory in Austin, Texas. Musk’s almost back-to-back plant parties signal the company is entering a new phase of growth as the CEO seeks to maintain a dominant position as the leading electric vehicle brand. Musk has long talked about the idea that Tesla’s factories are products unto themselves and “the machine that builds the machine.” Over the past two years, as the world struggled with one challenge after another brought about by the pandemic — staff shortages, congested ports, the dearth of semiconductors and other supply chain issues — Tesla was filing building plans, navigating construction permits and pouring concrete.
  • Nestle SA, the world’s largest food maker, said it’s suspending manufacturing in Russia amid growing pressure on multinationals to fully exit the country following its invasion of Ukraine.  The Swiss company is stopping the sale of brands like KitKat and Nesquik and will focus on essential foods like baby food and medical nutrition, it said in an emailed statement Wednesday. It said it’s in the process of identifying solutions for its factories and employees in Russia, which will continue to be paid. “As the war rages in Ukraine, our activities in Russia will focus on providing essential food, such as infant food and medical/hospital nutrition — not on making a profit,” Nestle said in the statement. “This approach is in line with our purpose and values. It upholds the principle of ensuring the basic right to food.
  • Indonesia needs more bankable projects to close the $51 billion annual funding gap in its climate adjustment plan for infrastructure, according to the Asian Development Bank. The Southeast Asian country needs $74 billion a year to build climate-resilient infrastructure, and its government can only meet 34% of that, according to a report issued by Climate Bonds Initiative in collaboration with ADB. As private and international finance will be critical, Indonesia needs to offer investment-ready projects and offer profitable pricing structure. The tropical nation is also falling short of its renewable energy potential, the report said. Indonesia would need to double its renewable energy capacity, from just 11.4% of the national energy mix last year, to meet its 2025 emission target. That alone would demand $154 billion of investments.
  • One of the two flight recorders from the China Eastern Airlines Corp. aircraft that crashed Monday afternoon has been found and officials released details about the pilots flying the plane, saying all three had current licenses, valid health certificates and solid experience.  Recovering the so-called black boxes is key to discovering why the Boeing Co.737-800 NG jet plunged out of the sky at close to the speed of sound before slamming into a hillside in Guangxi, southern China. The pilots didn’t respondto calls from air-traffic controllers after the plane tipped into its nosedive, authorities said. All 123 passengers and nine crew are presumed dead. State television reported that rescue work had been halted at the crash site Wednesday due to bad weather, broadcasting footage that showed debris and aircraft parts scattered in muddy terrain. While officials have said it is too early to say what caused the crash, China Eastern has grounded its Boeing 737-800 fleet and thousands of flights have been canceled. Regulators have ordered a safety review encompassing much of the country’s aviation industry.
  • India’s liquefied natural gas importers are paying their highest ever rates for spot shipments, showing the global fuel crunch is forcing usually cost-sensitive buyers to accept price hikes. Indian Oil Corp. and Gujarat State Petroleum Corp. purchased several LNG shipments for March to June delivery at the higher range of $33 to $35 per million British thermal units, according to traders with knowledge of the matter. Those spot cargoes are the costliest for the nation, said the traders, who requested anonymity to discuss private details. The move is unusual for Indian importers, which are among the most price-sensitive LNG buyers as they typically can more easily replace gas with other fuels. Importers had been avoiding procuring spot shipments for the last several months due to a surge in prices, which hit a record-high earlier in the month as the war in Ukraine stoked fears of Russian supply disruptions.
  • Boutique investment bank Cowen Inc. started a digital asset unit offering institutional clients access to spot cryptocurrency trading, a step that puts it at the front of Wall Street’s push into the expanding industry. Cowen Digital will allow clients to trade 16 cryptocurrencies including Bitcoin, Ethereum and Solana, according to a statement. The business, targeting Cowen’s hedge fund, mutual fund and family office clients, will also provide custody of the assets through Standard Custody & Trust Co. Wall Street has made tentative steps into crypto assets as the administration under President Joe Biden seeks to regulate the rapidly growing industry. As a smaller bank, Cowen has been able to move fast in emerging sectors like digital assets, said co-president Dan Charney. The company started offering crypto custody services last year.

FTV Capital, a firm focused on growth-equity bets, has raised $2.3 billion for its largest fund to date. The firm, which has offices in San Francisco and New York, will make investments in the enterprise-technology, financial-services and payments sectors through the vehicle, known as FTV VII LP, executives said in an interview. Bloomberg News in July reported that FTV had begun investor discussions on a record seventh fund. “The pandemic has been a tailwind for digitization, and I’m excited about the application of new technologies, such as artificial intelligence, to a whole host of solutions,” managing partner Brad Bernstein said. “We’re seeing an integration of payments, lending and insurance into software solutions.”

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

*All sources from Bloomberg unless otherwise specified