November 15, 2023

Daily Market Commentary

Canadian Headlines

  • Slumping badly in opinion polls, with voters angry about housing and inflation, Justin Trudeau is facing calls to leave, even from stalwarts of his own political party. The Canadian prime minister may not have to face voters until 2025, thanks to a power-sharing deal with a left-leaning opposition group, which gives him some runway to try to turn things around. But that’s also enough time for Trudeau to resign or be forced out of the leadership of the Liberal Party by his increasingly restless caucus of 158 members of parliament — especially as surveys find a strong desire for change among Canadians. For months, polls have shown the Conservative Party, led by Pierre Poilievre, ahead by 10 to 15 points and gaining ground nearly everywhere. Those numbers, if they were to hold up in an election, would likely produce a large majority government for the 44-year-old opposition leader and end Trudeau’s reign with a thud.
  • After another tough quarter in a two-year string of downbeat reports, Canaccord Genuity Group Inc.’s top executive said he sees some hopeful signs for the firm’s capital markets business. The Canadian investment bank and wealth management company saw revenue drop by 11% to C$337.3 million ($246 million) in its fiscal second quarter ended Sept. 30, according to a statement late Tuesday. Capital markets revenue plunged by 30% to C$144.8 million amid a dearth of initial public offerings and new equity issues and a lack of transactions in the firm’s key sectors, which include cannabis and mining.

World Headlines

  • European stocks rose, extending Tuesday’s rally on optimism that cooling US consumer prices will allow the Federal Reserve to soften its monetary policy. The UK’s FTSE 100 jumped after good inflation data. The Stoxx Europe 600 was up 0.7% by 9:24 a.m. in London. Miners outperformed on an improving demand outlook for steel in China, which is considering a new wave of stimulus for the property sector, Bloomberg reported. Defensive sectors such as health care and telecoms lagged. The FTSE 100 Index gained 0.9% after the UK’s inflation rate tumbled to the lowest level in two years. Meanwhile, the FTSE 250 midcap index recorded the biggest two-day gain since the Covid vaccine announcement in 2020.
  • Stocks extended gains as investors welcomed cooler-than-expected inflation readings in the US and the UK as evidence that central banks may be done with their aggressive interest-rate increases. Target Corp. rallied 14% in pre-market trading as profits beat estimates, reflecting fewer discounts and better inventory management. Futures for the Nasdaq 100 rose 0.6% and those on the S&P 500 advanced 0.4%. Treasuries steadied and the dollar was flat after the previous day’s sharp retreat.  Markets are now looking ahead to Wednesday’s data on US retail sales and producer prices for further confirmation that an economic slowdown will allow the Federal Reserve to stop tightening monetary policy. Fed swaps indicate the odds of another hike have fallen to almost zero — with the market pricing in a 50 basis-point rate cut by July.
  • Asian stocks rallied on bets that the Federal Reserve may be done with its aggressive interest rate hikes as well as hopes for a Chinese economy after strong data on consumption and new government stimulus. The MSCI Asia Pacific Index climbed as much as 2.3% to the highest level since Sept. 21. The gauge is headed for its biggest single-day rally in more than a year as tech shares provided the biggest boost after cooler US inflation. All major markets were in the green, with Hong Kong and South Korea benchmarks leading gains. Chinese equities gained as the People’s Bank of China injected the most cash since 2016 into the banking system to boost growth, and Bloomberg reported the central bank also plans to provide funds for urban village renovation and affordable housing programs. Data showing stronger-than-expected Chinese consumer spending also lifted sentiment.
  • Oil edged lower as traders digested differing views on the supply and demand outlook, while an industry report pointed to an expansion in US stockpiles. Global benchmark Brent traded near $82 a barrel, erasing an earlier gain. The International Energy Agency said global oil markets won’t be as tight as expected this quarter, with production growth in the US and Brazil beating forecasts. That came after a more upbeat assessment from OPEC that highlighted robust growth trends and healthy fundamentals. Oil fell to a three-month low last week after shedding all of the war-risk premium from the conflict between Israel and Hamas. A soft US inflation print on Tuesday spurred bets the Federal Reserve will start cutting interest rates by mid-2024, aiding the longer-term outlook, but prices have struggled for direction as concerns linger about rising supply and faltering consumption.
  • Gold extended gains after soft US inflation data bolstered the view that the Federal Reserve’s aggressive monetary tightening cycle has ended. The precious metal rose for a third day after jumping as much as 1.2% in the previous session, when the US consumer price index excluding food and fuel — a measure favored by economists as a better indicator of underlying inflation — rose less than expected. Spot gold rose 0.4% to $1,971.22 an ounce as of 9:55 a.m. in London, following a gain of 0.9% Tuesday. The Bloomberg Dollar Spot Index was little changed, after tumbling 1.2% in the previous session. Silver and palladium climbed, while platinum was steady.
  • The UK attracted its biggest-ever orderbook for a conventional bond sale on Wednesday as investors look to lock in high rates while they still can. A sale via banks for £7 billion ($8.7 billion) of a new gilt maturing in 2043 attracted over £93 billion in orders, according to people familiar with the matter, with investors citing a relatively cheap valuation. That’s the highest demand for a UK bond, apart from a debut deal for green debt in 2021. It’s the latest sign of strength in primary bond markets, with the European Union also attracting more than 13 times the orders for the debt on offer in a deal on Tuesday. Global bonds have been rallying on the prospect of central banks cutting interest rates next year, though yields for long maturity bonds remain near the highest in over a decade.
  • US House lawmakers overcame partisan animosity Tuesday to pass a temporary government funding bill that greatly lowers the risk of a shutdown even as it delays fights over Ukraine aid, border policies and deep cuts to federal programs. Democrats bailed out newly elected Speaker Mike Johnson, a Republican whose plan drew opposition from hardliners in his party because it doesn’t cut government spending or change border policies. A total of 209 Democrats voted with 127 Republicans in support of the measure, which needed a two-thirds majority to pass using an expedited process. Ninety-three Republicans voted against their new leader’s plan, along with two Democrats.
  • Target Corp. shares soared after it reported third-quarter earnings that outpaced forecasts, reflecting fewer markdowns and better inventory management as the US big-box retailer recovers from its recent profit-busting pileup of merchandise. Earnings per share, excluding some items, beat Wall Street’s estimates thanks largely to a 14% decline in inventory from a year earlier. Comparable sales fell 4.9%, a second straight quarterly drop driven by lower spending on discretionary categories. That decline, the second largest since 2009, was still less than analysts expected.
  • German professional football’s governing body is launching a third attempt to sell a stake in the league’s media rights worth as much as €1 billion ($1.1 billion) to private equity investors, according to people familiar with the matter. The 36 clubs in the top two divisions will vote in mid-December on whether to hold an auction, DFL Deutsche Fussball Liga GmbH said late Tuesday, confirming an earlier report by Bloomberg News. A previous proposal in May failed to win the necessary two thirds majority from the clubs. In that attempt, buyout firms CVC Capital Partners, Blackstone Inc. and Advent International were among suitors that bid as much as €1.85 billion for a 12.5% stake in the subsidiary housing Bundesliga broadcasting rights.
  • Barclays Plc began marketing an additional tier 1 bond, attracting strong investor orders in another sign of a revival for the market rocked earlier this year by the historic writedown of Credit Suisse securities. The London-based bank is proposing a benchmark-size — at least $500 million — dollar perpetual AT1 note, callable in June 2030, in the 10.5% area, according to a person familiar with the matter, who asked not to be identified discussing a private matter. The lender has seen more than $5 billion of investor demand so far for the deal, which is expected to price later on Wednesday. Last week UBS Group AG sold additional tier 1 notes, its first such issuance since roughly $17 billion of Credit Suisse’s AT1s were wiped out as part of a UBS takeover brokered by the Swiss government. UBS pulled in roughly 10 times the bids for the debt on offer.
  • US President Joe Biden and Chinese counterpart Xi Jinping’s carefully choreographed, much-anticipated sitdown on the sidelines of the Asia-Pacific Economic Cooperation summit kicks off Wednesday at the Filoli estate south of San Francisco. The gathering, among 16 acres of lush autumnal gardens, belies a heady agenda, as they attempt to repair a relationship badly strained by economic competition and military and diplomatic missteps. The leaders are expected to discuss a US request for resuming military-to-military communication in hopes of avoiding confrontations in Pacific skies and seas, as well as a comprehensive Chinese law enforcement effort to crack down on fentanyl manufacturing and distribution networks.
  • The US will lead a push at the COP28 climate summit to triple the amount of installed nuclear power capacity globally by 2050, marking a major turnaround for the controversial technology at the climate negotiations. The declaration will call on the World Bank and other international financial institutions to include nuclear energy in their lending policies, according to a document seen by Bloomberg News. The US will likely be joined by the UK, France, Sweden, Finland and South Korea in the pledge to be signed Dec. 1 in Dubai, according to people familiar with the matter. That will be followed a few days later by a nuclear industry commitment to triple generation resources from 2020 levels, said one of the people, who asked not to be named because the information isn’t public.
  • Poland is expected to access some additional European Union financing by the end of the year, as opposition leader Donald Tusk prepares to take over the country’s premiership. The European Commission, the EU’s executive arm, plans in the coming weeks to sign off on a request by Poland’s nationalist government to tap a portion of around €2.8 billion ($3 billion) in aid earmarked to wean member states off Russian energy, a person familiar with the matter said. Once EU finance ministers confirm the commission’s decision at a Dec. 8 meeting, Warsaw will be able to tap a tranche of about €550 million in pre-financing not subject to conditions, according to the person, who declined to be named as talks take place behind closed doors.
  • Israel’s military continued to go after Hamas in Gaza even after criticism that its raid on a key hospital risked more civilian casualties. The United Nations and Jordan joined others in condemning Israeli troops for storming Gaza’s Al Shifa hospital, with Jordan’s foreign ministry saying it was in violation of human rights laws. Israel said the “targeted operation” at the hospital won’t mark an end to the campaign against Hamas, designated a terrorist group by the US and European Union. The Israeli military said it’s bringing supplies into the facility, which houses hundreds of patients, medical personnel and civilians seeking shelter.
  • Germany’s top court struck down a key element of the government’s plans to address climate change and transform the economy, dealing Chancellor Olaf Scholz’s coalition a major setback that throws its budget policy into disarray. The Federal Constitutional Court ruled that the shifting of €60 billion ($65.2 billion) earmarked to tackle the Covid-19 pandemic into an off-budget fund violated German constitutional law. The challenge was filed by lawmakers from the main opposition conservative alliance, who said they wanted to ensure the sustainability of the country’s public finances. In a statement issued Wednesday in Karlsruhe, the court said that the scope of the fund, which in August was topped up to €212 billion for the period 2024 through 2027, must now be reduced by €60 billion. The ruling doesn’t in any way limit the amount the government can spend on tackling climate change but rather the budgetary methods it can use.
  • Goodyear Tire & Rubber Co. said it will seek a new chief executive officer, cut costs and weigh options for several business lines as part of a sweeping overhaul under pressure from activist Elliott Investment Management. Richard Kramer plans to step down as CEO and chairman in 2024, the company said Wednesday in a statement. The board has retained an executive search firm to consider internal and external candidates. Goodyear on Wednesday also announced a “transformation plan” designed to reduce annual costs by $1 billion by 2025, boost profitability and cut debt by $1.5 billion. The company said it could generate gross proceeds of more than $2 billion as it pursues strategic alternatives for its chemical unit, the Dunlop brand and the Off-the-Road equipment tire business.
  • Consumers may find some respite from pricey groceries next year as lower agricultural commodity costs cool food inflation, according to Rabobank. Costs should ease for some products as prices of sugar, coffee, corn and soybeans fall amid better supply prospects, the bank said in a report Wednesday. Demand is also set to remain weak with shoppers still squeezed by the cost-of-living crisis. Food-commodity prices are calming after a few years of being roiled by the Covid pandemic, extreme weather and Russia’s invasion of Ukraine. A United Nations gauge of global costs has slid about 25% since hitting a record in March 2022, helping to lower broader inflation. But it takes time for those costs to filter through to supermarkets, which have faced high energy and labor expenses.
  • Coinbase Global Inc. is one of the most important investors in the world of cryptocurrency. It’s the all-time biggest backer of industry startups in terms of number of deals, according to PitchBook data. But in recent months, its investing activity has fallen off. The decline is part of a larger pullback from investing at crypto companies — which often have substantial venture capital arms. While overall crypto venture funding tumbled 63% to $2 billion in the third quarter compared to the same period last year, many corporate VC businesses cut back even more rapidly, said PitchBook crypto analyst Robert Le. The decline, coupled with a larger shift toward making smaller bets, indicates “a more cautious approach” from corporate investors, Le said, citing an industry-wide desire to conserve cash. “In this environment, they want to focus on their core business,” he said.