March 31, 2023

Daily Market Commentary

Canadian Headlines

  • The Canadian government will allow Rogers Communications Inc. to acquire rival Shaw Communications Inc., ending a two-year odyssey to seal one of the biggest corporate takeovers in the country’s history. Industry Minister François-Philippe Champagne will make the announcement at a news conference Friday morning in Ottawa. He’ll outline measures on competitiveness in the telecommunications sector and give the green light to Quebecor Inc.’s proposal to buy most of Shaw’s wireless business, according to a person familiar with the matter, speaking on condition of anonymity because it is private. Rogers and Shaw have a lot of overlap in their wireless divisions, creating a problem of too much market power. The Quebecor-Shaw side deal is meant to solve that. The minister’s approval removes the final barrier to Rogers and Shaw completing their transaction.

World Headlines

  • European stocks and US equity futures were steady as a gauge of global shares headed for a second-straight quarterly gain, underscoring investor optimism in the face of banking turmoil and elevated interest rates. Consumer-related stocks outperformed and banks retreated as the Stoxx Europe 600 Index edged higher. In Europe, Euro-area inflation plunged by the most on record, but a new high for underlying price gains highlighted the tricky task facing the European Central Bank as it decides how far to lift interest rates. Consumer prices rose 6.9% from a year ago in March — down from 8.5% in February and less than the 7.1% median estimate of economists, but core inflation quickened to 5.7%.
  • Contracts on the S&P 500 were little changed as were those on the tech-heavy Nasdaq 100, after the underlying gauge rose 0.9% overnight, pushing further into a bull market. Digital World Acquisition Corp., the blank-check firm taking Donald Trump’s media company public, rallied in premarket after he became the first former president to be indicted. Other Trump-linked stocks also gained. Technology shares have led the charge globally this quarter, surging 19%, the most since mid 2020. The upbeat tone has been on display this week, with the S&P 500 climbing 0.6% Thursday in its third increase in four days.
  • Asian stocks headed for a fourth day of gains as data showed China’s economy gained momentum in March, while concerns about global banking turmoil and elevated interest rates eased. The MSCI Asia Pacific Index rose as much as 1.1%, set to cap a second-straight weekly gain, boosted by consumer discretionary and materials shares. Most regional markets gained, led by Japan, South Korea and Hong Kong. Indian shares jumped after returning from a holiday. Chinese stocks got a boost after a report that manufacturing continued to expand amid a strong pickup in services activity and construction. The report offered investors more confidence about an economic rebound after stringent Covid restrictions were dropped. Spinoff plans for and Alibaba units also lifted sentiment for tech shares.
  • Oil headed for a weekly surge of about 7% as an ongoing disruption to Iraqi exports tightened the market ahead of US inflation data. West Texas Intermediate futures fell to around $74 a barrel on Friday after closing almost 2% higher in the previous session. Crude dropped following the European market open, which has so far presented a mixed picture in equities and a rise in the dollar. The strengthening greenback pressured the price of oil and broader commodities, as they’re priced in the US currency. Prices have been supported this week by the ongoing shutdown of Iraq’s oil exports following a dispute between Baghdad and Kurdistan. The impasse has worsened, as Gulf Keystone Petroleum Ltd is to become the latest producer to cut production. Talks between officials from Kurdistan and the Iraqi federal government are set to take place next week, which may see the resumption of over 400,000 barrels a day of Iraqi oil exports which go through Turkey.
  • Gold edged lower ahead of inflation data that will provide the latest gauge of price pressures in the US. The metal is set for its biggest monthly gain since November as turmoil in the banking sector drove demand for the haven. Expectations for further rate hikes by the Federal Reserve have sharply diminished despite efforts by the authorities to calm fears. Fed tightening weighed on non-yielding gold throughout last year, sparking outflows from exchange-traded funds backed by the metal. Holdings have risen for three straight weeks in March as investors bet on stresses in the banking system forcing the Fed to pause.
  • Underlying inflation in the euro area hit a record in March, handing ammunition to European Central Bank officials who say interest-rate increases aren’t over yet. The rise to 5.7% in the core price reading, which strips out volatile items like fuel and food costs, came alongside a record plunge in headline inflation to 6.9% from 8.5% in February.  As the energy spike that followed Russia’s attack on Ukraine drops out of inflation readings, ECB officials are increasingly focused on the underlying measure — reflecting concern over firms hiking prices and workers demanding higher salaries to make up for lost purchasing power.
  • Almost a quarter of European bank profits could be wiped out if there’s a 5% write down in the value of commercial real estate loans, according to a report by Bloomberg Intelligence. It’s an estimate that highlights the potential pain facing the financial industry as soaring interest rates raise the risk that some borrowers will struggle to pay off their loans. Nordic, UK, German and French banks are the most vulnerable, analysts Tomasz Noetzel and Philip Richards wrote in a note. The combined exposure of 20 of the largest lenders is about €550 billion, the equivalent of 73% of common equity tier 1 capital, a measure of bank solvency, they added.
  • UK house prices fell at the sharpest annual pace since 2009 after surging interest rates increased the cost of borrowing, one of the biggest mortgage lenders said. The average cost of a home fell 3.1% from a year ago in March, steeper than the 2.2% drop expected by economists, Nationwide Building Society said Friday. Prices have fallen 4.6% from their peak in August, bringing the average value to £257,122 ($318,320). The figures add to evidence that the Bank of England’s rate increases are slowing a market that remained buoyant through the recession that accompanied the pandemic. The central bank raised its key rate to 4.25% in a series of steps from near zero at the close of 2021 to control inflation.
  • Former President Donald Trump is expected to be arraigned as early as Tuesday in an unprecedented legal case, potentially reshaping the American political landscape ahead of next year’s election. Trump became the first former US president to be indicted on Thursday when a Manhattan grand jury determined there was enough evidence to proceed with a case against him for directing hush money payments to a porn star during his 2016 campaign. Manhattan District Attorney Alvin Bragg’s office said it had been in contact with Trump’s attorney to coordinate his surrender. Joe Tacopina, Trump’s lawyer, confirmed the former president planned to appear before New York authorities. He said he hasn’t been told what the specific charges are and expects them to remain under seal until the arraignment. The White House declined to comment.
  • The UK will join an 11-nation Indo-Pacific free-trade bloc, becoming the first new member since its creation, in a bid to strengthen economic ties with new partners following divorce from the European Union. Prime Minister Rishi Sunak’s government sees membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which includes Australia, Japan and Canada, as a boost for economic growth and geopolitical relations. The UK expects growth of £1.8 billion ($2.23 billion) each year over the long-term, a figure that could rise if other countries join the bloc. The UK also believes membership will give it a role in setting regional trade rules over the coming decades. That could mean the UK and other members preventing China’s future accession to the bloc in a move to ensure high trade standards. In a statement, the UK said it did not compromise on its environmental and food standards to join the bloc.
  • Bitcoin’s surprising fast exit from its “crypto winter” has once again put the notoriously volatile digital currency atop the leader-board in the first quarter for being the best-performing asset class by a wide margin. With a roughly 70% gain, Bitcoin is closing out its best quarter since the three months ended March 2021, when it surged some 103%, Bloomberg data show. That vastly outstrips the S&P 500’s 5.5% year-to-date advance, the Nasdaq 100’s 19% uptick and the iShares 20+ Year Treasury Bond ETF’s 5.3% jump. Long-time participants note that volatility is expected — and is even part of the attraction to investors in the relatively embryonic asset class. Bitcoin burst onto the mainstream consciousness with a more-than 1,000% annual gain in 2017, only to post a 74% drop the following year in what became known as a crypto winter. Then after three consecutive annual increases, it tumbled 64% last year amid a series of industry scandals and bankruptcies.
  • Nestle SA, the world’s biggest food group, is among final bidders competing to acquire India’s Capital Foods Pvt as it seeks to boost its presence in the fast-growing economy, people familiar with the matter said. The Swiss company has been discussing terms of a potential deal for Mumbai-based Capital Foods, the people said, asking not to be identified because the information is private. Any transaction would likely value the Indian firm at more than $1 billion, according to the people. Capital Foods makes the Ching’s Secret brand of spicy noodles and fusion chutneys infused with so-called “desi Chinese” flavors. It also sells Smith & Jones cooking pastes and masala mixes.
  • Virgin Orbit Holdings Inc., the satellite-launch company tied to British billionaire Richard Branson, is ceasing operations indefinitely, succumbing to growing cash-crunch pressures that have paralyzed startups in many emerging technologies. The company said in a filing Thursday that it was cutting 675 jobs, or about 85% of its workforce, “in order to reduce expenses in light of the company’s inability to secure meaningful funding.” A spokesperson for Virgin Orbit said the remaining 15% of employees will work on winding down the business. The move punctuates a rapid fall after its high-profile launch failure in January and a collapse in its stock price. Virgin Orbit temporarily suspended operations earlier this month while it sought additional capital. The firm — part of Branson’s empire that includes airline Virgin Atlantic and spaceflight company Virgin Galactic Holdings Inc. — hasn’t turned a profit as a public company.
  • Huawei Technologies Co. posted its first annual profit decline in more than a decade, after years of US sanctions all but obliterated its smartphone arm and compelled the Chinese telecom gear maker to ratchet up research spending. The Shenzhen-based company said its net income for 2022 fell almost 70% to 35.6 billion yuan ($5.2 billion), though the year-ago comparison was inflated by the sale of its youth-oriented Honor mobile unit. Yet Huawei on Friday emphasized it poured 25.1% of its 642.3 billion yuan revenue back into research. That’s among the highest ratios in the global tech industry and reflects the Chinese telecom gear maker’s sustained intent to develop alternatives to the American components and software it can no longer access. Huawei is trying to open up new markets and businesses after US tech export restrictions gutted its smartphone business — briefly the world’s largest — and curtailed the sale of advanced gear in developed markets. Chief Financial Officer Meng Wanzhou — the daughter of Huawei founder Ren Zhengfei — joined other executives on Friday affirming the company’s intent to continue researching ways around a blockade of vital American technologies.
  • Uber Technologies Inc. needs more public stations that its drivers can pull up to for quick charges. BP Plc needs more regular customers racking up lots of miles in electric vehicles and returning to its plugs for a jolt. So it’s no wonder the ride-hailing service and the oil major’s EV charging subsidiary have made for an ideal match. On Friday, BP Pulse announced plans to take a two-year-old partnership global, broadening a relationship that helped make London the leading city globally for Uber’s efforts to electrify the vehicles on its network. In key markets across Europe, the US and the UK, BP Pulse will set aside more dedicated lanes for Uber drivers at charging hubs like the one it opened two years ago in central London. Uber also will integrate BP Pulse into its driver rewards program, offering high-usage drivers lower rates at the plug.
  • Exxon Mobil Corp. has restarted deliveries of gasoline and diesel from its Gravenchon oil-processing complex in the port of Le Havre, partly to ease a crunch in and around Paris. Crude supplies have also resumed intermittently at the port in northwest France since late Thursday, ending a 10-day stoppage, an Exxon Mobil spokesperson said by phone. The company previously cited a lack of oil supply for halting the Gravenchon refinery, one of three French facilities to be taken offline in this month’s strikes. Another oil-processing plant was out of service before walkouts started.
  • Norway’s finance ministry is considering whether it should add private equity to its sovereign wealth fund, a move that until now has been consistently rejected. The wealth fund, which owns about 1.5% of listed stocks globally, has asked the ministry numerous times to consider adding unlisted companies to the stocks, bonds, real estate and renewable energy infrastructure that it is already invested in. Previous governments have declined to let the fund in on the global private equity market, citing concerns about transparency and management costs. The ministry has now asked the central bank, which oversees the fund, to examine various aspects of unlisted equities as a basis for further consideration, it said in its annual white paper on the sovereign wealth fund on Friday.
  • Fidelity International favors contingent convertible bonds sold by European banks after Credit Suisse Group AG’s collapse spurred a stampede out of the $250 billion plus market. CoCos, also known as additional tier 1 securities, suffered “indiscriminate” selling after the debt issued by Credit Suisse were written down following the terms of its government-led rescue, according George Efstathopoulos, a money manager in Singapore. That presented an opportunity to buy beaten-up notes from issuers governed by jurisdictions outside of Switzerland, he said. There was a “sell now, ask questions later” approach to trading AT1s in the thick of the crisis and that allowed the fund “to actually buy a bit,” said Efstathopoulos. “This is an area where fundamentals look very, very strong. Profitability has been decent.”