March 24, 2022

Daily Market Commentary

Canadian Headlines

  • Canadian stocks broke its four-day winning streak of setting consecutive record highs, slumping as companies in the technology and financials sectors sunk. The S&P/TSX Composite fell 0.6% at 21,932.18 in Toronto. The move was the biggest since falling 1.3% on March 14 and follows the previous session’s increase of 0.3%. Bank of Montreal contributed the most to the index decline, decreasing 3.7%. Nuvei Corp. had the largest drop, falling 5.7%.
  • Sun Life Financial Inc. is nearing an agreement to expand its partnership in Indonesia with Malaysian lender CIMB Group Holdings Bhd., according to people with knowledge of the matter. CIMB, which owns a 91.5% stake in Indonesia’s PT Bank CIMB Niaga, is in advanced talks with Sun Life over the so-called bancassurance deal in the Southeast Asian country, the people said. Under such an agreement, an insurer typically pays an upfront amount to sell its products in the bank’s branches. A pact could be valued at about $400 million, said the people, who asked not to be identified as the process is private. CIMB was considering renegotiating terms of its bancassurance partnerships in Indonesia, including its arrangement with Hong Kong-based insurer AIA Group Ltd., Bloomberg News reported in October. The expanded Sun Life deal is poised to take over AIA partnership with CIMB, one of the people said.
  • Paper Excellence Group is seeking as much as $400 million from the sale of a British Columbia pulp mill, people with knowledge of the matter said, as it works to satisfy the Canadian competition regulator’s requirement for its $3 billion acquisition of Domtar Corp. The closely-held pulp and paper manufacturer has started sounding out prospective buyers for Domtar’s Kamloops mill, the people said, asking not to be identified because the information is private. Bank of Montreal is advising on the disposal, Domtar said in an emailed statement in response to Bloomberg queries. A spokesperson for Paper Excellence referred queries to Domtar, which declined to comment beyond the statement. A representative for Bank of Montreal also declined to comment.

World Headlines

  • European stocks slid as manufacturing data underscored the threat to economic growth from soaring raw material prices. The Stoxx Europe 600 Index was 0.2% lower as of 10:13 a.m. in London, erasing earlier gains of as much as 0.4%. Energy stocks were the best-performing sector, while retail and banks underperformed. Shares in Russia advanced as they partially resumed trading after being closed for almost a month. Europe’s manufacturing sector is facing an “unprecedented” rise in costs for parts and raw materials that will feed through to consumer prices in the coming months, according to a survey of purchasing managers published by S&P Global — the first since the Ukrainian conflict started. In the U.K., manufacturers grew at their slowest pace in 13 months in the weeks after the Russian invasion.
  • Shares in Russia advanced as they partially resumed trading after being closed for almost a month. U.S. equity futures pointed higher after the S&P 500 closed 1.2% lower Wednesday. Treasuries resumed their slide, with the 10-year benchmark yield rising as much as 10 basis points to 2.39%. The inversion of parts of the yield curve point to a mounting risk of a growth downturn as surging commodities exacerbate Europe’s energy crisis. Investors are dumping bonds as Federal Reserve officials warn steeper rate hikes may be necessary to subdue the hottest inflation in four decades. According to Pimco, that tightening cycle may end with the the Fed hoisting its key rate to 2.75% by the end of 2023 — despite distress signals from the bond market.
  • Asian equities snapped a two-day gain as China’s tech shares fell and investors assessed the risks from rising interest rates. The MSCI Asia Pacific Index declined as much as 1%, with the technology and communication services sectors weighing down the measure. Tencent was the biggest drag as its shares fell almost 6% after the gaming giant reported fourth-quarter results that missed earnings-per-share and revenue estimates. This comes as Federal Reserve officials backed Chair Jerome Powell’s call for a 50-basis-point rate hike at the next meeting amid further increases in commodity prices. Benchmark indexes in Hong Kong and China were among the worst performers in Asia.
  • Oil fluctuated as investors weighed threats to supplies from the month-old war in Ukraine, with President Joe Biden set to address the crisis on a key trip to Europe that may see more sanctions imposed on Russia. Global benchmark Brent swung between losses and gains near $123 a barrel. The White House and European Union are close to a deal aimed at slashing the region’s dependence on Russian energy, although that may focus primarily on flows of natural gas. Oil rose more than 5% on Wednesday after U.S. stockpiles fell and a Black Sea export terminal halted loadings following bad weather. Although many buyers are shunning Russian crude, especially former European purchasers, Asian users may be stepping in to take barrels at discounted rates. China’s oil refiners are discreetly purchasing cheap Russian crude, traders say, and India processors have also scooped up some of the volumes.
  • Gold held onto earlier gains as investors waited for potential new sanctions against Russia that could further burnish the metal’s haven appeal. The U.S. and European Union are close to a deal aimed at slashing Europe’s dependence on Russian energy, ahead of President Joe Biden’s meetings with allies in Brussels on Thursday. Moscow, meanwhile, said it plans to demand ruble payments from European nations for natural gas purchases, sending prices higher. The war in Ukraine and ensuing sanctions have pushed up commodity prices and inflation, resulting in faster monetary tightening from some central banks while also threatening growth. The Federal Reserve’s more hawkish tone and higher U.S. bond yields are weighing on non-interest bearing bullion, but it’s also benefiting from its appeal as a hedge against consumer-price gains.
  • Nickel surged by the 15% exchange limit for a second day in London, piling fresh pressure on bearish position holders after an unprecedented short squeeze earlier this month. Prices surged to $37,235 a ton in early trading on the London Metal Exchange, leaving the market locked up once again after a 15% jump on Wednesday. The latest surge extends a period of unprecedented turmoil in the nickel market, after LME prices soared 250% over two trading sessions in early March during a short squeeze focused on China’s Tsingshan Holding Group Co., before the market was suspended for a week. While Tsingshan has struck a deal with its banks to avoid further margin calls, there are still a large number of bearish bets in the market that need to be unwound — and at a time when fears over supply are growing.
  • The world’s leading developed nations plan to warn President Vladimir Putin against using chemical or nuclear weapons in Ukraine as Russia’s invasion remains stalled one month into the conflict. The G-7 leaders also plan to say that they will continue to impose “severe consequences” on Russia by fully implementing the sanctions that countries have already imposed and stand ready to apply additional measures. “We task the relevant ministers in a focused initiative to monitor the full implementation of sanctions and to coordinate responses related to evasive measures, including regarding gold transactions by the Central Bank of Russia,” according to a draft of a joint statement obtained by Bloomberg that the leaders plan to issue Thursday.
  • Dubai’s main power and water company is looking to raise as much as $2.2 billion in its initial public offering, in what would be the emirate’s biggest listing since DP World in 2007. The Dubai government plans to sell a 6.5% stake in Dubai Electricity & Water Authority, or 3.25 billion shares, at 2.25 dirhams to 2.48 dirhams apiece, valuing the firm at as much as $33.8 billion. The listing, which will make DEWA the biggest company on the emirate’s bourse, marks the first step in Dubai’s ambitious plan to reinvigorate its flagging capital markets. The firm got demand that exceeded the number of shares on offer within hours of launching the deal, according to terms seen by Bloomberg. The IPO drew in six cornerstone investors, including wealth funds Emirates Investment Authority and Abu Dhabi’s ADQ, who agreed to subscribe for shares worth as much as 4.7 billion dirhams ($1.3 billion) at the offer price.
  • President Joe Biden plans to request $813.3 billion in national security spending — including $773 billion for the Pentagon — in the federal budget he will send to Congress  on Monday, according to officials familiar with the plan. It’s an increase of $31 billion, or 4%, from approved spending for the current fiscal year and about $43 billion more than the White House budget office had projected a year ago for fiscal 2023. The full national security budget includes spending for the Defense Department, the Energy Department’s nuclear weapons and the FBI’s national security functions. The officials familiar with the budget plan asked not to be identified before its release.
  • Senator Elizabeth Warren blamed rising U.S. inflation in part on the largest ocean shipping companies, calling “the anti-competitive nature” of the industry the root cause of soaring prices to transport goods around the global economy.   “These price surges cause companies to pass higher costs on to customers and push out smaller businesses, which cannot compete with larger companies for dwindling ship space,” the Massachusetts Democrat wrote in letters addressed to each of the nine largest container carriers. “This has affected all corners of the economy, inflating prices for the cost of food, durable goods, and other essential needs.” Warren cited a Bloomberg News report from January that explored how the consolidation of liner shipping companies in recent years, combined with supply-and-demand imbalances caused by the pandemic, contributed to a sustained surge in container rates that was starting to fuel inflation more broadly.
  • North Korea launched what appeared to be its first intercontinental ballistic missile in more than four years, as Kim Jong Unfinally abandoned a testing freeze that had underpinned an unprecedented wave of talks with the U.S.  The missile was launched from the Sunan area outside Pyongyang on Thursday, reaching an altitude of 6,200 kilometers (3,900 miles) and traveling 1,080 kilometers, South Korea’s Joint Chiefs of Staff said. That’s higher and farther than North Korea’s last ICBM test in November 2017, suggesting that Kim had successfully launched a long-anticipated weapon believed to be capable of carrying multiple nuclear warheads.
  • At least 7,000 Russian soldiers have likely been killed in the first month of combat during the Kremlin-ordered invasion of Ukraine, NATO officials said, and the total number could be as high as 15,000. The figures are based on a combination of Ukrainian estimates, Russian disclosures, Western intelligence and open-source information. The number of wounded is likely much higher, the officials said, noting that for each soldier killed in combat, there are usually three more wounded. That could put the total of dead, captured or injured Russian soldiers between 30,000 and 40,000.
  • Russia’s move to transfer almost 800 foreign-owned jets to its own aircraft register amid foreign sanctions has triggered a wave of insurance claims from leasing firms whose fleets have effectively been commandeered. Lessors will assert that registering the planes in Russia when they’re already on the books in other territories amounts to a qualifying event for claims, including under their war-risk policies, according to people familiar with the situation who asked not to be named as the proceedings are confidential. While some notices had already gone out, the effort to re-register planes in Russia has given the process impetus, the people said. Fitch Ratings puts the insured residual value of aircraft held by Russia following its invasion of Ukraine at $13 billion, though with aggregate loss limits claims may be limited to $10 billion. That would still be by far the largest sum in the history of aviation insurance, it said. In a separate report, Moody’s Investors Service estimates up to $11 billion in losses.
  • The Biden administration plans to reinstate exemptions from Trump-era tariffs on about two-thirds of Chinese products that were previously granted waivers, most of which expired by the end of 2020. The U.S. Trade Representative’s office is reinstating the exclusions for 352 items, it said in a statement on Wednesday. The reinstated exclusions include a wide variety of machinery, manufacturing components and consumer goods, ranging from television-screen parts to backpacks, bicycles and pillows. The world’s two largest economies have fought a trade war since 2018. The U.S. imposed tariffs on more than $300 billion in imports from China, ranging from footwear and clothing to electronics and bicycles and even pet food, after an investigation that concluded China stole intellectual property from American companies and forced them to transfer of technology. Despite that, China continued to export a record amount of goods to the U.S. amid the pandemic.
  • Severstal PJSC has become the first Russian company to run out of time to pay interest on foreign-currency debt since the war in Ukraine began after Citigroup Inc. blocked the transaction. It’s now at risk of creditors calling a default. Although flush with cash, the steelmaker was unable to settle a $12.6 million dollar-bond coupon within a five-business day grace period that ended on Wednesday. Severstal said it’s keen to pay, but Citigroup, acting as correspondent bank of the unit issuing the debt, is blocking the payment. A person familiar with the matter said Citigroup asked the company to get permission from the U.S. Office of Foreign Assets Control before it could remit the cash. But neither the firm nor its controlling shareholder are sanctioned by the U.S.
  • The European Central Bank will begin phasing out collateral-easing measures linked to the pandemic starting in July this year, while continuing to accept Greek bonds until the reinvestment period of its coronavirus bond-buying program ends. Measures introduced in April 2020 to facilitate collateral availability — especially amid risks related to credit downgrades caused by the Covid-19 crisis — will be gradually removed in a three-step process between July 2022 and March 2024, the ECB said Thursday in a statement. Greek debt, which lost investment-grade status back in 2010, will continue to be accepted as collateral for loans to banks through at least the end of 2024. The move follows a December decision by the ECB to keep purchasing Greek debt via reinvestments under its emergency asset-purchase program, known as PEPP.
  • Against all odds and despite sanctions, Russian tycoons are regaining some of their wealth. After almost one month of suspension, shares in Moscow climbed, with the benchmark MOEX Russia Index rising as much as 12%. While only 33 stocks resumed trading, Russians with fortunes linked to them added $8.3 billion combined, according to the Bloomberg Billionaires Index tracking the wealthiest 500 people in the world.  Scores of Russian billionaires got sanctioned by the European Union and the U.K. after the Kremlin started its war against Ukraine. Some got their possessions in those jurisdictions seized, and others rushed to shift ownership of their stakes while they still could. But for the 10 tycoons whose shares resumed trading, the advances were adding to their paper gains.
  • Chinese President Xi Jinping has held a flurry of talks with state leaders, including Vladimir Putin, since Russia’s invasion in Ukraine. But there’s one big omission from his diplomatic outreach: Volodymyr Zelenskiy. Xi has spoken with at least eight world leaders in the month since the invasion, stressing Beijing’s preference for dialogue over war and sanctions. The leader of the world’s second-largest economy has encouraged Russia to move toward negotiations, offered to work with France and Germany to promote talks and told President Joe Biden that China “stands for peace.”
  • Mexico’s central bank is expected to deliver its third straight half-point increase to interest rates since December in an effort to tame inflation running at the fastest pace in nearly two decades. Banxico, as the central bank is known, is seen raising borrowing costs by 50 basis points to 6.5% on Thursday, according to the forecasts of all but one of 24 economists surveyed by Bloomberg. The remaining economist expects the bank to boost the rate by 75 basis points, which would be Mexico’s biggest increase since at least 2008, when the current inflation-targeting system was adopted.
  • The company formerly known as Facebook is cheaper than the average value stock. But that’s still not cheap enough for bargain hunters in the stock market. The problem is that many investors have lost confidence in Meta Platforms Inc.’s ability to expand its core business and deliver a payoff from its big spending in pursuit of its so-called metaverse strategy shift. Heightened competition, lack of visibility on its metaverse shift and regulatory risks make it “challenging to be excited about Meta’s stock at current levels,” Lightshed Partners analysts including Richard Greenfield said in a report on Wednesday.

“Do not let making a living prevent you from making a life.” –John Wooden

*All sources from Bloomberg unless otherwise specified