March 30, 2023
- Prime Minister Justin Trudeau’s plan to add billions of dollars in new annual spending has some economists worried that Canada is at risk of racking up unsustainable debt — especially if economic growth comes in worse than expected. Finance Minister Chrystia Freeland’s latest budget added C$43 billion ($32 billion) in net new costs over six years, primarily by increasing health-care outlays and clean-technology subsidies to compete with the US Inflation Reduction Act. She’s wrong to describe the budget as prudent, with overall program spending set to balloon to 51% above pre-pandemic levels by 2028, according to Derek Holt, an economist at Bank of Nova Scotia. “Big spending, big deficits, big debt, high taxes, high inflation and bond market challenges are not the path to prosperity,” Holt said in a report to investors Wednesday that described the country’s federal and provincial governments as “addicted to high spending.”
- A colder-than-normal spring threatens to cut into US grain seedings, potentially crimping fertilizer use just as the world’s biggest crop nutrient companies are banking on higher demand. The industry has hopes for more acreage and fertilizer applications following last year’s massive market disruptions after Russia’s invasion of Ukraine. Nutrien Ltd., the world’s largest fertilizer company, is among producers predicting bigger grain plantings, with weather as the sole caveat. “If it’s a cool spring then farmers’ planting season for corn gets compressed and they switch over to soybeans, which requires less nitrogen,” Nutrien Chief Executive Officer Ken Seitz said Tuesday in an interview at Bloomberg’s New York headquarters.
- European equities trimmed monthly declines as banking fears subsided further following positive comments from a European Central Bank official, while Spanish inflation plummeted in a boost to the sentiment. The Stoxx 600 Index was 1% higher as of 10:29 a.m. in London. Banks extended their recovery after ECB Executive Board member Isabel Schnabel said that eurozone banks have not seen a loss of deposits despite the recent financial stability concerns. The main regional benchmark is set for its first monthly decline in three months, as banking shares have slumped following the collapse of Silicon Valley Bank and turmoil at Credit Suisse Group AG, with the Stoxx 600 Banks Index on track for its worst monthly decline in three years. This is also the worst March for the Stoxx 600 since the onset of the Covid-19 pandemic.
- US equity futures climbed on investor bets that a peak in interest rates is near and bank turmoil will ease further. European stocks rose and the dollar declined in the risk-on mood. S&P 500 contracts and those on the tech-heavy Nasdaq 100 advanced at least 0.4% after a rally on Wednesday that pushed the latter into a bull market. Stocks have been drifting higher in recent days as the worst of the bank selloff recedes, even with a lack of fresh news on the direction of interest rates. Attention in the US turns next to jobless data, GDP numbers and the core personal consumption expenditure reading for insights on the Federal Reserve’s policy moves. Investors now expect US rates to sit around 4.3% by the end of the year, around 70 basis points lower than the current level.
- Asian stocks eked out small gains after a rally in US shares overnight, as investors adjusted their positions ahead of quarter-end and markets continued to digest Chinese e-commerce giant Alibaba’s break-up plans. The MSCI Asia Pacific Index reversed earlier losses to rise as much as 0.2%, led by energy and consumer discretionary shares. Australia advanced on the back of strength in US tech shares, while Japanese stocks dropped as a majority of shares traded ex-dividend. India was closed for a holiday. Chinese tech shares gained, lifting the broader market, as investors turned more positive on the sector. In a conference call Thursday, Alibaba’s chief executive Daniel Zhang said the company would gradually give up control of some of its main businesses.
- Oil rose after its first drop in three sessions as the dollar weakened and financial markets strengthened. West Texas Intermediate futures traded above $73 a barrel after closing 0.3% lower on Wednesday. The dollar fell and European stocks and US equity futures climbed as broader markets bet that a peak in interest rates is near and that turmoil in the banking sector will continue to ease. A softer dollar makes commodities priced in the US currency more attractive. Crude futures also have been supported this week by a dispute involving Iraqi, Turkish and Kurdish authorities that halted about 400,000 barrels a day of exports from the Ceyhan port.
- Gold steadied as traders awaited data on unemployment and inflation to provide fresh direction to the precious metal. Bullion is still up more than 7% this month, bolstered by the banking-industry turmoil and concerns that the US economy may tip into recession. That’s driven a significant reduction of the swaps market’s expectation for more rate hikes this year. Spot gold added 0.1% to $1,966.93 an ounce by 8:32 a.m. in London, following its 0.5% decline in the previous session. The Bloomberg Dollar Spot Index slipped 0.2% after rising previously. Silver and palladium rose, while platinum steadied.
- Copper is closing out the month strongly, heading for the 10th gain in 11 sessions, on signs of tighter concentrate supply and improving market sentiment as the recent banking turmoil ebbs. Chinese copper smelters have reduced their minimum threshold for processing fees for the upcoming quarter, according to people with knowledge of the matter. The move, which follows a slew of severe mining disruptions in countries from Peru to Panama, indicates a tighter outlook for supply. After rallying in January on bets for a recovery in demand in China amid the country’s reopening, copper then struggled for direction as Chinese consumption disappointed and the dollar moved higher. Still, copper prices are slightly higher this month as initial losses spurred by a banking crisis that rattled commodities gave way to gains after the market turmoil faded.
- Hennes & Mauritz AB shares jumped the most since 2018 as the Swedish clothing retailer made progress in reducing an inventory buildup that has plagued the company for more than six years. The stock rose as much as 18% after the company reported inventory dropped to the lowest level in proportion to sales in almost three years. H&M’s $4 billion pile of unsold clothes has been one of Chief Executive Officer Helena Helmersson’s largest headaches, leading the company to rely on heavy discounting. The company’s results show it kept rebates flat in the first quarter, which led to a higher-than-expected level of profitability, analysts said.
- Russia’s Federal Security Service said it has detained Wall Street Journal reporter Evan Gershkovich, a US citizen, in the city of Yekaterinburg on spying allegations. Gershkovich “is suspected of espionage in the interests of the American government,” the security service known as the FSB said Thursday in a website statement, which didn’t indicate when he was held. The reporter “collected information constituting a state secret about the activities of one of the enterprises of the Russian military-industrial complex,” it said. “The Wall Street Journal vehemently denies the allegations from the FSB and seeks the immediate release of our trusted and dedicated reporter,” the newspaper said in a statement. “We stand in solidarity with Evan and his family.”
- The UK unveiled its strategy to speed up the deployment of renewable power and capture carbon, but the plan to boost energy investment in Britain lacks the financial might of efforts in the US. Billed as a response to the limitless green subsidies in US President Joe Biden’s Inflation Reduction Act, the measures were low on fresh funding, with any meaningful expenditure expected in the autumn. Briefing reporters, Energy Secretary Grant Shapps appeared to concede there was little in the way of new spending. “This is money that’s been talked about,” but it doesn’t take effect “until you actually set out the program,” Shapps said. “Projects can’t actually go ahead and the private capital can’t crowd in” until projects are delivered, a process Thursday’s measures aim to accelerate.
- Charles Schwab Corp.’s clients are pulling cash out of the firm’s low-interest-rate bank accounts at twice the rate that Morgan Stanley expected, prompting the firm’s analyst to yank his buy-equivalent rating on Schwab for the first time since he began covering the brokerage stock seven years ago. Client money is moving from so-called sweep accounts into money market funds at a rate of $20 billion a month, analyst Michael Cyprys wrote in a report Thursday cutting the stock to equal-weight from overweight. He reduced his target for the share price over the next year to $68 from $99. Schwab’s shares, which have fallen 29% this month, slipped 2.1% to $54.05 in premarket trading. “While clients aren’t leaving and SCHW has other sources of liquidity, earnings face more pressure than we had expected,” Cyprys wrote, lowering his forecast for profit this year and next by 30%.
- Money-market mutual funds are proving an irresistible place for investors to park their cash right now instead of banks. The amount squirreled away in them has surged to more than $5 trillion and that risks becoming a problem for the US economy if that grows too much and too quickly. Encouraged by the higher rates that these funds have been able to offer — and their greater nimbleness in passing on benchmark increases by the Federal Reserve over the past year — savers have been shifting cash into them and out of traditional bank deposits. That was happening even before the recent banking turmoil, but the trend has been supercharged amid the collapse of Silicon Valley Bank and other lenders.
- For the past two decades, Credit Suisse Group AG dominated the business of arranging Swiss franc bond sales. Its sudden collapse presents an opportunity for the likes of Deutsche Bank AG and BNP Paribas SA in a market that saw $59 billion in deals last year. Some of the business will probably be picked up by acquirer UBS Group AG, but given that they already arrange a quarter of so-called Swissie sales — and because it’s not clear what the debt sales business will look like in the merged bank — there may be an opening for others. Deutsche Bank, Commerzbank AG and BNP Paribas, which are already active in the Swissie market, are likely to compete for international issuance, people familiar with the matter said. Regional lenders such as Raiffeisen Schweiz and Zürcher Kantonalbank will probably pick up some of the domestic issuance, the people added.
- Bitcoin climbed back above levels seen just before the latest US regulatory crackdown as traders set their sights on $30,000 for the first time in more than nine months. The largest cryptocurrency by market value rose as much as 2.7% to $29,171 during Asian trading hours, and was recently little changed at around $28,612. It last traded at $30,000 in June, just as a series of industry bankruptcies and scandals began to weigh on investor sentiment. An overall increase in risk appetite in global markets has helped boost crypto prices as investors bet that a peak in interest rates is near and bank turmoil will ease further. Bitcoin has jumped over 70% this year, after tumbling 64% in 2022.
- Major technology and internet stocks have regained investor favor this year, and no company is ticking more boxes for bulls than Alphabet Inc. Not only does the Google owner offer the strong cash flow and growth characteristics sought by investors amid rising economic uncertainty, it’s the only one of the five biggest technology firms by market value priced at a discount to the Nasdaq 100 Index. Despite losing ground this week as easing fears about the banking system cooled high demand for megacaps, Alphabet’s shares are up 13% in March, nearly twice the gain for the tech-heavy benchmark. The rally has added more than $140 billion to Alphabet’s market value and put the stock on track for its biggest monthly gain in almost two years.
- Treasury Secretary Janet Yellen plans to say that regulators might need to tighten banking rules after the collapse of Silicon Valley Bank and Signature Bank, arguing that the recent turmoil is a sign that efforts to bolster the financial system are incomplete. In remarks prepared for later Thursday, Ms. Yellen questioned whether the regulatory system she helped build after the 2008 financial crisis was adequate to protect financial stability. Regulators this month extended emergency assistance to banks and stepped in to protect all depositors at SVB and Signature. “These events remind us of the urgent need to complete unfinished business: to finalize post-crisis reforms, consider whether deregulation may have gone too far, and repair the cracks in the regulatory perimeter that the recent shocks have revealed,” Ms. Yellen said in the prepared remarks, excerpts of which were viewed by The Wall Street Journal.
- Russia still relies on Western insurers to cover more than half of the tanker fleet that exports its oil, according to data compiled by Bloomberg, and the country’s energy officials are voicing concerns about the situation. The Group of Seven and its partners in the European Union have decreed that any shipment of crude using services based in their member countries must be sold below a $60-a-barrel price cap. The measure is designed to curb the Kremlin’s energy-export revenues, limiting its ability to keep funding the invasion of Ukraine. Since early December, between 50% and 60% of vessels that have carried Russian oil are protected against shipowners’ liability risks by members of the London-based International Group of P&I Clubs, according to data compiled by Bloomberg based on information in the Equasis shipping system. The data do not indicate whether the vessels are covered for hull or cargo insurance.