March 6, 2023
Daily Market Commentary
- Canada’s crackdown on Chinese investment in critical minerals will make it harder for miners to produce the metals needed for the global energy transition, according to Ivanhoe Mines Ltd. founder Robert Friedland. “We’re going to be deprived of all this Chinese capital in all these junior mining companies,” the billionaire mining magnate told a packed auditorium in Toronto on Sunday. “It’s really getting harder out there to be a miner.” The Canadian government tightened its foreign investment laws in November to clamp down on foreign state-owned enterprises pursuing takeovers or investing in the mining industry. That same month, the government ordered three Chinese firms to divest from a trio of junior lithium explorers.
- First Capital REIT entered into an agreement with Artis REIT and Sandpiper Group that settles their dispute. The March 28 shareholder meeting that had been requisitioned by Sandpiper and Artis won’t take place. Sandpiper and Artis withdraw nominees for board. “As a significant owner of First Capital, we will continue to collaborate with the Board and provide constructive input and ideas for their consideration,” Sandpiper CEO Samir Manji says in statement
- Alberta’s $124 billion investment manager is looking to build ties with sovereign wealth funds in Abu Dhabi as the Canadian firm looks to expand outside its home market and diversify its portfolio. Alberta Investment Management Co. Chief Executive Officer Evan Siddall said he’s met officials at some of the city’s largest funds to identify opportunities for joint investments in the region and around the world. “We’re building relationships with the big funds,” Siddall said in a recent interview, declining to name the funds he met. “Infrastructure is one [area] where we’re quite active, and in real estate.” Aimco, which invests on behalf of 32 pension, endowment and government funds in the oil-rich Canadian province, named Siddall CEO in 2021 after it lost C$2.1 billion ($1.6 billion) on a bet against market volatility that blew up when the pandemic hit. Siddall, former head of Canada’s housing agency, has since overhauled the executive team, including a new chief risk officer and a new investment head.
- European stocks edged lower as investors weighed the outlook for rate hikes, although a gain in LVMH shares briefly took France’s CAC 40 Index to an all-time high. The Stoxx 600 Index was down 0.2% as of 12:04 p.m. in London. Miners slumped with metals after China set a cautious economic growth target of about 5% for the year and didn’t announce any major new stimulus. Travel and leisure and retail outperformed. A rally in European stocks moderated in February as investors feared central banks would keep rates higher for longer, but signs that the economy is able to weather the impact of elevated inflation have boosted risk sentiment in recent days.
- US equity futures struggled to build on last week’s rally, as investors assessed the potential impact of China’s modest new economic growth target and waited to see if Treasury yields would extend their declines off recent highs. That kept US futures in the red, after Friday’s strong session that saw the S&P 500 benchmark snap a three-week losing streak, and lifted the Nasdaq 100 to its best day since early February. US 10-year Treasury yields have slipped off the psychologically key 4% mark and are currently around 3.91%, more than 10 basis points below levels hit last week. Euro zone yields fell even more sharply as investors trimmed wagers on peak interest rates in the bloc. Traders are also waiting to see if Fed Chair Jerome Powell’s testimony to the Senate and House committees echoes recent hawkish comments from other rate-setters. But conviction is growing that the Fed’s interest rate rises will not go beyond the 5.4% or so that’s already priced. A 25 basis-point rate rise is expected for the Fed’s March 21-22 meeting, with an outside chance of a 50 basis-point move.
- Asia stocks were on track to reach their highest level in about two weeks as tech stocks climbed amid lower bond yields. Chinese equities lagged as Beijing’s modest economic growth target dampened hopes for stronger stimulus. The MSCI Asia Pacific Index climbed as much as 1.1% to a level last seen on Feb. 21, with tech-heavy gauges in South Korea and Taiwan higher as the 10-year US Treasury yield slipped below 4%. Stocks in Hong Kong and China underperformed the region, whipsawing earlier as the country’s annual parliamentary meetings entered their second day. Other events to watch this week include monetary policy decisions in Australia, Japan and Malaysia. The MSCI Asia has rebounded this month from a near 6% selloff in February as declines in Chinese stocks slow and US economic data point to robust trends.
- Oil declined as China’s modest new growth ambitions and the prospect of tighter US monetary policy posed headwinds for global fuel consumption. West Texas Intermediate traded below $79 a barrel after gaining more than 4% last week. China’s Premier Li Keqiang announced a goal for gross domestic product of around 5% at the annual National People’s Congress on Sunday, lower than economists had expected. The nation, the world’s largest oil importer, ended its restrictive Covid Zero policy late last year. Oil has held within a tight $10 range since the start of the year, whipsawed by optimism over China’s recovery and expectations of further interest rate hikes from the US Federal Reserve. Saudi Arabia has signaled confidence in the near-term outlook, raising most of its prices for crude shipments to Asia and Europe for April.
- Gold declined from near a two-week high as the dollar strengthened after China set a more modest growth target than expected for 2023. Bullion on Friday capped its biggest weekly gain since mid-January, supported by a weaker greenback following data showing Chinese manufacturing recovering strongly. Over the weekend, China set an economic growth target of about 5% while avoiding major new stimulus measures, disappointing those looking for a positive spillover for the world economy. Spot gold lost 0.3% to $1,850.69 an ounce as of 12:39 p.m. in London, after surging 2.5% last week. The Bloomberg Dollar Spot Index rose 0.2%. Silver, platinum and palladium all declined.
- The three-month London interbank offered rate for dollars, a major global lending benchmark, surpassed 5% for the first time in more than 15 years on Monday. The benchmark rate for lending between banks rose 2.4 basis points to 5.008%, the highest since December 2007. The spread of Libor over overnight index swaps — a barometer of funding pressure — widened to 3.2 basis points on Monday from 1.7 basis points the prior session. Much of the recent surge in Libor, which is set to be phased out on June 30, has been driven by expectations for Federal Reserve policy tightening. Traders not only expect a higher terminal rate, but the central bank to remain at that level for a longer period than previously expected.
- Federal Reserve Chair Jerome Powell is expected to echo fellow central bankers in suggesting interest rates will go higher than policymakers anticipated just weeks ago if economic data continue to come in hot. Powell heads to Capitol Hill this week as Fed officials eye raising rates several more times to quell stubborn inflation — a message that’s making Democratic lawmakers uneasy. Some policymakers are suggesting they may have to do more to tame prices following a series of strong reports on jobs, prices and consumption, which have spurred traders to bet the Fed will hike beyond the 5.1% level officials estimated in December.
- Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds last week. This was the fourth straight week of outflows. Outflows from U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $713.1 million in the week ended March 3, compared with losses of $444.3 million in the previous week, according to data compiled by Bloomberg. This was the biggest weekly outflow since Sept. 30. So far this year, inflows have totalled $10.5 billion.
- Tesla Inc. reduced prices of its more expensive models again, days after Elon Musk said cuts earlier this year had piqued interest in the company’s electric vehicles. The Model S and X now start at $89,990 and $99,990 in the US, down a respective 5.3% and 9.1%, according to Tesla’s website. The company lowered prices of the higher-performance Plaid versions of each vehicle by 4.3% and 8.3%. At $109,990, Plaid iterations of the S and X now cost $26,000 and $29,000 less than they did in early January. Musk said last week that desire to own Teslas was “indistinguishable from infinite,” and that demand will “go crazy” as the company makes its cars more affordable. Reducing prices of S and the X models again suggests those vehicles may have gotten less of a boost from cuts the company made across its lineup seven weeks ago.
- Morgan Stanley’s Michael Wilson, known for being one of Wall Street’s most bearish strategists, said he’s expecting stocks to rally in the short term. Wilson pointed to the S&P 500’s resilience at the 200-day moving average last week, a widely-monitored technical indicator of an index’s momentum against its current price. The bounce off the line suggests it may now act as a support for the benchmark. Wilson said the index is likely to move higher if Treasury yields and the dollar continue to decline. “Equity markets survived a crucial test of support last week that suggests this bear market rally is not ready to end just yet,” the strategist wrote in a note Monday.
- German Chancellor Olaf Scholz said talks were constructive with the European Union in resolving a dispute over plans to ban new combustion-engine cars in the bloc from 2035, after Berlin derailed the effort this past week. Scholz met with European Commission President Ursula von der Leyen on the sidelines of a government retreat in Meseberg north of Berlin on Sunday. The chancellor expressed optimism a deal could be reached and said discussions would continue in the coming days. Germany has put pressure on the commission, the EU’s executive arm, to come forward with a proposal that would allow combustion cars running exclusively on so-called e-fuels to continue to be sold after cut-off date. A final vote on the issue was due to take place on March 7, but was indefinitely delayed amid fears that Germany could abstain, which would torpedo the regulation.
- China set a modest economic growth target of around 5% for the year, with the nation’s top leaders avoiding any large stimulus to spur a consumer-driven recovery already underway, suggesting less of a growth boost to an ailing world economy. Premier Li Keqiang announced the goal for gross domestic product in his final report to the Communist Party-controlled parliament, which kicked off its annual meeting on Sunday. Economists had expected a more ambitious target of above 5% following a rebound in consumer spending and industrial output after the end of coronavirus restrictions. Having missed the GDP goal last year by a wide margin for the first time ever, a more cautious aim this year could restore Beijing’s credibility and give President Xi Jinping and a line up of new top economic officials more room to focus on long-term policies.
- US banks are being forced to do something they haven’t done for 15 years: fight for deposits. After years of earning next to nothing, depositors are discovering a trove of higher-yielding options like Treasury bills and money market funds as the Federal Reserve ratchets up benchmark interest rates. The shift has been so pronounced that commercial bank deposits fell last year for the first time since 1948 as net withdrawals hit $278 billion, according to Federal Deposit Insurance Corp. data. To stem the outflows, banks are finally starting to lift their own rates from rock-bottom levels, particularly on certificates of deposit, or CDs. More than dozen US lenders including Capital One Financial Inc. are now offering an annual percentage yield of 5% on one-year CDs, a rate that would have unspeakably high two years ago. Even the big banks are feeling the heat. At Wells Fargo & Co., 11-month CDs now pay 4%.
- Goldman Sachs Group Inc. is recommending buying Apple Inc. shares for the first time in nearly six years, after being mostly on the sidelines as the iPhone maker’s stock more than quadrupled in value. Analyst Michael Ng just took over coverage of the company, whose large user base he says will help the iPhone maker grow its services business. “Apple’s success in premier hardware design and resulting brand loyalty has led to a growing installed base of users,” said Ng, who is the third Goldman analyst to cover the stock in six years, according to data compiled by Bloomberg. This helps the company reduce the number of users leaving the ecosystem, lowers client acquisition costs and encourages customers to repeat purchases, he wrote in a note.
- Brazil’s development bank plans to issue tax-free bonds to double credit operations to nearly $40 billion without the Treasury’s help, according to its planning and project structuring director. Nelson Barbosa, who served as finance minister under Dilma Rousseff and has now joined the ranks of the bank known as BNDES, said the bonds will be linked to development projects in areas where the institution wants to invest, such as energy transition, innovation and infrastructure. They will also be available to individual investors, sweetened by the exemption of income tax. “One of our goals is to restore BNDES’s historical size, which means doubling the size of the bank,” Barbosa said in an interview in his office in Brasilia. “Instead of the Treasury borrowing and transferring funds to BNDES, the bank itself will raise the money.”
- The biggest impediment to the US achieving a cleaner power grid isn’t climate deniers or fossil-fuel lobbies; it’s a lack of transmission lines. The country badly needs more conduits to cart wind and solar energy and hydropower to cities. For more than a decade, multibillion-dollar power-line projects have struggled to advance, slowed or halted by bureaucracy, NIMBYism or general industry stasis. Now suddenly, several are progressing — and with them the prospect of newly unleashed clean energy as well as more resilient grids in the face of ever-dangerous storms and extreme heatwaves. There’s SunZia in the Southwest, TransWest Express in the Mountain West, Grain Belt Express to the Midwest, and Champlain Hudson Power Express into New York City — projects that together will cost at least $13 billion. Some are now ordering expensive equipment, a signal of their advancement. SunZia and TransWest expect to begin construction this year.