March 23, 2023
Daily Market Commentary
- A Canadian lawmaker has resigned from Justin Trudeau’s governing Liberal Party caucus after a media report alleged he spoke to Chinese diplomats in Toronto in 2021 and advised them not to release two imprisoned Canadians for political reasons. Han Dong, who represents a district in Toronto, said the story is false, adding he is stepping aside from the Liberal caucus to avoid being a distraction and to clear his name. He will remain in Canada’s parliament as an independent member with no party affiliation. “I will defend myself against these absolutely untrue claims,” Dong said in a statement delivered in Canada’s House of Commons on Wednesday night. The allegation was published by Canadian broadcaster Global News, which said it got the information from national security sources it didn’t name. The resignation comes after a series of reports that alleged Trudeau received intelligence briefings on Chinese attempts to meddle in Canada’s 2019 and 2021 elections, which his Liberal party won. Trudeau has so far resisted calls for a public inquiry into the matter, but has instead appointed a “special rapporteur” to examine all the evidence and decide whether an inquiry is warranted.
- Parkland Corp. is examining possible asset sales after activist hedge fund Engine Capital LP released a letter saying the fuel seller should get out of businesses not directly related to roadside stations. The Canadian company is “examining opportunities for dispositions where it creates strong returns” for shareholders, Parkland said in a release. Parkland also announced that Simpson Oil Ltd., holder of more than 19% of issued and outstanding Parkland shares, now has the right to designate two nominees for election to the Board of Directors in an agreement entered into Tuesday. Engine, owner of 2% of shares, released a letter early Wednesday criticizing Parkland’s aggressive acquisition strategy of recent years, arguing the company now controls a range of assets not normally owned by pure-play fuel and convenience chain operators, complicating the business and resulting in an undervalued share price.
- European stocks fell for the first time this week as investors weighed the outlook for central bank policy after another interest-rate hike from the Federal Reserve ahead of the Bank of England’s policy decision later today. The Stoxx 600 retreated 1% by 10:33 a.m. in London. Banks led the drop, while technology outperformed. This is in line with the sector rotation seen over the past weeks amid the turmoil in the banking sector. Europe’s equity benchmark is trying to claw back losses this month that were sparked by turmoil in the US and European banking sector as worries ease about a broader financial crisis. Still, Citigroup Inc. strategists cut their year-end target for the Stoxx 600, saying investors were now more likely to focus on slowing economies and deteriorating fundamentals. They also cut European banks to neutral while lifting tech to overweight.
- US equity futures climbed, signaling a partial recovery following a tumultuous day of losses on Wall Street Wednesday. In contrast, European stocks fell, led by banks, as investors assessed policy moves by key central banks in the region. Contracts on the S&P 500 rose 0.5% and those on the Nasdaq 100 advanced 0.9%. In the US Wednesday, Federal Reserve Chair Jerome Powell pushed back against bets for rate cuts this year, following the Fed’s expected 25-basis-point hike, and said he was prepared to keep raising borrowing costs until inflation showed signs of cooling. Treasury Secretary Janet Yellen told lawmakers that the government wasn’t considering “blanket” deposit insurance to stabilize US lenders, sending stocks in the sector rapidly lower.
- Asian stocks rose, heading for their longest rally in six weeks, as the region’s currencies strengthened against the dollar despite the Federal Reserve’s decision to raise US interest rates on Wednesday. The MSCI Asia Pacific Index climbed as much as 1%, rising for a third day, as most Asian currencies, including South Korea’s won and Thailand’s baht, gained. Hong Kong’s equity benchmarks were among the top performers as Tencent reported better-than-expected revenue after five straight quarters of misses. Stock gauges in Japan and India underperformed. An index of Asian financial stocks headed for a three-day gain as a key technical indicator suggested the sector’s loss of more than 3% this month may have been excessive. US shares slumped Wednesday after comments from Treasury Secretary Janet Yellen rattled US bank shares and Fed Chairman Jerome Powell dashed hopes on rate cuts this year.
- Oil fell as investors weighed the Federal Reserve policy outlook after another hike and digested a mixed snapshot of US supply and demand. West Texas Intermediate futures slid toward $70 a barrel, though they traded off the intraday low as the dollar eased. Fed Chair Jerome Powell advised that more tightening may be in store after Wednesday’s 25 basis-point increase, and said officials don’t expect to be cutting rates this year. His comments came less than two weeks after the most severe banking crisis since 2008. Crude is headed for the steepest first-quarter drop since 2020, when the pandemic hammered demand. The slump has been driven by concerns about a potential US recession, robust Russian oil flows despite sanctions, and the banking turmoil. Still, there are signs of strong demand in Asia as China recovers after ditching its Covid Zero policy late last year.
- Gold rose for second day as the dollar weakened further following the Federal Reserve’s latest policy meeting and bets that its aggressive monetary-tightening cycle is nearing an end. After increasing rates by another 25 basis points on Wednesday, Fed Chair Jerome Powell said policy makers considered pausing their hiking campaign because of recent banking turmoil. The dollar and Treasury yields fell, helping bullion climb as much as 2%. Spot gold rose 0.4% to $1,978.07 an ounce as of 9:31 a.m. in London, after closing up 1.6% on Wednesday. The Bloomberg Dollar Spot Index fell 0.3%. Silver fell, while platinum and palladium gained.
- Boeing Co. secured a win in Japan with an order from the nation’s flag carrier for 21 of its 737 Max aircraft, getting in ahead of rival Airbus SE, which was initially seen as the frontrunner. The single-aisle jets will be delivered to Japan Airlines Co. and flying from 2026, the carrier and Boeing said in a joint statement Thursday. The order is worth about $1 billion, based on the calculated list price of $51.3 million for each aircraft by appraiser Avitas Inc. The planes will replace JAL’s Boeing 737-800s, which make up the largest proportion of its fleet, the carrier’s President Yuji Akasaka said in the statement. Bloomberg News reported earlier this month that JAL was leaning toward a deal with Boeing to replace its older fleet with newer models that have better fuel efficiency. Airbus’s A320neo had been considered.
- A recession is certain and so are rate cuts this year. That’s the message from the bond market metric Federal Reserve Chairman Jerome Powell highlighted a year ago as the best guide to tip-off economic troubles in the US. The expected three-month T-bill rate in 18 months’ time dropped to 134 basis points under the current rate. That’s below the previous record nadir it hit in January 2001 — about two months before the US economy fell into recession. Treasuries rallied Wednesday after the Fed raised its benchmark rate by a quarter point as traders ramped up bets the central bank will soon reverse course and start cutting interest rates. They are certain the Fed will lower rates by July to at least undo this week’s increase, according to swaps tied to policy-meeting dates.
- Toshiba Corp. accepted a buyout offer from a Japanese consortium, as the iconic conglomerate moved a step closer to ending a troubled chapter in its more-than-140-year history. The Tokyo-based company’s board approved on Thursday a bid of about 2 trillion yen ($15.3 billion) from a group led by domestic private equity firm Japan Industrial Partners Inc., or 4,620 yen per share, it said in a statement. The offer is at about a 9.7% premium to Toshiba’s closing price on Thursday. About 20 Japanese companies, including Orix Corp., Rohm Co. and Chubu Electric Power Co., will participate in the buyout, the Nikkei reported before the statement, confirming earlier Bloomberg News reports. The move could bring down the curtain on years of turbulence at the storied Japanese firm after a series of scandals plunged it into difficulty and set it on the path to a sale. Toshiba’s management, the Japanese government and the company’s large proportion of vocal foreign shareholders have been at odds over the company’s future, with activist investors seeking to maximize returns while the state prioritized keeping sensitive technologies and businesses out of foreign hands.
- An interest rate cut by the Federal Reserve later this year will be too late to boost the stocks and bonds of highly indebted companies, as funding access is already turning restrictive in the wake of the global banking turmoil, investment strategists say. Financial conditions in the US deteriorated to the worst since May 2020 earlier this month, following the collapse of three American lenders and Credit Suisse Group AG’s crisis, a key gauge shows. US banks have also reported tightening lending standards across the board in the latest Fed Senior Loan Officer Survey. Such caution reflects growing concerns that the Fed’s gamble on using calibrated monetary tightening to contain inflation and yet avoid recession or financial instability may backfire. The latest banking crisis has amplified these worries, while the US central bank chief has signaled more rate increases may be in store and that officials don’t expect any policy reversal this year.
- Switzerland defended its decision to render an entire class of Credit Suisse Group AG debt worthless during last week’s state-brokered takeover by UBS Group AG, telling bondholders that they had been warned of the risk in the paperwork. Some 16 billion francs ($17.5 billion) worth of Credit Suisse Group AG’s contingent convertible bonds, referred to as AT1s, were wiped out in the deal, which contained guarantees against some potential losses for UBS and liquidity lines from the Swiss National Bank. Banking regulator Finma said in a statement Thursday that the emergency law published alongside the deal enabling the guarantees meant invoking the loss provisions in the bonds’ prospectuses. SNB President Thomas Jordan said separately that a full winding-down of Credit Suisse would not have stemmed the crisis.
- Coinbase Global Inc. said it received a notice from the SEC formally declaring the securities regulator’s plans to bring an enforcement action against the largest US crypto exchange, the latest development in a long-running dispute between the watchdog and the digital-asset company. The stock slumped as much as 14% in premarket trading on Thursday. Securities and Exchange Commission Chair Gary Gensler has repeatedly said many of the tokens and products offered by crypto companies are securities and that the trading platforms need to register with his agency. Those warnings ramped up after the collapse of several prominent companies last year, including Sam Bankman-Fried’s FTX, left investors facing billions of dollars of losses. In a separate action Wednesday, the SEC sued crypto mogul Justin Sun for allegedly violating securities rules. In a filing Wednesday, Coinbase said the so-called Wells notice regards aspects of its exchange including an undefined segment of its listed digital assets as well as the staking service Coinbase Earn and Coinbase Wallet. A Wells notice comes at the end of an investigation and companies are given time to rebut the agency’s allegations. They often, but don’t always, lead to enforcement actions — either lawsuits or settlements and fines. At the same time, not every potential issue identified in the notice needs to be part of an eventual action.
- First Republic Bank shares rose on Thursday along with banking peers, set for a tentative rebound from yesterday’s losses following disappointment over comments from Treasury Secretary Janet Yellen over bank deposits. The lender’s shares tickep up 3.5% in US premarket trading Thursday. Regional banking peers Western Alliance Bancorp and PacWest Bancorp were also trading slightly higher. The gains in First Republic are pale in comparison to the loss of nearly 90% it has sustained this year. Banking stocks came under pressure on Thursday after Yellen said regulators aren’t looking to provide “blanket” deposit insurance to stabilize the US banking system, while Federal Reserve Chair Jerome Powell’s determination to curb inflation dashed hopes of rate cuts this year.
- European natural gas prices rose with below-normal temperatures at the end of the heating season likely to boost demand. Benchmark futures increased as much as 3.7%, rebounding from Wednesday’s decline. Temperatures are likely to be about 5C below seasonal levels in the UK, Germany and France at the start of next week, according to forecaster Maxar Technologies Inc. The Nordic region will experience icy weather. Europe has gone through the winter largely unscathed by the energy crisis that one time had brought the threat of major shortages. Gas storage sites are about 56% full with just days left in the heating season, far above their normal levels for the time of year. Imports of liquefied natural gas remain strong, and the European Union is planning to extend its demand reduction targets through next winter as it adjusts to lower Russian supplies.
- Volkswagen AG is selling debt in what will be the first test of sentiment for Europe’s corporate bond market after recent turmoil in the banking sector. The minimum €1 billion ($1.1 billion) euro-denominated green bond offering from Volkswagen International Finance NV, due in three and six years, is the first non-financial corporate bond offering in the region since Credit Suisse Group AG’s rescue deal, according to data compiled by Bloomberg. Excluding deals that were already in the marketing stage, it’s also the first new corporate bond since the demise of Silicon Valley Bank. Volkswagen is seen as a safe issuer that’s regularly in the market, while the fact it is a green bond may provide an extra layer of demand. Order books on the deal were at €2.5 billion, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it.
- China will restart beef imports from Brazil, the world’s biggest exporter, a month after the trade was halted over a case of mad cow disease. The Asian nation has agreed to resume purchases of Brazilian beef from March 23. The move will likely boost the shares of meatpackers including JBS SA, Marfrig Global Foods and Minerva SA, which have been hit by the suspension. Brazil is the top beef supplier to China, which is also the main destination for Brazilian beef exports, accounting for roughly 60% of shipments. The mad cow case in Brazil is “atypical,” which generally means the animal contracted the disease spontaneously and presents no threat to the nation’s herds. The lifting of the trade curb comes ahead of Brazilian President Luiz Inacio Lula da Silva’s visit to China, scheduled to take place from March 26 to 31.
- Banks and financial firms are quietly recalibrating how they talk about ESG investing in the US, navigating around potential political fights in order to avoid losing lucrative business. Eleven major banks and money managers told Bloomberg News that they’re adjusting the language they use in pitch books, marketing materials and investor reports when seeking to sell funds and take part in financial deals. In some cases this means avoiding using the ESG acronym and related terms in Republican-led states, while for blue states, they’re playing up their ESG credentials, according to representatives of the financial firms who asked not to be named discussing private information. The different language doesn’t reflect a change in underlying services, just an acknowledgment that words need to be adjusted depending on who the client is, the people said. In general, they spoke of a desire to tweak language to refer to the long-term cost of things like flood risk, land erosion and extreme weather, rather than using potentially divisive terms like climate change.
- Ford Motor Co. predicts losses in its electric vehicle business will grow to $3 billion this year as its spends big on new models and factories. The deficit matches its accumulated EV losses over the past two years. The automaker issued guidance Thursday on its EV unit as well as performance for its traditional internal-combustion-engine and commercial operations as it moves to begin reporting financial results by business unit, rather than region. The company is keeping its profit forecast for the current year unchanged. Ford also restated its results for the last two years, showing its nascent EV business lost $2.1 billion last year, before interest and taxes, and $900 million in 2021 on that basis.
- Does Starbucks Corp. play fair with its unions? The coffee giant may have to hire an independent auditor to answer that question, depending on the results of a proxy vote at its annual meeting on Thursday. Following allegations of illegal anti-union tactics by Starbucks during a flurry of organizing at its stores, a group of shareholders filed the workers’ rights proposal at the Seattle-based company. Investors will vote on the resolution Thursday. Though it’s non-binding, if a proxy proposal gets more than 30% support, a company generally responds. An uptick in unionization efforts in the US has investors worried about the risks companies face for interfering with organizing. The National Labor Relations Board has issued over 80 complaints against Starbucks for illegal activities, including shutting down stores and firing activists. Former Chief Executive Officer Howard Schultz, who handed off the reins earlier this week, will testify in Congress next week about the company’s conduct. A vote in favor of the proposal would present one of the first challenges for the new leader, Laxman Narasimhan.