May 9, 2023

Daily Market Commentary

Canadian Headlines

  • China has ordered a Canadian diplomat to leave the country, in a tit-for-tat move hours after Prime Minister Justin Trudeau’s government expelled a Chinese envoy from his nation. Jennifer Lalonde, a diplomat from Canada’s consulate in Shanghai, has until Saturday to leave the country, according to a statement Tuesday from the Chinese Foreign Ministry. China called the move a “reciprocal countermeasure” and reserved the right to make further responses. The Canadian embassy in Beijing didn’t respond immediately to a request for comment. On Monday, Canada expelled Chinese envoy Zhao Wei after a Globe and Mail report claimed the diplomat was looking into penalizing Conservative lawmaker Michael Chong over his hard-line positions on China. The punishments could entail sanctioning Chong’s relatives in Hong Kong, the report said, citing a leaked intelligence document.

World Headlines

  • European stocks slipped on Tuesday as a dividend payment halt at SBB, one of the Sweden’s biggest commercial landlords, deepened worries about the real estate sector, while China posted weak economic data. The Stoxx 600 slipped 0.5% at 9:59 a.m. in London. SBB — as Samhallsbyggnadsbolaget i Norden AB is more commonly known — sank 5.7% as it also canceled a rights issue after S&P Global Ratings downgraded its credit rating to junk. Separately, a report showed China’s export growth slowed in April and imports plummeted, adding to pressures on an economic recovery that’s already been called into question. European stocks have stalled after an April rally amid worries that central banks could keep interest rates higher for longer at a time when economic growth is starting to slow and turmoil among US regional lenders persists. After hikes by the Federal Reserve and the European Central Bank last week, the focus is on the Bank of England, which is also expected to raise rates on Thursday.
  • Investors are tracking efforts in Washington to end a standoff over the US debt ceiling, with President Joe Biden due to sit down with House Speaker Kevin McCarthy Tuesday for their first meeting in three months as the two face pressure to forge a deal. On the data front, the big focus in markets this week is the monthly US inflation report, due on Wednesday. Economists expect headline CPI to rise by 5% on a year-on-year basis, showing that price pressures are still uncomfortably high for the Federal Reserve.
  • Asian stocks edged lower as sentiment soured on China’s weak import data, while a recent rally in the nation’s state-owned enterprises fizzled. The MSCI Asia Pacific Index gave up earlier gains to fall as much as 0.2%, led lower by communication shares. Benchmarks in Hong Kong fell the most in two months, while Japanese shares outperformed the region as investors cheered latest corporate earnings. The Topix is approaching its highest level since August 1990. Chinese stocks slid in afternoon trading as a rally in state-owned firms reversed, dragging on the broader market. Meanwhile, fresh data showed imports slumped in April while export growth slowed, adding to pressures on an economic recovery that’s already been called into question.
  • Oil fell after a two-day surge as Chinese trade data highlighted concerns about the nation’s economic recovery and energy demand. West Texas Intermediate declined toward $72 a barrel after rallying almost 7% in the prior two sessions. China’s overall export growth slowed in April while imports plummeted, which also contributed to weaker wider markets on Tuesday. Demand for commodities fell last month, with overseas purchases of crude, iron ore and copper all dropping from the prior month. Oil has retreated about 10% this year as worries over the Federal Reserve’s monetary-tightening campaign and the potential for a recession in the US outweigh a resilient physical market. Traders who were holding out hope for China driving demand after its emergence from strict Covid policies will have to assess the implications of the latest data for prices.
  • Gold edged higher as investors awaited fresh US economic data that may offer clues on the interest-rate trajectory. The precious metal has been hovering around the $2,020-an-ounce mark so far this week. It remains close to a record high — after rallying 1.4% last week — amid concerns over the state of the global economy as well as a debt-ceiling standoff and the health of regional banks in America. Spot gold rose 0.3% to $2,026.58 an ounce as of 10:17 a.m. in London, after closing up 0.2% on Monday. The Bloomberg Dollar Spot Index strengthened slightly. Silver declined, while platinum and palladium steadied.
  • Public confidence in Jerome Powell’s leadership of the Federal Reserve has dropped precipitously, according to a new survey, and is now at or below his predecessors’ as the central bank wages its war against inflation. A Gallup poll released Tuesday shows 36% of US adults say they have a “great deal” or a “fair amount” of confidence that the Federal Reserve chairman would do or recommend the right thing for the economy.  That’s lower than Janet Yellen’s 37% during her first year leading the Fed in 2014 — though the difference is within the survey’s margin of error of plus-or-minus 4 percentage points — and is the lowest level recorded since Gallup began tracking public confidence in the central banking chief in 2001. Former Chairman Ben Bernanke’s lowest point came in 2012, at 39%.
  • Tempur Sealy International Inc. agreed to buy a controlling stake in Mattress Firm from Steinhoff International Holdings NV in a cash and stock deal valued at about $4 billion. The deal will be funded by about $2.7 billion of cash and $1.3 billion worth of stock, Steinhoff said in a statement Tuesday. Mattress Firm, which sells mattresses in more than 2,400 stores across 49 US states, is expected to operate as a separate business unit within Tempur Sealy. The agreement, which does not require shareholder approval from Tempur Sealy holders, is expected to close in the second half of 2024. Tempur Sealy shares were down as much as 8% in pre-market trading at 6:47 a.m. in New York.
  • Bonus season on Wall Street is projected to be a tale of two cities, with bankers at regional US lenders hurt by smaller incentive pools while year-end compensation at larger firms is expected to rise by double digits.  Bankers working for regional firms are likely to see their bonuses decline as much as 20% this year, while their counterparts at major global banks could see their incentive pay increase as much as 20%, according to a report Tuesday from compensation consultant Johnson Associates Inc. In the first quarter, banking giants including JPMorgan Chase & Co. and Citigroup Inc. reeled in windfalls from higher interest rates. Those benefits contrasted with the experience at regional banks that saw a flood of withdrawals and precipitous stock drops as shareholders worried that rising rates were eroding the value of the firms’ assets.
  • Under Armour Inc. fell in early trading after its full-year earnings outlook missed analysts’ estimates, with the athletic-gear maker continuing to struggle in a turnaround effort. The Baltimore-based company said it expects diluted earnings of 47 cents to 51 cents a share for the fiscal year ending in March, which would fall short of the 62-cent consensus estimate. Under Armour also expects its revenue to be flat to slightly up, while analysts were looking for about a 3.7% rise. Executives warned in February that the buildup in inventory would lead to more promotions across the category and a recovery would take longer than expected. In the fourth quarter, inventories rose 44% to $1.2 billion.
  • President Joe Biden will sit down with House Speaker Kevin McCarthy for their first meeting in three months as the two face pressure for a debt-ceiling deal before an unprecedented default wreaks damage on the US economy. They will be joined at the 4 p.m. meeting in the Oval Office on Tuesday by House Democratic Leader Hakeem Jeffries, Senate Majority Leader Chuck Schumer and Senate Republican Leader Mitch McConnell — but the ultimate responsibility to resolve the months-long standoff will ultimately fall on the president and speaker. The two have spent months digging in, prompting anxiety in markets and among business groups who have stepped up calls for them to quickly forge an agreement.
  • PacWest Bancorp shares fell on Tuesday, leading some peers lower in early trading as the hard-hit regional bank stock resumed its decline. The stock dropped as much as 16% in premarket trading, putting it on course to snap a two-day advance that included a record rally on Friday. Western Alliance Bancorp followed PacWest lower, dipping 1.9% in premarket trade. Regional bank stocks have broadly been under pressure since the collapse of peers including Silicon Valley Bank and Signature Bank. Investors have been unnerved by a rash of deposit outflows from banks and increasing concerns about general stability. Concerns around longer-term pressures such as surging funding costs and potential regulatory tightening have also weighed on the banking sector.
  • JetBlue Airways Corp. orchestrated a campaign to flood the government with thousands of online comments in favor of the airline’s bid to merge with Spirit Airlines Inc. — including some from employees who said they didn’t write them and don’t support the deal. Roughly 90% of the more than 10,000 comments on the Transportation Department’s public comment page are identical and are identified as coming from JetBlue and Spirit crew members who wrote that they believe the $3.8 billion merger will improve their lives, according to a Bloomberg News review of the database.
  • Novavax Inc., one of the companies that geared up to make Covid-19 shots, will cut about 25% of its workforce as the pandemic fades. The vaccine manufacturer will also consolidate its facilities and infrastructure as part of a cost-cutting plan, according to a statement Tuesday. The company had just under 2,000 employees at the end of last year. The shares rose 7% before US markets opened in New York. They had fallen 86% over the past 12 months amid concerns about whether the company would be able to stay in business. Pfizer Inc., Moderna Inc. and other companies that answered the call to mass-produce pandemic products on short notice are now seeing a reversal of demand as the World Health Organization and countries including the US drop their pandemic emergency alert levels. Like other vaccine makers, Novavax is looking to combine its Covid shot with a preventive for influenza to be used seasonally.
  • Microsoft Corp.’s LinkedIn plans to shut its jobs app in China and cut about 716 jobs, as the US professional networking service further shrinks its presence in the world’s No. 2 economy. LinkedIn, citing intense competition, will phase out the InCareer local jobs app by August. It intends to cut local engineering and product teams, while downsizing functions such as sales and marketing, it said in a blogpost. The move extends a withdrawal from the world’s largest internet market that began about two years ago, after LinkedIn ran into regulatory scrutiny and local rivals flourished. The US company will keep an office and staff there, in part to support a business helping domestically based companies recruit and train talent abroad.
  • A group of firms including Goldman Sachs Group Inc, Microsoft Corp, Deloitte and Cboe Global Markets Inc are joining a new blockchain system aimed at linking disparate institutional applications, potentially encouraging broader adoption of distributed ledger technology in financial markets. Participants in the Canton Network, which will start testing some features in July, say the system offers better privacy and controls than currently available. At the same time, it will achieve a scale and standard appropriate for financial institutions, according to a statement released by the companies on Tuesday.  Other firms participating include Digital Asset, ASX, BNP Paribas, Broadridge, Deutsche Börse Group, Cumberland, Moody’s, Paxos, and SBI Digital Asset Holdings. The network will bind together blockchain apps that were created using Daml — a smart-contract language created by Digital Asset, the blockchain startup formerly led by ex JPMorgan senior executive Blythe Masters and backed by some of the world’s largest financial institutions.
  • Days after the World Health Organization declared the coronavirus pandemic over, Ryanair Holdings Plc is betting big on the travel recovery that’s gathered pace in recent months as bookings soar for city trips and summer vacations. Europe’s largest discount airline is close to placing a major order with Boeing Co. for about 150 of the 737 Max 10 aircraft. The deal, set to be announced as early as Tuesday, includes the possible addition of 50 options, according to people familiar with the deliberations, who asked not to be identified discussing confidential negotiations. The huge purchase of Boeing’s largest 737 variant marks an important endorsement from one of the US manufacturer’s most important customers and highlights how carriers are willing to splurge on fleet upgrades again as travel rebounds.