November 1, 2023

Daily Market Commentary

Canadian Headlines

  • Canada Goose slides as much as 12% ahead of the bell in New York after the apparel company slashed its annual forecasts. In addition, had been Deputy CFO Neil Bowden becomes CFO and names Jonathan Sinclair President of APAC. Both become effective April 1, 2024.
  • Royal Bank of Canada has injected $2.95 billion into City National Bank so far this year as part of an effort to clean up the California subsidiary’s balance sheet, according to a new regulatory filing. Most of that capital infusion, disclosed Tuesday in City National’s quarterly call report filed with US regulators, came in conjunction with Toronto-based Royal Bank purchasing debt securities with unrealized losses from City National. City National realized a loss of $2.74 billion on available-for-sale debt securities in the three months through September, according to the filing. Royal Bank said last month that it would take steps to bolster City National’s balance sheet — and presumably improve the bank’s margins — but didn’t disclose the amount it invested in the unit or the price it paid to purchase debt securities. Realized losses on debt securities would be “eliminated at the Royal Bank of Canada consolidated level,” the company said at the time.

World Headlines

  • European equities were steady as investors awaited a Federal Reserve interest rate decision due later on Wednesday and assessed a slew of company earnings. Orsted A/S slumped after a $4 billion writedown. The Stoxx Europe 600 erased earlier gains, trading steady by 10:18 a.m. in London. Retailers and health care stocks led gains, while media and chemicals lagged. Among individual movers, Orsted plunged after saying it dropped the development of two US wind projects, recording impairment charges significantly above its previous predictions. Meanwhile, British clothing retailer Next Plc gained after raising profit guidance. The European benchmark is close to wiping out all gains made this year and entering a correction, though it did regain some ground over the past two days. Other than the Fed decision, investors are parsing earnings statements to assess the health of profits even as European economies slow. Traders are also monitoring developments in the Israel-Hamas war and their impact on oil prices.
  • US stock futures slipped and Treasuries edged higher ahead of the Federal Reserve interest-rate decision and the US government’s new borrowing plan. Contracts on the S&P 500 and the Nasdaq 100 dropped by about 0.3%. WeWork Inc. plunged 42% in premarket trading after the Wall Street Journal reported that the company plans to file for bankruptcy as early as next week. The Fed is expected to hold rates steady at a 22-year high for a second meeting, while leaving open the possibility of another hike as soon as December with economic growth staying resilient. The recent surge in US Treasury yields has contributed to a tightening of financial conditions, leading even hawkish Federal Open Market Committee members to indicate patience over further rate moves.
  • Asian equities rose for the first time this week, boosted by Japanese stocks after the Bank of Japan maintained its negative-rate policy. Other markets were mixed ahead of the Federal Reserve’s interest-rate decision. The MSCI Asia Pacific Index climbed as much as 1.1%, with Toyota Motor Co. and Mitsubishi Electric Corp. among the biggest contributors. Japanese benchmarks climbed more than 2% on relief over ultra-low borrowing costs and a weak yen. Gauges in China and Hong Kong were among the underperformers in Asia, closing little changed after an unexpected contraction in manufacturing activity deepened worries about growth in Asia’s largest economy.  While the sentiment in Asian markets appears to be leaning positive, with “an uncomfortable mix of an uncertain global growth outlook, heightened geopolitical risks, and fast rising long-dated bond yields in play, the specter of volatility continues to hover in the backdrop for Asian markets,” said Eli Lee, head of investment strategy at Bank of Singapore.
  • Oil advanced after slumping in the first two days of the week, as a still-contained Israel-Hamas war caused attention to shift to global demand. US crude futures rose toward $82 a barrel. Israeli forces continued moving gradually into the Gaza Strip, with the army reporting its first casualties since the start of the land assault. Away from the war, there are mixed views on global demand. US consumption hit the highest level in four years in August, a sharp revision higher from weekly numbers at the time. But manufacturing in China, the world’s biggest oil importer, fell back into contraction in October, while BP Plc said global gasoline and diesel markets are oversupplied.
  • Gold steadied ahead of the Federal Reserve’s interest-rate decision, even as high US bond yields put pressure on the precious metal. Bullion has retreated this week after surging above $2,000 an ounce on Friday for the first time since May amid concerns the Israel-Hamas conflict could spillover into the wider region. Swaps traders are betting that policymakers will keep rates on hold when they gather on Wednesday, but will scrutinize any forward-looking steer provided by the central bank. US data has pointed to a hot labor market, increasing wagers on another hike by year-end.
  • Japanese Prime Minister Fumio Kishida is set to announce spending of around 21.8 trillion yen ($144 billion) in his latest stimulus package, according to a draft of the plans obtained by Bloomberg. The package will fund measures to cushion the impact of inflation on households, help firms raise wages and offer support for domestic investment and growth, the draft showed. Kishida had earlier ordered a temporary cut to income tax and handouts for low-income households as key elements of the package. Around 13.1 trillion yen will go toward funding the package through an extra budget, likely adding to the country’s massive debt pile. The overall size of the package is set to be around 37.4 trillion yen, including private sector spending tied to the measures.
  • CVS Health Corp. posted higher sales and profit in the third quarter, a sign that the drugstore chain’s cost-cutting strategy is paying off as it expands its health-care business. Adjusted earnings came to $2.21 a share, 4 cents higher than a year ago, the company said in a statement Wednesday. Revenue in the period rose almost 11% to $89.8 billion, exceeding Street expectations of $88.3 billion. The company reaffirmed its full-year adjusted profit outlook of $8.50 to $8.70 a share. CVS has been grappling with rising costs in its pharmacy and insurance businesses and warned investors in August that will take a toll on profit over the next two years. The Woonsocket, Rhode Island-based company also announced a restructuring plan last quarter to streamline operations and reduce costs, which included eliminating 5,000 non-customer facing positions.
  • President Joe Biden will meet with Chinese leader Xi Jinping on the sidelines of the Asia-Pacific Economic Cooperation summit in San Francisco in November, White House press secretary Karine Jean-Pierre said Tuesday. The confirmation follows months of work between the two countries to set up a sit-down for the two leaders around the APEC meeting — though the official acknowledgment appeared to happen almost by mistake during the daily White House press briefing. Jean-Pierre was asked why a formal announcement had not yet been finalized, and disputed the premise of the question.
  • The US and Israel are exploring options for the future of the Gaza Strip, including the possibility of a multinational force that may involve American troops if Israeli forces succeed in ousting Hamas, people familiar with the matter said. The people said the conversations have been impelled by a sense of urgency to come up with a plan for the future of Gaza now that a ground invasion has begun. A second option would establish a peacekeeping force modeled on one that oversees a 1979 Egypt-Israel peace treaty, while a third would see Gaza put under temporary United Nations oversight. The people, who asked not to be identified discussing the sensitive matter, underscored that the conversations are still at an early stage and much could change. Some US officials consider the options premature or unlikely. But Secretary of State Antony Blinken alluded to the challenge on Tuesday when he told a Senate panel that the US was examining a range options for the future of Gaza.
  • The Bank of Japan announced an unscheduled bond-purchase operation on Wednesday in an effort to curb the pace of gains in sovereign yields after it tweaked policy on Tuesday. The operation had little immediate impact on the benchmark 10-year bond yield. It touched a fresh decade-high of 0.97% on Wednesday. Bond futures pared their losses slightly after the announcement, while the 10-year yield was little changed at 0.96%. The yen pared its gains slightly versus the dollar. The Japanese 10-year yield was just 0.44% on July 27, one day before the central bank’s first tweak to yield-curve control this year to make it more flexible. The BOJ has also resorted to increasing purchase amounts in regular operations to rein in the yield advance.
  • Estée Lauder Cos. lowered its full-year outlook citing continued weakness in Asia travel retail and in mainland China, as well as risks to its business from the Israel-Hamas war. The company now expects net sales to decrease between 9% to 11% in the current quarter versus a year ago and sees diluted net earnings between 47 cents and 57 cents a share. The potential risks from disruption in Israel and the Middle East are expected to have a dilutive impact of 8 cents. “While we had a better-than-expected first quarter, we are lowering our fiscal 2024 outlook given incremental external headwinds, namely from the slower growth in overall prestige beauty in Asia travel retail and in mainland China,” Chief Executive Officer Fabrizio Freda said in a statement. He also cited risks of disruption to the company’s business in Israel and other parts of the Middle East.
  • After weeks listening to the government’s criminal case against him, Sam Bankman-Fried finally got his chance to respond from the witness stand. But once prosecutors took charge, the FTX co-founder didn’t fare well, appearing vague and sometimes evasive in front of a jury on the cusp of deciding his fate. Over two days, federal prosecutor Danielle Sassoon subjected Bankman-Fried to a painstaking cross examination, confronting the former King of Crypto with his voluminous public statements about FTX’s collapse, his humble boy genius persona and his ties to politicians and celebrities.  He repeatedly quibbled with the wording of statements, or denied saying them at all. One after another, Sassoon pulled up news stories, interviews and Bankman-Fried’s own tweets to show what he really said.
  • WeWork Inc. shares fell as much as 42% in premarket trading following a report in the Wall Street Journal that the company plans to file for bankruptcy. WeWork may file its Chapter 11 petition in New Jersey as early as next week, the Journal reported, citing people familiar with the matter who it didn’t name.  The company had one of the most dramatic trajectories of the last startup boom — reaching a valuation of $47 billion before a disastrous attempt at an initial public offering and challenges to its co-working model during the pandemic. The shares declined to as low as $1.33 in early trading before US markets opened on Wednesday. The stock had closed down 12% to $2.28 on Tuesday giving it a market value of $165.7 million.