November 17, 2023

Daily Market Commentary

Canadian Headlines

  • Tim Hortons opened its first outlet in Singapore Friday as the iconic Canadian chain joins a host of coffee brands expanding in the wealthy city-state. The new coffee shop is located at VivoCity mall at the southern tip of the island, a gateway to resort island Sentosa and next to the main port for seaborne visitors from Indonesia, according to a statement. Tim Hortons plan to open three more outlets in the country over the coming months. The latest expansion is led by Marubeni Growth Capital Asia, a subsidiary of Marubeni Corporation, which also plans bring the chain to Malaysia and Indonesia within the next year. Singapore, the third Southeast Asian country for Tim Hortons after the Philippines and Thailand, has seen a number of new coffee chains open in recent years, from China’s Luckin Coffee Inc. to Japan’s % Arabica and Kopi Kenangan of Indonesia.

World Headlines

  • European stocks rose, extending their weekly gain following earlier optimism around cooling inflation and a possible softening in the outlook for monetary policy. Signs of US-China tensions around the technology industry capped gains for the sector. The Stoxx Europe 600 was 1% higher by 11:05 a.m. in London, with more than 92% of its constituents advancing. The benchmark is on course to gain more than 2% this week as data earlier showed lower-than-expected US inflation. The European benchmark is recovering in November following three straight months of declines as investors bet that interest rates have peaked. Still, lingering risks around economic growth as well as a dimmer outlook for corporate earnings has capped sentiment. Market participants are also watching geopolitical risks, with escalating tensions between the US and China.
  • Stocks advanced and bond yields dropped as fresh signs of an economic slowdown prompted investors to ramp up bets on interest-rate cuts next year. US futures climbed, with Gap Inc. soaring 17% in premarket trading after reporting third-quarter profit that exceeded forecasts. Bonds added to Thursday’s gains, with markets now pricing a full percentage point of rate reductions next year from the European Central Bank. Gilt yields fell as much as 12 basis points as data showed a surprise drop in UK retail sales last month. According to Bank of America’s Michael Hartnett, technical and macroeconomic headwinds are building and investors should offload risky assets after the recent gains. While easier financial conditions — with yields dropping to 4% from 5% — have spurred risk appetite, a further slide to 3% would be perceived as recessionary, he said.
  • Asian stocks recouped earlier losses as gains in Japanese shares helped offset a selloff in Hong Kong. The MSCI Asia Pacific Index climbed 0.1% after erasing a drop of as much as 0.5%, on pace for their best weekly advance since July. A gauge of Chinese stocks listed in Hong Kong dropped over 2%, with Alibaba tumbling 10% to be the biggest drag. Japan’s Topix index advanced nearly 1%. The latest development at Alibaba underscores that the chip war between the US and China continues, dealing a blow to the Asian nation’s tech giants who are recovering from a years long regulatory crackdown. The much-anticipated Biden-Xi meeting offered little respite for markets, with Biden’s remarks that Xi is a dictator sapping sentiment.
  • Oil headed for a fourth weekly loss after sinking into a bear market, a development that poses a headache for OPEC+ leaders set to review production targets later this month. West Texas Intermediate is on course for a weekly drop of about 5%, even as the benchmark edged higher on Friday. It is down more than 20% from a high in September. The latest slump has been driven by a myriad of factors. Prices for real-world barrels have been steadily softening over the last few weeks, in part as supply exceeds expectations. Shipments from Guyana and the North Sea are set to rise next month, while US exports have been surging. Those higher volumes muddy the outlook ahead of a meeting of the Organization of Petroleum Exporting Countries and its allies at the end of next week. Saudi Arabia and Russia — the group’s biggest producers — have pledged to keep additional output curbs in place until the end of the year, though Russia’s crude exports have risen in recent weeks.
  • An escalating fight between the US and China for technological dominance has triggered one of the most stunning reversals of corporate strategy yet: On Thursday, Alibaba Group Holding Ltd. walked back plans to spin off and list its $11 billion cloud business. Chairman Joseph Tsai and Chief Executive Officer Eddie Wu, two of Alibaba-founder Jack Ma’s longest-standing lieutenants, said China’s e-commerce and internet computing leader needed a strategy “reset.” Wu explained in his first public remarks since taking the helm that the US’s ever-increasing restrictions on chip sales to China has forced the company to rethink its plan to break up the empire Ma spent decades amassing into six parts. Alibaba also said it’s suspending a listing for the popular grocery business Freshippo. The decision comes at difficult time for Alibaba. The company is trying to stage a comeback from the Covid-19 pandemic. It’s also only just emerging from a tech industrywide crackdown in China. And it’s working to win back merchants and shoppers who’ve flocked to PDD Holdings Inc. and newer entrants such as ByteDance Ltd.’s Douyin, as well as corporate customers that have turned to state-backed cloud services.
  • For all the tough decisions Federal Reserve officials have made during their 20-month inflation battle, you wouldn’t know it from looking at the policy votes. Over the past 11 meetings of the Federal Open Market Committee, not a single member voted against the actions led by Chair Jerome Powell, an unusually long stretch of unanimity that belies underlying differences and uncertainty over the direction of monetary policy and the economy. The policy consensus – which matches a previous stretch of 11 unanimous decisions during the pandemic – has allowed the Fed chief to present a united front to markets and the public that reinforces the central bank’s commitment to quashing inflation. But it also risks amplifying criticism that the Fed is hamstrung by group think, which critics say led to treacherous foot-dragging when inflation picked up in 2021.
  • There’s talk of a great divide in the US housing market, as new buyers get crushed by 8% mortgage rates while earlier ones cling gratefully to loans of less than 3%. Missing from this story is a third, even more fortunate group: the rapidly growing number of Americans who own their homes outright. The share of US homes that are mortgage-free jumped 5 percentage points from 2012 to 2022, to a record just shy of 40%. More than half of these owners have reached retirement age. Freedom from mortgage debt gives them the option to age in place—or uproot to sunnier climes.
  • The US Air Force is reevaluating the schedule for delivery of the two new planes for the presidential fleet, which may mean more delays for the troubled project that already has saddled contractor Boeing Co. with $2.4 billion in losses. In addition to reviewing the timeline for delivery of the specially equipped planes — known as Air Force One when the president is on board — the Air Force is evaluating whether at least two current major milestones are still on track. The first is the “power on” of the first aircraft to begin testing electrical, pneumatic and hydraulic systems. It was planned for last month under a prior schedule but is currently set for May of next year. The second is an initial flight, now pegged for next November instead of this month.
  • President Joe Biden signed a stopgap bill to extend government funding into early 2024, averting a government shutdown for now but kicking a politically-divisive debate over federal spending into a presidential election year. The White House confirmed the move in a statement early Friday morning in Washington, less than a day before existing funding would have expired. Biden — in California for a summit of APEC leaders — signed the legislation on Thursday, according to the statement. Facing that Friday night deadline and with the House under new leadership, Congress passed an interim measure with broad bipartisan majorities earlier this week.
  • Europe’s sputtering economy is causing traders to bet on a faster pace of interest rate cuts next year. For the first time, money markets have priced in a full percentage point of interest-rate cuts in 2024. Just two months ago, the expectation was that the European Central Bank would deliver a 75 basis-point decrease, according to swaps pricing tied to central bank meeting dates. Bets on similar easing by the Bank of England accelerated Friday after weaker-than-forecast UK retail sale numbers. Traders are also anticipating 100 basis points of cuts by the Federal Reserve next year, with signs of cooling US price pressures on show this week. Plus, oil’s descent into a bear market has reignited worries about a recession.
  • China told a handful of nationwide lenders to cap interest rates on interbank funding, people familiar with the directive said, a move that dovetailed with a sizable cash injection intended to calm the market after last month’s unexpected liquidity crunch. At least two national banks were told last week by regulators to offer rates on one-year negotiable certificates of deposit at no higher than 2.57%, the people said, asking not to be identified discussing private information. On Thursday, the PrimeNCD rate, an index measuring primary issuance rates on CDs of major commercial banks, was in line with that level at around 2.57%, according to National Interbank Funding Center’s website. “The market rumor is untrue,” PBOC said in response to Bloomberg’s inquiry for comments. The size, pace and rates of NCD issuance are all decided by issuers based on market demand and supply as well as the banks’ own liquidity management needs, the central bank said.
  • Investors were given plenty of opportunities to fret about the outlook for technology giants this earnings season. Instead, they doubled down on a strategy that has worked all year: piling into the biggest stocks. That buying spree has fueled an abrupt U-turn in the Nasdaq 100 Stock Index that went from correction territory to a 15-month high in a matter of three weeks, adding roughly $2 trillion in market value along the way. With optimism running high that a recession will be avoided, market professionals are looking to tech behemoths like Microsoft Corp. and Apple Inc. to lead the market higher in the final six weeks of the year despite stretched valuations.
  • Hezbollah said it targeted three Israeli military positions on the border with Lebanon on Friday, with Israel’s army earlier saying it hit Hezbollah targets. In the southern city of Khan Younis in Gaza, people reported that Israel had dropped leaflets telling them to flee to “known shelters.” That’s raising concerns the military may expand its battle against Hamas, designated a terrorist organization by the US and European Union, outside the north of Gaza, where it’s focused its ground assault so far.  To support the water and sewerage system and prevent the outbreak of disease in Gaza, Israel plans to allow the entry of two diesel tankers a day, an Israeli official said. Gaza’s telecommunications services stopped on Thursday after providers reported running out of fuel used for generators, according to the UN.
  • Brazil’s economic activity slowed more than expected in September, with the month-on-month figure posting an unexpected contraction, as policymakers pledge to deliver two additional interest rate cuts of half a percentage point to unwind part of their restrictive monetary policy.  The central bank’s economic activity index, a proxy for gross domestic product, fell 0.06% from the month prior, surprising economists surveyed by Bloomberg who forecast it to expand 0.2%. From a year ago, activity expanded a less-than-expected 0.32%, according to data published on Friday. Policymakers led by Roberto Campos Neto are easing monetary policy as inflation slows toward their tolerance range. Yet soaring Treasury yields and above-goal estimates for consumer price increases starting in 2025 have complicated their work, preventing them from accelerating the pace of rate cuts.
  • A cut in European Central Bank interest rates won’t be happening in the near future, according to Bundesbank President Joachim Nagel. Borrowing costs “have to remain at a high level for a sufficient period,” Nagel said in a speech in Frankfurt on Friday. “While it is impossible to predict exactly how long this period will be, it is highly improbable that it will end anytime soon.” While Governing Council members have emphasized that the deposit rate will remain at 4% well into 2024, money markets are betting on a reduction as soon as April and now price in a full percentage point of rate cuts next year.
  • Jack Ma is preparing one of his biggest Alibaba Group Holding Ltd. stake reductions in recent years, and the timing could hardly be worse. The wealth of the e-commerce giant’s co-founder shrank by $683 million after Alibaba’s biggest selloff in more than a year Thursday, just days before Ma’s planned share sale next week. Alibaba’s stock tumbled after the company reversed plans to spin off and list its $11 billion cloud business unit in a strategy reset. The move, spurred by increased US restrictions on chip sales to China, sent shares of the company plummeting 9% in New York trading.