May 30, 2022

Daily Market Commentary

Canadian Headlines
• GIC Pte. and Greystar Real Estate Partners have agreed to buy one of the UK’s largest student-accommodation businesses from Brookfield Asset Management Inc., according to people familiar with the matter. The Singaporean wealth fund and US-based property investor are putting the finishing touches on a roughly £3.3 billion ($4.2 billion) purchase of the Student Roost portfolio, the people said. A deal may be announced as soon as Monday, the people said, asking not to be identified discussing confidential information. A representative for Brookfield declined to comment, while spokespeople for GIC and Greystar couldn’t immediately be reached for comment. News of the deal was reported earlier by the Financial Times, citing people familiar with the process.
• If worrying about an overheating economy wasn’t enough trouble, Bank of Canada Governor Tiff Macklem enters a crucial six-week period in his battle against inflation with an unexpected new problem: questions about his own credibility. The 60-year-old central banker is being targeted by prominent politicians from the opposition Conservative Party who are casting doubt on his commitment to the fight. And while most economists and pundits have dismissed the criticism as frivolous, the attacks come at a tense time. The Bank of Canada is in the middle of a shock-and-awe campaign to bring down inflation, hoping to bolster public confidence that it’s serious about tackling the problem. The more credible the central bank is perceived to be, the more price expectations will remain in check — and the greater the chances of a soft landing.
World Headlines
• European equities rose to the highest level in more than three weeks, trimming their monthly drop, after China relaxed some of the strictest virus controls of the pandemic, fueling risk-on sentiment for economic recovery. The Stoxx 600 advanced 0.5% at 12:03 p.m. in London, rising for a fourth day in the longest winning streak since March. Consumer and technology sectors were among the biggest gainers. European stocks have been under pressure this year amid a flurry of concerns spanning hawkish central banks, slowing growth, soaring prices and the war in Ukraine. Dip buyers stepped into the market last week as cheaper valuations and still robust earnings outlooks fueled appetite for equities.
• Stocks and US futures advanced after China eased some virus curbs and Wall Street had its best week since November 2020. Nasdaq 100 contracts and S&P 500 futures both rose in a sign the bounce in US stocks may have further to run. The S&P 500 wiped out its May losses and snapped a string of seven weekly declines as institutional investors rebalanced portfolios into the end of the month. The dollar slipped for a third day versus major peers as havens lost their appeal amid the improved mood. Cash Treasuries aren’t trading because of the US Memorial Day holiday.
• Equities across Asia Pacific rose as China rolled back some strict pandemic-triggered restrictions and after US 10-year Treasury yields capped a third week of declines. The MSCI Asia Pacific Index extended gains to 2.1%, the biggest jump this month, led by consumer discretionary and tech shares. Benchmarks in Japan and Taiwan advanced the most. Chinese shares including tech names climbed as local authorities eased curbs on movement in key cities after virus cases fell. The Asian measure is close to erasing losses for May, which would mark its first monthly advance this year as a reopening of China’s economy boosts growth prospects for the region. That, along with stabilizing global bond yields, have supported regional shares. Still, concerns about slowing global growth and high inflation remain, with foreign investors dumping Asia’s tech-heavy markets this year.
• Oil climbed as China eased anti-virus lockdowns and the EU worked on a plan to ban imports of Russian crude. Brent crude topped $120 a barrel, before paring some gains, after the benchmark jumped more than 6% last week to post the highest close in two months. The key hub of Shanghai allowed all manufacturers to resume operations from June, while officials said Beijing’s coronavirus outbreak is under control. While EU nations failed to agree on a deal Sunday on a revised sanctions package that would include a Russian crude ban to punish Moscow for its war in Ukraine, talks will continue during the week. Hungary is so far refusing to back a compromise despite proposals aimed at ensuring its oil supplies. An EU official said a deal is still possible in the coming days as leaders meet.
• Gold rose as the dollar weakened for a third day, making bullion that’s priced in the US currency a more attractive investment. The precious metal also drew some support from signs the Federal Reserve’s tightening path may not be as aggressive as feared. The personal consumption expenditures price index, a gauge favored by the Fed, showed inflation cooling in April from March, according to data released Friday, while minutes of the central bank’s latest meeting were less hawkish-than-expected. Bullion has crept higher in the second half of May on rising haven demand due to the war in Ukraine, rampant global inflation and recession fears. A recovery in US stocks and an apparent easing of China’s Covid-19 crisis could damp its appeal as a store of value, however.
• Nickel jumped in thin trading in London, pacing gains among industrial metals as the easing of Covid-19 outbreaks in China boosted the prospects for a revival in the world’s second-largest economy. Prices for the metal used in stainless steel and electric-vehicle batteries jumped as much as 7.1% on the London Metal Exchange. Other metals including copper, zinc and tin also gained. The move came in highly illiquid trading conditions, amid signs that investors and industrial hedgers are continuing to cut their exposure to the nickel market in the wake of a short squeeze in March. China reported the fewest new Covid-19 cases in almost three months, with the easing of outbreaks in Beijing and Shanghai emboldening authorities to relax some of the strictest virus controls of the pandemic and move to stimulate the country’s faltering economy. Shanghai rolled out a raft of measures to support its lockdown-hit economy, including allowing all manufacturing to restart from Wednesday.
• Germany’s ruling coalition and the main opposition conservatives sealed an agreement on enshrining a 100 billion-euro ($107 billion) military spending fund in the constitution amid continued criticism over Berlin’s apparent failure to supply Ukraine with promised heavy weapons. The government secured the broad support required to change the constitution but it backed away from a firm commitment to spending 2% of gross domestic product on defense every year. Defense Minister Christine Lambrecht said that instead the target would be met on average over a five-year period. Germany has come under pressure for failing to deliver sufficient military support to Ukraine and announced plans to supply heavy weaponry a month ago. But so far, none of the seven armored howitzers and 15 Gepard armored vehicles have materialized.
• US gasoline prices surged to another fresh record, the latest blow to motorists heading into the summer driving season. Average retail prices in the US reached $4.619 per gallon as of Monday, according to the latest data from the American Automobile Association. That’s up from $4.178 a gallon a month ago and is about 52% higher than a year-earlier. President Joe Biden has vowed to do everything in his power to fight record-setting gasoline and diesel prices, including releasing millions of barrels of oil from the US Strategic Petroleum Reserve. However, costs have continued to rise, adding fresh pain at the pump for drivers. Nymex gasoline futures also gained in trading on Monday morning, reaching as high as 403.33 cents a gallon — in what would be another record if they settled at that level. Crude benchmarks Brent and WTI also rose, buoyed by China easing lockdown restrictions and a European Union proposal to ban Russian shipments.
• Toyota Motor Corp. looks poised to repeat as the world’s largest automaker for a third straight year, having outsold Volkswagen AG by more than 1 million vehicles through April. While both automakers’ China operations have been hamstrung by lockdown measures, Toyota has better managed to limit the damage. The Japanese manufacturer said Monday that worldwide deliveries slipped 5.8% in the first four months of the year, whereas sales for its German rival plunged 26%. Toyota has managed to continue outpacing VW despite coming up shortof a production target last month that the company had pared back due to the spread of Covid-19 in Japan and overseas. President Akio Toyoda told employees in March that the automaker was reexamining manufacturing plans along with suppliers to avoid “exhaustion.” The company set a record for worldwide vehicle output that month.
• European Union officials are meeting Monday to try to break an impasse over a proposed embargo on Russian oil imports amid continued resistance from Hungary. The EU failed to strike a deal Sunday despite a push to get an agreement before a two-day meeting of the bloc’s leaders starting Monday afternoon in Brussels. Hungary is refusing to back a compromise despite proposals aimed at securing its Russian oil supplies, according to people familiar with the talks. Meanwhile, Russia is planning a bond-payment mechanism to sidestep US sanctions and a potential default as a grace period ticks down on its latest missed coupons. On Sunday, Ukrainian President Volodymyr Zelenskiy visited front-line troops in the Kharkiv region in his first trip away from Kyiv since Russia’s invasion.
• China reported the fewest new Covid-19 cases in almost three months, with the easing of outbreaks in Beijing and Shanghai emboldening authorities to relax some of the strictest virus controls of the pandemic and move to stimulate the country’s faltering economy. Shanghai will lift lockdown measures for residents in low-risk areas, allowing them to leave and enter their compounds freely starting from Wednesday, according to a statement from the municipal government on Monday. The city will resume taxi and ride hailing services while allowing cars on the road in low-risk areas. Cases in the financial hub fell to 67 for Sunday from 122 on Saturday with bus and subway services to reopen in an orderly manner from June 1. In Beijing, infections dropped to 12 on Sunday, from 21 on Saturday. Curbs on movement in several districts started to be loosened after officials said the outbreak was under control. The decline has eased concern that Beijing could have been headed for a lockdown when it was reporting several dozen cases a day earlier in the outbreak despite increasingly strict restrictions.
• GoTo Group posted about 53% gross revenue growth in its first quarterly report as a public company, accelerating from the 2021 pace and highlighting the rapid expansion of Indonesia’s tech and online industries. Gross revenue advanced to 5.2 trillion rupiah ($357 million) in the quarter though March, the ride-hailing and e-commerce operator said Monday in a statement. For the calendar year 2021, the metric rose at about a 44% clip on a pro-forma basis. GoTo’s quarterly adjusted loss before interest, taxes, depreciation and amortization widened to 5.4 trillion rupiah. GoTo is trying to convince investors of its growth prospects even as Russia’s invasion of Ukraine, soaring inflation and rising interest rates weigh on the technology industry globally. The company raised $1.1 billion in one of the world’s largest initial public offerings for 2022, gaining funds to compete against rivals such as Grab Holdings Ltd. as online services gain steam in Southeast Asia.
• Russia is planning a bond-payment mechanism to sidestep US sanctions and a potential default as a grace period ticks down on its latest missed coupons. The proposal would allow foreign investors to open accounts in Russian banks in both rubles and hard currency, Finance Minister Anton Siluanov said in an interview with the Vedomosti newspaper. Unlike the previous payment system, investors would be able to access the funds without restriction, he was cited as saying. The mechanism is still being discussed by the government, after which it will be presented to investors. Russia is back in default countdown as coupon payments in euros and dollars worth about $100 million hadn’t landed in investors accounts as of Friday evening, effectively triggering a 30-day grace period.
• Bitcoin posted its biggest gain in two weeks, climbing close to $31,000 as China’s easing of Covid curbs stoked investor enthusiasm for riskier assets. The largest cryptocurrency advanced as much as 5.8% to $30,858.53 on Monday morning in London. Ether and smaller tokens like Avalanche, which got pummeled last week even as Bitcoin held relatively steady, also gained. Stocks advanced in Asia and Europe after the S&P 500 rallied on Friday. “Markets are long overdue for a relief rally,” said Hayden Hughes, chief executive of social media trading platform Alpha Impact. “Bitcoin just went through eight consecutive weeks in red territory and got technically oversold to levels we traditionally only see at the bottom of bear markets.”
• Blackstone Inc. is seeking a tenfold increase of assets in its Asia-Pacific private credit business to tap a market with a growing appetite for such financing. The U.S. alternative asset manager aims to expand its private credit assets to at least $5 billion in the “near term” from the $500 million committed as of the fourth quarter of last year, said Paulo Eapen, who heads the operations in Europe and Asia-Pacific. Blackstone Credit began investing actively in the region in 2021. While Asia makes up only a tiny fraction of the global private credit market, Blackstone is betting that demand will build as companies in the region increasingly look to diversify debt financing away from bank loans.


“Do what is right, not what is easy nor what is popular.” —Roy T. Bennett

*All sources from Bloomberg unless otherwise specified