March 31, 2022

Daily Market Commentary

Canadian Headlines

  • Air Canada said it’s poised to recover most of its pre-pandemic capacity this year, issuing a bright outlook for travel as the nation relaxes restrictions and Canadians try to move on from the gloom of the Covid-19 pandemic. The carrier expects to recover 75% of the total seats offered in 2019, a 150% bump compared to 2021, according to a statement Wednesday. To prepare for the expected rise in travel demand, the carrier has reinstated all of its Airbus SE A220 orders that were canceled in November 2020 and said it plans to buy 26 Airbus A321neo extra-long range aircraft. Canada’s flagship airline also said it expects the cost per available seat mile — excluding fuel expense — to rise as much as 15% in 2022 compared with 2019.
  • RBC Wealth Management has agreed to buy Brewin Dolphin Holdings Plc, in an all-cash deal that values the wealth manager at about 1.6 billion pounds ($2.1 billion). RBC will pay 515 pence a share in cash for the company, according to a statement Thursday. The price represents a 62% premium to Brewin Dolphin’s last closing share price. “The U.K. is a key growth market for RBC, and Brewin Dolphin provides us with an exceptional platform to significantly transform our wealth management business in the region,” Doug Guzman, group head of RBC Wealth Management, said in the statement. The deal will give the firm a no. 3 market position in the U.K., he said.
  • If history is any guide, the combination of higher taxes on foreign buyers and rising mortgage rates may cool the red-hot housing market in Ontario. If history is any guide, the combination of higher taxes on foreign buyers and rising mortgage rates may cool the red-hot housing market in Ontario. The move, announced as Ontario Premier Doug Ford faces an election in June, comes after Canada saw a 50% rise in home values since the start of the pandemic. That’s sidelined many buyers and sparked increasing concern over affordability. Toronto’s benchmark home price fell about 6% after Ontario’s foreign buyers’ tax was first implemented in 2017, despite foreigners accounting for a small share of the market. Rather than directly deterring buyers, the strengthened tax could impact the psychology of market by shifting expectations on how much prices will continue to rise.
  • The Bank of Canada is making some progress in its bid to convince the public it’s serious about curtailing price pressures, a new poll shows. The share of Canadians who are at least somewhat confident inflation will return to more normal levels rose to 37%, according to a March survey by Nanos Research Group for Bloomberg News. That’s up from 31% in a November poll, and comes as economists from Citigroup and Bank of America predict the central bank will raise its policy rate 150 basis points to 2% by July.


World Headlines

  • European stocks were poised for their first quarterly decline since the early pandemic days of 2020 as economic uncertainty around the war in Ukraine and red-hot inflation sours appetite for risk assets. The Stoxx Europe 600 Index was down 0.3% at 12:16 p.m. in London on Thursday and was set to wrap up the first quarter with a retreat of more than 5%, snapping its longest quarterly winning streak since 1998. Retail stocks led declines, while energy shares tracked a drop in oil. Utilities and financial services stocks outperformed.
  • Chinese technology stocks slid after the U.S. securities regulator played down the prospect of an imminent deal to keep local firms listed on American exchanges. The Hang Seng Tech Index, which tracks some of the biggest Chinese tech firms, fell 1.4% on Thursday, snapping a three-day advance. JD Health International Inc. and Baidu Inc. were among the worst performers. A spate of recent regulatory developments are making traders wary again, reminding them of the risks of investing in China stocks. The Securities and Exchange Commission added Baidu Inc. to a growing list of Chinese firms that may get kicked off American stock exchanges barring better audit disclosure. On Thursday, the Chinese securities regulator said talks are continuing with the U.S. on the issue.
  • China Weighs Raising Billions to Rescue Troubled Financial Firms. The People’s Bank of China is leading the effort, seeking to shore up confidence in the $60 trillion financial system as the economy slows and a debt crisis in the property industry spreads. The stability fund would dwarf other pools available to bail out troubled institutions and their depositors. China is moving to stem financial risks ranging from hundreds of weak rural banks to dozens of distressed developers saddled with at least $1 trillion of liabilities. Challenges are mounting as the debt crisis ripples through the property market and as a resurgence in Covid infections forces a partial shutdown in Shanghai, threatening to sap momentum in the world’s second-largest economy.
  • SEC Chair Gary Gensler tamped down speculation that a deal is brewing to keep about 200 Chinese stocks from losing their U.S. listings, signaling that only total compliance with American audit inspections will be sufficient. Futu, Nocera, iQIYI and CASI Pharmaceuticals were also added to an SEC list of companies that may get booted from U.S. exchanges. Tencent and Alibaba fell in Hong Kong. Tesla will suspend production at its local factory through at least Friday, while VW said it’ll maintain some work.
  • The Shanghai shutdown, part two, will see some 16 million people confined to their homes and continue to strain global supply chains.
  • Kyiv said peace talks will resume tomorrow online with the aim of agreeing on enough in another week to set up a meeting between Presidents Putin and Zelenskiy. Ukraine said Russia will open a humanitarian corridor today to evacuate people from Mariupol. The U.K. said Ukrainian forces remain in control of the port city, and strikes are still “significant” around Chernihiv even after Russian statements that it intends to reduce activity in the area. Zelenskiy Says Russia Is Targeting Agriculture…
  • Oil tanked after it was reported the U.S. is mulling the release of a million barrels a day from its strategic reserves. The plan, which includes 180 million barrels being freed over several months, may help the market rebalance this year but won’t solve a structural deficit, Goldman said. Joe Biden may say more when he speaks at 1:30 p.m. in Washington. Also today: OPEC+ will probably snub calls to turn up the taps faster and instead stick to modest increases.
  • Russia Offers Oil to India at Big Discount to Pre-War Price. The sanctions-hit nation is offering its flagship Urals grade to India at discounts of as much as $35 a barrel on prices before the war to lure India to lift more shipments, the people said, asking not to be identified discussing confidential deliberations. Headline Brent prices have risen about $10 since then, implying an even larger reduction from current prices. Russia wants India to take 15 million barrels contracted for this year just to begin with, they said, adding the talks are taking place at government level.
  • The Fed’s favored gauge, the PCE deflator, may have sped up to 6.4% in February from 6.1%, consensus shows, with the core reading at 5.5%. Bloomberg Economics expects that to reinforce the need for a 50 bp hike at the Fed’s May meeting. JPMorgan agreed, upgrading its previous call and now sees a move of that size at each of the next two meetings. NY Fed chief John Williams speaks later. Initial jobless claims probably ticked up to 196,000 from 187,000.
  • The ECB should be ready to adjust monetary policy in either direction, Chief Economist Philip Lane said. Colleague Ignazio Visco said there will be no rate hikes before the end of APP net purchases.
  • French inflation accelerated more than expected to reach another record, quickening 5.1% from a year ago in March, while Italian price growth hit 7%. The U.K. economy was stronger than expected at the end of last year, expanding by 1.3% in the fourth quarter from the previous three months. House prices jumped at the fastest annual pace since 2004 in March, surging 14.3% from a year earlier to an average value of 265,312 pounds, according to Nationwide
  • European automakers are ramping up their rivalry with Tesla, prioritizing battery and software development and releasing 35 new vehicles in the next year, according to Bloomberg Intelligence. Tesla’s dominance may be under threat, but the gulf in software may take longer to bridge.
  • Iron ore futures topped $160 a ton on optimism over longer-term demand prospects after Chinese provinces sold infrastructure bonds at a record pace and expectations build for a post-lockdown demand recovery at mills. Prices in Singapore erased losses earlier in the session to advance for a fifth day as China doubled down on infrastructure investment to boost its economy. Authorities sold special bonds totaling 1.25 trillion yuan ($197 billion), at the fastest pace ever for the first quarter, with the notes mainly used to fund government investment in infrastructure. Meanwhile, steel plants are expected to resume restocking from April as seasonal demand kicks in. Traffic curbs due to Covid-19 outbreak restrictions in some cities in the past week had hurt activity at mills.
  • Major iron ore miners will ship 270.4 million tons in the first quarter, down 3.8% from a year earlier, Bernstein said.
  • China’s Ganfeng Lithium said it plans to expand annual capacity to 300,000 tons of lithium carbonate equivalent by 2025, a 50% jump from its previous guidance
  • The USDA updates planting estimates later today. Farmers are expected to dedicate about 2 million more acres to soybeans and 2 million less to corn, a Bloomberg survey showed, as soaring fertilizer costs make the latter more expensive. Some analysts even warn soy sowings may surpass those of corn. That’s only happened twice in records going back almost a century.
  • Apple Inc. is exploring new sources of the memory chips that go into iPhones, including its first Chinese producer of the critical component, after a disruption at a key Japanese partner exposed the risks to its global supply. It’s considering expanding a roster of suppliers that already includes Micron Technology Inc. and Samsung Electronics Co. after Kioxia Holdings Corp. lost a batch of output to contamination in February, people familiar with the matter said. While Samsung and SK Hynix Inc. — the world’s largest makers of flash memory — are likely to pick up the slack, Apple remains keen to diversify its network and offset the risk of further disruption from the pandemic and shipping snarls, they said. The iPhone maker is now testing sample NAND flash memory chips made by Hubei-based Yangtze Memory Technologies Co., the people said, asking not to be identified discussing private deliberations. Apple’s been discussing the tie-up with Yangtze, owned by Beijing-backed chipmaking champion Tsinghua Unigroup Co., for months though no final decisions have been made.
  • Mark Bezos’s HighPost Buys Chris Hemsworth’s Centr Fitness App. HighPost, led by David Moross and Mark Bezos, has acquired Centr, the digital fitness platform founded by Australian actor Chris Hemsworth, best known for portraying Marvel comic book hero “Thor”. HighPost also acquired Inspire Fitness, a maker of free weights, rowing machines and other exercise equipment, and will fold it into Centr.  The combined company is valued at more than $200 million including debt, according to people with knowledge of the matter, and counts Hemsworth as its second-largest shareholder behind HighPost. Cerberus Business Finance LLC, a lending platform that’s part of Cerberus Capital Management, provided debt financing.

“Never rest on your laurels. Nothing wilts faster than a laurel sat upon.”- Mary Kay

*All sources from Bloomberg unless otherwise specified