May 16, 2023
- Canada’s industry minister says the Ontario government hasn’t committed to paying its “fair share” to help advance negotiations with automaker Stellantis NV over an electric-vehicle battery plant. Francois-Philippe Champagne said the Canadian government will be competitive with the US when it comes to the auto sector. “What we now need is for Ontario to pay its fair share. Full stop. Windsor is a key place to build our EV ecosystem,” the minister wrote Monday night on Twitter, referring to the southern Ontario city where the plant would be located. Stellantis and LG Energy Solution Ltd. announced the project last year, but said Monday they’ve halted construction as they wage a battle for more public money from Canada. Prime Minister Justin Trudeau’s government has already offered up to C$13 billion ($9.6 billion) to Volkswagen AG to lure a vehicle battery plant to Ontario, Canada’s most populous province and the heart of its auto industry.
- European equities were steady following two days of gains as investors monitor US debt ceiling developments and as data suggested a further softening of economies in Europe and Asia. The Stoxx Europe 600 index retreated by less than 0.1% by 11:59 a.m. in London. Telecoms was among the worst-performing sectors as Vodafone Group Plc slumped as much as 7.7% to 1997 low following weak earnings and news of job cuts. Europe’s equities have been in a narrow range this month, hovering around their highest level since February last year. Traders have been digesting corporate earnings as well as the risk of higher-for-longer central bank interest rates and a standoff in Washington over the US debt ceiling.
- Investors gravitated to havens including Treasuries and technology shares amid the stalemate in Washington over whether to raise the US debt ceiling. Yields on benchmark 10-year Treasury notes dropped four basis points, while contracts on the S&P 500 slipped 0.2%. Debt-ceiling talks are scheduled Tuesday between President Joe Biden and House Speaker Kevin McCarthy. Treasury Secretary Janet Yellen warned that the US is already paying a price for its failure to raise the federal debt limit and reiterated her department may run out of cash by early June. Still, most investors say they expect politicians to reach a last-minute deal to stave off default.
- Asian stocks rose as Japan’s Topix benchmark climbed to the highest in more than three decades, even as worse-than-estimated economic data from China dragged on its mainland-traded equities. The MSCI Asia Pacific Index gained as much as 0.6%, with technology names TSMC, Samsung Electronics and Tencent among the top contributors. Taiwan and Philippine markets were among the best performers. Onshore Chinese stocks fell amid weak economic data that suggest the recovery in the world’s second-largest economy is losing momentum. Japan’s benchmark Topix has climbed 12% so far this year, beating the MSCI Asia Index’s 4.3% gain and a 7.7% advance in the S&P 500. A weakening yen and solid earnings are among factors that have boosted Japanese stocks, with Goldman Sachs among strategists seeing more gains to come.
- Oil prices sank on Tuesday as weaker than expected economic data out of China outweighed bullish forecasts from the International Energy Agency. West Texas Intermediate traded near $70.80 a barrel, paring some of Monday’s 1.5% gain. The international marker Brent was near $75. The IEA raised it’s global demand outlook by about 200,000 barrels a day and projected the market to shift to deficit this summer. Nevertheless, data released Tuesday pointed to China’s economy losing momentum, even if the nation’s oil refineries continue processing near record levels of crude — even as some halt for maintenance. Oil has declined more than 11% since the start of this year as China’s recovery disappointed some bulls, while the potential for a US recession is denting the demand outlook.
- Gold edged lower ahead of a key meeting to try and resolve the US debt-ceiling stalemate. The metal has consolidated above $2,000 an ounce this month, drawing support from the potential for a debt ceiling crisis as well as bets the Federal Reserve will cut interest rates this year. Higher borrowing costs are typically negative for the non-yielding metal. Spot gold declined 0.3% to $2,010.08 an ounce as of 10:27 a.m. in London after rising 0.3% on Monday. The Bloomberg Dollar Spot Index was little changed after falling 0.3% in the previous session. Silver declined, while platinum and palladium edged higher.
- Rakuten Group Inc. plans to issue new shares to raise as much as ¥332.2 billion ($2.4 billion) to shore up capital depleted by its loss-churning mobile unit. The Japanese online shopping mall said it will issue new shares worth about ¥41.8 billioon to CyberAgent Inc. and Tokyu Corp., as well as to two asset management companies of billionaire founder Hiroshi Mikitani’s family — Mikitani Kosan Inc. and Spirit Inc. Rakuten will also conduct a public sale of new shares at an indicative discount range of 3% to 5%, with the offering price to be determined as early as May 24, it said. The funds would help the company redeem subordinated bonds and speed up investment in base stations needed for growth in Rakuten’s carrier business, the company said in a statement Tuesday.
- Alphabet Inc. is back in the game. The artificial intelligence game, that is. Shares in the Google-owner had lagged behind other megacaps this year amid fears it was losing ground in the race to deploy AI products. Yet since it unveiled its latest AI tools at a developer’s conference last week, the stock has advanced 9%, adding $115 billion in market value and erasing its underperformance against peers like Apple Inc. and Microsoft Corp. With excitement around AI building, Alphabet had largely missed out on the stellar gains seen by many of its tech peers, particularly as the rapid growth of OpenAI’s ChatGPT is seen as a potential threat to the dominance of its search business. So last week’s announcement of a more conversational search engine and that the company is making its AI-powered chatbot more broadly available provided a timely boost.
- Telecom Italia SpA fell on Tuesday following a Bloomberg report that Italy’s state lender will drop its offer for the carrier’s landline network, ending a bidding war with KKR & Co. The lender, Cassa Depositi e Prestiti SpA, and partner Macquarie Asset Management had decided to raise their previous offer last month, but will now pull the plug on that plan, people familiar with the matter said. In April, Cassa Depositi, known as CDP, valued the network at €19.3 billion ($21 billion), the people said. Concerns over antitrust issues may have played a part in the decision reported Monday, the people said, adding that the lender could have a role in a future phase of a network deal, which could still be disputed by Macquarie. No final decision has been taken and plans could change.
- Treasury Secretary Janet Yellen warned that “time is running out” to avert an economic catastrophe from failing to raise the debt ceiling, in remarks released as President Joe Biden and congressional leaders prepared to meet on the standoff. Speaker Kevin McCarthy issued his own notice Monday evening ahead of Tuesday’s 3 p.m. gathering, saying, “We only have so many days left to deal with this.” The two sides showed little signs of agreeing on much else other than the countdown in the runup to the second White House encounter on the debt ceiling in two weeks. While senior staff have been negotiating for days, Republicans are still pressing for sweeping spending cuts, while Democrats are determined to protect the president’s legislative achievements.
- Amgen Inc.’s $27.8 billion deal to buy Horizon Therapeutics Plc, the largest in the biotechnology company’s history, will be challenged by federal regulators who argue the tie-up would hamper innovation and slow the pace of drug development, according to a person familiar with the matter. The Federal Trade Commission is expected to file a lawsuit to block the purchase on Tuesday, the person said, asking not to be identified discussing private information. A suit would mark the first time in more than a decade that the FTC has sought to stop a pharmaceutical deal outright. While the agency’s scrutiny isn’t a surprise given its earlier requests, the two companies don’t significantly overlap in their product areas, said Evan Seigerman, an analyst at BMO Capital Markets. The deal was expected to close in the next couple of weeks, and a lawsuit could mark a change in how the FTC views consolidation in the drug industry, he said.
- US regulators are ratcheting up oversight efforts across the banking system as they lack the ability to quickly overhaul rules to blunt turmoil that’s already collapsed four mid-sized lenders. The Federal Reserve and the Federal Deposit Insurance Corp. have been peppering lenders over the past several weeks with questions related to interest-rate risks and commercial real estate exposure, according to people familiar with the matter. Failures by Silicon Valley Bank and Signature Bank to deal with surging borrowing costs were partly blamed for their demise. The stepped up oversight dovetails with a political standoff between the White House and Republican lawmakers over raising the US’s debt ceiling, and concern that failing to reach a deal would cause widespread calamity. There’s also a creeping realization that the government’s extraordinary move to spend billions of dollars to make uninsured depositors whole, and deploy other measures to shore up teetering lenders, haven’t eased the jitters.
- Wells Fargo & Co. agreed to pay $1 billion to settle a shareholder lawsuit that accused it of making misleading statements about its compliance with federal consent orders following the 2016 scandal involving the opening of unauthorized customer accounts. The settlement is one of the top six largest securities class-action settlement of the past decade, according to lawyers for the investors, who filed a request Monday for a Manhattan judge to approve the accord. The investors sued the bank in 2020 claiming that its former chief executive officer, Tim Sloan, and other executives made misleading statements in testimony before Congress and to investors and the media.
- Warren Buffett’s Berkshire Hathaway Inc. reworked its financial-sector bets amid regional bank turmoil, exiting U.S. Bancorp and Bank of New York Mellon Corp. even as it placed a wager on Capital One Financial Corp. Capital One surged as much as 9.6%. Berkshire’s move out of several financial stocks and into Capital One in the first quarter, detailed in a regulatory filing Monday, comes after Buffett said publicly he was cooling on the sector. Bank failures earlier this year and concern about liquidity at various regional lenders have shaken finance. This is far from Berkshire’s first revamp of its financial stock picks. In May of last year, the conglomerate disclosed it had fully cut its position in Wells Fargo & Co., which once ranked as its biggest common-stock bet. Berkshire unveiled new positions in auto-lender Ally Financial Inc. and Wall Street titan Citigroup Inc. in that same filing, and still holds those companies.
- Home Depot Inc. cut its outlook for the year after first-quarter sales dropped more than expected, a sign that economic uncertainty is leading to a pullback in home improvement spending. Comparable sales are now forecast to decline as much as 5% this year, following a bad start to the year affected by lumber deflation and poor weather, the company said Tuesday. Home Depot, which previously predicted sales would remain flat this year, said demand is softening more than it had expected. The first-quarter results — where the comparable sales decline of 4.5% was much worse than the 1.4% drop analysts had expected — show the company’s performance is starting to lag after several years of soaring home-improvement spending that was sparked by a booming housing market and stimulus payments that let consumers invest in their homes during pandemic restrictions. That binge has now begun to slow amid rising inflation and interest rates.
- Russia hasn’t implemented its pledged crude-output cuts, with exports hitting a postwar high as Moscow seeks to boost energy revenue to fund military spending, according to the International Energy Agency, The Kremlin promised to cut production by 500,000 barrels a day in March and maintain the curbs for the rest of the year in retaliation for Western sanctions. While Russia’s Energy Ministry said the cuts were close to that target last month, tanker-tracking data have shown record export volumes by sea while domestic crude processing is only beginning to drop amid refinery maintenance. Meanwhile, the government in Moscow has classified oil statistics due to their “sensitive” nature, making it difficult to assess progress of the curbs beyond the assurances of energy officials.
- Air travel bookings are pointing to strong demand this summer, with Asia Pacific leading a regional rebound after coronavirus restrictions disappeared and airlines overcame the travel chaos that dogged last year’s peak season, the International Air Transport Association said. Forward bookings for the May-September period are 35% higher than in the same period in 2022, the airline-industry group said in a statement. Asia Pacific experienced the largest jump with a 135% increase, followed by a 43% advance for the Middle East and a 40% improvement in Europe. IATA’s survey, which polled 4,700 people in 11 countries, showed that 79% of passengers are planning a trip during this year’s peak travel season. The vast majority expect smooth travel conditions after airlines and airports beefed up operations following last year’s chaos.
- Saudi Arabia’s plans for another multibillion-dollar offering of Aramco stock are gaining fresh momentum, with any deal set to be one of world’s largest share sales in recent years, people with knowledge of the matter said. The kingdom has been working with several advisers to study the feasibility of a follow-on offering on the Riyadh exchange, according to the people, who asked not to be identified because the information is private. It could make a decision as soon as the coming weeks about whether to proceed, they said. Saudi Arabia’s de-facto ruler, Crown Prince Mohammed bin Salman, said in January 2021 that the government would look to sell more shares in the state oil giant in the future, with proceeds transferred to the kingdom’s sovereign wealth fund. The Aramco offering may take place as soon as this year if the government goes ahead, though no precise timeline has been set, the people said.
- The mood among global fund managers soured further in May, with investors flocking to cash amid concerns that a recession and credit crunch are looming, according to Bank of America Corp.’s latest survey. The sentiment among fund managers deteriorated to the most bearish this year, with 65% of survey participants now expecting a weaker economy, BofA’s poll showed. At the same time, almost two thirds of investors see a soft landing as the most likely scenario for global economic growth and expect only a small contraction in earnings. While cash levels rose to 5.6% in May, exposure to equities also climbed to the highest this year, while bond allocations are now the biggest since 2009, according to BofA. In a “flight to safety,” allocation to technology shares saw the biggest two-month increase since the global financial crisis and being long big tech is the most crowded trade.
- Managers at Credit Suisse Group AG, UBS Group AG and government officials are set to face further questioning by members of parliament into the former’s near-collapse and rescue, as lawmakers wield a rarely-used power of oversight to probe the takeover deal. The oversight committees of both houses voted in favor of installing a parliamentary inquiry commission, or PUK, on the sale of Credit Suisse announced in March and the government’s usage of emergency law to facilitate it, the committees said in a statement late Monday. Unlike other legislative bodies, a PUK has judicial powers to subpoena witnesses and access minutes of government meetings. Since the foundation of modern-day Switzerland in 1848, such a commission has only been called four times, the last time in 1995 amid a scandal over state pension funds.