May 30, 2023

Daily Market Commentary

Canadian Headlines

  • Alberta Premier Danielle Smith and her United Conservative Party retained control of Canada’s top oil-producing province in an election Monday, setting up a series of energy-policy clashes with Prime Minister Justin Trudeau. Smith’s UCP won 49 of 87 seats in the provincial legislature to form a majority government, defeating the left-leaning New Democratic Party. Smith, 52, became premier last fall by winning her party’s leadership after her predecessor, Jason Kenney, stepped down amid dissatisfaction with his handling of the pandemic. The victory threatens to complicate Trudeau’s quest to fulfill Canada’s climate commitments. Smith has opposed a plan to make the nation’s electricity grids net zero by 2035, and she has promised to fight efforts to slash emissions from the province’s oil sands.
  • Financial firms in Quebec, including its largest bank, have set a goal of raising as much as C$1 billion ($735 million) for a new ESG fund. The group of 10 investors behind the Fonds Investi initiative includes provincial pension manager Caisse de Depot et Placement du Quebec, National Bank of Canada and the Federation des Caisses Desjardins du Quebec, a financial co-operative in the Canadian province. The initial expressions of interest from the firms include a total of C$300 million in commitments toward the new fund, according to a statement seen by Bloomberg. They’ll raise additional money over the next two years.  Mandates of C$50 million to C$75 million will be granted to established asset managers in four categories: stocks, fixed income, hedge funds and private equity. The money will be managed under investment strategies that adopt environmental, social and governance principles, with a goal of helping Montreal grow as a hub for sustainable finance.

World Headlines

  • European stocks were subdued at the open as investors weighed signs of progress in the US debt-ceiling deal against worries about staunchly hawkish central banks before jobs data later this week. The Stoxx 600 was down 0.2% at 8:06 a.m. in London as the White House and Republican congressional leaders geared up lobbying campaigns to win approval of a deal to avert a US default. Banks and energy stocks led declines, while media and real estate were the best-performing sectors. A rally in the Stoxx 600 has stalled in May, with the benchmark tracking its biggest monthly decline this year amid the specter of a recession. Worries that central banks would keep interest rates higher for longer amid elevated inflation have also capped risk demand. Figures Tuesday showed prices in UK stores are rising at a record pace.
  • US stock futures were buoyant on Tuesday as excitement over artificial intelligence fueled a rally in chipmakers and tech stocks. Treasuries advanced on hopes that Congress will pass a debt accord to head off a default. Contracts on the S&P 500 and Nasdaq 100 rose 0.5% and 1.1% respectively. Nvidia’s market value is set to surge past $1 trillion as it climbed in premarket trading after CEO Jensen Huang unveiled several AI-related products and services. Other AI-related stocks also gained, including Advanced Micro Devices Inc., Intel Corp., Qualcomm inc. and Meta Platforms Inc.
  • Asian stocks were mixed as Chinese shares briefly entered bear-market territory, keeping a lid on sentiment, while other markets were poised to hit new milestones. The MSCI Asia Pacific Index was up 0.1% as of 4:30 p.m. Hong Kong time. South Korea was the best performer in the region after the market returned from a holiday, with the Kospi Index nearing a bull market. Korean chipmakers including Samsung Electronics were among the biggest boosts to the regional benchmark, fueled by the AI frenzy. India benchmarks also traded near all-time highs. Japanese and Chinese shares lagged regional peers. A key gauge of Hong Kong-listed Chinese stocks has lost more than 6% so far in May in one of the worst performances among major equity gauges. Headwinds ranging from a weak economic recovery to tensions with the US have left traders with little reason to buy.
  • Brent oil declined with other commodities as a risk-off tone in Asia overshadowed progress toward a US debt-ceiling agreement. The global benchmark fell toward $76 a barrel, with a stronger dollar making commodities priced in the currency such as oil and copper less attractive to investors. A key gauge of Chinese stocks was also on track to enter a bear market, in part due to a sluggish economic recovery. Oil is around 11% lower this year as China’s lackluster economic recovery following the end of Covid Zero and the Federal Reserve’s aggressive monetary tightening campaign weighed on the demand outlook. Russian supply has also been resilient, even after the nation said it would cut output.
  • Gold steadied after earlier hitting the lowest level since mid-March amid optimism that Congress will approve a crucial US debt-ceiling deal. Investors will be closely watching employment data set to be released this week amid mounting expectations the Federal Reserve is likely to raise interest rates again in June or July to rein in stubborn inflation. The prospect has weighed on gold in recent weeks, as higher rates are typically negative for non-interest bearing bullion. Spot gold fell as much as 0.6% to $1,932.15 an ounce, briefly slipping below its 100-day moving average. It traded little changed at $1,942.57 by 10:14 a.m. in London.
  • The euro area’s markets could see “stressed liquidity” due to heightened economic uncertainty, monetary policy normalization and tighter financial conditions, according to the European Central Bank. In a report released ahead of Wednesday’s financial stability review, the central bank highlighted the region’s market and funding liquidity conditions deteriorating simultaneously since early 2022. This is unusual and indicators suggest market liquidity is now as low as during the onset of the pandemic in early 2020, it said. The trend comes as central banks reduce the accommodative monetary policy and large bond purchases of recent years that had been supporting the orderly functioning of funding markets despite poorer liquidity conditions, according to the ECB.
  • Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds last week. This was the fourth straight week of outflows. Outflows from U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $4.73 million in the week ended May 26, compared with losses of $511.3 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $8.45 billion.
  • The debt-limit agreement forged by President Joe Biden and House Speaker Kevin McCarthy heads into a crucial final stretch with less than a week to win congressional passage before a June 5 default deadline. Biden and McCarthy spent much of the Memorial Day holiday lobbying members of their respective parties to build enough support ahead of a House vote expected Wednesday.  If the two leaders can overcome expected opposition from their flanks, the deal goes to the Senate, where a single objection risks triggering time-consuming procedures that threaten to bring the US right to the brink of a first-ever default.
  • Russia said it downed eight drones aimed at Moscow early Tuesday, the biggest attack on the capital since President Vladimir Putin ordered the invasion of Ukraine. The Defense Ministry in Moscow blamed the assault on Ukraine, adding that air defenses shot down five of the drones while electronic jamming was used to divert three others from their intended targets. Ukraine hasn’t commented so far. It’s the most serious incident in Moscow since two drones exploded over the Kremlin on May 3 in an attack that officials also blamed on Ukraine, which denied involvement. Russian territories close to Ukraine have come under repeated attack in recent months and the Defense Ministry in Moscow said last week that troops defeated an incursion by attackers who crossed the border into the Belgorod region.
  • Elon Musk landed in Beijing in what is the billionaire’s first visit to China in three years, and met with Foreign Minister Qin Gang. Musk said Tesla Inc. is willing to keep expanding in the country, and he and Qin spoke about the merits of maintaining ties between China and the US, according to a government statement late Tuesday. Qin told Musk that China is committed to developing a good business environment for foreign companies, the statement said. Musk is also expected to visit Tesla’s Shanghai factory, people familiar with the matter said, asking not to be identified because the information is private. The Tesla chief executive officer will potentially meet Premier Li Qiang as well to discuss automated-driving technology that Tesla is seeking to introduce in China, one of the people said.
  • Nvidia Corp. is poised to become the world’s first chipmaker with a $1 trillion market capitalization, joining an exclusive club of American companies with a valuation that high. The stock jumped as much as 4% in premarket trading to $404.91 a share on Tuesday. If the gains hold, the Silicon Valley firm will hit the $1 trillion mark and join a handful of companies including Alphabet Inc., Inc., Apple Inc. and Microsoft Corp. to be valued that high. Fewer than 10 companies globally have ever achieved this level. Over the weekend, Nvidia Chief Executive Officer Jensen Huang announced several artificial intelligence-related products, touching on everything from robotics to gaming to advertising and networking. He also unveiled an AI supercomputer platform that will help tech companies create their own versions of ChatGPT. “It’s too much,” Huang said during his presentation in Taiwan. “I know it’s too much.”
  • Macquarie Group Ltd. is considering selling South Korea’s DIG Airgas Co. at a valuation of more than $2 billion, according to people familiar with the matter. An investment arm of Macquarie is working with a financial adviser as it prepares for a potential sale of the business formerly known as Daesung Industrial Gases Co., the people said, asking not to be identified because the matter is private. Other companies in the industry and investment funds have shown preliminary interest in the industrial gas producer, the people said. Discussions are at an early stage and Macquarie could decide to hold onto the asset for longer, the people said. A representative for Macquarie didn’t immediately respond to requests for comment.
  • Malaysia believes financier Low Taek Jho is hiding in Macau, along with others wanted in the multibillion ringgit 1MDB scandal, Al Jazeera reported, citing the national anti-graft body. The information was confirmed by several individuals who had spotted the fugitive, better known as Jho Low, in Macau, the Malaysian Anti Corruption Commission told Al Jazeera in a written response. This included 1MDB suspect, Kee Kok Thiam, who was arrested and released by the MACC earlier this month. Malaysian authorities have been working to repatriate Jho Low for years. He was first charged in absentia in 2018 by a Malaysian court with eight counts of money laundering and issued a warrant of arrest for his role in 1Malaysia Development Bhd. Low publicly declared his innocence that same year.
  • Constellation Energy Corp. has an ambitious $1 billion plan to produce hydrogen using carbon-free nuclear power. But the plan is on hold — and may be derailed completely — as the company awaits guidance from Washington on a tax credit that’s expected to play a key role in efforts to use the gas to decarbonize heavy industries.  The US Treasury Department is expected to issue rules in the coming months clarifying how hydrogen suppliers will qualify for a subsidy of as much as $3 per kilogram that’s included in the Inflation Reduction Act. The industry has been waiting for guidance since the landmark law was signed in August, and the fate of Constellation’s plan hinges on whether the Biden administration imposes strict limits urged by environmentalists and some Democratic lawmakers. Energy giant Constellation is the first US company to produce hydrogen at volume using nuclear energy, at a plant in upstate New York. It’s been planning to install the technology at several reactors in the Midwest to supply industrial customers. Factories that make steel, fertilizer, chemicals and other carbon-intensive products account for about a quarter of global greenhouse gas emissions, and hydrogen produced using renewable or nuclear power can offer a low-carbon alternative to processes that rely on fossil fuels. However, there’s a growing push to introduce language in the policy that would undermine the company’s strategy.