March 3, 2023

Daily Market Commentary

Canadian Headlines

  • Toronto’s benchmark home price rose for the first time in 11 months after the Bank of Canada paused its campaign of interest rate hikes. The price of a home in Canada’s largest city rose 1.1% to C$1.09 million ($803,000), in February on a non-seasonally adjusted basis, according to data released Friday by the Toronto Regional Real Estate Board. February’s gain is the first month-over-month price increase since the central bank started raising borrowing costs in March 2022. The Canadian housing market slowed last year as the central bank embarked on its round of interest rate hikes, pressuring home sales and fueling a drop in prices. In January, the Bank of Canada raised its benchmark rate for the eighth time as policymakers signaled an intent to pause and assess the impact on the economy.
  • The Bank of Canada will hold interest rates at current levels even as the US Federal Reserve pushes borrowing costs higher, economists say. Governor Tiff Macklem will keep the central bank’s benchmark overnight rate at 4.5% on March 8 and then for most of this year, according to the median response in a Bloomberg survey of 17 economists. Policymakers will start cutting rates at the beginning of 2024 as inflation nears the 2% target, they say, though a minority of analysts see the bank easing this fall. The results reveal a split between the consensus views of economists and the prevailing outlook in financial markets. Traders in overnight swaps are betting the Bank of Canada will eventually deliver another quarter-percentage-point hike at some point this year.

World Headlines

  • European shares rose on Friday and were set to extend weekly gains as investors parsed another busy earnings day and weighed the outlook for rate hikes against the strength of economic growth. The Stoxx 600 Index was up at 0.6% by 9:45 London, with technology, miners and automakers outperforming. Stocks have also weathered the shift to more hawkish rate expectations with mild declines so far, but a relentless surge in bond yields is turning up the pressure. Bets for a higher Federal Reserve rates peak this week sent the US 10-year Treasury yields above 4% for the first time since November, although the reaction in the Stoxx 600 has been muted. European Central Bank Governing Council member Pierre Wunsch said market bets for interest rates to reach a 4% peak may prove accurate if underlying price pressures remain elevated.
  • S&P 500 futures ticked higher after the underlying gauge clawed back a weekly loss Thursday. Asian equities rose about 1%, led higher by gains in Hong Kong and Tokyo. Stocks have weathered the shift to more hawkish rate expectations so far in March, shrugging off bets for a higher Federal Reserve rates peak and a three-month high in the US 10-year Treasury yield. Earnings have held up well this season as economic resilience props up corporate balance sheets. Data Thursday showing continued labor market resilience supported the case for the Fed to keep tightening, a theme that pushed almost every major asset into the red in February as traders braced for higher rates to curb rampant inflation.
  • Asian stocks headed for their first weekly gain in a month after a Federal Reserve official made dovish comments and traders stayed alert for any supportive measures that may come from China’s upcoming political meeting. The MSCI Asia Pacific Index rose as much as 1.1% on Friday, lifted by energy and industrial shares. Japanese stocks led gains in the region after a report showed the nation’s unemployment rate reached the lowest level in three years. Shares in India and Hong Kong also climbed. Onshore Chinese stocks eked out a small gain before the National People’s Congress this weekend. Some investors have trimmed their expectations for further stimulus given China’s faster-than-expected economic recovery.
  • Oil headed for a weekly gain as confidence in China’s recovery offset concern that US monetary policy is set to tighten further. West Texas Intermediate slipped below $78 a barrel, but is up almost 2% from last Friday’s close. At London’s International Energy Week gathering this week, traders struck a cautiously optimistic tone for the second half of the year, though the market remains largely rangebound in the short-term. Crude remains caught in a range of about $10 with expectations of higher interest rates from the US Federal Reserve vying with predictions of more robust consumption from China. For the global Brent benchmark, volatility has fallen to the lowest level since 2021 as prices wrestle for meaningful direction.
  • Gold is poised for its best week since mid-January as the dollar weakens on signs that China’s economic recovery is gathering pace. Bullion climbed higher on Friday as a gauge of the dollar extended what would be its first weekly decline in five, making the precious metal cheaper for most buyers. China’s economy is rebounding rapidly, while Euro-area inflation is proving hotter than expected, raising the prospect of more tightening from the bloc’s central bank. Spot gold rose 0.6% to $1,846.90 an ounce as of 9:31 a.m. in London, on track for a 2% weekly gain. The Bloomberg Dollar Spot Index declined 0.3%, taking its weekly loss to 0.6%. Silver, platinum and palladium also climbed.
  • It’s a time-honored tale. A new force enters the market — quantitative easing, leveraged ETFs, high-frequency trading — and a cottage industry on Wall Street is born devoted to exposing the risks it supposedly poses for investors. Now it’s happening again with a new breed of high-octane stock options known as zero-day-to-expiration, or 0DTE, which allows investors to buy and sell with contracts that have a shelf life of less than 24 hours. Everyone from amateur sleuths on Reddit to highly paid Wall Street technicians have joined the fray, dispensing daily theories about how big a threat these quick-trigger instruments pose. Marko Kolanovic, a strategist at JPMorgan Chase & Co., warns “Volmageddon 2.0” may be in store should the contracts boil over. Off Wall Street there’s a Twitter account that does nothing but post daily predictions of where the broader equity market will go each day thanks to the rising clout of the options. One fund manager says he got worried when teenage kids started asking about them.
  • Abu Dhabi’s main energy company raised $2.5 billion from the initial public offering of its gas business, pulling off the year’s biggest listing and continuing a trend that saw the Middle East emerge as a bright spot for share sales in 2022. Investors placed $124 billion of orders for a 5% stake in Adnoc Gas, an oversubscription level of more than 50 times. Parent firm Abu Dhabi National Oil Co. priced the shares at 2.37 dirhams ($0.65) each after offering a range from 2.25 to 2.43 dirhams. The IPO values Adnoc Gas at about $50 billion, roughly in line with Occidental Petroleum Corp. The company benefited from natural gas prices soaring last year as Russia’s invasion of Ukraine roiled energy markets. It made record adjusted underlying earnings of $8.7 billion in the 12 months through October.
  • The UK markets watchdog opened an investigation into the London Metal Exchange focusing on potential misconduct during last year’s massive nickel short squeeze, escalating pressure on the embattled exchange and raising the prospect of financial penalties. The probe by the Financial Conduct Authority’s enforcement division is the first public action of its kind targeting a UK exchange, and will focus on the LME’s actions, systems and controls in the run-up to the suspension of the nickel market last March. The Bank of England, which regulates the LME’s clearinghouse, said separately that its governance and risk management must be improved, and that it plans to appoint an independent monitor. Nickel prices spiked 250% in a little more than 24 hours last March in a short squeeze centered on top producer Tsingshan Holding Group Co., prompting the LME to suspend the market for a week and, most controversially, cancel billions of dollars of trades at the highest prices.
  • The Biden administration on Thursday announced export restrictions for dozens of Chinese entities, including server maker Inspur Group Co. and units of genetics firm BGI, citing activities contrary to US national security and foreign policy interest. The Commerce Department added a number of companies to the so-called Entity List for acquiring or attempting to acquire US-origin items in support of China’s military modernization efforts. The department also cited companies providing support to Russia’s military and supply sanctioned parties in Iran. Among the notable China additions are Inspur Group, the state-affiliated maker of computer servers that’s benefited from datacenter construction nationwide, and Beijing-based CPU maker Loongson. Both are regarded as integral to the government’s effort to replace foreign-made technology and propel domestic innovation.
  • Two Federal Reserve policymakers cautioned that recent stronger-than-expected readings on the US economy could push them to raise interest rates by more than previously expected. In remarks Thursday, Governor Christopher Waller said that if payroll and inflation data cool after hot prints in January, “then I would endorse raising the target range for the federal funds rate a couple more times, to a projected terminal rate between 5.1% and 5.4%.” “On the other hand, if those data reports continue to come in too hot, the policy target range will have to be raised this year even more to ensure that we do not lose the momentum that was in place before the data for January were released,” Waller said in remarks prepared for delivery at an event hosted by the Mid-Size Bank Coalition of America.
  • Tesla Inc.’s shipments from its China factory climbed in February as price cuts attracted buyers and consumer spending kicked back into gear following massive Covid outbreaks across the nation in January. The US electric vehicle pioneer delivered a total of 74,402 vehicles from its Shanghai facility last month, preliminary data from China’s Passenger Car Association released Friday showed. That’s a 32% increase from the same period a year ago and up 13% on the previous month. The specific breakdown of how many Tesla EVs were exported into other parts of Asia or Europe versus sent to the domestic market wasn’t immediately provided.
  • Apple Inc. partner Foxconn Technology Group plans to invest about $700 million on a new plant in India to ramp up local production, people familiar with the matter said, underscoring an accelerating shift of manufacturing away from China as Washington-Beijing tensions grow.   The Taiwanese company, also known for its flagship unit Hon Hai Precision Industry Co., plans to build the plant to make iPhone parts on a 300-acre site close to the airport in Bengaluru, the capital of the southern Indian state of Karnataka, according to the people, who asked not to be named as the information is not public. The factory may also assemble Apple’s handsets, some of the people said, and Foxconn may also use the site to produce some parts for its nascent electric vehicle business. The investment is one of Foxconn’s biggest single outlays to date in India and underscores how China’s at risk of losing its status as the world’s largest producer of consumer electronics. Apple and other US brands are leaning on their Chinese-based suppliers to explore alternative locations such as India and Vietnam. It’s a rethink of the global supply chain that’s accelerated during the pandemic and the war in Ukraine and could reshape the way global electronics are made.
  • Ericsson AB will pay $206.7 million for violating the terms of a 2019 settlement with US authorities regarding payments of bribes abroad, putting an end to a major corruption case facing the Swedish telecommunications giant. The 5G equipment maker will plead guilty to deferred charges after breaching an agreement over allegations it paid bribes in Djibouti, China, Vietnam, Indonesia and Kuwait between 2000 and 2016, the Justice Department said in a statement Thursday. The fine resolves one of the company’s biggest legal issues in the US, where it has faced multiple investigations that it violated the Foreign Corrupt Practices Act and remains under the oversight of an independent compliance monitor until June 2024.
  • Shell Plc’s new boss said cutting oil and gas output would be bad for consumers, echoing a pivot by other major producers toward fossil fuels and energy security. “I am of a firm view that the world will need oil and gas for a long time to come,” Shell Chief Executive Officer Wael Sawan said in an interview with Times Radio on Friday. “As such, cutting oil and gas production is not healthy.” Europe’s largest energy majors are increasingly echoing the strategies of their less climate-minded American peers and leaning into the oil and gas businesses that drove record profits last year and payouts to their shareholders.
  • Norway’s Equinor ASA agreed to buy Suncor Energy UK Ltd. for $850 million, adding to its oil and gas production in the North Sea as Europe races to replace Russian supplies. Since Moscow’s invasion of Ukraine a year ago, Equinor’s importance to Europe has never been greater as the region seeks alternative sources of energy. The firm is now using its vast profit from last year — a result of flat-out production and soaring gas prices — to boost capacity as well as reward shareholders. The transaction gives Equinor a 30% non-operated stake in the producing Buzzard oil field and an additional 40% operated interest in the Rosebank development, the company said in a statement on Friday.
  • Hong Kong’s newest carrier Greater Bay Airlines Co. ordered 15 Boeing Co. 737-9 Max jets and committed to five 787s as it looks to rapidly expand its network. The Max order is worth around $785 million, according to figures from aircraft appraiser Avitas Inc., while the five Dreamliners are worth $722 million, based on the 787-9 model and factoring in standard industry discounts.
  • Bitcoin dropped to the lowest level in about two weeks, part of a wider retreat in crypto markets as investors digested the unraveling of a key industry payments network. The largest token by market value sank as much as 6% before paring some of the slide to trade 4.6% lower at $22,347 as of 6:30 a.m. Friday in New York. Smaller coins such as Ether, Avalanche and the meme token Dogecoin also suffered declines. The digital-asset industry is absorbing the fallout of the troubles at crypto-friendly US bank Silvergate Capital Corp., which has said that it’s reviewing whether it can remain viable. The bank offers a widely used payments network that facilitates the real-time transfer of funds between crypto firms. But many digital-asset exchanges, stablecoin issuers and trading desks are no longer accepting or initiating payments through Silvergate.