November 1, 2022

 

Daily Market Commentary

Canadian Headlines

  • The judge presiding over the antitrust case against Rogers Communications Inc.’s takeover of a rival has asked lawyers representing the company and Canada’s antitrust czar whether there’s a solution to the impasse that’s stalling the deal. Chief Justice Paul Crampton ordered legal counsel for Rogers, Shaw Communications Inc. and the federal Competition Bureau to a case management conference at 3 p.m. Ottawa time Tuesday, according to a notice published Monday afternoon. In the meantime, Crampton asked all sides to “reflect” on whether there’s a compromise that can be struck that would satisfy Competition Commissioner Matthew Boswell — “and that therefore it would not be necessary to continue to seek an order directing the respondents not to proceed with the entire proposed transaction.” The respondents in the case include Rogers and Shaw.
  • Some foreign students are accusing the Canadian government of using them as a cheap source of labor and discarding them once they’re no longer needed. Last year, Prime Minister Justin Trudeau’s government allowed about 50,000 foreign students to stay for 18 months after graduation to seek employment, during a time when the economy was reopening from Covid shutdowns and companies needed to hire. The government sold the permit extension as a way to “help more graduates fill pressing needs” in key sectors and allow them to gain the work experience needed to immigrate permanently. But a year and half later, some of these permanent-resident hopefuls were left without status to work or remain in the country.
  • Canada’s business community urged Prime Minister Justin Trudeau’s government to bring public-sector employees back to their offices as quickly as possible. While many businesses have now implemented return-to-office plans, some governments are “significantly lagging” in following suit, according to an open letter signed by 32 business associations, including the Canadian Chamber of Commerce and Business Council of Canada. Trudeau’s government, as the country’s largest single employer, should lead the initiative, the groups said. But so far, RTO policies for federal workers vary across departments and agencies.

World Headlines

  • European stocks began November they way they ended October, extending their rally after one of the best monthly returns of the past two years. The Stoxx Europe 600 Index extended earlier gains to rise 1.4% as of 11:22 a.m. in London, tracking gains in Asia after positive Chinese economic data and signs of reopening in the Asian nation as some Covid restrictions were loosened in Zhengzhou. All eyes remain on earnings and central-bank decisions later this week. All industry groups were in the green. European stocks rose 6.3% in the month of October, with the euro-area large cap benchmark Euro Stoxx 50 having its best month since November 2020, as did country indexes including Italy’s FTSE MIB, Spain’s IBEX 35 and Germany’s DAX.
  • Global stocks rallied as speculation that China may phase out its stringent Covid Zero policy fueled risk-on sentiment. The dollar and Treasury yields fell ahead of a key Federal Reserve decision. US-listed Chinese stocks soared in premarket trading, tracking a strong rally in Chinese markets after an unverified social media post triggered speculation that Beijing is looking to unwind restrictions, even as the country’s Foreign Ministry said it was unaware of such a plan. The Bloomberg Dollar Index snapped a three-day rising streak and Treasury yields fell to 3.94%. Swap markets are pricing in a 75-basis-point hike this week amid the Fed’s most-aggressive tightening campaign in four decades.
  • Asian stocks advanced ahead of a key US Federal Reserve rate decision, as Chinese shares staged a strong rebound on speculation of a potential reopening. The MSCI Asia Pacific Index jumped as much as 2.4%, the most in more than two weeks, as Chinese and Hong Kong gauges roared back from multi-year lows on speculation that policymakers are making preparations to gradually exit the stringent Covid Zero policy. The Hang Seng Index climbed more than 5%, with internet giants Meituan and Tencent Holdings the biggest contributors to the advance. Unverified social media posts circulated online on Tuesday showed a committee was being formed to assess scenarios on how to exit Covid Zero. A Covid-induced economic slowdown in China has been one of the biggest overhangs for the region’s markets.
  • Oil gained as the dollar weakened and equities rallied before interest-rate decisions by major central banks. West Texas Intermediate futures climbed to trade above $87 a barrel after losing around 3% over the previous two sessions. The Federal Reserve is scheduled to make a decision on rates Wednesday, as central banks continue to tighten monetary policy to tame inflation. Chinese stocks surged on speculation that policymakers are making preparations to exit Covid restrictions. While oil is down by almost a third since early June, futures capped the first monthly gain since May last month after the OPEC+ alliance agreed to sizable production cuts. Excess supply was the main reason to curb output from November, the group’s Secretary-General Haitham al Ghais said on Monday.
  • Gold rose from the lowest in over a week as the dollar and Treasury yields fell ahead of a Federal Reserve meeting where traders are looking for hints of a slowdown in rate hikes. A gauge of the greenback dropped 0.5% on Tuesday after three days of gains, providing relief for bullion which is priced in the US currency. The metal has mostly traded around $1,650 an ounce in recent weeks, struggling for drivers as investors wait for the Fed. Speculation is mounting that the US central bank will soon slow down its aggressive monetary tightening, which has caused gold to drop about 20% from its March peak. Higher rates make non-yielding gold less attractive.
  • Copper rallied with other metals on speculation that Beijing will make preparations to ease China’s stringent Covid rules. Chinese stocks and the yuan also rallied. An unverified social media post circulating online suggested that a committee is being formed to assess scenarios on how to exit Covid Zero, a flagship policy that has hammered the Chinese economy and stifled commodities prices. Chinese Foreign Ministry spokesman Zhao Lijian told reporters he was “not aware” of such a move when asked at a regular press briefing on Tuesday. Metals also got a boost as traders positioned for the Federal Reserve to potentially turn less hawkish at a two-day policy meeting that starts later Tuesday, with the dollar weakening.
  • A parabolic surge in meme cryptocurrency Dogecoin over the past week is encouraging speculation that other so-called alternative tokens could also catch a speculative tailwind. The coin represented by an image of a Shiba Inu has climbed to almost 15 US cents from roughly 6 US cents over the period, an advance that in percentage terms far outstrips the performance of top token Bitcoin. The proximal cause is the $44 billion purchase of Twitter Inc. by Elon Musk, a longtime supporter of the coin. Kunal Goel, a research analyst at Messari, said that some traders believe Musk will integrate the token into the platform.
  • Any bargain hunters hoping to snap up Credit Suisse Group AG now that the lender’s revamp has pushed its stock down yet again may find themselves getting short shrift in Zurich. “We are going to thrive again, so we don’t have any takeover discussions,” Credit Suisse Chairman Axel Lehmann said in an interview with Bloomberg Television in Hong Kong on Monday. “We want to stay independent.” With its share price slumping by more than half this year, the 166-year-old institution has been vulnerable to rumors of takeover bids and concerns over its stability. Lehmann said the 4 billion Swiss franc ($4 billion) capital increase would make the lender “rock solid,” helping it to carry out a vital restructuring that radically downsizes the loss-making investment bank and shrinks its trading operations.
  • Protests by backers of Jair Bolsonaro, led by truck drivers, have spread across the country as the Brazilian president remains silent over his loss in Sunday’s election, so far refusing to concede defeat to his foe Luiz Inacio Lula da Silva. Supporters of the firebrand president, unhappy with the election result, blocked roads across 23 states and the capital and restricted access to Sao Paulo international airport late Monday evening, forcing the cancellation of some flights. Over 300 federal highways were partially or fully blocked at one point, according to the police. Supreme Court Justice Alexandre de Moraes, who also oversaw the electoral court for the election process, ordered the federal highway police to clear the protests, warning of fines reaching 100,000 reais ($19,306) per hour per vehicle and that the agency’s director could be sidelined if he didn’t comply.
  • Uber Technologies Inc. reported revenue that beat analysts’ expectations, fueled by a recovery in driver supply that supported increased ridership, assuaging investor concerns that rising inflation would damp consumer spending. The shares jumped about 6% in early trading. Third-quarter sales jumped 72% to $8.34 billion, the San Francisco-based company said Tuesday in a statement. That exceeded the $8.1 billion analysts were expecting, according to data compiled by Bloomberg. Gross bookings, which encompass ride hailing, food delivery and freight, increased 26% to $29.1 billion, slightly below the average estimate. Adjusted earnings before interest, tax, depreciation and amortization reached $516 million. Analysts, on average, projected $458.7 million.
  • Bonds rallied ahead of what promises to be the Federal Reserve’s fifth-straight outsized rate hike later this week amid fresh warnings that a recession is inevitable as the central bank continues to tighten policy. The yield on 10-year Treasuries fell as much as 11 basis points to 3.94%, compared to a peak of 4.34% last month, the highest since 2007. Traders are looking ahead to ISM manufacturing data for further clues on the state of the US economy before the Fed sets policy on Wednesday, where another three-quarter point hike looks like a near certainty. Bund yields fell 10 basis points to 2.05%. The rush for bonds comes as Chair Jerome Powell’s favored portion of the yield curve — the difference between where three-month rates are now versus where they are expected to be in 18 months’ time — is on the cusp of inverting, with the spread between the two tumbling to a mere 0.2 percentage points Tuesday from 2.7 percentage points in April.
  • UK house prices fell the most since the start of the pandemic in October as political and market turmoil sent shock waves through the property market. The average value of a home dropped 0.9% to £268,282 ($309,500), Nationwide Building Society said Tuesday. It was the largest decline since June 2020 and much sharper than the 0.3% reduction that economists had expected. The figures add to evidence that the property market is now in the grip of a downturn, with experts predicting values could fall by more than 10%. That would erase some of the gains made over the last two years.
  • BP Plc posted its second-highest quarterly profit on record and announced a further $2.5 billion of share buybacks, capping a stellar period for Big Oil after Russia’s invasion of Ukraine pushed up energy prices. The strong earnings, which included an “exceptional” performance from gas trading, is delivering a windfall for investors, but also stoking the ire of politicians who are grappling with the economic damage from soaring inflation and rising interest rates. BP’s home country of the UK has already imposed additional taxes on the oil industry, and companies could face more levies as US President Joe Biden and some other European governments seek to mitigate the impact of high energy prices.
  • Tesla Inc. is sending engineers and production staff from its recently upgraded Shanghai factory to its plant in Fremont, California, in a bid to boost production at the US facility, according to people familiar with the plans. The Elon Musk-led carmaker will dispatch staff — in particular automation and control engineers — to assist efforts to increase output in Fremont, where Tesla produces the Model S, X, 3 and Y vehicles, the people said, asking not to be identified because the information is private. About 200 people will head to California on assignments that will last at least three months, one of the people said. The first workers are setting off as soon as this month, the person added. A representative for Tesla in China declined to comment. Tesla shares rose as much as 2.1% to $232.38 before the start of regular trading.
  • President Joe Biden is kicking off the final campaign stretch before Nov. 8 elections that will determine whether his party retains control of Congress with a visit to Florida, a state where it’s become increasingly difficult for Democrats to win. Biden’s Tuesday visit to the Sunshine State — in which he’ll appear alongside Democratic gubernatorial candidate Charlie Crist and Senate hopeful Val Demings — begins a push that also will include visits to Pennsylvania, New Mexico and Maryland. Biden has sought to re-frame the election as a choice between Republican and Democratic economic policies for the middle class, rather than a report card on his first two years in office.
  • A parabolic surge in meme cryptocurrency Dogecoin over the past week is encouraging speculation that other so-called alternative tokens could also catch a speculative tailwind. The coin represented by an image of a Shiba Inu has climbed to almost 15 US cents from roughly 6 US cents over the period, an advance that in percentage terms far outstrips the performance of top token Bitcoin. The proximal cause is the $44 billion purchase of Twitter Inc. by Elon Musk, a longtime supporter of the coin. Kunal Goel, a research analyst at Messari, said that some traders believe Musk will integrate the token into the platform.
  • Johnson & Johnson, one of the world’s biggest makers of medical devices, said it will purchase Abiomed Inc. for about $17.3 billion, building on its portfolio of technology to assist heart function. J&J will pay $380 a share in cash, according to a statement Tuesday. That represents a premium of about 50% over Abiomed’s closing price on Monday, and is close to the stock’s 52-week high in November 2021. Abiomed shareholders will also receive as much as $35 a share in additional cash if certain goals are achieved, the companies said. J&J is planning to spin off its consumer unit next year, and is looking to focus on higher returns from its pharmaceutical and medical technology divisions. Abiomed makes almost all of its money through the sale of Imeplla heart pumps — small devices that are threaded through arteries into the heart to help it move blood through the body.
  • The Bank of England on Tuesday is set to become the first major central bank to sell off assets accumulated during a 13-year-old stimulus program, providing a test case for how quickly markets can shift away from easy-money policies. The UK central bank, which was buying gilts as recently as a few weeks ago to soothe market stress, plans an auction of the first £750 million in short-maturity securities it wants to unload. Results of the operation are due about 3 p.m. in London. The move is aimed at reversing the quantitative easing program that helped prop up the economy through the global financial crisis and the pandemic. Under the program, the BOE bought bonds in financial markets to push interest rates to near zero, with the goal that easier money would give investors confidence and help foster growth.

*All sources from Bloomberg unless otherwise specified