May 29, 2023

Daily Market Commentary

Canadian Headlines
• The bankruptcy liquidator in charge of Silicon Valley Bank’s Canadian unit is set to receive offers for its loan book on Monday, and the biggest asset is a loan to e-commerce lender Clear Finance Technology Corp., according to people with knowledge of the matter. Oil was steady as traders wait to see if lawmakers approve a tentative US debt ceiling deal reached over the weekend to avert a catastrophic default.
World Headlines
• European shares were little changed as investors assessed a tentative agreement in the US to raise the debt ceiling, while trading volume was depressed as markets were closed for holidays in many countries. The Stoxx Europe 600 Index was little changed at 12:12 p.m. in Paris, after it had rallied on Friday on growing optimism the agreement was near. Real estate and energy shares outperformed, while banks declined. Spanish equities erased earlier gains to trade flat after Prime Minister Pedro Sanchez called a snap election in the wake of losses for his Socialist party in regional and local voting on Sunday. Turkish stocks jumped a day after President Recep Tayyip Erdogan sealed an election victory.
• US equity-index futures crept higher after White House and Republican negotiators reached a tentative agreement to raise the nation’s debt ceiling and avert a sovereign default for the world’s biggest economy. S&P 500 contracts gained 0.3% as of 5:55 a.m. in New York, with volumes reduced by holidays in the US and the UK. Futures for the tech-heavy Nasdaq 100 climbed 0.4%, after jumping 2.6% on Friday on optimism surrounding artificial intelligence as well as prospects of a solution to the debt impasses. The deal reached late Saturday would cap non-defense spending for the next two years while suspending the debt limit until 2025, likely putting off another fight over federal borrowing authority until after the next presidential election. The agreement now heads to Congress for approval.
• Asian stocks gained for a second day as the US government reached a tentative deal to raise the debt ceiling, while a slew of positive earnings from Chinese tech firms failed to lift the nation’s market. The MSCI Asia Pacific Index rose as much as 0.8%. Softbank was the biggest boost to the benchmark as investor enthusiasm builds over the planned IPO of its chip-design unit. Japanese and Australian gauges led gains around the region. South Korea was closed for a holiday. Chinese shares fell despite the strong results from NetEase and Baidu, with a benchmark in Hong Kong on track to enter a bear market, as a weakening currency and lackluster economic data weighed on sentiment. Traders also remain on alert over geopolitical tensions, after US officials said they won’t tolerate the decision by Beijing to ban chips by Micron.
• Oil was steady as traders wait to see if lawmakers approve a tentative US debt ceiling deal reached over the weekend to avert a catastrophic default. West Texas Intermediate futures traded above $72 a barrel after gaining 1.2% on Friday. President Joe Biden and House Speaker Kevin McCarthy voiced confidence that their agreement will pass Congress and reach the president’s desk for signature. Liquidity is thin so far in trading on Monday with the US and UK observing national holidays. Oil is about 10% lower this year as China’s lackluster economic recovery and the Federal Reserve’s aggressive monetary tightening weighed on the demand outlook. Russian supply has also been resilient, even after the nation said it would cut output, while domestic crude processing has dropped.
• Gold was steady near the lowest level since mid-March as investors weighed the chances of the US debt-ceiling deal being passed, and also its impact on government spending. President Joe Biden and House Speaker Kevin McCarthy voiced confidence their tentative agreement will pass Congress, where it will be voted on as early as Wednesday. Still, the terms offer plenty for both sides to dislike, and the deal could add to recession risk as it would cap federal spending used to support US growth. While a sharper-than-expected downturn could add to bullion’s haven appeal, that would likely be outweighed by the possibility of more rate hikes. The yield on rate-sensitive two-year Treasuries has risen sharply over the past couple of weeks, suggesting stubborn inflation is going to prevent the Federal Reserve from pausing. Higher rates are typically negative for non-interest bearing gold. Spot gold was little changed at $1,946.20 an ounce as of 1:52 p.m. in Singapore. The Bloomberg Dollar Spot Index slipped 0.1%. Silver was steady, while platinum and palladium rose. US and UK markets are closed for holidays on Monday.
• President Joe Biden and House Speaker Kevin McCarthy expressed confidence that their debt-ceiling deal will pass Congress, averting a historic US default while setting a course for federal spending until after the 2024 election. “The agreement prevents the worst possible crisis,” Biden told reporters at the White House on Sunday after finishing his deal with McCarthy, calling it a bipartisan compromise. Biden and McCarthy sealed a tentative deal in a 90-minute phone call late Saturday, clearing the way for a push to shepherd the agreement through Congress — likely over the objections of both liberals and conservatives — before the US government runs out of borrowing capacity in about a week.
• Global markets look primed for a relief rally after US negotiators agreed to a tentative deal over the weekend to resolve a debt crisis that has weighed on risk sentiment in recent weeks. American equity futures made modest gains after Friday’s strong showing on Wall Street, while Treasury futures were mixed in the absence of cash trading. The US dollar, which has benefited from angst around the statutory borrowing limit, erased an earlier loss amid thin liquidity, with US and UK markets closed for national holidays. Investors had flocked to safety in recent weeks as the so-called X-date — the day on which the Treasury expected it wouldn’t be able to meet all of its obligations — rapidly approached. President Joe Biden and House Speaker Kevin McCarthy voiced confidence that their deal will pass Congress and reach the president’s desk for signature, averting a historic US default.
• Bitcoin climbed to the highest level in more than two weeks amid a boost to investor sentiment from a deal on raising the US debt limit. The largest digital token added as much 3.2% on Monday before paring some of the advance to trade at $28,006 as of 8 a.m. in London. Smaller tokens ranging from Ether to Binance Coin posted gains but were also off intraday highs. The debt-ceiling deal between President Joe Biden and House Speaker Kevin McCarthy has helped risk appetite in global markets. But the agreement still has to clear Congress quickly to avert a US default. A recent jump in Treasury yields and bets on more US monetary tightening are other potential headwinds.
• President Joe Biden and his European allies have repeatedly stressed their desire to “de-risk,” not “decouple,” from the Chinese economy in recent months as a way to explain a slew of new restrictions on trade with Beijing. The problem is, for China there’s no difference. Chinese state media, officials and academics have all publicly rejected the distinction in recent weeks, in a seemingly concerted effort to undermine the rhetorical shift. The official Xinhua News Agency said in a Friday commentary that “de-risking is just decoupling in disguise.” Chinese Foreign Minister Qin Gang voiced similar criticisms at a press briefing in Germany this month, saying that “if the EU seeks to decouple from China in the name of de-risking, it will decouple from opportunities, cooperation, stability and development.”
• European gas prices have plunged to the lowest since mid-2021, when Russia was just beginning to squeeze supplies before its invasion of Ukraine, helping to reverse a surge in inflation and bring relief to consumers. The slump — gas futures are down by two-thirds already this year – hasn’t just eased the pressure on household budgets. It also undermines one of the biggest bargaining chips held by President Vladimir Putin — the ability to squeeze the region’s gas supplies. With some traders predicting short-term prices could even go negative at times this summer, the picture couldn’t be more different from May last year. Back then, futures were quadruple what they are now and countries were forced to revive coal generation to keep the lights on after Russia slashed gas supplies.
• In a two-hour presentation in Taiwan, Nvidia Corp. Chief Executive Officer Jensen Huang unveiled a new batch of products and services tied to artificial intelligence, looking to capitalize on a frenzy that has made his company the world’s most valuable chipmaker. The wide-ranging lineup includes a new robotics design, gaming capabilities, advertising services and a networking technology. Perhaps most central to his ambitions, Huang took the wraps off an AI supercomputer platform called DGX GH200 that will help tech companies create successors to ChatGPT. Microsoft Corp., Meta Platforms Inc. and Alphabet Inc.’s Google are expected to be among the first users.
• A gauge of Chinese shares traded in Hong Kong inched closer to a bear market as a wobbling economic recovery, intensifying geopolitical tensions and a weaker yuan kept investors away. The Hang Seng China Enterprises Index slumped 1.3% on Monday, taking its losses from a Jan. 27 peak to a whisker away from reaching 20%. Meituan was the biggest drag amid concerns that increased competition will dent the e-commerce firm’s profitability. The grim milestone looms as China’s post-Covid recovery loses momentum and earnings fall short of high expectations. Investors say the market lacks catalysts for a rebound as growth expectations are being pared back, while frictions with the US persist on issues from technology to Taiwan. The HSCEI gauge has erased about half of the gains seen during a three-month reopening rally through January.
• SoftBank Group Corp. will redeem $2 billion of perpetual dollar bonds as it fulfills earlier pledges to buy back such notes early. The company plans to redeem the notes at their first call date occurring July 19, the technology conglomerate said in a statement on its website on Monday. It sold 222 billion yen ($1.6 billion) of bonds in Japan in April, and flagged at the time that part of the proceeds would be used to redeem the dollar debt. The buyback will help ease any investor concerns that the callable notes will be left outstanding, an atypical market practice in Asia. Last year, Korean issuer Heungkuk Life Insurance Co. had to reverse an earlier decision to skip redeeming its bonds following convulsions in markets.
• A shakeup is brewing in the $1.6 trillion universe of emerging-market sovereign debt — whether Wall Street likes it or not. As government defaults rise to a record in the developing world, the debate is growing frantic over how to solve these debt crises. Restructuring talks are stalling, with some countries turning to old-school sweeteners and others calling to revamp the Group of 20’s Common Framework. In New York, a cohort of debt-relief activists and US state politicians are pushing for a more-permanent solution: a law that would overhaul the process of restructuring sovereign debt.