May 12, 2023

Daily Market Commentary

Canadian Headlines

  • Air Canada said Friday that it has narrowed its first-quarter adjusted net loss to $188 million, or $0.53 per diluted share, from an adjusted loss of $747 million, or $2.09 per diluted share, a year earlier. Revenue for the quarter ended March 31 was $4.89 billion, up from $2.57 billion a year earlier. For the second quarter, Air Canada said it plans to increase its available seat miles capacity by about 22% from the same quarter in 2022. For 2023, the company expects to increase ASM capacity by about 23% versus 2022. Adjusted EBITDA for 2023 is expected to range between about $3.5 billion and $4 billion.

World Headlines

  • European stocks advanced Friday, erasing their loss for the week, as investors assess the path of interest rates and earnings season reaches its final days. The Stoxx Europe 600 Index climbed 0.6% as of 10:37 a.m. in London, with consumer-product and bank stocks gaining the most. Autos and real estate declined. A weekly advance would the first in three weeks. European equities have started May on a cautious note, and had been poised for a third weekly loss prior to Friday’s rally. Investors fear a recession in the US and concerns are increasing about interest rates peaking at levels higher than previously anticipated. The Bank of England on Thursday raised its key rate and signaled more hikes may follow if inflationary pressures persist.
  • Stocks rose as investors found confidence in strong earnings from Cartier maker Richemont and signs that US lawmakers are making progress on a deal to raise the debt-ceiling. Richemont gained 7.8% to a record, fueling a broad rally across European luxury stocks. S&P 500 futures traded higher after President Joe Biden and House Speaker Kevin McCarthy postponed a meeting on the debt ceiling that was planned for Friday. The delay reflects headway in staff-level discussions, according to people familiar with the talks. Globally, stock markets have seesawed this week on mixed US economic data and ongoing worries about the debt ceiling. While tech stocks have continued to outperform, with the Nasdaq 100 Index climbing 1% so far this week, there’s plenty of skepticism about the industry.
  • Asian stocks headed for a fourth day of decline, as Chinese shares pulled back further after the nation’s weak inflation and borrowing data showed the economic recovery is waning, adding to growth concerns globally. The MSCI Asia Pacific dropped as much as 0.3% Friday, led lower by material and energy shares. Chinese and Hong Kong benchmarks led declines in the region as traders fret over the slew of worse-than-expected economic data, which underscores ongoing problems in the housing market and sluggish domestic demand after Covid reopening. Chinese tech stocks bucked the broader market’s trend after e-commerce firm JD.com reported better-than-expected results, and geopolitical concerns eased on the news of a meeting between Biden and Xi. US National Security Adviser Jake Sullivan also met with China’s top diplomat Wang Yi.
  • Oil swung between losses and modest gains as concerns that sluggish economic growth will eat into demand were weighed against optimism that US plans to refill the country’s Strategic Petroleum Reserve after June may bolster the market. West Texas Intermediate traded near $71 a barrel, after dropping by almost 4% over the previous two sessions. The physical market is showing signs of weakness amid poor refining margins and lackluster buying in some areas. The two biggest economies showed further evidence of cooling this week, with US jobless claims rising and China’s recovery waning. Crude has retreated by about 15% over the past month as the US economy moved closer to recession and China’s rebound disappointed some market watchers, putting a question mark over energy demand. So far, that’s outweighed the lift from supply cuts announced by the Organization of Petroleum Exporting Countries and its allies.
  • Mounting fears over the US debt-ceiling crisis will benefit gold as investors brace for potential chaos in financial markets, according to RBC Capital Markets. Hopes for a deal to avert a first-ever US default were set back after President Joe Biden and House Speaker Kevin McCarthy postponed a meeting set for Friday that had been aimed at resolving the impasse. However, the delay signals that staff-level have yielded progress, according to people familiar with the talks. Spot gold declined 0.2% to $2,011.41 an ounce as of 1:34 p.m. in Singapore, after falling 0.7% on Thursday. It was down slightly for the week after a couple of weeks of gains. The Bloomberg Dollar Spot Index was steady, after rising 0.5% in the previous session. Silver and platinum fell, while palladium edged higher.
  • Treasury Secretary Janet Yellen said the only good outcome in the current US debt standoff is for Congress to raise the ceiling. “What global markets and American households and businesses need to see is that we have a Congress that is committed to paying the bills,” Yellen said Friday in an interview with Bloomberg Television. “If Congress fails to do that, it really impairs our credit rating,” Yellen added, speaking on the sidelines of a Group of Seven gathering of finance officials in Niigata, Japan. Yellen has mostly declined to spell out what her department would do if Congress fails to raise or suspend the debt limit before the Treasury finds itself unable to cover all the government’s obligations.
  • Tesla Inc. recalled virtually every car it’s sold in China due to a braking and acceleration defect that may increase crash and safety risks. The automaker will deploy an over-the-air software fix to more than 1.1 million vehicles produced in Shanghai from January 2019 to April this year, plus some models imported into China, the State Administration for Market Regulation said Friday in a statement. The defect relates to Tesla’s regenerative braking system, which makes use of energy created when drivers take their foot off the accelerator by sending power to the car’s battery. The vehicles haven’t allowed drivers to set the intensity of their regenerative braking and don’t alert drivers when they’ve stepped on the accelerator for a long time, which raises the probability of pedal misapplication, China’s regulator said.
  • China will dispatch a special envoy to Ukraine, Russia and other European nations from Monday, as Beijing steps up its efforts for a diplomatic resolution to Moscow’s war. Ambassador Li Hui, special representative of the Chinese government for Eurasian Affairs, will also visit Poland, France and Germany on the trip, China’s Foreign Ministry announced. Li is a former ambassador to Moscow. “The visit of Chinese representatives to relevant countries is another manifestation of China’s commitment to facilitate dialogue, and fully demonstrates that China firmly stands on the side of peace,” Chinese Foreign Ministry spokesman Wang Wenbin said at a regular press briefing in Beijing on Friday.
  • Germany is poised to order 18 Leopard 2 main battle tanks to replace units sent to Ukraine with an option for 105 more at a total cost of around €2.9 billion ($3.2 billion), according to people familiar with the plan. The budget committee in the lower house of parliament is expected to approve the initial order of 18 tanks — worth about €525 million — at the end of this month, said the people, who asked not to be identified discussing confidential information. The order is the latest in a broader push to modernize Germany’s armed forces triggered by Russia’s war on Ukraine. On top of the annual defense budget of some €50 billion, Chancellor Olaf Scholz’s ruling coalition has created a special fund worth €100 billion to try to reverse years of underinvestment in the military.
  • Pacific Investment Management Co. saw outside clients add money in the first quarter, after a year of withdrawals fueled by a global bond market rout. The giant fixed-income manager recorded €14 billion ($15.3 billion) in inflows, parent company Allianz SE said on Friday, after outflows of more than €75 billion last year. Allianz group operating profit rose 24% to €3.7 billion in the first three months, driven by its insurance businesses. The inflows cap a challenging period for Allianz’s asset management operations, which suffered a double whammy when the turmoil in the bond market compounded the self-inflicted woes from the implosion of a group of hedge funds in the US. Allianz’s Chief Executive Officer Oliver Baete last year agreed to a $6 billion settlement to put an end to the case.
  • Richemont, the Swiss luxury goods maker that owns the Cartier brand, surged to a record as sales in China rebounded following the end of Covid Zero policies. Operating profit was €5.03 billion ($5.5 billion) and sales rose 14% at constant currencies in the year through March, Richemont said Friday, beating analysts’ estimates. The stock rose as much as 5.9% in Geneva. The company’s chairman, billionaire Johann Rupert, said economic volatility and political uncertainty look set to continue. He said the company’s brands are well-positioned to meet strong demand, driven by the resumption of travel by customers from China. Rivals LVMH and Prada have recently reported better-than-expected first-quarter revenue due to stronger demand in China.
  • SoftBank Group Corp. has started testing investor appetite for an initial public offering of British chip designer Arm Ltd., which could raise as much as $10 billion, people with knowledge of the matter said. The Japanese conglomerate may launch the share sale in New York as soon as September, said the people, who asked not to be identified discussing private information. The IPO is on course to be the largest globally this year, data compiled by Bloomberg show. Arm last month confidentially filed for a US listing. Goldman Sachs Group Inc., JPMorgan Chase & Co., Barclays Plc and Mizuho Financial Group Inc. were named as IPO banks in the filing, according to the people. A left lead bank hasn’t been identified yet, they said. More banks are expected to be added to the line up.
  • Strikes have brought much of Britain’s rail network to a standstill as workers stage a 48-hour protest over pay. Commuters were hit by the latest walkout by train drivers, represented by the Aslef union, on Friday, with city centers quieter than usual as more office staff chose to work from home. On Saturday, a separate labor group — the RMT — will hold a strike for thousands of rail workers, in a move that could disrupt the final of the Eurovision Song Contest in Liverpool. Aslef has also imposed an overtime ban for Saturday.
  • The Federal Reserve will likely need to raise interest rates further and hold them higher for some time if US price pressures don’t cool off and the jobs market shows no sign of slowing, Governor Michelle Bowman said.  “Should inflation remain high and the labor market remain tight, additional monetary policy tightening will likely be appropriate to attain a sufficiently restrictive stance of monetary policy,” Bowman said in remarks for delivery on Friday. “I also expect that our policy rate will need to remain sufficiently restrictive for some time to bring inflation down and create conditions that will support a sustainably strong labor market.” Policymakers raised rates by a quarter percentage point at a meeting earlier this month, bringing their benchmark to a target range of 5% to 5.25% and signaling they may be ready to pause their tightening cycle.
  • Jaguar Land Rover’s Indian parent returned to quarterly profit after the sales and production of its luxury cars recovered due to a better supply of semiconductors. Mumbai-based Tata Motors Ltd.’s net income was 54.1 billion rupees ($658 million) for the three months ended March 31, compared with a 10.3 billion-rupee loss a year earlier, according to an exchange filing Friday. Earnings exceeded the average analyst estimate of 27.4 billion rupees. Revenue climbed 35% to 1.06 trillion rupees, missing estimates. Its British car-making unit posted a quarterly profit before tax of £368 million, compared with £9 million a year ago, while revenue jumped 49% to £7.1 billion.
  • Pacific Investment Management Co. saw outside clients add money in the first quarter, after a year of withdrawals fueled by a global bond market rout. The giant fixed-income manager recorded €14 billion ($15.3 billion) in inflows, parent company Allianz SE said on Friday, after outflows of more than €75 billion last year. Allianz group operating profit rose 24% to €3.7 billion in the first three months, driven by its insurance businesses. The inflows cap a challenging period for Allianz’s asset management operations, which suffered a double whammy when the turmoil in the bond market compounded the self-inflicted woes from the implosion of a group of hedge funds in the US. Allianz’s Chief Executive Officer Oliver Baete last year agreed to a $6 billion settlement to put an end to the case.
  • Tesla Inc. recalled virtually every car it’s sold in China due to a braking and acceleration defect that may increase crash and safety risks. The automaker will deploy an over-the-air software fix to more than 1.1 million vehicles produced in Shanghai from January 2019 to April this year, plus some models imported into China, the State Administration for Market Regulation said Friday in a statement. The defect relates to Tesla’s regenerative braking system, which makes use of energy created when drivers take their foot off the accelerator by sending power to the car’s battery. The vehicles haven’t allowed drivers to set the intensity of their regenerative braking and don’t alert drivers when they’ve stepped on the accelerator for a long time, which raises the probability of pedal misapplication, China’s regulator said.