March 7, 2023
- Prime Minister Justin Trudeau yielded to pressure over allegations China interfered in Canada’s elections, appointing a special investigator to study the matter. “Upholding confidence in our democratic process in our elections, in our institutions, is of utmost importance,” the prime minister told reporters Monday evening in Ottawa. “I will be appointing an independent special rapporteur, who will have a wide mandate and make expert recommendations on combating interference and strengthening our democracy,” he added. A series of media reports in recent weeks said Trudeau received intelligence briefings alleging that China meddled in both the 2019 and 2021 votes that returned the prime minister to power. The reports included claims that Beijing spread misinformation to hurt certain candidates, and funneled money and volunteers toward people it wanted to see elected.
- European equities gained slightly, reversing earlier declines, as investors mulled robust economic data from the UK and Germany, while weighing the monetary policy outlook before Jerome Powell’s testimony today. The Stoxx 600 Index climbed 0.3% by 9:25 a.m. in London. Today saw profit-taking in some of the biggest winners of this year, such as banks and technology sectors, while real estate and utilities, which have lagged the 2023 rally, outperformed. Economic indicators in Europe are showing strength, fueling further concerns about the central banks’ ability to tame inflation. German factories began the year on an upbeat note, with a surprise increase in January orders. UK retail sales in February also saw a boost, with like-for-like sales climbing 4.9% from a year ago, according to data from the British Retail Consortium and the consultancy KPMG. It was well above the 12-month average of 1.6%. On the other hand, consumers’ expectations for inflation over the next 12 months dropped, declining “significantly” for three years ahead.
- Global stocks edged higher Tuesday, as Treasury bond yields held below the key 4% mark and investors waited to see what policy message Federal Reserve Chair Jerome Powell would deliver at his Congressional testimony later in the day. Contracts on the S&P 500 pointed to a bounce after the underlying gauge closed flat Monday, having erased a gain of as much as 0.8%. Many investors remain sidelined after being burnt repeatedly betting on an inflation peak, cooling US economy and Fed policy pivot. While the S&P 500 index is up 2% this month, recouping some of February’s losses, traders appear reluctant to push the gauge much higher, until they get more clarity on how high interest rates might go and whether the world’s largest economy will dodge recession.
- Asian equities were set to snap a two-day gain as Hong Kong-listed stocks reversed an earlier advance following weak China trade data and a bout of profit-taking. The MSCI Asia Pacific Index was down as much as 0.2%, erasing an earlier advance of as much as 0.6%. The Hang Seng China Enterprises Index closed lower, with market players citing weak export data for the first two months and policy uncertainty during the National People’s Congress as possible reasons. Most other markets were in positive territory, with India’s closed for a holiday. Australian stocks climbed after the nation’s central bank lifted interest rates in line with estimates and said it expects goods inflation to moderate in coming months.
- Oil held near the highest close in five weeks ahead of testimony from Federal Reserve Chair Jerome Powell that will provide clues on the path forward for monetary tightening. West Texas Intermediate traded above $80 a barrel after advancing for five sessions. Powell will begin two days of semiannual testimony before Senate and House committees in Washington later Tuesday. It will likely be his last public remarks before the Federal Open Market Committee meets March 21-22. Crude has endured a bumpy year, whipsawed by concerns over further interest rate hikes from the Fed and a bullish outlook for Chinese demand following the end of Covid Zero.
- Consumer expectations for euro-zone inflation receded “significantly,” according to the European Central Bank, bolstering calls for the pace of interest-rate increases to be slowed. Expectations for three years ahead plunged to 2.5% in January from 3% in December, the ECB said Tuesday in its monthly survey. There was a decline over the next 12 months too — to 4.9% from 5%. The pullback comes just over a week before policymakers are due to set borrowing costs, with a half-point hike in the deposit rate to 3% all but guaranteed. The data follow a worse-than-expected reading last week for core inflation, which hit a record and emboldened hawks advocating prolonged monetary tightening.
- US payroll growth has topped estimates for 10 straight months in the longest streak in decades, a trend that, if extended, will boost pressure on the Federal Reserve to keep raising interest rates. Beginning in April last year, the median forecast in each survey of economists fell short of the government’s initial estimate of payrolls by an average of 100,000 a month — the most in data compiled by Bloomberg back to 1998. Ahead of the February jobs report on Friday, the projection is for a 224,000 increase, which would be about half the pace seen in January. Economists may have repeatedly underestimated monthly job growth because they’ve overestimated the impact of the Fed’s most aggressive interest-rate hiking campaign in decades. Companies are far less willing to dismiss workers they have worked so hard to employ after the pandemic.
- President Joe Biden’s budget will propose hiking payroll taxes on Americans making over $400,000 per year and allowing the government new power to negotiate drug prices as part of an effort the White House says will extend the solvency of a key Medicare program for another quarter century. “The budget I am releasing this week will make the Medicare trust fund solvent beyond 2050 without cutting a penny in benefits,” Biden said Tuesday in an op-ed published in the New York Times shortly before the announcement. “In fact, we can get better value, making sure Americans receive better care for the money they pay into Medicare.” The president’s budget, which will be released Thursday, proposes raising Medicare taxes from 3.8% to 5% on annual income above $400,000, and eliminating a loophole business owners and higher-earners can exploit to avoid additional taxes, according to a White House fact sheet. Biden’s plan would also help bolster Medicare reserves through some $200 billion in prescription drug reforms over the next decade by allowing the insurance program to negotiate costs on more medications and sooner after they come to market.
- Meta Platforms Inc., the owner of Facebook and Instagram, is planning a fresh round of layoffs and will cut thousands of employees as soon as this week, according to people familiar with the matter. The world’s largest social networking company is eliminating more jobs, on top of a 13% reduction in November, in a bid to become a more efficient organization. In its earlier round of cuts, Meta slashed 11,000 workers in what was its first-ever major layoff. The company has also been working to flatten its organization, giving buyout packages to managers and cutting whole teams it deems nonessential, Bloomberg News reported in February, a move that is still being finalized and could affect thousands of staffers. Shares of Meta gained 1.7% during premarket trading in New York on Tuesday. The stock has risen 54% since the start of the year as of Monday’s close.
- Germany plans to ban some Chinese components in the country’s fifth-generation wireless network, the Zeit newspaper reported, as heightened geopolitical tensions push lawmakers to unwind an Angela Merkel-era compromise. Operators will be banned from using certain parts produced by Huawei Technologies Co. and ZTE Corp., Zeit said, citing unidentified people in the government. Berlin is taking a harder line on critical network infrastructure that serves as the backbone of its latest generation mobile technology after the government said last month it doesn’t know how prevalent Chinese equipment is in its systems. The move comes as Washington increases pressure on Chinese tech companies amid worsening relations between the two biggest economies.
- John Wood Group Plc dismissed a proposal for a £1.64 billion ($2 billion) cash offer from Apollo Global Management Inc. as too low. The 237-pence-a-share approach follows three earlier proposals from New York-based Apollo. A successful bid for the Scottish engineering firm by the private equity behemoth would further fuel fears over an exodus of UK-listed companies amid a yawning valuation gap to the US. “The board believes this latest proposal continues to undervalue the group and is therefore minded to reject,” Wood said Tuesday in a statement. “The board will continue to engage with its shareholders and intends to engage further, on a limited basis, with Apollo.”
- The UK grid issued a rare warning that power supply will be tight on Tuesday and asked coal plants to stand by as a snowy cold snap strains the system. The shortfall is as much as 980 megawatts, bigger than the current contingency requirement of 700 megawatts, according to National Grid Plc. The network operator has asked four out of five contingency coal units to warm up in case they’re needed to boost supplies and will decide if households should be asked to reduce demand on Wednesday. In what’s likely to be the last cold snap this winter, temperatures in London plunged as much as 5.1C (9.2F) below normal on Tuesday. In addition to the freezing weather, wind generation slumped to provide just 13% of the nation’s power capacity, according to grid data on Bloomberg.
- Bank of England policy maker Catherine Mann said the pound could weaken further as investors absorb the implication of plans by the US Federal Reserve and European Central Bank to raise interest rates. “There has been a quite a hawkish tone coming from the Federal Reserve and ECB,” Mann said in an interview on Bloomberg TV on Tuesday. “An important question in regards to the pound is how much of that existing hawkish tone is already priced into the pound. If Fed hawkishness is not priced in, the pound could fall further.” Mann warned she thinks there’s “more to go” on the UK currency’s weakness, and that would feed through to rising prices and inflation. The remarks build on Mann’s own concern that inflation in the UK will require further rate rises from the BOE.
- Carlsberg A/S Chief Executive Officer Cees ’t Hart will retire after eight years as the Danish brewer struggles to extricate itself from Russia and to raise prices enough to offset surging inflation. Hart, 64, will leave the brewer at the end of the third quarter at the latest, Carlsberg said Tuesday, adding that the search for a successor has started. The stock fell as much as 4%. The Dutch CEO has been in the role since 2015 and the company didn’t name an immediate replacement, suggesting the departure may be happening sooner than expected. Hart became Carlsberg’s first non-Danish CEO with a mission to restore growth after a period of stagnant earnings. During his tenure, he focused on cutting costs and improving profitability but failed to reignite sales. The company’s stock gained more than 60% under the CEO, outperforming a 44% gain in Heineken NV and a 47% drop in Anheuser-Busch InBev NV over the same period.
- Banks and broker-dealers are planning to add headcount in equities electronic-trading roles, bucking the trend in other Wall Street businesses where workforces are being cut. More than half of US sell-side firms plan to expand their equities electronic desk coverage in the next year and a half, according to a survey of 25 firms by Coalition Greenwich. Almost 30% say they expect to add headcount in execution and analytics consulting, while roughly a quarter report plans to hire in algorithmic sales. The trend toward electronic trading has resumed after a pause during the pandemic, when there was more high-touch handling of trades, Forster said. The expansion stands in contrast to the recent culling across Wall Street as firms look to streamline headcount to keep expenses in check. JPMorgan Chase & Co. cut hundreds of mortgage employees, while Goldman Sachs Group Inc. embarked on one of its biggest rounds of job reductions ever in January with a plan to eliminate thousands of positions across the company.
- Alessio de Longis spent the last three months loading up on risk in his $1.1 billion Invesco Global Allocation Fund. Now, he’s winding down those positions and reversing course back to safety. The senior portfolio manager at Invesco is changing tack after a flurry of hotter-than-expected economic data fueled expectations that Federal Reserve officials will keep raising rates for longer. Amid souring investor sentiment, de Longis is ditching stocks for bonds and turning less bearish on the US dollar. Invesco’s Global Allocation Fund has returned about 5% this year through Friday, behind the 5.7% gain for the S&P 500 Index, but ahead of peers like the T Rowe Price Global Allocation Fund, American Funds Global Balanced Fund and BlackRock Global Allocation Fund Inc.. The fund is the largest of at least seven active funds managed by de Longis, according to data compiled by Bloomberg.
- Trading in derivatives tied to the Secured Overnight Financing Rate surged last month as investors clamor to hedge against an uncertain Federal Reserve policy path, with just a little over a month until CME Group Inc. starts phasing out its eurodollar contract. SOFR options set the single largest month-over-month gain in open interest in February, with inflows topping 13.4 million contracts, according to CME. That exceeds the previous high of 10.4 million contracts in eurodollar contracts reached in 2016 — the landmark year that heralded the early stages of Fed’s last hiking cycle as well as Brexit and the US presidential elections. To be sure, SOFR futures activity has supplanted eurodollar activity for awhile, with aggregate open interest nearly double that for the derivatives tied to the London interbank offered rate. Ahead of Libor’s planned extinction at the end of June, CME on April 14 will convert eurodollar futures and options contracts to corresponding SOFR contracts.
- Nissan Motor Co.’s credit rating was slashed to junk by S&P Global Ratings, the latest setback for a carmaker that’s struggled to boost profitability in the years following former chairman Carlos Ghosn’s arrest and the industry’s pivot toward electrification. The Japanese automaker’s credit rating was cut by a notch to BB+ by S&P, which said a strong recovery in profit and sales was “unlikely” and cited persistent supply chain turmoil and high costs in the industry. While Nissan recovered from two years of losses and is still targeting an operating profit of ¥360 billion ($2.7 billion) for the fiscal year ending this month, there’s a dearth of new models to appeal to car buyers. A weaker yen in late 2022 also helped boost income brought home, which made up for production snags, but that advantage is fading as the currency strengthens.
- A long road lies ahead to repair confidence in crypto after unprecedented bankruptcies and hacks, including the major challenge of giving investors a way of insuring against such events. Stock brokerage accounts often come with some cover against outcomes like bankruptcy but digital-asset platforms provide few if any shields, a reality underlined by the November collapse of Sam Bankman-Fried’s FTX exchange. Investors seeking such policies face a tough task. Traditional insurers are wary and crypto-native solutions in decentralized finance — or DeFi — account for a fraction of the $1.1 trillion digital-asset sector. For instance, funds locked in DeFi insurance protocols amount to about $300 million, compared with more than $80 billion in DeFi services overall, according to data from DeFiLlam