May 26, 2022
Daily Market Commentary
- Toronto-Dominion Bank’s US personal-banking business benefited from continued strength in the housing market and robust credit conditions in the fiscal second quarter. Revenue in the US retail segment came in at C$2.32 billion ($1.81 billion) in the three months through April, the Toronto-based bank said Thursday. That’s up 12% from a year earlier. Canada’s largest lender by assets, which is expanding its presence in the US with the $13.4 billion takeover of First Horizon Corp., saw its mortgage-loan balances in the country rise in the quarter. It also released provisions for potential credit losses in the business, signaling confidence in borrowers’ ability to continue paying their loans despite a weakening economic outlook. Toronto-Dominion shares have fallen 3.3% this year, compared with a 4.1% drop for the S&P/TSX Commercial Banks index.
- Royal Bank of Canada posted earnings that topped analysts’ estimates as business loans and solid credit conditions powered its retail-banking business. Revenue in the personal and commercial banking business rose 17% to C$2.23 billion ($1.74 billion) in the fiscal second quarter, Toronto-based Royal Bank said Thursday. Businesses have ramped up borrowing to meet customer demand and stockpile inventory to protect against supply-chain snarls, and Canada’s real estate market remained hot during much of the quarter, boosting Royal Bank’s mortgage balances. Royal Bank also released C$342 million in provisions for credit losses. Analysts estimated the bank would set aside C$241.2 million, on average.
- Canadian Imperial Bank of Commerce’s plan to ramp up investments in its workforce took a bite out of fiscal second-quarter profit. Non-interest expenses rose 13% from a year earlier to C$3.11 billion ($2.43 billion) in the three months through April, the Toronto-based company said Thursday. Overall profit trailed projections. CIBC Chief Executive Officer Victor Dodig has said the bank will invest in technology and front-line, revenue-generating employees this year to help spur growth. The plan comes as a historically tight Canadian labor market contributes to rising wages. In the second quarter, the bank said expenses were driven by spending on those strategic initiatives and employee compensation.
- European stocks gained slightly as investors assessed a less hawkish tone adopted by the Federal Reserve during their latest meeting, while China Premier’s warning about the economy kept a lid on risk appetite. The Stoxx 600 was up 0.3% by 9:18 a.m. in London after minutes of the Fed meeting showed officials agreed they need to raise interest rates in half-point steps at their next two meetings, leaving them with with flexibility to shift gears later if needed. Consumer products and energy shares outperformed, while utilities and miners lagged. European equities have declined this year amid concerns that major central banks’ monetary tightening will sink the region into a recession. The war in Ukraine, surging inflation and supply constraints are also making investors nervous about earnings and margin outlooks.
- U.S. equity futures were mixed and bonds gained Thursday as traders weighed Federal Reserve minutes that struck a less hawkish note with downbeat remarks on China’s economy by Premier Li Keqiang. Contracts on the Nasdaq 100 and S&P 500 fluctuated amid mixed corporate news. Nvidia Corp. fell more than 5% in premarket trading as China’s Covid-19 lockdowns and the war in Ukraine weighed on the chipmaker’s sales forecast. Apple Inc. dropped after a report said that the tech giant is planning to keep iPhone production roughly flat in 2022. Twitter Inc. rose after billionaire Elon Musk modified the financing for his bid to purchase the social-media platform. Treasury yields and the dollar slipped. Fed policy makers indicatedtheir aggressive set of moves could leave them with flexibility to shift gears later if needed.
- Asian stocks were mixed as traders assessed China’s emergency meeting on the economy and Federal Reserve minutes that struck a less hawkish note than markets had expected. The MSCI Asia Pacific Index was little changed after fluctuating between gains and losses of about 0.6% as technology stocks slid. South Korean stocks dipped after the central bank raised interest rates by 25 basis points as expected. Chinese shares eked out a small advance after a nationwide emergency meeting on Wednesday offered little in terms of additional stimulus. The benchmark CSI 300 Index headed for a weekly drop of more than 2%, despite authorities’ vows to support an economy hit by Covid-19 lockdowns.
- Oil rose for a second day after US crude and gasoline stockpiles declined further as motorists prepare to take to the road for the summer driving season. West Texas Intermediate futures surpassed $111 a barrel after data on Wednesday showed crude inventories at the storage hub in Cushing, Oklahoma, slumped to the lowest since March, and that motor fuel supplies declined to the lowest seasonal level since 2014. Global crude markets have been tightened by a combination of rebounding demand and disruption to Russian supplies. American retail gasoline prices have repeatedly broken records in the run-up to the driving season that starts this weekend. However, motor fuel demand is showing some signs of stress, tumbling on a rolling four-week basis, data released Wednesday by the Energy Information Administration show.
- Gold extended losses for a second day as traders weighed the outlook for monetary-policy tightening by the Federal Reserve. Bullion is trading around $1,845 an ounce as a stronger dollar and rising bond yields have posed headwinds amid concerns over the potential risk of a recession in the US, the impact of China’s lockdowns and Russia’s war in Ukraine. While minutes released Wednesday from the Fed’s gathering earlier this month showed officials agreed that they need to raise interest rates in half-point steps at their next two meetings to tackle high inflation, they didn’t indicate a more aggressive path after that. Gold pared some of its losses on the minutes, which were seen as less hawkish than expected.
- Broadcom Inc. agreed to buy cloud-computing company VMware Inc. for about $61 billion in one of the largest technology deals of all time, turning the chipmaker into a bigger force in software. VMware shareholders can choose to receive either $142.50 in cash or 0.2520 shares of Broadcom stock for each VMware share, according to a statement on Thursday. The offer represents about a 44% premium to VMware’s closing price on May 20, the last trading day before Bloomberg News reported potential takeover talks. The deal is the biggest takeover ever for a chipmaker and extends an acquisition spree for Broadcom Chief Executive Officer Hock Tan, who has built one of the largest and most diversified companies in the industry. VMware bolsters Broadcom’s software offerings — a key part of Tan’s strategy in recent years. He acquired corporate-software maker CA Technologies in 2018 and Symantec Corp.’s enterprise security business in 2019.
- Alibaba Group Holding Ltd. reported a better-than-expected 9% rise in revenue after Chinese consumers turned to online malls for basic needs during Covid lockdowns across the country. Revenue rose to 204.05 billion yuan ($30.3 billion) in the March quarter. While that marked the second straight quarter of single-digit growth, sales topped the 200.6 billion yuan analysts expected. Net loss widened to about 16.2 billion yuan. The company refrained from offering a projection for annual revenue, citing uncertainty arising from Covid curbs. Alibaba — a barometer for Chinese consumer sentiment because of its dominance of Asia’s largest retail arena –is grappling with intensifying competition and mounting economic uncertainty at home. Chinese retail sales have slid for two straight quarters as stringent Covid 19 lockdowns tangle supply chains and dampen spending from Beijing to Shanghai.
- More than 16 months into President Joe Biden’s tenure, Secretary of State Antony Blinken will deliver a long-awaited speech outlining US strategy toward China. But analysts, investors and markets looking for detailed guidance are likely to be disappointed: the top US diplomat is expected to use his remarks Thursday at George Washington University to explain existing policies rather than unveil any bold new direction. The US approach includes a strategy of investing in democracy and innovation at home, bolstering allies and partners, and competing with China on military and economic issues, according to administration officials who briefed reporters on condition of anonymity.
- The trading arm of Toyota Motor Corp. will pay 185 billion yen ($1.5 billion) to acquire the remaining stake in a Japanese wind and solar power company amid a nationwide effort to hit ambitious green goals. Toyota Tsusho Corp. will acquire the 40% stake it doesn’t already own in Eurus Energy Holdings from Tokyo Electric Power Co., according to a filing Thursday. The deal will close as soon as June. The move comes amid a wider green energy buying spree in Japan. The government seeks to cut carbon emissions by 46% from 2013 levels by 2030, and become carbon neutral by 2050. Japan’s industries are in turn committing to similar goals, and facing pressure from the government and investors to move out of fossil fuels.
- The UK will review French telecom tycoon Patrick Drahi’s increased stake in BT Group Plc after Business Secretary Kwasi Kwarteng exercised new takeover powers focusing on national security. Drahi’s investment vehicle Altice UK increased its stake in the former state-owned telecommunications monopoly from 12.1% to 18% in December. He’s now BT’s largest shareholder and the investment has raised concerns in government, BT said Thursday. BT is the biggest owner of Britain’s internet backbone through fiber infrastructure company Openreach, as well as mobile network EE. It also runs important connectivity and service contracts across government and business.
- Apple Inc. is planning to keep iPhone production roughly flat in 2022, a conservative stance as the year turns increasingly challenging for the smartphone industry. The company is asking suppliers to assemble roughly 220 million iPhones, about the same as last year, according to people familiar with its projections, who asked not to be named as they’re not public. Market forecasts have hovered closer to 240 million units, driven by an expected major update to the iPhone in the fall. But the mobile industry has gotten off to a difficult start to the year and production estimates are down across the board. The worst inflation in decades, a war in Ukraine and supply-chain turmoil all threaten to weigh on sales in 2022. Strategy Analytics has predicted that overall smartphone shipments will contract as much as 2% in 2022, and TrendForce has twice downgraded its full-year production forecast in recent weeks. IDC and Bloomberg Intelligence analysts both forecast about 240 million iPhones for this year earlier in the period.
- Goldman Sachs Group Inc.’s private equity arm is nearing an acquisition of Norgine BV in a deal that may value the specialty pharmaceutical company at about 1.8 billion euros ($1.9 billion), according to people familiar with the matter. The US bank’s buyout unit outbid at least two other private equity firms in an auction process for the Amsterdam-based company, the people said. A deal could be announced in the coming days, the people said, asking not to be identified as the matter is private.
- Russia’s central bank delivered its third interest-rate reduction in just over a month and said borrowing costs can fall further still, halting a rally in the ruble as it unwinds the financial defenses in place since the invasion of Ukraine. The Bank of Russia lowered its benchmark to 11% from 14% on Thursday at an extraordinary meeting it announced only a day earlier. All 23 economists surveyed by Bloomberg predicted a reduction, with most forecasting a cut of two percentage points. The ruble extended losses after the announcement, heading for a two-day slump that’s approaching 12% against the dollar. The Bank of Russia lowered its benchmark to 11% from 14% on Thursday at an extraordinary meeting it announced only a day earlier. All 23 economists surveyed by Bloomberg predicted a reduction, with most forecasting a cut of two percentage points. The ruble extended losses after the announcement, heading for a two-day slump that’s approaching 12% against the dollar.
- Bitcoin might be registering tepid moves as of late but that doesn’t mean investors have become less anxious about the largest cryptocurrency’s prospect for further declines. The put-to-call ratio on the coin hit a 12-month high at 0.72, meaning that many traders are loading up on hedges in the event it embarks on another leg lower and its losses deepen. The ratio hit a high of 0.96 April last year before prices plunged roughly 50% the following month, according to option Skew data compiled by Babel Finance. Bitcoin and other cryptocurrencies have been mired in a downturn all year, with the largest digital asset shedding 37% of its value. Smaller and lesser-known tokens have fared even worse, with Dogecoin, a once beloved pandemic-favorite investment, down 54% since December. XRP and Bitcoin Cash are down a similar amount, while Avalanche and Solana has lost more than 70% in 2022, according to data compiled by Bloomberg.
- It’s time to buy the dip in stocks, particularly in Europe and emerging markets, on their appealing valuations after a steep global selloff, according to strategists at Citigroup Inc. Strategists led by Robert Buckland said in a note that Citi’s bear market checklist is currently warning about only six out of 18 red flags, which compares with 13 red flags prior to the global financial crisis and 17.5 red flags before the 2000-2003 selloff. In the past, investing in equities when the indicator of market red flags dropped to similar levels has generated “healthy” 12-month gains of 31% on average, they said. The US stock market triggered more concerns on Citi’s checklist during the peak of last year’s global equities rally compared to Europe and emerging markets, which makes strategists favor the latter on cheaper valuations. The S&P 500 and Stoxx 600 are each down about 16% this year in US dollar terms, while the MSCI EM Index has fallen 17%.
- Macy’s Inc. raised its profit forecast as US consumers keep spending despite the highest inflation in four decades. The shares rose in early trading. Earnings excluding some items are now seen in the range of $4.53 to $4.95 this year, up from a prior forecast of $4.13 to $4.52, the department-store chain said Thursday as it reported first-quarter results. Analysts were looking for $4.36, on average.
- Boris Johnson’s government will impose a so-called windfall tax on the profits of oil and gas companies to help fund at least £5 billion pounds ($6.3 billion) of support for Britons facing a cost-of-living crisis. The tax will be “temporary” and “targeted,” Chancellor of the Exchequer Rishi Sunak said in the House of Commons on Thursday. Senior ministers in the British government have long opposed a special levy on energy firms because they fear it will stymie investment. It’s especially sensitive now because it’s a key policy of the main opposition Labour Party, and undermines the core Conservative claim to be the party of business. But the pressure to intervene to ease a record squeeze on living standards has become intense, with a windfall tax increasingly popular among Britons. The Tories have trailed Labour in YouGov polling since December, while Sunak’s move also comes as the government tries to shift the narrative from the scandal surrounding illegal parties in Downing Street during the pandemic.
- Russia’s top oil producers are estimated to have made their highest quarterly profit in almost a decade after the invasion of Ukraine caused a surge in crude prices that more than offset other restrictions on the country’s petroleum exports. The combined net income of Rosneft PJSC, Lukoil PJSC and Gazprom Neft PJSCfrom January to March is projected at $8.86 billion, according to estimates from Moscow-based SberCIB Investment Research. That would be the highest since the third quarter of 2013, when earnings were boosted by Rosneft’s acquisition of TNK-BP, according to data compiled by Bloomberg. Russia’s energy giants have been forced to offer deep discounts for the country’s benchmark Urals crude as some buyers shunned supplies and other countries, notably the US and the UK, banned them outright. Even so, thanks to the broader rally in oil markets above $100 a barrel, the value of the export grade remained higher than through most of 2021, according to data from the nation’s Finance Ministry.
- Last Thursday, a tech worker in Palo Alto woke up in the morning thinking that in just four days, he’d start his dream job. The man had recently accepted an offer from Twitter Inc. for a media partnerships position based out of an office in Mexico. In preparation for the new gig, he quit his job in the Bay Area, gave up his Palo Alto lease and arranged six months of temporary housing in Mexico City. That afternoon he got a call from Twitter HR. He thought it was about the delivery of a new, company-issued laptop. The “current situation” at Twitter is not good. The company is bracing for a takeover from Elon Musk, the world’s richest man and the service’s most polarizing user, whose $44 billion deal to acquire the social media site was approved by the board but is still far from closing. In the interim, Musk has been openly criticizing Twitter’s product, its executives and its business. At times, it has looked like Musk wants to torpedo his own deal, and many Twitter employees have been publicly vocal about their disdain for the billionaire and his rabid followers.
“Do what is right, not what is easy nor what is popular.” —Roy T. Bennett
*All sources from Bloomberg unless otherwise specified