November 16, 2023

Daily Market Commentary

Canadian Headlines

  • The Canada Infrastructure Bank (CIB) has announced a financing agreement with Parkland Corporation (Parkland), a North American convenience and fuel retailer. The up to $210 million financing agreement, positions Parkland to strategically expand its electric vehicle (EV) charging network in communities across Canada. The agreement paves the way for the installation of up to 2,000 new charging ports at up to 400 sites and represents the CIB’s second investment under its Charging and Hydrogen Refuelling Infrastructure (CHRI) initiative.

World Headlines

  • European equities edged lower after three days of gains as a warning from Burberry Group Plc pulled the region’s top luxury stocks lower, while HelloFresh SE sank by a record after cutting its outlook. The Stoxx Europe 600 Index was 0.3% down by 11:08 a.m. in London, with energy and luxury stocks lagging the most, while defensive sectors such as utilities and telecom outperformed. Burberry declined as much as 11% after the British fashion firm said that this year’s revenue target may be out of reach, roiling larger peers. Meanwhile, Siemens AG gained as analysts noted its fourth-quarter report delivered a strong showing overall. Thursday’s pullback follows gains on the back of below-forecast inflation prints in the US and the UK, which encouraged the view that central banks will their aggressive interest-rate hiking campaigns. The main regional gauge on Wednesday hit its highest level in nearly two months and is now up almost 7% this year.
  • Global stocks paused their rally as the euphoria over a potential dovish pivot by central banks faded and earnings from a slew of companies undershot expectations. Futures on the S&P 500 index slipped 0.2%. In premarket trading, Alibaba Group Holding Ltd. fell 8% after the company said it won’t proceed with a full spinoff of its cloud unit. Retailer Walmart Inc. sank 3.6%, having modestly raised its profit forecast, but striking a cautious tone about the outlook for US shoppers. Retail peer Macy’s Inc stood out, gaining 13% after an earnings beat, though it said same-store sales fell. Investors are also pondering whether the market is jumping the gun in pricing interest rate cuts. While data has showed inflation slowing, other US economic measures such as retail sales and earnings from the likes of Target Corp and Macy’s indicate consumer demand is relatively resilient.
  • Stocks in Asia snapped a three-day winning streak as China shares dropped after poor property data and as traders cited profit-taking following the meeting between Xi Jinping and Joe Biden. The MSCI Asia Pacific Index fell as much as 0.8% before paring the decline to 0.3%. Xiaomi was the biggest contributor to the loss as investors were unimpressed by its new electric vehicle, while Alibaba declined ahead of its earnings. Hong Kong and mainland benchmarks led losses across the region. Chinese home prices fell by the most in eight years in October, signaling the property slump is worsening even after government stimulus. Meanwhile, the much-anticipated meeting of Xi and Biden delivered an outcome that was seen as largely in line with expectations.
  • Oil fell as an increase in US inventories added to market sentiment over weaker demand and steady supplies. West Texas Intermediate declined toward $76 a barrel after losing 2% in the previous session, while global benchmark Brent traded below $81. US Energy Information Administration data on Wednesday confirmed that crude stockpiles rose to the highest level since August, including a build at the key hub in Cushing, Oklahoma. Crude trading has been buffeted by conflicting signals, with prices sinking to a three-month low last week before staging a modest recovery. The International Energy Agency said on Tuesday that production growth means markets won’t be as tight as had been expected this quarter. And while OPEC on Monday highlighted robust demand trends, traders expect the group’s biggest producer, Saudi Arabia, to prolong a supply cut.
  • Gold edged up, after a modest decline on Wednesday as US data pointed to signs of resilience in the US economy that could affect the Federal Reserve’s rate path. Retail sales fell 0.1% in October, a smaller decline than economists had forecast, which could make it more difficult to bring inflation back to the Fed’s 2% target. Still, cooler-than-expected US inflation data on Tuesday re-affirmed expectations the Fed is done hiking rates, a positive for non-interest bearing bullion. Focus is now shifting to the overall health of the US economy as traders try to anticipate rate cuts by the central bank next year. The precious metal is up so far this week after falling more than 3% over the previous two weeks amid a fading war-risk premium, as fears over an escalation in the Israel-Hamas conflict ebbed.
  • Presidents Joe Biden and Xi Jinping emerged from their first meeting in a year betting that a handful of small victories will arrest a surge in US-China tensions that has unnerved neighboring nations and threatened global economic growth. Expectations were low owing to deep-seated differences over trade, Taiwan and human rights, and even the summit’s modest accomplishments were hard-won. Those included deals to try to address the fentanyl crisis and to restore military communications severed after then-House Speaker Nancy Pelosi visited Taiwan last year. In a sign of how much remains to be done, there was no evidence of progress on bigger issues like US curbs on microchip exports, tariffs or tensions in the South China Sea, where Chinese and US ships and planes have had a series of provocative encounters. Xi didn’t get what he needs most — deals to help boost the Chinese economy, which is still struggling to emerge from the Covid-19 pandemic.
  • The US and European Union are haggling over terms to extend a truce on steel and aluminum trade to avoid the possible return of billions of dollars in tariffs on transatlantic commerce, as talks on a more lasting agreement this year have stalled. The Biden administration has proposed prolonging the status quo until the end of 2025 — well clear of the US presidential elections in November next year — to hammer out a permanent deal. The EU wants a commitment to fixing what it argues is an imbalance in the current arrangement before agreeing to an extension, according to people familiar with the matter. The debate comes as talks on the so-called Global Arrangement on Sustainable Steel and Aluminum, or GSA, reached a stalemate, said the people, who spoke on condition of anonymity to discuss private talks. The differences remain significant after last month’s failure to conclude a political agreement at a summit in Washington, and officials now are running out of track to reach a comprehensive deal before a year-end deadline.
  • Thousands of Starbucks Corp. baristas plan to strike Thursday, claiming the coffee chain refuses to fairly negotiate with their union. The work stoppage is pegged to the company’s Red Cup Day, when Starbucks gives out holiday-themed reusable cups. Workers United, an affiliate of the Service Employees International Union, says staff at hundreds of cafes plan to participate. It’s one of several tactics — along with outreach to politicians and to students on campuses where Starbucks has contracts — that the union has deployed in an effort to make the company change its behavior. “You can only win what you’re willing to fight for,” said Alex Yeager, a barista in Albany, New York, in an emailed statement. It’s a repeat of last year, when baristas went on strike at 113 cafes on Red Cup Day amid accusations that management was refusing to negotiate. The union said it expects Thursday’s strike to be its largest to date, and thirty locations around the country began a work stoppage as of Wednesday.
  • The cozy relationship between Elon Musk’s Tesla Inc. and China was on display again on Wednesday when President Xi Jinping expressed support for the US carmaker in China and Musk in turn expressed his gratitude for that warm reception. According to a Weibo post from Tesla’s official China account, Musk, the CEO of Tesla, attended a banquet on the evening of Nov. 15 to welcome Xi, who’s in San Francisco to meet and hold talks with US President Joe Biden as part of this week’s Asia-Pacific Economic Cooperation leaders’ meetings.
  • A decision by Germany’s top court to strike down off-budget funding for climate action has called into question about €770 billion ($840 billion) of state funding, according to people familiar with the matter. The Constitutional Court declared Wednesday that repurposing €60 billion of pandemic aid from 2021 to finance climate protection contravened Germany’s Basic Law. As officials from Chancellor Olaf Scholz’s administration began to digest more than 60 pages of legal arguments, they feared that similar vehicles providing as much as €770 billion in funding may have to be dissolved or at least changed by the end of the year, according to people familiar with the government’s initial analysis. The ruling is a blow for the traffic-light coalition and Scholz in particular. While the practice of creating off-budget funds has been used by German governments for decades, Scholz as former finance minister backed moving pandemic-related debt authorization into the climate fund. This ruling could undermine his image as a fiscally reliable Social Democrat who knows how to keep the budget together. It also risks setting off renewed bickering within his three-party coalition, which was already struggling to agree on a number of funding measures.
  • High demand for the latest raft of additional tier 1 bonds is an encouraging sign for banks that have a record $30 billion of calls next year. Barclays Plc and UBS Group AG got at least 10 times what they ultimately raised from sales of the securities over the past two weeks, a relief for banks that may need to tap the market if they exercise their call options. Spain’s Banco Santander SA is launching a dual-tranche US dollar offering on Thursday. Lenders rely on the notes — introduced in the aftermath of the global financial crisis — as a crucial capital buffer. The market was rocked to its core in March, when about $17 billion of the securities were wiped out as part of UBS’s takeover of Credit Suisse Group AG. It’s taken months for AT1 costs to recover from the shock.
  • The government is set to approve a plan on Thursday — over some industry objections — that will saddle the biggest banks with much of the tab for refilling the bedrock US deposit insurance fund. The Federal Deposit Insurance Corp. is expected to green light key parts of the regulator’s May proposal for replenishing the fund, according to people familiar with the matter. It typically only covers as much as $250,000 in an account, but was used to make whole uninsured depositors hit by March’s banking turmoil. Industry calls to change aspects of the methodology for calculating payments were considered but ultimately not implemented, said one of the people, who asked not to be identified discussing the private deliberations. When it unveiled the plan, the FDIC said institutions with more than $50 billion in assets would pay 95% of the fees, and those with less than $5 billion wouldn’t have to pay.
  • Blackstone Inc. has raised $8 billion from institutional investors in the first close of a fresh direct lending fundraise, people with knowledge of the matter said. The private capital giant is looking to raise about $10 billion across Europe and the US in its latest push, Bloomberg News reported in late September, targeting capital from institutional investors for a fixed term. Blackstone and other major private lenders such as Ares Management Corp. and HPS Investment Partners are increasingly able to write larger checks for borrowers as more investors pile into the $1.6 trillion asset class.
  • Schonfeld Strategic Advisors dismissed 15% of its workforce to cut costs after scrapping deal talks with Izzy Englander’s Millennium Management earlier this week. Among the highest-profile departures is Ben Melkman, a trader who scrapped plans for his own firm in order to join Schonfeld earlier this year. About 150 employees were told Wednesday that they’re out of a job, according to a person familiar with the matter. Schonfeld, which started the week with a staff of about 1,000, is mostly cutting non-investment roles. Most of those affected worked for the technology team, which handles information technology, automation and support for portfolio managers. The move also affects other back-office positions.
  • Bond investors have been burned repeatedly in Argentina, which has defaulted on its debt nine times since winning independence in 1816. Now, just days ahead of a crucial presidential vote, another crisis is brewing. Javier Milei, a brash, libertarian outsider, vows to completely upend the economy. His incumbent-party opponent Sergio Massa wants to keep spending in the face of triple-digit inflation. Whoever takes office, investors are worried. Holders of some $65 billion of sovereign debt — including major investors like Pimco, BlackRock and Fidelity — have already seen the bonds hemorrhage roughly $24 billion in value since the last restructuring in 2020. And they know, if history is any guide, that more losses are likely.
  • The United Arab Emirates is developing a carbon registry that will measure companies’ progress in reducing emissions, and help set up a carbon credits trading program in the future. The Middle East oil producer is working on the national registry that will involve various industries as the country targets net zero emissions by 2050, Minister of Climate Change & Environment Mariam Almheiri said Thursday. The plan may be formally announced during the COP28 gathering that starts later this month in Dubai, she said. The UAE was the first Middle Eastern oil producer to declare a net zero target. The country’s role as host of the world’s most important annual climate conference has been criticized by environmentalists because oil remains central to the economy. It is also putting in large investments to boost output capacity further.